Two-part plan to cut fertiliser bill
Second rung stocks outshine pivotals
ICICI against severing link with safety bonds
Union Bank prunes rates
China seeks help to set up software tech parks
Fast-track device to settle disputes
Goodricke instant tea loses flavour
Basic players cut up with Trai

New Delhi, March 25: 
In a bid to drastically curtail the government’s huge subsidy bill, the department of fertiliser has suggested the replacement of the retention price subsidy (RPS) scheme by a group-based concession scheme.

The suggestion has been made in a presentation by the department to the newly-constituted group of ministers (GoM) on fertiliser policy.

Documents made available to The Telegraph reveal that the department has recommended to the GoM set up by Prime Minister Atal Bihari Vajpayee that the subsidy should be slashed in two phases—the first from April 1 this year and the second from April 1, 2004.

In the first phase itself, the fertiliser companies are proposed to be bunched into nine groups based on parameters such as age of the plant, feedstock, technology and location for fixation of subsidy payouts. Companies using similar technologies and fuel, enjoying similar locational advantages and whose plants are in the same age group will be given similar subsidies.

The distribution of fertilisers is to be partially decontrolled and there will be graded deductions in subsidy for those who are getting amounts higher than their group average. The implementation of this new group-based scheme is to be prospective and not retrospective, giving units time to switch over to the new scheme.

These recommendations on the RPS scheme comes as a double blow to the fertiliser companies as the GoM is also supposed to clear new tighter norms for calculating fertiliser prices which too should slash the country’s fertiliser subsidy bill.

The retention price scheme was formulated in 1977 in order to encourage urea plants to be set up which would offer farmers fertiliser at affordable prices. The scheme provided for calculation of retention price (RP) for every unit individually while fixing a maximum retail price (MRP) for the entire industry as a whole. The difference between the RP and the MRP constitutes the subsidy paid out by the government to each company.

The current retention price includes variable and fixed or capital costs as well as selling expenses, calculated by the government using various norms.

It has, however, been criticised as one which actually gives an ‘incentive’ to industry to artificially jack up costs as it is a cost plus system of calculation. Parliament had, in fact, through the previous year been extremely critical of “gold plating” or showing off of higher costs through various book keeping strategems by fertiliser industry.

The subsidy bill has, as a consequence, been bloating every year and stands at an estimated Rs 7,958 crore in the current fiscal.

In the first phase, the government also plans to set up a fertiliser industry development fund formed along the lines of the steel development fund which will gather a corpus from a cess deducted from the subsidy payouts.

It will, however, not go in for a dual pricing of urea with one rate for small farmers and another for the rest, something which had earlier been suggested by the Expenditure Reforms Committee (ERC) on subsidies. The department has in its presentation pointed out that it would be administratively tough checking on possible misuse of this pricing policy.


Mumbai, March 25: 
Trading may have become lacklustre in recent times on bourses, but one peculiar trend that has raised the eyebrows of many is that second rung stocks have almost elbowed the index heavyweights out of the ring.

These stocks such as Silverline, DSQ Software, LML, Gati and Elbee Services have shown handsome gains in the past few weeks, while the more reputed scrips like Hind Lever, Reliance, Infosys and Wipro have struggled to maintain values.

Even laggard stocks like Max India, Trent Ltd and Macmillan have, in the past few weeks, witnessed hectic activity in their respective counters. The other stocks that have risen in the recent past are DCW, a soda ash maker and Garware Polyester, a company which is in the red.

According to stock market observers, the real test will be when the fourth-quarter results start coming in. Many of them are of the opinion that some of the second rung infotech stocks will be in for a pretty bad time once the results are out.

While there are very few guesses on the real reasons for the upsurge, market analysts say that it is mostly speculative buying that has driven up these second rung stocks. It is, therefore, all the more likely that these scrips would not be able to sustain their bloated values in the days to come.

Moreover, the fluid political situation of the country will also dictate the market trend in the coming days and it would require enough stamina on part of these second rung stocks to withstand the test.

While DSQ Software, a counter which is slowly coming back to life, closed on Friday at Rs 42.90, Silverline is now hovering around Rs 53.10. The DCW stock which was around Rs 3.05 sometime ago has now climbed to Rs 10.75.

Similar is the case with Garware Polyester which has rebounded to Rs 13 from a low of of Rs 2.80.


Mumbai, March 25: 
ICICI Ltd, which is due to be merged with ICICI Bank to create the country’s second largest bank, is awaiting a major relaxation from the Reserve Bank of India (RBI) towards raising long-term debt in the form of tax free bonds.

