Nobel laureate Mundell foreshadowed Euro
STOCKHOLM, Oct 13 — Much of the debate about European Economic and Monetary Union was foreshadowed in research nearly 40 years ago by Robert Mundell, awarded this year’s Nobel Economics Prize today.


Interest burden up by 200 per cent
NEW DELHI, Oct 13 — The continuing huge fiscal deficit has resulted in a sharp increase of 200 per cent in the repayment obligation of the Government from 11 paise out of every rupee of fresh borrowing in 1991-92 to 33 paise by 1998-99, PNB Gilts has said.

Pakistan risks losing IMF aid
PARIS, Oct 13 — International Monetary Fund Managing Director Michel Camdessus today said Pakistan could lose its IMF aid if democracy were not restored after the military coup that deposed Prime Minister Nawaz Sharif.

Lighter way to bullet proofing
NEW DELHI, Oct 13 — Mahindra & Mahindra has tied up with Plassan of Israel for bullet-proofing of vehicles and targeted to customise 500-1,000 jeeps and cars in the first year of operations.

Canam establishes information centre
CHANDIGARH, Oct 13 — Canam Consultants Limited, a leading group specialising in Canadian immigration and overseas education programmes, has expanded its network of branch office and also introduced information and career consulting resource centre in its branch office here today.

Gujarat Ambuja to pay 1:1 bonus
Gujarat Ambuja Cements today announced a 1:1 bonus share issue even as it earned a net profit of Rs 50 crore for the first quarter of its financial year 1999-00, up 195 per cent from Rs 17 crore for the same period last year.

Nobel laureate Mundell foreshadowed Euro
From Jonathan Lynn

STOCKHOLM, Oct 13 — Much of the debate about European Economic and Monetary Union was foreshadowed in research nearly 40 years ago by Robert Mundell, awarded this year’s Nobel Economics Prize today.

In his seminal article in 1961 on optimum currency areas, Mundell posed the radial question of when it was advantageous for a number of religions to relinquish monetary sovereignty in favour of a common currency.

Mundell examined the advantages of a common currency, such as lower transaction costs in trade and less uncertainty about relative prices, and looked at the disadvantages in more detail.

The major drawback is the difficulty of maintaining employment when changes in demand or other “asymmetric shocks” require a reduction in real wages in a particular region.

For Mundell, high labour mobility to offset such disturbances was important for the survival of a joint currency.

“He characterised an optimum currency areas as a set of regions among which the propensity to migrate is high enough to ensure full employment when one of the regions faces an asymmetric shock,” said the Royal Swedish Academy of Sciences, which awards the prize.

Labour mobility: This remains highly relevant to the debate about the single currency, where one of the key issues is labour mobility in response to asymmetric shocks.

For instance if an economic downturn in France or Italy leads to an increase in unemployment, the government no longer has the option, with the single currency, of devaluing or cutting interest rates.

Nor, because of the EMU stability pact limiting budget deficits, does it have much scope to stimulate the economy through fiscal means such as tax cuts or increased spending.

Graham Bishop, adviser for European financial affairs at Salomon Smith Barney/Citigroup in London, and himself a long-time enthusiast for the European Monetary Union, said Mundell’s theory had been a key factor in developing a workable EMU.

“If the economic fraternity had all risen up as one and said it won’t work, then maybe the politicians would have dropped the idea, “Bishop said. “He provided a framework under which it could be demonstrated it had a good chance of working.”

It remains to be seen, however, whether EMU will meet the conditions Mundell laid down in his theories.

“One of the huge debates about the Euro was whether the relevant parts of the European Union constituted an optimal currency area within the Mundell test. History will give that answer,” said Bishop.

Exchange rate regimes: Mundell, born in Canada in 1932, has had plenty of opportunity to influence the policy debate directly.

After a stint in the Research Department of the International Monetary Fund in 1961-63, the time of some of his most important work, he joined the monetary committee of the then European Economic Community’s commission in 1970, and its study group on economic and monetary union in Europe in 1972-73.

Mundell conducted his ground-breaking research when much of the world was governed by fixed exchange rates in the Bretton Woods system, and research into floating exchange rates high capital mobility must have seemed an academic curiosity.

