Soaring fiscal deficit worries IMF
Newscorp to set up mega infotech firm
Crude price spurt puts pressure on refiners’ margi
Sify set to reposition
Kotak wants to go it alone in insurance
Shakeout fear grips travel agents
Corpn Bank plans to enter insurance
Nodal agency to tackle rogue firms
Foreign Exchange, Bullion, Stock Indices

New Delhi, June 6 
The high powered IMF team’s visit to India was a bitter-sweet experience for finance minister Yashwant Sinha ,troubled as he is currently with rumours of a Mauritius-inspired financial scam in his own backyard.

On the one hand, Sinha found himself rapped on the knuckles for letting the country’s fiscal deficit spin out of control by none other that IMF chief Horst Kohler. “We are concerned about India’s fiscal situation ... it is not sustainable,” Kohler said.

On the other, the fund’s managing director also indicated India could hope to get a larger share of IMF’s credit in the future after an ongoing review of credit norms is completed. “(Credit) quotas will have to reflect the importance and size of an economy.” This obviously is a victory for Sinha as Indian officials have been trying to get just this across to the Fund’s board for the last few years.

But most damaging for Sinha, who was projected in Parliament last budget session as the best “money manager” India has had till date, Kohler also told newspersons at a candid press conference here today that he had not only warned finance minister Sinha but also told Indian officials “there is a need for fiscal consolidation, and policies which encourage greater foreign direct investments in infrastructure and industry.”

That advice is sure to stir up a hornets’ nest as the government is currently considering relaxing the caps on FDI flows into various sectors, notably the telecom sector. Several opposition parties and BJP hardliners have made known their opposition to such moves.

Sinha and his officials seem to have promised Kohler at meetings held here today that India would not only go ahead with moves to bring down budgetary deficits at the Centre but also the states by getting them to sign memoranda of understanding which barters central funds for state level fiscal reforms. Asked about IMF’s stand on the issue of states signing MoUs, Kohler said, “That’s the way to go”, but also aded that these measures can be introduced only through consensus and he understood that the Centre could not impose its will on the states.

The Union government ended the last fiscal with the fiscal deficit at an all-time high of Rs 1,08,898 crore. The state governments also reported a combined fiscal deficit of Rs 77,893 crore. Together the central and state deficits expressed as a percentage of the GDP nearly crossed 9 per cent, which alarmed economists and credit rating analysts.

Sinha also indicated to the IMF team that besides fiscal reforms, the second phase of reforms planned by the BJP government would focus on moves to downsize the government, reform banking and financial markets and further open up its markets.

Indian officials claimed their reform package would transalate into a 8-10 per cent GDP growth. The IMF however considers this “ambitious” but feels India could achieve 6.25-6.5 per cent GDP growth this calendar year.

The BJP government did get some praise from the the IMF chief. After terming India as one of the ten fastest-growing economies in the last two decades, he said,“This government is clearly committed to reforms. India has achieved a lot but obviously that was not enough.”    

Bangalore, June 6 
The two-day global investors’ meet organised by the Karnataka government ended today on a high note with Rupert Murdoch’s Newscorp announcing a Rs 1,000-crore investment in a new, city-based media venture.

The chief executive officer of Newscorp’s India operations, Lalith Ahuja, announced at the end of the conference that the investments would be made in a global convergence new media venture which will transmit content on broadband internet.

Newscorps’ entire global content traffic would be routed through the new facility, which will employ about 500 people. It is expected to be operational in about three months, Ahuja added.

Describing the venture as strategic and ambitious, Ahuja said the decision to set it up followed a recent meeting between the global media magnate and Karnataka chief minister S M Krishna.

On what was clearly a day of competitive announcements with investors rushing into agreements, Hampi Petrochemicals committed an investment of Rs 575 crore in setting up a coke and a power generation plant while Bharati Mobiles said it will pump Rs 200 crore into an optical fibre project.

Dipkit Ltd plans to set up a refined sunflower oil and protein extraction plant at Bagalkot at a cost of Rs 195 crore.

On the other hand, an NRI offered to invest Rs 2,000 crore in a chain of petrol pumps that would also sell converter kits.

State industry minister R.V. Deshpande said 18 mega projects valued at a whopping Rs 15,000 crore had been cleared in the last two days.

A remarkable feature was an announcement that almost 50 project managers looking for suitable joint venture partners at the conference, which has attracted around 200 foreign delegates. would make their presentations in ‘Swayamvara style’ tomorrow — much like choosing a life partner.    

Mumbai, June 6 
The surge in international crude oil prices to $ 30 per barrel has raised fears about a further slump in the margins of local refineries.

On Monday, crude oil prices surged past the crucial level due to strong gasoline demand emanating from US (the largest consumer of oil in the world). This has come at the worst possible time for Indian companies which have been grappling with an oversupply in some of the products.

