Govt�s wise men want tax base to be widened
6% growth forecast this fiscal
Cushion for quake-hit FM
Lafarge boost for Jaiprakash
Muthuraman to succeed Irani at Tisco
Crisil deals rating blow to Maharashtra bonds
Ghosh panel recommends partner to run IFCI
Raman Effect may sound music to ears
Arvind Mills unveils debt recast plan
Foreign Exchange, Bullion, Stock Indices

New Delhi, Feb 5: 
Prime Minister Atal Bihari Vajpayee�s high-powered economic advisory council today favoured a hard budget with a widening of the tax base, a sharp cut in both plan and non-plan spending by slashing food and fertilsier subsidies, raising railway fares and increasing education fees.

Warning the government of the grave dangers on the fiscal front, the council sought steps to increase the tax-GDP ratio and cut expenses while setting a new reform agenda to ratchet up economic growth from 6 per cent at present to 8 per cent.

The council, which gave in its report to Vajpayee and finance minister Yashwant Sinha today, warned that the combined fiscal deficit of the Centre and the states had breached the 10 per cent of GDP mark, making the fiscal situation unsustainable.

The report has been prepared by a 10-member committee that included among others former Reserve Bank governor I.G. Patel, current RBI chief Bimal Jalan, planning commission member Montek Singh Ahluwalia, chief economic advisor Rakesh Mohan and BJP ideologue Jagdish Shettigar.

The report said kerosene prices should be raised by as much as 60 per cent within 15 months. It also wanted passenger rail fares raised to cover the costs over a three-year period and to set up a rail tariff fixation authority.

It wants the bureaucracy downsized and the interest on small savings like the public provident fund lowered by as much as 2 per cent. It also wants to change pension rules for government servants so that pensions of future public servants are no longer indexed to inflation but rather work like private pension funds with a defined contributory system.

The council also wants the Centre to force states to raise user charges, especially power tariff, improve tax administration by linking the release of half the normal central assistance to fiscal reforms.

The council also called for scaling down import tariff from an average of 34 per cent to 12 per cent over the next five years.

The report says apprehensions about dismantling quantitative restrictions from April this year have been �greatly exaggerated�. However, the effects of large fluctuations in world prices of agricultural products should be countered by using tariff bindings to protect the interests of Indian farmers.

It felt duty protection for consumer goods produced by small scale sector could be left at the present levels for some time to give more time to this sector to adjust. At the same time, it called for scrapping the system of SSI reservation. It also notes that the farm sector has not received due attention in the reform agenda till date and calls for a new 11-point agenda seeking removal of all controls on the movement of farm products including foodgrain, development of modern storage facilities and abolition of the retention price scheme for urea and removal of controls on sugar distribution.

The council recommended reduction of government equity in all public sector undertakings and doing away with the requirement of prior government permission on retrenchment.

To help industrial restructuring, the report calls for bringing in labour reforms and replacing the Sick Industrial Companies Act (SICA) with bankruptcy laws. At the same time, the Board for Industrial and Financial Restructuring (BIFR) can be replaced with debt recovery tribunals.

On the labour front, it wants to do away with government permission to shut down factories but at the same time hike compensation from the present level of 15 days� pay for every year of service to 30 days� pay. It also favours introducing contract labour laws.

It also wants telecom licence fees or revenue sharing fees to be further slashed and internet telephony allowed.


New Delhi, Feb. 5: 
Here�s another blow to optimists who believe the economy is in fast-forward mode: advance estimates from the Central Statistical Organisation (CSO) has forecast a growth rate of 6 per cent for the current financial year compared with 6.4 per cent in 1999-2000.

The anticipated decline is being blamed on the deceleration in the services sector and a slowdown in manufacturing.

The Gross Domestic Product (GDP) at factor cost is likely to be Rs 12,21,174 crore as against Rs 11,51,991 crore in the quick estimates for the last financial year. National income is expected to rise 6.1 per cent during 2000-01, which is lower than the growth rate of 6.6 per cent in 1999-2000.

The growth in per capita income is likely to fall to 4.4 per cent compared with 4.8 per cent during the previous year, according to the estimates released by the CSO here today.

