Blueprint for second-generation reforms
NEW DELHI, Sept 19 — The Government has prepared a blueprint for unleashing second generation reforms, identifying seven thrust areas, including a statutory ceiling on borrowings, to make India an economic superpower by 2010.

SBI to look into Steel Strips accounts
NEW DELHI, Sept 19 — The BIFR has ordered a probe into the allegations of manipulations of accounts of Steel Strips Ltd and appointed the SBI as operating agency for the purpose.

HCL Comnet offers 5 per cent equity
NEW DELHI, Sept 19 — HCL Comnet has announced an employee stock option scheme, offering shares of its parent company, HCL Technologies at $ 13.5 per share.

Phone users attack TRAI
NEW DELHI, Sept 19 — Many telephone users have come out strongly against the Telecom Regulatory Authority of India’s order making incoming calls on cellular phones free at the expense of fixed line phone users from November 1.

Dadupur project to be set up by Genco CHANDIGARH, Sept 19 — The Haryana Government yesterday decided that the four MW Dadupur Western Yamuna Canal Power Project would be set up by the Haryana Power Generation Corporation (Genco) instead of Bangalore based firm Bhoruka Power Corporation Ltd.

HAL staff may soon become workless
NEW DELHI Sept 19 — Hindustan Aeronautics Limited, which indigenously manufactured aircraft like the MiG-21, MiG-27 and the Jaguar, will soon face a situation where there will be no work for thousands of its employees.

Inflation inches up to 1.94 pc
NEW DELHI, Sept 19 — The inflation rate continued to rise for the third consecutive week and stood at 1.94 per cent for the week ended September 4 due to a sharp increase in the prices of food articles and fuels.

Blueprint for second-generation reforms

NEW DELHI, Sept 19 (PTI) — The Government has prepared a blueprint for unleashing second generation reforms, identifying seven thrust areas, including a statutory ceiling on borrowings, to make India an economic superpower by 2010.

The second generation reforms, expected to be set in motion after the elections, will deal with “difficult areas” through hard decisions like legislation on fiscal responsibility of both the Centre and States.

Priority will be given to the areas which have remained untouched due to the Government’s inability to evolve a consensus till date to bring in key legislation like bankruptcy laws, amendments to labour laws, the Income Tax Act, Company Law, the Foreign Exchange Management Act (FEMA) and the Insurance Regulatory Authority Bill to open up the sector.

The Finance Ministry’s Chief Economic Adviser Shankar Acharya has said the greatest challenge will be to enhance productivity and competitiveness of the Indian economy, necessitating “strong and sustained” commitment to bring in these legislation.

Outlining the economic challenges in the future at a seminar, being organised by the Indian Council for Research on International Economic Relations tomorrow, Acharya said India would have to learn from the experiences of balance of payment crisis of 1991 and the currency meltdown in the East Asian economies.

The second generation reforms will focus on carrying forward tax reforms, effective privatisation of public sector enterprises and redirecting public money to social sectors like education, health, rural infrastructure, Acharya said.

Referring to the fast-changing base for financial supervision, he said: “Emerging international financial architecture would impose fresh fiscal and financial discipline on the countries.”

India has to progress towards greater capital account convertibility but the pace would have to be managed to reduce its negative fallouts which became evident in the recent East Asian crisis.

The Exchange rate management would remain a demanding task for the Reserve Bank of India (RBI) and banks need to ensure market-responsive flexibility while minimising the risks and costs of “over-shooting”

Future Finance Ministers would have to stand by the commitment given to bring down India’s Customs duties to Asian levels within a few years.

He said India had to take a proactive approach to negotiations held in multilateral trade fora like WTO and give workable commitment to “open regionalism” to SAARC countries, ASEAN and Asia Pacific Economic Cooperation (APEC).

Asking the exporting community to be ready to face slowdown in the US economy, India’s largest trading partner, he said: “World economy benefited from the unprecedented boom in American economy but a day might come when the long predicted slowdown actually occurs.”

India was able to ward off the adverse fallout of the East Asian economic crisis as it had adopted prudent exchange and external debt policies, Acharya said, adding that “short-term external debt was under tight control and at very modest level.”

India’s market determined exchange rate system had been managed in a flexible manner in the five to six years preceding the Asian crisis.

