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Monday, November 23, 1998
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Budget targets to go haywire: mid-term review
NEW DELHI, Nov 22 — With the downward rigidity of expenditures, likely revenue shortfall and lower than budgeted growth in the economy, the targets set for key fiscal indicators in the 1998-99 Budget are likely to go awry, says a mid-term review of the Indian economy.





aviation notes

Himachal to have health resorts, herbal gardens
SHIMLA, Nov 22 — The Himachal Pradesh Government is formulating a comprehensive plan to exploit the immense tourism potential of the state.The plan envisages setting up of natural health resorts, herbal gardens, centre for indigenous system of cure, nature parks, wildlife sanctuaries and national parks, officials said.

Car sales drop due to PAN condition
NEW DELHI, Nov 22 — The govt notification requiring car buyers to quote permanent account numbers for every purchase has sounded the death-knell for the automobile industry with sales dropping by more than 10 pc over the last fortnight in the open and second-hand markets.

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PSEB order for BHEL
NEW DELHI, Nov 22 — Public sector Bharat Heavy Electricals Limited has bagged a prestigious order worth Rs 12 crore to manufacture and supply large size transformers to the Punjab State Electricity Board.

ICICI bond shelved
NEW DELHI, Nov 22 — ICICI Ltd has shelved its proposed scholarship bond instrument under the Rs 3,000 crore safety bond issue due to the problem of transfer of the title in case of a sale in the secondary market and also to avoid any possible tax harasssment.Top

 





 

Budget targets to go haywire: mid-term review

NEW DELHI, Nov 22 (UNI) — With the downward rigidity of expenditures, likely revenue shortfall and lower than budgeted growth in the economy, the targets set for key fiscal indicators in the 1998-99 Budget are likely to go awry, says a mid-term review of the Indian economy.

Painting a gloomy picture, the review, conducted by the India International Centre, also cast doubts on the country’s trade deficit scenario as well as the overall performance of the agriculture sector and the success of the PSU disinvestment programme. Further, the gross fiscal deficit is expected to be higher than the targeted 5.6 per cent of the GDP.

It predicted that the actual expenditures of the Central Government would exceed the budgeted amount on account spillover of pension payments to the government employees and increased subsidies. Extensive floods and some crop damage following rains may also bring unanticipated expenditure burden on the treasury.

Tax collections

Though the review pointed out that direct tax collections during the first half of the current fiscal have overshot the targets, it cast serious apprehensions on whether the buoyancy would continue through the rest of the year. Further, the budgetary targets for indirect tax collections also do not stand a chance of being met. Since the budget estimates of Customs and excise collections are based on a 10 per cent industrial growth.

Disinvestment

The review also pointed that on account of unfavourable conditions in the domestic and international markets, the government’s disinvestment target of Rs 5,000 crore appears to be unrealistic.

The review called for greater fiscal stringency and tighter reign over money supply in the current year. Unless government borrowing is contained, it would become impossible to contain monetary growth within the targeted limits. However, for a number of reasons, the prospects do not seem too promising.

Trade deficit

The trade deficit is likely to widen. Assuming there will be a 2 per cent growth of exports and 6 per cent in imports during this fiscal, the balance of trade deficit is going to touch $ 8,566 million, representing a 26 per cent increase over the previous year’s $ 6,799 million. However, assuming a 2 per cent growth in exports and 6 per cent in imports on RBI’s data, the trade deficit may turn out to be around $ 18.6 billion compared to $ 16.3 billion in the previous fiscal.

Agriculture

On the agricultural sector, the review, edited by Rakesh Mohan and Pradeep Srivastava of National Council of Applied Economic Research (NCAER), pointed out that despite a good monsoon this year on an average, overall performance of the sector will remain below normal because some regions have experienced significant deviations from normal rainfall.

As a result, agricultural output in these regions is likely to suffer with a strong regional impact on prices of commodities grown in those regions, an impact that is exacerbated by the extremely poor state of infrastructure for storage, marketing and distribution of agricultural produce.

The performance of the economy during the first half of this financial year was characterised by weak industrial performance, continuing fiscal fragility accommodated by higher than usual money growth, infrastructure problems, plunging exports, widening trade deficit, slowdown in the reforms process and the usual albeit mysterious growth in the services sector.