The growth rate declined to 6.4 per cent in 1999-2000 from 6.8 per cent in 1998-99 despite good performance in agriculture, mining and quarrying � part of the primary sector. The growth rate in community, social and personal services dropped to 7.6 per cent from a high 11.8 per cent in the same period.


New Delhi, Feb.. 5: 
Last year this time, finance minister Yashwant Sinha had the Kargil issue to raise additional resources. This time, he has the earthquake in Gujarat to talk about.

The finance minister has already imposed a 2 per cent surcharge on income tax and corporate tax to mobilise a little over Rs 1,300 crore during the current financial year. The additional burden on account of Kargil war is still not known. Sinha did not provide additional funds for the purchase of defence equipment. Not even half of the allocated amount has been utilised. This is a blessing for the minister, who can reduce the size of the fiscal deficit, thanks to the saving on this account, which could be to the tune of Rs 5000 crore.

The country is now counting the financial bills imposed by the earthquake. It is considered a sin to minimise the magnitude of the devastation. However, there are cool-headed bureaucrats in the government who feel the burden to the central exchequer will not be more than Rs 1500-2000 crore.

Of this, Sinha has already provided for more than Rs 1,300 crore in the current financial year. The government does not have to compensate for the private losses. Therefore, the next year�s budget need not be unnecessarily burdened with the Gujarat problem. There is certainly a political advantage to prepare the public and the industry for a tough budget, and then surprise them with a feel-good package. After presenting a good budget in 1999, rollback Sinha became the darling of investors and Corporate India. The erstwhile finance secretary, Vijay Kelkar, new to the finance ministry, and the finance minister interacted more with men of ideas than with bureaucrats in finalising budget proposals.

There are strong indications that the budget will not be harsh. Then it cannot be too soft either. Sinha will have something all sectors. His decision to impose a 2 per cent surcharge this year was a clever move. The general impression is that he will not scrap the 17 surcharge on income tax and corporate tax, but there are chances he will reduce it.

From the existing 17 per cent, the rate may be brought down either to 12 or 10 per cent, followed by an assurance that he will do away with it completely a year later.


Mumbai, Feb.. 5: 
Jaiprakash Industries was the cynosure of all eyes on the Bombay Stock Exchange today with the rumour doing the rounds that Lafarge is close to taking control of the Gaur group cement company.

The scrip which opened firm at Rs 68.70 soon hit the circuit filter of 16 per cent and remained locked at Rs 78. On Friday, the scrip closed at Rs 67.25.

The counter witnessed 5190 trades with 22.19 lakh shares traded and total turnover touching Rs 16.82 crore.

Over the past few weeks, the Jaiprakash counter had attracted buyers with reports circulating that Lafarge would be picked as the strategic partner.

Earlier this month, Jaiprakash started the process of shifting its cement business (capacity 2.5 million tonnes) to its wholly-owned subsidiary Jaypee Rewa Cement. During that time, the company had stated that it might rope in a strategic partner for the business and funds obtained in the process would be used to retire institutional loans, improve liquidity and profitability for both the companies.

Other cement scrips were also in the limelight today, triggered by expectations that the devastating earthquake would lead to a drastic jump in demand for the commodity.

Apart from the cement shares, public sector counters also active buying interest following last week�s announcement of divestment in Videsh Sanchar Nigam Ltd.

This helped the 30-share BSE sensex to finish higher by over 18 points on the BSE today. The rise was noted despite majority of the new economy stock declining due to a fall in the Nasdaq composite index by over 122 points.

The BSE sensitive index opened lower at 4337.52, which was also the day�s low and gradually rose to a high of 4397.19 before closing at 4370.47 as against Friday�s close of 4352.26, a small gain of 18.21 points.


Mumbai, Feb. 5: 
B. Muthuraman, executive director (special projects) of Tata Steel, will succeed Jamshed J. Irani as the managing director of the steel major.

Irani will hand over the mantle to Muthuraman on July 22 after remaining at the helm of Tata Steel for little less than a decade.

The 56-year old Muthuraman is a B.Tech (metallurgy) from the Indian Institute of Technology, Chennai. As executive director (special projects), Muthuraman had been responsible for the conceptualisation, formation and implementation of Tata Steel�s new cold rolling mill project in Jamshedpur. He is also a director on the boards of Tata Pigments and Tata Ryerson.