Though export growth in India slowed in 1996-97, before the onset of the Asian crisis, the current account deficit remained well within limits.

The current account deficit of below 2 per cent of the gross domestic product is considered to be a comfortable level.

Despite favourable circumstances and effective policies, India’s foreign exchange market came under pressure with repeated bouts of speculative attacks between August 1997 and January 1998, he said.

While making the Indian rupee fully convertible, due regard should be given to the health of domestic fiscal and financial system, he added.

Acharya said India could give a fresh thought to the credible pegged system for rupee though it required high levels of foreign exchange reserves.

The Reserve Bank and political authorities would have to learn to live with wide fluctuations in exchange rates, both in the short term and the long term, to get optimum results in market determined exchange rate system, he said.

SBI to look into Steel Strips accounts

NEW DELHI, Sept 19 (PTI) — The Board for Industrial and Financial Reconstruction (BIFR) has ordered a probe into the allegations of manipulations of accounts of Steel Strips Ltd (SSL) and appointed the SBI as operating agency for the purpose.

The board said the enquiry could be conducted by the SBI on its own or through a reputed firm of chartered accountants.

Creditors have alleged that the accounts of SSL for the 1998-99 financial year were manipulated, saying “the company’s balance sheet did not reflect a true and fair view of company’s state of affairs. The company has filed its application to the BIFR for declaring it sick on the basis of 1998-99 accounts.”

“There were doubts particularly in relation to treatment of preference share capital, provision for bad and doubtful debts, change in the method of depreciation and loss on sale of investments,” the creditors alleged.

SSL has shown networth of Rs 25.12 crore being completely wiped off by accumulated losses of Rs 32.88 crore and investment of Rs 30.66 crore in plant and machinery as on March 31, 1999.

Oriental Bank of Commerce (OBC), one of the creditors, in its submission to board raised strong objections to the sickness claimed by SSL saying the company had changed its depreciation method and deviated from established accounting practice thereby showing higher losses.

OBC submitted that SSL’s preference share capital aggregating Rs 90 lakh redeemable at par on August, 1996 and July, 1997 for Rs 40 and 50 lakh, respectively, had been included in the paid-up capital till March, 1998, whereas it had been classified as current liability as on March 31, 1999.

The bank said in light of their objection the networth of the company worked out “Rs 10.72 crore, and thus its application should be dismissed or special investigative audit may be ordered to ascertain ulterior motives of the promoters.”

HCL Comnet offers 5 per cent equity to employees

NEW DELHI, Sept 19 (PTI) — HCL Comnet has announced an employee stock option (ESOP) scheme, offering shares of its parent company, HCL Technologies at $ 13.5 per share.

“Thirty per cent of the employees will be given 5 per cent of HCL Technologies’ shares to make them partners in progress and to increase the productivity,” Vineet Nayar, President of HCL Comnet, told PTI.

HCL Technologies, registered in the USA, is part of the Rs 3,200 crore information technology giant HCL group.

As per the ESOP plan, offered to employees last evening, shares would be allotted in three tranches beginning October 2000. The second and third tranches would follow in October 2001 and 2002, respectively.

Nayar said the ESOP would make the employees part of the “Millionaire Club” and there would not be any lock-in period, giving the employees the freedom to sell the shares subject to regulatory requirements.

The employees have been selected for the ESOP scheme based mainly on innovation, initiatives, performance rating and contribution to company’s growth beyond the scope of job profile, he said.

The Millionaire Club is the third in the series after the “Pioneer Award” to 14 employees who started the company and the “Value Creator Award” to 10 per cent of staffers.

Nayar said the Millionaire Club members were selected by a 10-member Senate who evaluated the performance of each employee in the organisation.

“The scheme, introduced to enrich the quality of life of employees to make them better performers, covers all departments, including marketing, sales, human resources, administration, finance, technical and support staff,” he said.

HCL Comnet Systems and Services Ltd was formed in 1993 as a fully-owned subsidiary of HCL technologies and has about 400 employees with network integration services across 19 countries.

Phone users attack TRAI for free incoming calls

NEW DELHI, Sept 19 (PTI) — Many telephone users have come out strongly against the Telecom Regulatory Authority of India’s (TRAI) order making incoming calls on cellular phones free at the expense of fixed line phone users from November 1.