Besides considering when a country should give up its own currency. Mundell also established the policy implications of different exchange rate regimes.

Under a floating exchange rate, monetary policy becomes powerful and fiscal policy powerless, whereas the opposite is true under a fixed exchange rate.

So if there is free capital mobility, monetary policy can be orientated towards either an external objective, such as the exchange rate, or an internal domestic objective such as prices, but not both at the same time — a conclusion now considered self-evident by most academic economists and policy-makers. — Reuters

Interest burden up by 200 per cent

NEW DELHI, Oct 13 (PTI) — The continuing huge fiscal deficit has resulted in a sharp increase of 200 per cent in the repayment obligation of the Government from 11 paise out of every rupee of fresh borrowing in 1991-92 to 33 paise by 1998-99, PNB Gilts has said.

The interest payment on public debt increased by 211 per cent from Rs 14,021 crore to Rs 43,712 crore during the period.

During 1998-99, the Central Government raised Rs 93,953 crore (inclusive of 364 day treasury bills) exceeding the budgeted level of Rs 79,376 crore by Rs 14,577 crore, the company said in its annual report.

The slippage in revenue receipts was mainly responsible for the overrun of the borrowings programme with net market borrowings at Rs 62,903 crore in 1998-99.

Another significant development with respect to the government borrowing programme was an effort to enlarge the maturity profile of new issues.

Accordingly securities with an initial maturity of 11, 12, 15 and 20 years were issued, thus taking the average maturity period of government securities during the year up to 7.9 years compared to 6.6 years in 1997-98.

However, the interest rate on government borrowings continued their downward movement in view of the comfortable liquidity position in the system, it pointed.

Interest rate on a 10 year paper declined from 13.05 per cent in 1997-98 to 12-12.25 per cent in 1998-99. On the shorter maturity of two years also, the rate of interest declined from 12.14 per cent to 11.4 per cent, PNB Gilts said.

The weighted average interest rates on Central Government securities, declined from 12.01 per cent in 1997-98 to 11.84 per cent in 1998-99.

On the overall gilts market, it said new market segments were developing following the permission to pension and other funds to invest in government securities.

A large number of mutual funds have launched dedicated gilt funds in the past three to four months.

“We expect this segment to grow in future and offer good business opportunities for the primary dealers,” it added.

Pakistan risks losing IMF aid

PARIS, Oct 13 (Reuters) — International Monetary Fund Managing Director Michel Camdessus today said Pakistan could lose its IMF aid if democracy were not restored after the military coup that deposed Prime Minister Nawaz Sharif. Camdessus told Europe 1 Radio the IMF, which has delayed payments from its latest $ 1.5 billion credit because of doubts about Pakistan’s economic programme, did not want to continue its aid if donor countries decided to cut off their support.

Asked if the IMF should give money to putschists, he said, “I hope that developments in Pakistan will lead to a democratic normalisation of the situation ...’’

“If not, no?’’ interjected the radio journalist. “If not, no,’’ Camdessus replied.

“We were about to finish a negotiation with Prime Minister Sharif,’’ he added. “We made conditions that have not yet been met to unblock our money.’’

Camdessus, who expressed concern about the coup in a heavily populated nuclear power such as Pakistan, said donor countries often suspended their bilateral aid when a coup occurred during the course of an aid programme.

“At that moment, since the IMF does not want to do everything all by itself, its aid is interrupted as well,’’ he said.

Payments from the latest IMF credit approved in 1997 were delayed before the coup because of doubts about economic conditions and a dispute over the role of independent power producers.

The IMF loan stalled initially after US-led sanctions to punish Pakistan for testing nuclear bombs. Payments resumed this January as the country struggled to find funds to pay its debts and to prevent an economic meltdown.

But the IMF and the World Bank remain worried about Pakistan’s economic performance, especially about tax collection and the actions of the independent power producers and how much they charge for electricity.

Fund officials said last week that IMF management had met Pakistani officials following last month’s annual meetings of the IMF and the World Bank. They “hoped to resolve soon the outstanding issues’’ blocking new payments from the credit, the Fund said in a statement last week.

Lighter way to bullet proofing

NEW DELHI, Oct 13 (PTI) — Mahindra & Mahindra has tied up with Plassan of Israel for bullet-proofing of vehicles and targeted to customise 500-1,000 jeeps and cars in the first year of operations.