That way, the economy, during the first half of this fiscal, carried the legacy of the last year. “With another year of a coalition government, it seems that we could well be in a world where nothing fundamental has changed.”Top


 

Re to be under pressure

NEW DELHI, Nov 22 (UNI) — The Indian rupee will continue to be under increased pressure on account of further deepening of global pessimism and increased likelihood of yuan devaluation, says a mid-term review of the Indian economy.

However, India’s relative insulation due to lack of full capital account convertibility and high forex reserves might help counterbalance these pressures, the review said. In the second-half of 1998-99, a rising current account deficit is expected to put a downward pressure on the rupee. A downturn in world demand and world trade, and depreciated Asian currencies suggests a weak export scenario.Top


 

Inflation up

NEW DELHI, Nov 22 (PTI) — The annual rate of inflation rose to a 163-week high of 8.85 per cent for the week-ended November 7 on sustained increase in prices of primary food articles. This is the highest rate of inflation based on wholesale price index (WPI) recorded since September 23, 1995, when it touched 9.01 per cent.Top


 

Rs 11,333 crore FII outflow

NEW DELHI, Nov 22 (UNI) — A total outflow of Rs 11,333 crore has been witnessed from the Indian bourses through foreign institutional investor (FII) sales during the first half of the current fiscal, a mid-term economic review points out. The FIIs, in fact, have come to play an important role in the capital markets.

As net FII inflows fall or turn negative, the sensex drops and as FII investment increases, the sensex rises. This correlation, the review stated, reflects the importance of FII activity on the prices of key sensex scrips. “This relationship appears to be stronger in a bearish market when FII purchases are crucial to pushing up market sentiment”.Top


 

Himachal to have health resorts, herbal gardens

SHIMLA, Nov 22 (PTI) — The Himachal Pradesh Government is formulating a comprehensive plan to exploit the immense tourism potential of the state.

The plan envisages setting up of natural health resorts, herbal gardens, centre for indigenous system of cure, nature parks, wildlife sanctuaries and national parks, officials said.

Herbal gardens were coming up at Niri in Hamirpur, Pancharu in Shimla and Badseri in Kinnaur while national parks were being developed in the Kulu valley and the Pin valley.

Besides, encouraging the construction of “green hotels”, the projects intends to protect rare species of birds, plants and animals to lure travellers and natural lovers.

Adventure, religious and leisure tourism and employment generation are other items on the agenda.

The policy was being formulated keeping in view the fragile ecology and environment pollution.

Efforts are also being made to open three new museums in the tribal areas and protect old temples, monasteries, palaces and rare wood carvings.

A ski-lift is being constructed at Solang near Manali at a cost of Rs 7 crore and a proposal to start heli-skiing had also been cleared.

Lakes like Suraj Tal, Chander Tal, Mani Mahesh and Parashar having great scope for pilgrimage are being beautified, while man-made sarovars like Gobind Sagar (Bhakra Dam), Maharana Pratap Sarovar (Pong Dam) and 12-km long Chamera Dam were being developed as water sports centres. Adventure sports like rafting, water surfing, canoeing, kayaking, sailing, water skiing and angling were being developed to attract tourists.Top


 

Car sales drop due to PAN condition

NEW DELHI, Nov 22 (UNI) — The government notification requiring car buyers to quote permanent account numbers (PAN) for every purchase has sounded the death-knell for the automobile industry with sales dropping by more than 10 per cent over the last fortnight in the open and second-hand markets.

Sales of both new and pre-owned cars have been significantly affected due to this stipulation and dealers feel if this is not reversed soon, it might just prove to be fatal for the industry, which is currently passing through a severe recession.

In fact, the second-hand car sales have been most affected with retails dropping by over 10 per cent in 15 days. “As it is, the second-hand car prices have come crashing down and, despite that, we were facing problems in offloading the vehicles.” “Now with the requirement to quote with every transaction, buyers have just stopped coming to our shops,” a city-based second-hand car dealer told UNI here.

Moreover, the announcement, the dealers say, have come during the final two months of the year, which are worst for the automobile industry. “Traditionally, during these two months, sales are down nearly by 3 to 5 per cent. But this year, we feel, the drop is going to be much higher,” another grey market operator said.Top


 

PSEB order for BHEL

NEW DELHI, Nov 22 (PTI) — Public sector Bharat Heavy Electricals Limited (BHEL) has bagged a prestigious order worth Rs 12 crore to manufacture and supply large size transformers to the Punjab State Electricity Board (PSEB).