“If a raw material price goes up, then the product prices should also show a similar movement. However, in our country, oil product prices have not risen by the same proportion, thus putting pressure on refineries’ margins,” an oil analyst with a leading brokerage said. The pressure on refining margins are expected to exacerbate and the fears are that this will depress the bottomlines of most local refiners during the first quarter of this fiscal year. The oversupply in certain products, particularly diesel, which even stretches across the Asian region, has arisen after the commissioning of 27 million tonne Reliance Petroleum Ltd (RPL) refinery at Jamnagar. Reports currently indicate that offtake of the product too has dipped in the recent past due to a variety of reasons. “After the government raised diesel prices last year, we have seen freight shifting from road transport to the railways. This has had a negative effect on the sales of diesel and lubes,” an analyst remarked.

Sources say if international crude prices continue to rise, an increase in diesel and petrol prices cannot be ruled out, especially at a time when the oil pool deficit is slated to cross the Rs 12,000-crore mark.

The recent rebound comes after a brief lull in crude prices following the Opec decision to raise production levels. However, a section of the analysts expect international prices to stabilise around $ 27-28 per barrel as the cartel had earlier agreed to adjust output in the event that the average price of a basket of seven crudes crossed $28 a barrel.

However, an official from one of the refining companies averred that in the event of international crude prices remaining firm, a hike is likely to be effected in the domestic prices of naphtha. This is expected to percolate to other downstream products such as ethylene, polypropylene, polyethylene, poly vinyl chloride, mono-ethylene glycol, purified terephthalic acid and others.

Early this year, when crude oil prices had touched a level of around $ 29 per barrel, the prices of feedstock such as naphtha had touched a high of $ 270-280 per tonne. This drove up prices of other products such as paraxylene (which is a crucial ingredient used for manufacturing fibre intermediates) to around $ 430 per tonne.    

Mumbai, June 6 
Satyam Infoway (Sify) may reposition its portal to sharpen its focus on sports other than cricket. This will be primarily to reduce the overlaps between khel’s content with that of, the portal it acquired on Monday.

Hinting at such a possibility, George Zacharias, president and chief operating officer of Sify told The Telegraph that while khel is one of the top cricketing sites in India, the site had the ability to cover lot more than cricket. There is a big oppurtunity for coverage of other sports through the site,” he said.

He, however, refused to outline Sify’s plans for khel or say if the merger of the two sites was on the cards. was one of the portals acquired by Sify following the buy-out of for a whopping Rs 500 crore.

Defending the cricinfo acquisition, Zacharias pointed out that the portal had tremendous advantage because there was a large potential to bring in advertising revenues apart from e-commerce (through cricket memorabilia). Further, its good reach among the NRI community would also enhance Satyam’s exposure to this community, he added. Zacharias’ comments come against the backdrop of apprehensions in capital market circles that the deal was overvalued.

Sify, which presently has a subscriber base of around 160,000, generates around 55 per cent of its revenues from access services. The rest is accounted for by corporate connectivity (42 per cent) and advertising (3 per cent)

Meanwhile, Sify and Sterling Commerce today extended their partnership to offer Internet-based procurement to consumers via e-marketplace. e-marketplace solutions allow companies to connect, integrate, collaborate, exchange information, transact business and streamline business process within customers, suppliers and distributors globally.

The solutions helps in the setting up of an on-line exchange, where organisations and their communities can come together to conduct commerce, access content and collaborate to improve business, company officials said. Under the arrangement between the two companies, Sify will market Sterling’s solutions in the country on a revenue-sharing basis.

Senior officials of the company said Sify’s present revenue structure is likely to be revamped over the next few years with an increase in the share of advertising and e-business revenues (primarily B2B). It is expected that revenues from e-business area will touch 10 per cent.

Sify, in which Satyam Computers holds a 55 per cent stake, has a network spread across 43 cities in the country. Its main products include Internet access services, on-line portal and content offerings and corporate network and technology services.

Sterling Commerce, which has a 5 per cent stake in SIFY, is a leading provider of E-business solutions for various companies. It will create and manage e-market places where buyers and sellers can exchange goods and services.    

New Delhi, June 6 
Kotak Mahindra is planning to launch two new funds — an index fund and another for old economy stocks — in the next three-four months. The finance company is also lobbying the RBI and the government to allow it to enter the insurance sector on its own. “The fund investing in old economy companies would focus on those traditional companies which have been able to assimilate with the new economy,” Shekhar Sathe, CEO, Kotak Mahindra Asset Management Company, told The Telegraph. There is no way that the new ICE sector companies which are service companies would be able to survive without manufacturing companies. He also said an index fund would be created to eliminate the risk of the fund manager. This fund would carry less risk as it would invest in the index composition. Kotak Mahindra has six other funds which cover a range of sectors. The least risk are the funds which invest in bonds and gilts. The highest risk is in the K-Tech fund which invests in technology stocks. As part of diversification plans, Kotak Mahindra Finance, is planning to enter the insurance sector, but intends to enter the sector alone. However the current guidelines allow an NBFC to hold only 50 per cent stake in an insurance venture. The company feels that if it meets the net worth criteria, it should be allowed to go it alone. A foreign partner, it believes, would not add much value, as the company knows the Indian market well. Kotak Mahindra is also planning to launch a venture capital fund which would be in place in the next two-three months.    