These bonds, which have been frequently raised by the institution under the Safety Bonds series, could be discontinued upon its merger as banks, under the extant regulations, are not permitted to raise resources in such a fashion, sources said.

They, however, pointed out that ICICI has sought a relaxation in this front.

Considering its huge lending requirements, ICICI has indicated to the central bank that it would like to continue with such bonds.

However, even as the RBI is yet to formally communicate, bankers believe that the apex bank is unlikely to accede to ICICI’s proposal.

When contacted, an RBI official refused comment on this issue.

It may be recalled that the apex bank is yet to give its approval for the reverse merger. The RBI has also not yet given its ruling on the fate of ICICI’s equity stakes in two private sector banks, Federal Bank and South Indian Bank.

The merger is expected to come through after it is cleared by the Mumbai high court where a hearing is scheduled for March 28.

With retail deposits set to become the focus area in the post-merger scenario, sources said the average cost of funds to ICICI will come down to 8-8.5 per cent as against present 10.5 per cent. Though the entity will have to spend close to Rs 24,000 crore on purchase of government securities for meeting the SLR norms, it is expected that the high growth rates, which the merged entity could log on consequent to the merger, will offset the effects from maintaining a huge SLR.

Officials said the bank would also leverage on its large capital base and comprehensive suite of products and services to strengthen its position.


Mumbai, March 25: 
The Union Bank of India (UBI) today reduced its prime lending rate by 25 basis points to 11.50 per cent. UBI has also reduced its deposit rates.

The interest rates for deposits below Rs 15 lakh and between 15-45 days is reduced to 4.75 per cent from 5 per cent and for 46-60 days it is 5.5 per cent. For deposits between 61-90 days, the interest rate has come down to 5.75 per cent and for 91-179 days it is at 6.25 per cent.

For deposits between 180 days to 1 year, rates are reduced to 6.50 per cent, while those between 1 to 2 years the rate is at 7.25 per cent, a reduction of 50 basis points.


Calcutta, March 25: 
China, the new entrant to the World Trade Organisation (WTO), today sought India’s help to set up software technology parks (STPs) and software training institutes in that country. “We have land and money. But we need professional advice to set up software parks in our country and as India has proved itself to be number one in the world in software, we would like to utilise its expertise,” director general, state bureau of foreign affairs, China, Zhao Xuofang said here.

A four-member Chinese delegation had discussions with Indian officials to help set up STPs and training institutes in the Qingdao province.

At an interaction organised by Merchants’ Chamber of Commerce, Xuofang told reporters that she had held discussions with the director of Software Technology Park of India (STPI). “We have requested the STPI director to assist us in the design and planning of software parks. We are also seeking Indian partners to develop indigenous software for chips exported to the US and Europe.”

“We are also in touch with NIIT to impress upon them to open software training institutes in China,” she said.

Apart from software and STPs, China is looking for trading partners in India for marketing its household electronic appliances like refrigerators, televisions.

Xuofang said India is very strong in aluminium products and China would like to purchase figured sheets. China also imports iron ore and pulp to manufacture steel and paper respectively, she added.

She said direct flight to China from India would further boost co-operation between the two countries. “Right now, we have to come to India via Bangkok or Singapore. Direct flight will be of immense help.”

About infrastructure development, where China is far ahead of India, Xuofang said they have earmarked 70 billion Chinese yuan for construction of sites, highways, bridges, airports and development of telecom facilities.


New Delhi, March 25: 
The government is planning to devise a fast-track arbitration procedure to resolve disputes between companies speedily. The procedure, which will involve suitable amendments to the Arbitration & Conciliation Act 1996, will provide for the appointment of a sole arbitrator and will set agreed milestones for dispute settlement. The fast-track procedure is designed to pare arbitration costs. It has been noticed that arbitration proceedings tend to drag on for a long period of time without resolution and result in huge monetary expenses and loss of mandays.

The amendments being considered by the government also include a proviso that will allow the parties involved in a commercial litigation to enter into a pact that will allow them to bypass the judicial system and enter into arbitration by common consent.

This is expected to boost the alternate dispute redressal mechanism, reducing the burden on the courts.

The Indian Council of Arbitration (ICA), which acts as an alternative forum to courts to settle commercial disputes, has also suggested to the government that an arbitration court of appeal should be set up so that parties, if unsatisfied with arbitration, can still sit down together to try and hammer out a settlement at a different forum.