BHEL bagged the contract against stiff competition from other major Indian transformer manufacturing companies, a BHEL release said here.

The order includes supply of seven numbers 100 MVA system.

According to the contract, the first three transformers are to be supplied by BHEL in four months with the entire contract to be executed by July 1999.Top


 

ICICI bond shelved

NEW DELHI, Nov 22 (PTI) — ICICI Ltd has shelved its proposed scholarship bond instrument under the Rs 3,000 crore safety bond issue due to the problem of transfer of the title in case of a sale in the secondary market and also to avoid any possible tax harasssment. ICICI in July this year had announced the float of the new instrument as part of its safety bond issue.

Sources said the decision to shelve the education bond was an internal one and taken because ICICI did not want investors of these bonds to be harassed by income tax officials.

However, the bond would be replaced by another new instrument at the time of the issue.Top


 


Jeans, mini-skirts are in, Mao suits out

BEIJING (PTI): With China embracing economic reforms and the consequent rise in the standard of living, its citizens are thronging boutiques to buy designer clothes, leaving traditional Mao suits to make a silent retreat.

City dwellers, especially Chinese young women, are spending sizeable chunk of their income on buying designer clothes from boutiques. Men are also trying to catch up with women, ignoring Mao Zedong’s suit which was once the ultimate in China’s dress code.

Fashion-conscious young women have discarded their dark and heavy stuff and embraced nippy mini-skirts, slinky latticed trousers and tight-fitting velvet T-shirts in winter.

Skirts, no matter how long or short, have been selling extremely well in the past few winters, says a saleswoman at a theme shop in downtown Beijing.

Demand for western suits, professional women’s clothing, sportswear, T-shirts, jeans and woollen sweaters as well as caps, shoes, socks and underwear have witnessed a boom in sales.

Dumping?

BEIJING (PTI): China has lodged a strong protest with India over the increasing number of anti-dumping cases being slapped on Chinese exports, especially metallurgical coke, and has demanded immediate corrective measures to avert a trade war.

“The Chinese side does not want to see a trade war as a result of the anti-dumping practices (of India) as it will cause damage to both parties,” Director, Department of Treaty and Law, Ministry of Foreign Trade and Economic Cooperation Wang Wejun said.

Wang told PTI here that Director-General of the department Zhang Yuqing, during a recent meeting with a senior Indian diplomat handed over a written protest note against “unfair” and discriminatory, anti-dumping measures slapped on about 20 products by India.

Grim outlook

SINGAPORE (Reuters): The OECD has painted a grim picture of Asia’s economic landscape, saying the deepening crisis had erased most prospects for growth until late 1999.

The once dynamic Asian economies of Indonesia, Hong Kong, Malaysia, the Philippines, Singapore, Taiwan and Thailand had almost all slipped into recession, the OECD said in the latest edition of its twice-yearly economic outlook.

The likelihood of a return to growth had deteriorated in the seven months since the Organisation for Economic Co-operation and Development published its last report.

Back in April, the OECD had expected growth by the year end in Malaysia, the Philippines, Hong Kong and Singapore.

Recession

TOKYO (PTI): Japan’s prolonged recessionary trends are partly responsible for the present global financial turbulence and could trigger a negative chain reaction leading to worldwide depression, the Japanese Economic Planning Agency (EPA) has said in a report.

The EPA’s annual white paper on world economy said the present global turmoil began with the financial crisis in Asia in 1997, which later spilled over to Russia and Latin America in 1998.

The continued economic slump in Japan, which is the main export market for the Asian countries, would slow down the recovery of the region’s crisis-hit economies, said EPA.Top


 

aviation notes
By K.R. Wadhwaney
Why have two sets of rules?

WHILE Air India’s “blues” continue unabated, Indian Airlines may also plunge into turbulent weather if its Chairman and Managing Director P. C. Sen has to relinquish his office after completing his five-year tenure on February 28, 1999.

No individual is indispensable. But Mr Sen has such an understanding and rapport with his colleagues in operations, engineering, commercial, personnel and public relations division that his change-over ill upset the smooth functioning of the airline.

Mr Sen has succeeded in steadying the flight path of the airline through his vision, wisdom and firmness. In view of his achievements, the government should not be ‘sticky’ in his reverting to the ministry.

There have been several instances when the government has broken rules and compromised on traditions to provide extension to favoured officials. In providing an extension to Mr Sen, the government will only be safeguarding the interest of the national carrier.