VOICE, a consumer organisation engaged in telecom related issues, has described the calling party pays (CPP) regime introduced by the authority through its Friday order as a “mere marketing gimmick” to benefit cellular operators.

TRAI has introduced CPP after a consultation process making incoming call free on cellular phones but charging fixed phone users for calls to mobile phones at an enhanced tariff compared to that of ordinary calls.

Bejon Mishra, Adviser to VOICE and the Consumers Coordination Council, termed the new regime as “a confusing trend” and asked for better transparency even before introducing such important decisions affecting a large section of consumers.

P. Balakrishna, a senior independent telecom analyst, said the move, the latest in a series of tariff hiking measures of the Authority, had rendered the use of basic telecom service highly expensive.

Interestingly, the Indian Mobile Phone Users Association has also criticised CPP saying there was already an in-built facility in cell phones to display the calling party’s number which would help to decide whether to take a call or not.

Although CPP was a positive move when looked at from cellphone users’ point of view, it would not benefit the fixed line users in any way.

However, it welcomed other measures in the order such as bringing down rentals and call charges.

Balakrishnan said TRAI should have taken fixed phone users into its confidence before taking off a facility which they had been enjoying. “The market regulator cannot take the consumers for a ride,” he added.

He said the Authority had proved itself anti-consumer by the decision to charge fixed phone users at an enhanced rate for calls to cell phones.

Dadupur project to be set up by Genco

CHANDIGARH, Sept 19 (UNI) — The Haryana Government yesterday decided that the four MW Dadupur Western Yamuna Canal (lower) Power Project would be set up by the Haryana Power Generation Corporation (Genco) instead of Bangalore based firm Bhoruka Power Corporation Ltd. The decision was taken by the State Cabinet at its meeting here presided over by Chief Minister Om Prakash Chautala.

The erstwhile Bansi Lal Government had allocated this project to the Bangalore based firm and this had evoked a lot of criticism in the press because it was contrary to the recommendations of the technical committee, it was clarified.

An official spokesman said the issue was examined by a Cabinet Sub-Committee which found that the project could be set up by Genco as an earlier decision to hand it over to the Bangalore based firm was arbitrary.

The Cabinet also decided to change the decision of awarding other power projects like Balliyala Fall and Gogripur Sites because bidders, who were evaluated at number two, had been given approval to set up these projects.

Inflation inches up to 1.94 pc

NEW DELHI, Sept 19 (PTI) — The inflation rate continued to rise for the third consecutive week and stood at 1.94 per cent for the week ended September 4 due to a sharp increase in the prices of food articles and fuels.

Primary food articles, which account for about one-fifth of the total weight of wholesale price index (WPI), shot up by a sharp 2.4 per cent during the week.

The annual rate of inflation moved up by 0.13 percentage points to 1.94 per cent (provisional) from 1.81 per cent a week before. However, the current inflation rate was way below 8.33 per cent recorded a year ago.

The below 2 per cent rate of inflation witnessed during the current year is due to the comparison with a higher base last year, when the prices of fruits and vegetables had skyrocketed due to lower agriculture production.

Black economy accounts
for 40 pc of GDP
From Gurdip Singh

NEW DELHI, Sept 19 — The black economy in India is 40 per cent of the GDP which amounts to Rs 7,00,000 crores, according to a just published study.

This includes a contribution of 32 per cent from the legal sectors and 8 per cent from illegal activities like smuggling, drugs and flight of capital. The black income generation of this magnitude is concentrated in the hands of at the most 3 per cent of the population, thus reflecting extreme inequalities in income and wealth. The study entitled “The black economy in India,’’ now in a book form, has been carried out by Dr Arun Kumar, Associate Professor of Economics at the Jawaharlal Nehru University.

The estimate of black economy for 1995-96 has been made by “correcting” the earlier estimates by experts.

In 1990-91, according to various estimates, the black economy constituted about 35 per cent of the national economy, which was larger than either its primary or secondary sectors. Since then black income generation has increased not only through “legal” activities like real estate transactions and the share market but also illegal ones, which include inflated election expenses, capitation fees and tuitions and bribes. The new economic policies expected to counter its growth have been unsuccessful in containing it, the author says.