The suggestion made by some members of the ICA comes at a time when the government is finalising its proposals to amend the Arbitration & Conciliation Act 1996. The ICA has, for quite some time, been acting as an arbitrator in several commercial disputes under the provisions of the Act. The proposal is that an appellate machinery be set up to redress the grievances of affected parties who feel aggrieved by the arbitrator’s award.

ICA officials said they are in agreement with most of the changes being proposed by the government in the Arbitration Act.

ICA members are also concerned that the Act should be made watertight to stop foreign-owned companies from dragging Indian companies to international arbitration proceedings by-passing Indian courts and arbitration proceedings. The latter entails huge litigation costs that Indian companies, especially small and medium sized ones, cannot afford.


Calcutta, March 25: 
Stung by depressed sales and under utilisation of capacity, Goodricke Group Ltd—one of the largest producers of Darjeeling tea—is weighing several options for its instant tea plant at Aibheel in Dooars. The company’s board will meet soon to take a decision on the plant which has become economically non-viable.

Goodricke has also abandoned its plans to set up a marketing network for instant tea in the US. The company, in 2000, set up warehousing facilities in the US east coast to meet the special requirements for the American market.

Instant tea is produced from black tea by extracting the brew from processed leaves, tea wastes or undried fermented leaves. It is available in powder form and consumed mostly in the US and western Europe as a ready-to-drink beverage.

Though the company’s instant tea sales are going through a rough patch, Goodricke is planning to launch a premium brand in the packet tea segment this year.

A top-level official of the company said, “Instant tea sales were subdued but the quantum of export shipments to Japan has gone up. However, the plant continues to run well below capacity thereby making it economically non-viable. The actual production in 2001 was 56,030 kg.”

“During the last year there was an attempt to establish a marketing set up in the US but due to various operational difficulties and uncertainty of adequate price recovery the said project was abandoned. The company is looking at various options for its instant tea plant. Nothing has been finalised yet,” the official added.

In the packet tea segment, Zabardast—the economy brand that the company launched last year—has done fairly well and has increased its market share over the months. The official said the company’s emphasis on packet tea will continue and the launch of another premium brand will boost its sales. The company has an export-oriented packet tea unit at Panvel near Mumbai.

Goodricke’s crop totalled 17.89 million kg in 2001, one million kg more that the previous year. The company’s Dooars gardens produced marginally higher crop.


New Delhi, March 25: 
Basic telephony service providers are upset that the telecom regulator has maintained status quo on monthly rentals for rural and urban commercial user subscribers, puncturing their hopes of a revised tariff formula that would set off some of their revenue loss on long distance calls after the STD rate cuts in January.

The state-owned Bharat Sanchar Nigam Ltd (BSNL) and the Association of Basic Telecom Operators (ABTO) are planning to make representations to the Telecom Regulatory Authority of India (Trai) to register their protest at being denied a tariff increase for the second time.

Under the terms of the three-tranche formula enunciated in the Telecom Tariff Order 1999, the basic operators should have been granted a rate rise in April 2001, which was not given. The tariff order should have been completely revised in April this year. But to their dismay, they have been denied a committed rate rise that fell due last year and there is now uncertainty over when a new telecom tariff order will be framed.

Trai, however, claims that it is working on a new telecom tariff order which will be announced in about three months’ time.

Trai has said, “Commercial user subscribers shall mean and include a person and/or an establishment carrying on any trade, business or profession or any work in connection with or incidental or ancillary thereto.”

In separate representations to Trai, the ABTO and BSNL have argued that in the TTO Order to come into effect from April 1, 2002, the rural/urban non-commercial user subscribers can be charged a maximum monthly rental of Rs 250 in the case of telephone exchanges with over 1 lakh lines. However, in the telecom tariff order (TTO 1999), rural/urban general user (non-commercial) subscribers were to have been charged a monthly rental of up to a maximum of Rs 310 in the cases of exchanges with a capacity of more than 1 lakh lines.

“Hence, the view of the authority that tariff re-balancing exercise should be such that it sustains demand and helps achieve higher tele-density cannot be justified. In fact, Trai has reduced the rentals and does not say from where these rentals will be compensated,” says the letter to Trai.

The letter further states that the recent order is not cost-based. There is no decrease in the pulse for local calls of 180 seconds. With no effective increase in the monthly rental for commercial subscribers and no decrease in the pulse rate for local calls, the losses for basic service operators are going to increase, says the ABTO representation to Trai.

“Trai should notify floor limits in addition to ceilings for STD and ISD rates. We believe that it does not justify notifying ceilings for STD rates where already the existing rates are 50 per cent less than the notified ceiling in the TTO Order to come into effect from April 1,” said a senior BSNL official.


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