Mr Sen is also understood to have received some kind of offer from the International Civil Aviation Organisation (ICAO).

Amidst this uncertain scenario in two national carriers, there is also uncertainty in the thinking of the government. One ministry hums one tune while another ministry gives totally different signals.

Following clearance from the Civil Aviation Ministry, Jet Airways’ chief Naresh Goel has announced his expansion plans. He has gone on record saying that his airways will operate a 64-seater aircraft on the Chennai-Visakhapatnam-Hyderabad sector from February 1999. While one Boeing 737-800 is expected next month, another will arrive in January 1999. Three other 737-800s will also be arriving in January. They will be on wet lease.

Finance Minister Yashwant Sinha is reported to have asked for review of Jet Airways’ fleet expansion plan. But how can this be done when orders for new aircraft have already been made? Who will pay the penalty and litigation fees if the orders are cancelled or amended? Many other problems will surface if the Finance Ministry insists on its viewpoint overruling the decision of the Civil Aviation Ministry.

The Finance Minister is said to have said that the Jet Airways expansion plan should be judged by the same yardstick on which Tata airlines’ proposal was rejected. Mr Sinha is reported to have said that if the Tatas were rejected on the ground that its operations would lead to ‘overcapacity’, then why was Jet Airways allowed to increase capacity?

But it’s too late now and any change will complicate the matters further in the Aviation Industry which is already passing through a very critical stage.

One thing is clear that the Civil Aviation Ministry adheres to two sets of rules — one for one airline and another for Tate Airline. There is utter lack of transparency. The only alternative is: the more, the merrier. Let Tata Airline also fly on domestic sectors irrespective of the capacity issue.

Successful operations

IA has been operating its flights from the new terminal building with care and punctuality. Passengers travelling regularly have expressed their satisfaction. The airline is said to planning to installed sophisticated and sensitive IBM computers to further improve its efficiency at the airport.

Some of the departments of the regional office, located at Safdurjung Airport complex, may also be shifted to the airport. Top


 


By J.C. Anand
Two good picks in a sluggish market

DURING this fortnight, election results in four states will be known. These results may determine the market trend for the next few months. Public opinion poll has indicated that the BJP may lose majority in the Union Territory of Delhi and the State of Rajasthan but at the same time gain majority in Madhya Pradesh. In case these projections come true, the market will not be affected adversely. The latest opinion poll, conducted by ORG-MARG for India Today, however, indicates that the BJP may even fail to get majority in Madhya Pradesh.

Last fortnight the stock markets moved like a shunting engine in a railway yard. But last week, the market sentiment was depressed. Even the software and multinational pharma shares declined. Some Tata group shares moved up largely due to purchases made by the Tatas to hike their holdings. This week, the market is likely to remain subdued and listless.

Even otherwise, early recovery in the economy and the stock market is not possible. Industrial growth rate during April-October is less than 4 per cent. The medium and heavy commercial vehicles have been caught in a severe slump. Though the cement industry has registered some minor improvement but it would take a couple of months before it moves out of the slump conditions. That too if the government’s programmes for road-building and infrastructure projects are given a go-ahead signal and start moving. Much depends on political stability and government initiative.

Even in this sluggish market, I have no hesitation in recommending two good multinational scrips for long-time investment. The first is Hoechst Marion. This scrip declined sharply when its first half results were announced and its market price climbed down to Rs 285/- but now it has moved up again to Rs 382/-. It has scope for crossing Rs 450/- during 1999-2000. There are a number of developments that make me optimistic about this scrip.

First, there are reports that Hoechst and Rhone-Poulenc may merge at the international level and this would make the new combine as the second largest pharma company. Secondly, Hoechst is planning to divest itself of all non-core activities, including speciality chemicals. This will be done by stages. This would make Hoechst concentrate on pharma alone.

Another good news for this scrip is an unconfirmed report in Business Standard that the Russian government may guarantee payment to Indian exporters in pharma products. This, if true, would greatly benefit Hoechst, Dr Reddy’s and Ranbaxy.