The estimates which have been “corrected’’ for the purpose of the study by Dr Arun Kumar include the one by the National Institute of Public Finance and Policy (NIPFP) and the well-known study on the subject by Prof S.B. Gupta of Delhi School of Economics. Dr Kumar was himself a member of the NIPFP study carried out for the Central Board of Direct Taxes (CBDT).

The present study critically examines the standard explanations for the causes and consequences of black income generation and the methods suggested for curbing it. Among the issues addressed by it are the role of high taxation and excessive controls in fuelling tax evasion and hence black income, the resulting inefficiency, waste and sub-optimality in the economy and society, the limited success of technical remedies like the VDIS and the need for structural remedial measures to curb speculation in real estate and electoral reform.

The author pleads for recognising the role of criminalisation and the emerging nexus of the businessmen, politicians and bureaucrats in perpetuating black economy.

The estimate of 40 per cent of GDP spells out as to what the black economy should include and what it should not. It includes factor incomes but excludes transfer incomes.

Transfer incomes are those which only change hands without there being an associated production. For instance, if an individual purchases property and pays a part in black, the money only exchanges hands from the buyer to the seller. It, therefore, does not involve any production. Factor incomes are wages, profits, interest and rent.

The measure does not take into account transfer incomes like generation in real estate transaction or bribes. The study distinguishes black income generation in the primary, secondary and tertiary sectors and the organised and unorganised sectors in each one of them.

The study finds that the highest black income generation is the organised tertiary sectors like hotels, restaurants, trade and other services.

It estimates that in 1990-91 whereas black income generation in the primary sector was 5 per cent of the output, the corresponding figures in the secondary and tertiary sectors were 25 per cent and 70 per cent.

The author says that he has corrected what he describes as infirmities of the NIPFP study by removing transfer incomes and the arbitrary addition of certain incomes to get to the national income total.

The correction in Prof Gupta’s study is by eliminating the multiple counting of black incomes. In the NIPFP study capital gains from real estate were added and in Prof Gupta’s study excise duty evasion was added, thus creating multiple counting of black incomes from the same factor incomes.

The study underlines the difference in the nature of the black economy in India and in the advanced nations. For instance in the West the black economy is a parallel economy while in India the white and black economy are intertwined. In the advanced nations black incomes are generated mostly in illegal activity and informal sector activity. The legal sector remains largely untouched because of the systems are voluntarily complied with.

On the other hand, in an economy like India large amounts of block incomes are generated from the legal sector, in addition to what is generated in the illegal sector. Similarly, most incomes from the informal sector being below taxable limit do not constitute black incomes. However, in the West almost all informal sector activity by individuals is in addition to the formal sector activity and therefore. these incomes are also taxable.

Black income generation in India increases the transaction cost in the process of production. So, the country become a high-cost economy.

The study estimates that the cost of manufacturing doubles as a result of the black economy. This is the principle reason that why in spite of cheap labour India is termed as a high-cost economy and its exports are unable to compete in the market. The study thus highlights the critical nature of black economy for policy purposes and remedial measures.

The rapid growth of the black economy and its ill-effects have been used as an instrument by some economists to discredit State intervention in the economy and call for the retreat of the State from economic matters. However, the author points out that controls and regulations are not the cause of black income generation but only a source for black incomes to be generated. The cause has been traced to the growing illegality of the society.

The elimination of controls and regulation does not constitute a solution to the growing black economy. It only leads to the non-fulfilment of the obligation of the State to the underprivileged in society, Dr Kumar says. —UNI

HAL staff may soon become workless

NEW DELHI Sept 19 (UNI) — Hindustan Aeronautics Limited (HAL), which indigenously manufactured aircraft like the MiG-21, MiG-27 and the Jaguar, will soon face a situation where there will be no work for thousands of its employees.

If the Government decision not to undertake production under the licence of the advanced jet trainer (AJT) and the serial production of Su-30 aircraft is implemented, the HAL units producing jet engines at Koraput, airframes at Bangalore and the avionics at Lucknow will become workless, rendering highly skilled workers and engineers idle.

According to aviation experts, HAL had made tremendous strides in designing the advanced light helicopter (ALH) and the light combat aircraft (LCA). It had developed the expertise to undertake the production of more advanced fighter aircraft.

