Govt warms up to crude bank plan
Drought to scorch growth: CEOs
Govt stares at fiscal fireball

New Delhi, Aug. 4: 
The government has finalised a plan to set up a 110-million barrel strategic crude reserve. The report prepared by an expert group calls for creation of underground concrete storage tanks and underground rock caverns in Maharashtra, Karnataka, as well as in Orissa and Andhra Pradesh.

The reserve is being set up partly as a pool to be used in times of war when oil supplies from West Asia could be cut off and partly as buffer to reduce the country’s vulnerability to violent oil price swings on the international markets. India has been importing about two-thirds of its oil needs, mostly from West Asia.

Initially, a strategic reserve of about 38 million barrels would be built and later this would be increased to 110 million barrels.

Besides this, the government plans to ask oil companies—both state-run and privately-owned—to build petro-product stocks in various parts of the country, especially in ‘fragile areas,’ which will be required in the event of war or other disruptions.

Some reserves are already maintained by oil PSUs, which have the capacity to store crude that can keep the country’s refineries going for 15 days; they can refine up to 2.3 million tonnes a day and store 45 days worth of finished product.

However, the new plan calls on state-run oil firms as well as new private sector entrants to set up reserves at strategic locations which could serve the public at large in case of internal or external supply disruptions.

“These reserves would be needed for several reasons: if oil supplies from abroad dry up due to a war or if the train or road links snap in times of a conflict, or because of natural calamities,” officials said.

All firms will be required to create and hold such inventories in suitable, safe locations in demarcated places so that the supplies can reach vulnerable areas during a crisis.

New reserves would have to be built according to specifications drawn up by the defence department, which would imply making these reserve locations bomb-proof.

Officials said a list has been drawn up of ‘fragile areas’ which are in danger of being cut off due to natural calamities such as floods, earthquakes and cyclones. These will be given priority in location of reserves.

Officials estimate that an external crisis such as war would result in a low supply of crude to refineries. They feel to take care of external disruptions, it is necessary to diversify sources of crude supply as well as set up strategic storage in the country just as the US does.

“This is already being done in a phased manner to diversify sources of crude supply and build up strategic crude reserves,” officials said. Remedial actions to take care of internal disruptions may include arranging supplies to the secondary storage locations (depots) from alternative sources and organising different modes of transportation and routes. A strategic plan for this is being separately chalked out, officials said.

ONGC eyes Cairn asset

ONGC today said it was interested in some of Scottish explorer Cairn Energy Plc’s Indian assets, but denied any immediate plans to make a bid, says PTI.

“We have been interested in certain assets of Cairn Energy, but are currently not talking to them. There is no immediate move to bid (for the assets),” a senior ONGC official said.

Among the properties it was interested in include the 50,000-barrels per day Ravva offshore in Andhra Pradesh and Lakshmi offshore field in Cambay basin.


New Delhi, Aug. 4: 
An industry that had begun to see a glimmer of hope after the welter of scams, earthquakes and terror attacks has been jolted again — this time by drought.

According to a snap poll of CEOs conducted by the Confederation of Indian Industry (CII), companies were looking forward to a double-digit growth in terms of sales and profits in the current financial year. But with several states already declared drought-hit, they feel overall growth is likely to be 5-5.4 per cent in 2002-03.

Fifty-four per cent of those polled felt that sales would be between 10-20 per cent in the current fiscal, while 48 per cent predicted profits for their companies would also fall in this range.

However, all CEOs emphasised on the importance of investments in infrastructure to remove related bottlenecks and enhance industry’s competitiveness. They felt that FDI inflow was crucial, which could be facilitated by reducing the number of government clearances and easing restrictions on entry as well as exit.

A whopping 71 per cent of the CEOs felt that the drought would bring down the GDP growth to below 5.4 per cent in 2002-03. They pointed out that to alleviate human and economic problems, surplus foodgrains for a massive nation-wide food-for-work programmes aimed at building rural roads and rural infrastructure would have to be released in the days ahead.

The industrialists feel forex reserves should be efficiently used as a tool for economic growth, with almost 91 per cent endorsing alternative use of the kitty, which has risen to almost $ 60 billion.

Liberalised norms for overseas investments by Indian companies and financing growth-oriented projects constitute optimal use of the country’s forex reserves.

Aggressive promotion of exports by extending credit lines to other developing countries and reducing India’s foreign debt were some of the other uses suggested by the CEOs.

However, they did not feel that the accounting controversies of various US firms will affect the stock markets. Only 29 per cent of the respondents felt that there could be significant implications for India.


Mumbai, Aug. 4: 
The drought that has hit several parts of the country has given rise to concerns of a rise in expenditure and, consequently, a higher fiscal deficit and the possibility of lower economic growth. This is despite recent figures showing healthy revenue receipts, containing fiscal deficit in the first quarter of 2002-03.

The only way out, analysts feel, is that the robust revenue receipt trend is maintained, so that the fiscal deficit is limited to the budgeted figure of 5.3 per cent of the GDP. Though at this juncture many analysts are unwilling to predict on what course revenue receipts may take during the year, the strong possibility of an increase in expenditure as state governments press for drought relief has already set the alarm bells ringing.

Here, while Merrill Lynch has estimated that the Centre may have to disburse over Rs 3,000 crore to the states, others fear that the it may hike the minimum support price as a means of providing compensation to farmers, a move which could only lead to a higher subsidy bill.

Merrill Lynch had recently brought down the country’s GDP forecast for the year to 5.1 per cent from 5.6 per cent following the failure of the monsoon. The research house also brought down the agricultural growth forecast to 0.8 per cent from 2.6 per cent and that of industrial growth to 4 per cent from 4.5 per cent.

Bank of America also cut India’s GDP growth forecast to 4 per cent from 5 per cent projected earlier while Salomon Smith Barney has pegged it at 4.8 per cent from the earlier 5.5 per cent. Finance minister Jaswant Singh too, in a reply to Parliament, projected a growth rate of 5.5 per cent for this year. This is lower than the Reserve Bank of India’s (RBI) estimate of 6-6.5 per cent.

The drought has hit several sectors hard. For instance, while commercial vehicle sales raced 37.2 per cent during the first quarter this fiscal, sending a positive signal, analysts say it will be difficult to sustain the tempo if the drought conditions persist. Total sales rose to 38,971 vehicles during April-June 2002-03 from 28,398 units a year ago, data compiled by the Society of Indian Automobile Manufacturers (SIAM) showed. The growth was witnessed in both medium and heavy as well as light commercial vehicles segments.

Avers Sanjit Singh, vice-president, ICICI Securities, “The continuation of the drought may have a two-sided effect, it could lead to higher expenditure by the government. It could also see a rise in subsidies in the form of a higher minimum support price. On the other hand, revenues may take a blow as the industry would be adversely hit.”

Such possibilities are expected to have an adverse impact on the country’s fiscal deficit. Few analysts here contend that the deficit for this year, taking into account that the rise in expenditure on account of drought, is likely to touch 5.8 per cent of the GDP. “There is no doubt that the fiscal deficit target will slip for this year. With Parliament passing supplementary demands of around Rs 8,007 crore, we already see the deficit slipping to 5.5 per cent of GDP,” says the head of research of a leading foreign bank.

However, there are others who feel that the fear of a sharp rise in expenditure is overdone. Subir Gokarn, chief economist, Credit Rating Information Services of India Ltd (Crisil), says that an increase in expenditure due to the drought will be offset by lower fertiliser and power subsidies.


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