The second scrip which I would like to recommend is Clariant India. There is a confirmed report that Ciba Speciality is being merged with Clariant at the international level. This would be, no doubt, followed by this merger in India too. When this news is read along with that of Hoechst divesting itself of speciality chemical products, the obvious conclusion is that Clariant would strengthen itself as the leader in the world market in speciality chemicals. It may not be a surprising development if Clariant takes up some of the products from Hoechst itself. Clariant India is a scrip of great future prospects and may cross 350 during 1999-2000. Top


 


By K.Garima
Give currency protection to foreign investors

IT is worth noting that the $ 4.16 billion collected through SBIs well-received Resurgent Bond Issue approximates barely one-sixth of the annual fund requirement for infrastructure investment in India. Though the government has increased its plan outlay by 29 per cent for the financial year 1998-99, Its materialisation depends entirely on GDP growth, which alone can ensure that the target is met. But, given the continuing economic slowdown, it is highly unlikely that the targeted capital outlay requirements will be met. Herein lies the problem.

To foreign investors, protection against currency risk can also be provided. In fact, different countries have treaded differently on this path to attract investments into infrastructure projects. Long tenures, high dependence on external environments, buyers health, the economy, huge up-front investments and high sunk costs are the risks which weigh against infrastructure projects. A guarantee to ensure returns to investors is necessary in all infrastructure projects. Any change in regulation can make or break a project. Further, any change in process technology can render the project unviable. Sunk costs can never be recovered. The negotiation powers of contracting parties change significantly the moment investments are made, as investments cannot be recovered.

In a research paper prepared by the World Bank’s Economic Development Institute, it has been found that probability of default in case of loans to infrastructure projects of shorter maturity, even with lower interest rates, is higher interest rates. SBI could not match longer maturity with higher interest rates. SBI could not match the maturity of the funds raised by it through RIBs to the maturity of infrastructure projects. It resorted to an agreement with IDFC which could give it immediate liquidity if the need arose after five years. IDFC proposes to keep aside a corpus for this purpose and is expected to enter into similar agreements with some other banks. The major players are

Jyoti Structures

Jyoti Structures manufactures transmission line towers, substation structures, tall antenna towers/masts and railway electrification structures. It also undertakes turnkey contracts involving survey, foundation, erection and stringing activities of extra high voltage transmission lines and sub-stations. The company has one of the most modern transmission line tower manufacturing units in the company. With the testing of the company’s first tower at its tower testing facility in Feb. ‘98, it will be able to eliminate problems arising in the existing queue system of testing, which cause sub-stantial delays even for a minor fault. The company has significant locational advantages. Jyoti Structures derives a significant part of its export income from the Asia-Pacific rim and Australia. Australia being unaffected by the present South East Asian crisis, the company should be able to boost its fortunes.

Koatex Infra

Koatex Infrastructure has positioned itself as a one-stop shop for all infrastructure related requirements, with its expertise ranging feasibility studies, design engineering, procurement, commissioning and maintenance. In a consortium arrangement with Chiyoda Corporation Japan, the company has secured the prestigious Pipavav ship-breaking project construction contract, financed by OECD. It hopes to get the mandate for the project’s maintenance and operation also on its completion. The project is the first of its kind in the country to employ the ship dismantling procedure which is the reverse of ship building.

VM Jog Eng

VM Jog Engineering (VMJE) is engaged in various engineering projects including bridges and flyovers, foundation engineering, industrial constructions, pre-fabricated mass housing, manufacturing and laying of MS pipelines and pre-stressed concrete pipelines and waste water treatment plants. It has a base workshop which fabricates several specialised engineering works and maintains plant and machinery. The company’s clients include the Municipal Corporation of Greater Bombay, IPCL, Oil India, ONGC, MIDC, the PWD, government, of Maharashtra and CIDCO. VMJE opened a new software development division and has successfully made identity cards for 15 lakh voters in Maharashtra. The company is a part of the four contractors who have been awarded contract for the Rs. 700 or Mumbai-Pune Expressway project.

Simplex Con Piles

Simplex Concrete Piles (India) pioneered the latest foundation engineering concepts in India and South-East Asia. Its achievements include projects like steel plants at Jamshedpur and Burnpur, the KG Dock in Calcutta and piling for Bally and Howrah bridge approaches. Simples was involved in the foundation construction of the Supreme Court, New Delhi, the Salt Lake Stadium in Calcutta, Alexander Docks in Mumbai and Tata Power Station at Trombay.

Specialising in pile foundations and structurals, the company’s other areas of activity include general civil engineering construction works in power plants, bridges, marine structures and, fertiliser and petrochemical plants. Simplex’s edge is its excellent design and project management capabilities for complex and specialised construction projects. A resurgence of investment in the infrastructure sector bodes well for the well-established player’s future in civil engineering.Top


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