Calcutta, June 6 
The travel business in the country is poised for a shakeout. This will mean lower commissions and lesser time for credit from foreign airlines under a new bank settlement plan (BSP).

The 50-year-old Travel Agents Association of India (TAAI) today roped in Bruce Tepper of the Joselyn Tepper & Associates Inc, a US-based travel firm, to tell 500 travel agents how to survive in the rapidly changing industry. Tepper was talking to agents in Calcutta today on the first leg of his tour.

His key message was that agents should shrug off fears of losses and stop serving their clients like a bank.

This meant no long credits. He also suggested that they charge a service fee. Commissions on airline ticket sales will turn thinner and the Bank Settlement Plan (BSP) will become tighter in India, Tepper said, sending the warning that an agency which generates revenues only from commissions may be driven to the wall.

BSP was introduced in India by the foreign airlines a few months ago. It ensures that the travel agents pay airlines’ arrears within 3-4 days of a booking period — usually a fortnight.

“Six thousand agencies have closed down (16 per cent of the total ) since 1995 in the US but business is still good there. This is evident from the fact that the number of travel agents has gone increased 10 per cent. The reason is that 88 per cent of the travel agents in the US charge service fees.

“Agents in North America and Western Europe have moved away from selling airline tickets and are now focusing on selling high-margin holiday/products. The profit margins in the business are too low for the agency to give credit,” Tepper warned.

Quoting a PriceWaterHouse Coopers study, Tepper said the rules of business must change and travel agents in India must begin dealing with a few preferred operators, specialise and develop telesales and start charging service fees.

Shubhada Joshi, honourary secretary general of the TAAI who is accompanying Tepper on his tour, says: “The number of IATA certified agents is rising but there is no increase in the capacities of the airlines. Consumers have begun making bookings on the net though 85 per cent of the total travel business in the country is still arranged through travel agencies. The aim of bringing in the US expert is to prepare the business for major changes which are in store and teach them how to adapt to new business models.”

Tepper’s strategy can be summed up in a five-point plan:

Focus on selling higher margin travel products

Niche markets and specialisation in holidays

Diversify into related business opportunities

Reduce costs in all areas, improve procedures within the agency

Shift the cost of customer services from suppliers to customers.

He also dispelled the myth that customers will abandon agencies that charge a fee and that airlines/other companies will use agency fees as an excuse to stop paying commissions.

Quoting a Bear & Stearns study, Tepper said that 80 per cent of the 1000 travel websites on the net will close down, Tepper was of the opinion that the travel business was under threat from the internet.    

Calcutta, June 6 
Corporation Bank is gearing up to make a foray into the insurance sector. N. S. Gujral, chairman & managing director said the “preliminary work in this regard is in full swing.”

Corporation Bank is one of the few banks qualified to form joint venture with foreign partners. Gujral said the bank has decided to seek RBI’s approval to open the proposed insurance venture as a subsidiary.

The bank currently has a net worth of Rs 1,145 crore against the Reserve Bank of India’s (RBI) stipulation of Rs 500 crore. The capital adequacy ratio of the bank stands at 12 per cent against the stipulated 10 per cent while the non performing assets have been brought down to 1,92 per cent.    

Calcutta, June 6 
The department of company affairs (DCA) has ruled out giving additional powers to the Securities and of Exchange Board of India (Sebi) on the issue of taking penal action against the promoters of vanishing companies.

Instead, a nodal body comprising various government agencies is being put forward as the preferred mechanism to discipline rogue firms. The nodal networking agencies would include the state governments, apart from Sebi, RBI and the DCA.

DCA secretary P. L. Sanjeev Reddy said here today that the Sebi’s request for additional powers had been turned down by the government.

The capital market regulator and DCA have been jointly investigating these companies. Sebi, however, has sought more powers to arrest the promoters and to prosecute them quickly.

Since most of the vanishing firms are non-banking financial companies, an area which comes under the administrative control of the Reserve Bank of India, Sebi could not be given additional powers, Reddy said.

DCA, he said, is opposed to the proposal of denying nominees of banks and financial institutions (FIs) a berth on the board of companies.

Banks and FIs, which have their funds at stake, should have a representation on the board in order to monitor the working of a firm, Reddy said.

“How can they not take care of their funds in a company, especially when they have massive non-performing assets,” Reddy said at a symposium on New Trends in Corporate Governance, organised by the Merchants’ Chamber of Commerce.    

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