Muthuraman joined Tata Steel as a graduate trainee in 1966 and over the years worked in various divisions of the company. He spent eight years in the operation of blast furnaces, new project development and project planning.

He spent 19 years in the sales and marketing division of the company and initially looked after new products, market development, market research and application engineering. He headed the marketing division of Tata Steel from January 1991 to October 1995.

Muthuraman�s stock at Tata Steel went up after the successful setting up of the cold rolling mill in Jamshedpur.


Mumbai, Feb. 5: 
The Credit Rating Information Services of India (Crisil) has downgraded the ratings on bonds floated by companies of the Maharashtra government in a move widely seen as a fallout of the state�s failure to clear the dues to the Enron-promoted Dabhol Power Company (DPC).

According to the rating agency, the ratings have been downgraded from �A� to �BB+� on bonds worth Rs 2,564 crore issued by various development corporations owned by the state government.

The new ratings put the bonds in the speculative grade, indicating inadequate safety. The previous rating denoted adequate safety. The downgrade is the third in over two years, from �AA-� (reflecting strong safety) since January 1999.

�The revision follows the non-payment of dues by the Maharashtra government to DPC and the fact that the power company was forced to invoke a guarantee issued by the government,� the rating agency said in a statement today.

The companies whose bonds were downgraded are the Maharashtra Krishna Valley Development Corporation (Rs 2134 crore), Konkan Irrigation Development Corporation (Rs 31 crore), Tapi Irrigation Development Corporation (Rs 91 crore) and Vidarbha Irrigation Development Corporation ( Rs 308 crore).

Maharashtra State Electricity Board (MSEB) owes Dabhol Power Company around Rs 248 crore in power bills, but it has coughed up only Rs 10 crore so far. �The delay in meeting financial obligations has triggered the rating revision,� Crisil said.

Dabhol Power Company supplies power to MSEB under an agreement that guarantees payments by the state if the board defaults. Earlier this month, DPC invoked the letter of credit and the state guarantee to recover a part of the amount due from the state electricity board. MSEB had asked the state government for a Rs 90-crore subsidy to help it pay Dabhol�s power bill, but the request was turned down.

Icra has already placed its LAA- rating on bonds floated by corporations of Maharashtra under rating watch.


New Delhi, Feb. 5: 
The D.N. Ghosh committee for restructuring the ailing state-owned IFCI has recommended the appointment of a strategic partner to help run the financial institution after a Rs 400-crore capital infusion, besides a time-bound plan to convert the financier into a term capital bank.

The report which was made public today at a meeting organised by IFCI here, says the government could offer IDBI�s equity holding of 31.7 per cent to a strategic partner in association with a global project finance heavyweights such as IFC or ADB.

It has also endorsed the IFCI management�s earlier plea for an immediate capital infusion of Rs 400 crore. The development finance company had made the plea after its Rs 353-crore rights issue in 1999-2000 flopped, raising just Rs 287 crore.

The institution needs the money desperately as it has not been able to meet Reserve Bank of India�s capital adequacy or capital to lending ratio norms

The Ghosh committee, which had high profile members such as chartered accountant R.S. Lodha, former L and T managing director S.D. Kulkarni, Ficci secretary general Amit Mitra and joint secretary banking Anoop Mishra, has also pressed for IFCI�s conversion into a term credit bank.

This means it wants IFCI to reduce its project finance (which have proved sticky for it included huge loans to potentially unviable steel projects) portfolio from the current 94 per cent to 50-60 per cent and instead diversify into post-project and short-term financing as well as fee-based merchant banking activities such as advisory, merger and acquisition business.

It, however, does not want IFCI to enter the retail finance business as the company does not have necessary experience in this field.

As an immediate measure to ensure quality lending by IFCI, the committee wants more prudent loan and exposure guidelines which would bring down exposure to project finance,.

It also wants IFCI to lay down a maximum project size to which it will give funds as a lead financier. It wants it to risk lending to huge projects only in exceptional cases and even there not as the main lender.


New Delhi, Feb. 5: 
You can now hear the Raman Effect, quite literally. Years after the country�s celebrated physicist sent ripples across the world with a phenomenon named after him, Bell Labs is poised to ring in a device that will work on the principle, and slash telephone bills by 60 per cent.

Developed by Bell Labs of Lucent Technologies, the device, called a Lambda router, is actually a special-purpose computer or software package which keeps two or more networks connected.