The experts feel it was a crucial time to keep up the momentum of production in HAL by giving it more production jobs and help it develop more advanced skills in the field of military aviation to make the country self-reliant and save crores of rupees in foreign exchange.

The production of MiG-27 has already stopped and it is learnt that the series production of Su-30 fighter jet may not be undertaken and instead the Indian Air Force may be asked to buy outright more Su-30s from Russia.

The Air Force placed orders on HAL last year for another 17 Jaguar aircraft. After three years, this production line will also be stopped.

by Ashok Kumar
Sund Brake worth investment ?

Q: Do you recommend investment in the shares of Sundaram Brake Linings?

— Jaspreet Singh, Jalandhar

A part of the TVS group, Sundaram Brake Linings is a prominent player in the automobile ancillaries industry. The company is engaged in the manufacture of automotive and non-automotive friction materials and asbestos and asbestos free friction materials. The products include brake linings and pads, and clutch facings. The company enjoys its presence in the original equipment supply market and also in the replacement market. Under its belt, the company caters to blue chip clientele such as Telco and Ashok Leyland. The company was put to the test by the economic slowdown and it came out with flying colours. The adverse conditions which were prevalent did not deter the company which posted satisfactory results on the financial front. For the year that ended in March 1998, the company posted sales and net profit at Rs 59.12 crore and Rs 3.54 crore respectively. The EPS therefrom worked out to Rs 13.1. The company resorted to capacity expansions in anticipation of increase demand. The economic slowdown thereafter posed a threat. Despite recessionary trends in the industry, the company performed well, and if conditions prevailing improve, the company could witness better growth rates. Discerning investors could consider adding this scrip to their portfolios.

Q: Will investment in the shares of Revathi-CP Equipment prove remunerative?

— Mannan Mehta, Chandigarh

Revathi-CP equipment Ltd (RCPEL) is concerned with manufacturing of water-well and blast hole drill rigs which are used in coal and iron mines and limestone quarries. RCPEL, who happens to be a constituent of the Swedish Atlas Copco group, is one of the two major players in India in the market for blast hole rigs with the other and the dominant one being Ingersoll Rand. Thus the company has benefited from lack of fierce competition. Moreover, features like the relatively small size of the market as well as advanced technology also have resulted in the company being totally unaffected by any of the new entrants in this field. As per the financial records of the company as posted on March ’98 the total sales and the net profit recorded were Rs 47.67 crore and Rs 9.36 crore respectively with the EPS being worked out to Rs 29.2. The records for the next sixth month period ending on September ’98 showed the total sales and net profit at Rs 35.78 crore and Rs 6.58 crore respectively. Considering its strong position in the industry and the good prospects, discerning investors could consider picking this scrip for medium to long term gains.

Q: Please highlight the prospects of Indian Telephone Industries?

— Madan Garg, Bathinda

Indian Telephone Industries (ITI) ranks as the largest telecom equipment company in India. An absolute true and total telecom vendor ITI covers all segments of the industry, viz. switching, transmission, customer premises equipment and services. ITI which had earlier been badly affected by aggressive MNC competition as well as DoT’s erratic functioning is now finally having a refreshing turnaround. Of recent, ITI, who gain a substantial advantage from a very high level of vertical integration in the industry has been quite successful in countering the competitive threat imposed by the MNCs. Moreover, factors such as the rupee depreciation as well as the increase in the import duties have furthermore made MNC operations unviable. Today, ITI, happens to be a totally market-oriented and seems to be growing into a total solutions provider. This fact can be truly confirmed from the impressive financial figures as on March 1998 which showed total sales and net profit of Rs 1263.05 crore and Rs 1.38 crore. The EPS stood at Rs 0.2 on the above date. For the succeeding period, sales and net profit stood at Rs 1555 crore and Rs 21.0 crore respectively. The EPS therefrom worked out to Rs 2.4. With the improvement of the ITI’s financial structure there is very much a possibility of the government divesting it’s stake in favour of strategic investors.

Q: Highlight the medium to long term Dr Beck & Co?