Initially the company would take the job of converting Mahindra jeeps and Ambassador cars into bullet-proof vehicles and later extend it to other vehicles.

The cost of bullet-proofing a vehicle like Mahindra jeep will be about Rs 10 lakh which can vary depending on the vehicle model.

The first such bullet-proof vehicle, which uses composite steel, high performance polyethylene and aramid laminates, has been displayed here at the Defexpo’ 99.

The weight of a vehicle increases by about 1,000 kg after bullet-proofing in a conventional way by using jackal (Indian steel) whereas in the case of Plassan material, the additional weight is about 450 kg only which helps in the easy movement of the vehicle.

The bullet-proof vehicle, named “Rakshak”, is a lightweight vehicle which meets stringent international standards providing protection from AK-47 rifle, hand grenade and 7.62 mm NATO ball ammunition.

Canam establishes information centre
Tribune News Service

CHANDIGARH, Oct 13 — Canam Consultants Limited, a leading group specialising in Canadian immigration and overseas education programmes, has expanded its network of branch office and also introduced information and career consulting resource centre in its branch office here today.

At the opening ceremony, Mr Anuraj Sandhu, Vice-President, Asia Pacific, said that now our research of the prospective India immigrant has made us to have a more focused approach in creating awareness, practical skill development and to impart substantive strategic knowledge to aspirants willing to immigrate to Canada.

Canam, in collaboration with its associate company, Man Power Plus, GR, Canada, has taken an initiative to customise its education programmes and counselling in line with the need of India professionals while taking out emerging job opportunities.

Canam has so far processed more than 1,000 of cases and achieved nearly 100 per cent success rate, he added.

Gujarat Ambuja to pay 1:1 bonus

Gujarat Ambuja Cements today announced a 1:1 bonus share issue even as it earned a net profit of Rs 50 crore for the first quarter of its financial year 1999-00, up 195 per cent from Rs 17 crore for the same period last year.

Its sales for July-September were Rs 243 crore, up 20 per cent from Rs 203 crore a year ago.

The firm sold 1.2 million tonnes of cement in its first quarter, slightly up from the 1.17 million tonnes it sold in last year’s first quarter.

Gujarat Ambuja said the operating profits per tonne of cement sold was 861 rupees compared with 624 rupees per tonne a year ago.

The interest burden went down to Rs 23 crore for the first quarter this year compared to Rs 27 crore for the same period last year.

Gujarat Ambuja said in a statement that inspite of the cement prices remaining at the same level at which they were two years ago, the above performance was due to the all-round cost reduction and improving the productivity further during the first quarter.

The company expects the growth tempo that started earlier this year to continue and it is expected that the growth in demand for cement during the year will be over 15 per cent.

The company provided depreciation of Rs 30.6 crore against Rs 28.2 crore for the period under review, the statement said.

Nicholas Piramal: Nicholas Piramal India Ltd (NPIL) on Wednesday announced a 23 per cent rise in profit after tax (PAT) at Rs 25.57 crore for the first six months of the current fiscal.

Sales for the first half year amounted to Rs 237.11 crore, an increase of 12 per cent over the corresponding period of last year, the pharmaceutical major said in a statement here.

During the second quarter, the company reported a 25 per cent increase in net profits at Rs 14.12 crore on a turnover of Rs 124.23 crore as against Rs 110.91 crore last year.

Thomas Cook: Thomas Cook (India) Ltd has posted marginally higher profits at Rs 11.48 crore on a turnover of Rs 52.679 crore for the nine months ending September 30, 1999 as against Rs 52.688 crore turnover during the corresponding period of the previous year.

The travel service company has registered a gross profit (after interest but before depreciation and taxes) of Rs 20.75 crore as against Rs 20.08 crore, last year.

— Agencies

Forex
US $ Rs 43.43/44
Stg £ Rs 71.84/86
Euro Rs 46.81/83
Jap yen (100) Rs 40.29/31

GVR to quit
NEW DELHI, Oct 13 (PTI) — The high-profile Chairman of the Disinvestment Commission GV Ramakrishna today said that he would resign tomorrow to enable the new Government to have a fresh look at the disinvestment panel.