The Lambda router is a high capacity, all-optical router capable of directing 10 times the traffic of today�s internet in one second.

According to Arun N. Netravali, who is the president and chief technology officer of Bell Laboratories besides being its chief network architect, Raman amplifier will provide distributed broadband amplification, a process which will ensure a key role in low-cost optical switching and transport. The amplifier uses intrinsic properties of silica fibres to amplify signals. The transmission cables can be used as a medium to enlarge signals and to prevent them from weakening in transit. Amplifiers that function on the basis of the principle are known as Distributed Raman Amplifier (DRA).

A simple illustration shows just what happens: Calls made from a telephone are first carried in the form of electric signals, which are transformed into light signals in the first stage, and into electric signals in the second. The process is repeated at every circuit, leading to a loss of voice quality. What the Lambda router does is to obviate the need for a change at circuits by using the same signal all through.

Presenting a white paper on the topic, Enabling India�s bold telecommunications initiatives: A technologist�s perspective�, Netravali said service providers in the country should be ready to embrace next-generation technology. �The design of the network should lend itself to quick upgradation. More important, operators should also realise the need for sharing common infrastructure,� he told the seminar.

He said it is important for the country to develop a high-capacity, multi-protocol, backbone network whose growth keeps pace with the expansion in traffic and coverage. The installation of optical switching, wavelength division multiplexed transport and mesh architecture will keep the backbone network from being made obsolete by advances in technology.

Researchers at Bell Labs recently demonstrated the world�s first long-distance, error-free transmission of a trillion bits (terabit) of traffic per second over a single strand of fibre. A layman�s idea of terabit per second � the size of bandwidth enough to beam 5,00,000 movies simultaneously.

Netravali came out in favour of the decision to allow limited mobility to basic operators who use wireless in local loop based on the code division multiple access (CDMA) technology.

�CDMA WiLL, the chosen technology for high-data rate 3G wireless systems, is an appropriate technology to bridge the digital divide between the urban and rural areas,� Netravali said in his white paper presented to government today.

Second research hub

Bell Labs will set up its second research centre in Hyderabad. The company already has a R&D centre in Bangalore.


Mumbai, Feb. 5: 
Arvind Mills, the ailing Ahmedabad-based textile major, announced a restructuring plan aimed at reducing the burgeoning debt burden and improve the financial health.

Under this plan, the lenders have been given three choices � debt buyback, a lower interest rates on debt remaining after buyback and sharing of upside in case Arvind Mills does well, and lastly, monitoring and control mechanism by the lenders.

The company has stipulated February 28, 2001 as the deadline for the lenders, on whether they accept or reject the restructuring proposal. �We have some 60 lenders and most of them have supported the proposal,� an Arvind Mills spokesperson said.

Under the debt buyback scheme, Arvind Mills would buy a minimum of Rs 550 crore of debt. All overdue interest would be waived. Buyback price will be in full settlement of the debt.

Lenders have three choices. Under Scheme A, 48 per cent of the principal will be paid in full settlement for a lender reinvesting 6.42 per cent of the principal in rupee denominated reinvestment debt. Under Scheme B, 45 per cent of the principal will be paid in full settlement. Under scheme C, 60 per cent of the principal will be paid in full settlement. Debt not bought back, will be restructured with effect from April 1, 2000. The lenders are offered three choices, the first one has a tenure of five years, the second and third options have a tenure of 10 years.

The interest rates offered on 10-year schemes give an average yield of 9 per cent. Lenders opting for the 10-year schemes will be offered re-compensation payment and equity warrants to compensate for their sacrifices. Arvind Mills has agreed to lenders� representatives appointing four directors and choose another four directors from a list of three names provided by Arvind Mills for each position. An independent auditor will monitor the cash flows.

The proposal is based on forecasts made by KSA Technopak, an Indo-US consultant. The company appointed the consultant as lenders sought a report on prospects of the textile industry and Arvind Mills� business plan. �Arvind�s fortunes are poised to look up as a result of significant reduction of debt burden on the one hand, and on the other hand, expected improvement in the operating performance due to rising denim demand, improved capacity utilisation of the new plants and softening prices of naphtha, a fuel used in the generation of power,� said Sanjay Lalbhai, managing director.



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