— Soorya Raj, Chandigarh

In spite of a poor market scenario prevailing in the country Dr Beck & Co has reported appreciative results in the first half of the year. The adequately available facilities in Pune and Ankleshwar have enabled Dr Beck & Co. to specialise in the manufacture of a wide range of electric insulations such as wire enamels and impregnating agents as well as a variety of construction chemicals which include water-proofing chemicals, adhesives, sealants, and corrosion resistant coatings. As per the financial records posted by the company the total sales and the net profit of the company for the year ended March 1998 stood at Rs 69.30 crore and Rs 1.72 crore respectively. The resulting EPS worked out to be Rs 2.4. For the next 6 months period ending on September 1998 the total sales and the net profit stood at Rs 33.75 crore and Rs 2.38 crore respectively, while the annualised EPS worked out to Rs 3.4. Also there had been considerable growth in the electrical insulation and construction chemicals business by 3 per cent in value and 5 per cent in volume terms. Dr Beck & Co., which enjoys a global presence due to it’s parent’s core business, appears to be headed in the right direction.

by K.R. Wadhwaney
AI to provide more facilities

THE Government directive making it mandatory for officials to travel by Air India will help the national carrier to improve its financial health as also carry fuller load of passengers.

Wearing an optimistic viewpoint on the timely Government directive, Air India has, in turn, announced several additional facilities for passengers to travel in comfort.

For Government and public sector undertaking officials (Under Secretary and above), travelling on full round-trip fare, will be upgraded to the next higher class, subject to availability of space. The passengers will also be provided with 24 hours lay-over in Tokyo, Osaka, Paris, London, New York and Chicago.

AI’s Commercial Director Shanu Mukherjee has announced other facilities such as special handling and delivery of tickets at their residence. “We will provide higher priority to seat confirmation”, said Mukherjee.

The passengers buying tickets directly from the national carrier will be given discount of 12 per cent. “This is, however, subject to the passengers making payment within 20 days from the date of billing, says Mukherjee. This facility will not be available to the passengers going out on postings as they are already given concession of carrying additional baggage of 350 kg.

North India Regional Director V.K. Verma hopes the Government share of traffic would jump from 40-45 to 80 per cent. “This measure should consolidate our position in razor-sharp competition”, said Mukerjee.

The mood of officials looks upbeat as they expect a turnaround of the airline. “We have discontinued operating flights to important stations like Frankfurt”, said Mukerjee, adding: “But we have done this to help generate revenue from other sectors, which are lucrative at present”.

Strategic alliance partner, expansion of fleet and many other promotional schemes have been placed on hold until the formation of the new Government.

Air India is currently much better off than it was last year. This is because over-head expenses have been considerably reduced. It has also won the case of reverting to the retirement age of 58 from 60. “We have already effected a lot of saving on this score”, said an official, adding: We are now looking forward for happier days. “Maharaja will again be flying as full-fledged Maharaja with head up”, he said.

Montari Ind

I had sent 50 debenture certificates Distinctive Nos. 1865551-600, Folio No. 76252 and 100 shares (50+50) vide Distinctive Nos. 5107551-600 and 8005608-657 Folio No 76252 for transfer in my name to Montari Industries, Toansa, Teh. Balachaur, Distt. Ropar. Till today, the fate of the shares and debenture are not known.

Sunil Minocha
Chandigarh

Dhanvarsha

I invested Rs 79,000 in August ’92 in LIC Mutual Fund. Dhanvarsha in all vide certificate No S3008731, Rs 15000; S3023220 Rs 24000 and S 4030992 Rs 40000.

The payment fell due in June 1997 to me. Since 1997 I have received only Rs 148363 and spent Rs 459 in correspondence, travelling etc for my visits to Divisional office LIC Jalandhar and Regional Manager office, New Delhi. A sum of Rs 49927 is still due to me from LIC Mutual Fund (Dhanvarsha).

Dr V. Paul
Moga

IDBI Bonds

I purchased 10 certificates for Rs 10,000 under option A on 10.3.97. First payment of interest from 31.1.99 to 31.3.99 at 24.5 per cent PA was to be released on April 2 as per condition of the IDBI. I have not received the first payment of interest on 10 certificates numbering 836185 to 836194 as yet.

M.S Bir
Rakkar (Una)

DCM

I deposited Rs 10,000 with DCM Limited registered office Kanchan Junga Building, 18, Bara Khamba Road, New Delhi-110001 on 29.5.97 at 15 per cent interest vide FDR No 139644/2F 14647. The period expired on 28.5.98. I have not received the payment so far.

R.K. Aggarwal
Sonepat