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| Monday, February
19, 2001, Chandigarh, India   
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Economy: what next ?
Gujarat quake shakes Punjab industry
Capital Bank opens branch |
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Security lax at Kathmandu
Pre-Budget jitters grip the stock market
Cotton arrivals decline
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Economy: what next ? Q: What should the government do in the coming Budget? It is important that
the government takes a long-term view of the economy and Q: What measures would you suggest for meeting expenditure requirements for disaster management? It is very easy to mobilise resources by putting a levy for national calamities like the Gujarat quake or national emergencies like the Kargil war. Such levies when imposed are supposed to be temporarily in nature but tend to become permanent by the time the year is over. The tax structures which are defined in a particular way in one budget are defined in a totally different way in the next budget creating destabilisation in the economy. Treatment of dividend tax is a very clear example. Q: How do we keep the burgeoning fiscal deficit under check? Bloated bureaucracy and its cost along with that incurred by the political masters is playing havoc with the economy. A process must be initiated whereby these costs are cut drastically and the savings ploughed back in the economy. The central and state governments must basically move in consonance as far as economic development is concerned. The consensus view between all the relevant political parties has to be mobilised for the purpose. The recent treatment of Enron by the Maharashtra government can jeoparidise future foreign investments in the country and can take back the economy by a few years. Various subsidies is another area where the government must take a hard look for its effect on the economy. It is very easy to dole out and very difficult to collect. The government must not take the easy way out. All in all a long term view, eliminating wasteful expenditure, concentrating on focused areas like infrastructure and leaving the economy to the market forces can improve economic performance of the country substantially with a high yearly growth and help in eliminting or substantially reducing fiscal deficit. The government can then concentrate far more on the most important areas like health and primary education which are the base for future generations. Shekhar Bajaj Q: How do you find the present economic scenario?
The significance of such policies is that due to their high linkage effects, these will lead to increased economic activities, higher GDP and employment. The government has moved ahead with certain well-meaning power sector reforms. The Finance Ministry has accorded tax sops to companies formed through demerger of ailing SEBs. There is a move to reduce tariff burden on consumers in states, which will undertake power reforms. Also, there is likely to be unbundling of existing SEBs into separate transmission, distribution and generation companies. Orissa has successfully spearheaded power sector reforms through such measures. The recent announcement of allowing power companies to sell power to private companies is a welcome move. The statement by Union Power Minister Suresh Prabhu that the government will not default in the payments due to Dhabol Power has sent the right signals. Uncertainties on the policy front of disinvestment are now being fast cleared. This trend will enable the disinvestment to be useful as a catalyst for attaining higher economic growth. There is a general acceptance that disinvestment and privatisation is inevitable. On the tax front, the country has further traversed the journey towards Central VAT and introduction of state VAT from April 1, 2002. This is clearly a milestone though the public perception has been regretfully very poor. I would like that the VAT culture should evolve rather than the same getting imposed from the above. Economic indicators show that the external sector has been showing positive trends, with exports growing by over 20 percent this year. Foreign exchange reserves today are at its record high of over 41 billion dollars inclusive of $ 5.5 billion from the India Millennium Deposit Scheme. The Rupee has been quite stable. Comfortable forex and food reserves, together provide strong support to the government to push forward bold reforms. The size of our economy has already reached the critical mass to overcome all peripheral obstacles. Though we are placed 14th amongst all countries in size of economy, in terms of purchasing power India is ranked fourth after the USA, China and Japan. It is for this reason that companies from all over the world are looking at India. The just released AT Kearney report shows that India is the fourth hottest destination for first time FDI. The same report ranks India as the 7th among the top 10 countries (against 11th last year) in the FDI Confidence Index. Indian industry has shown significant resilience in meeting the challenges of globalisation. The massive reduction in import tariff rates from an average of 87 per cent in 1990-91 to around 20 per cent in 1999-2000 has not led to any significant disruption of domestic production. On the other hand, manufacturing sector exports have gone up from 71.6 per cent to 78.4 per cent during the same period. Q: Does it mean that the scene is all that rosy? There are a few areas of concern: there is poor record of project implementation, resulting in mounting cost and time over-runs. While the granaries are overflowing with stocks of rice and wheat, a large chunk of our population lacks adequate purchasing power to buy food. Similarly, persistent and high procurement prices ensure that India cannot export these excess stock to foreign countries. Here it may make sense that the surplus grains are exported, even at a loss, rather than letting it rot or be eaten by rats. On the capital market, equity issues, which are true reflection of the state of the primary market, have become rare these days notwithstanding some improvement on the mutual funds front. SEBI is ensuring smooth working of the stock exchanges. But for the capital market to perform its due role the recent trend of declining savings rate in the economy from a level of 26 per cent five years ago to 22 per cent at present needs to be reversed. Infrastructure activities continue to be at a low ebb. Roads, ports and basic industries need massive funding for growth. With competition among states increasing and central and state governments realising that political power can only come with economic strength, states have embarked on an aggressive strategy to bring about infrastructure reforms. This was very clear at the recent three day IDFC programme in New Delhi on infrastructure development in the country. In this essential task, state financial imbalances are proving the biggest bottleneck. It is, therefore, necessary that adequate funds are made available. Imports have seen a noticeable deceleration despite the whopping rise in oil imports. To me, the slackness in non-oil imports appears worrisome as this shows that our economy continues to suffer from a slowdown though it does help in our balance of trade. Although the huge success of the India Millennium Deposit Scheme has ensured enough supply of dollars, this cannot provide a long term solution unless IMD inflows directly move into creation of infrastructure assets. The emphasis needs to be on non-debt creating inflows and foreign direct investment in select sectors, where these can result in real value addition. Q: What measures would you suggest for keeping the fiscal deficit under check? With continued deterioration in the financial position of both the Centre and states, it is necessary that the Fiscal Responsibility Act gets implemented in right earnest. Q: Despite repeated efforts, a full fledged VAT regime is yet to take off in India. Your comments. Coming to the area of taxation, it is
necessary to reduce the dividend tax from 20 per cent to 10 per cent
and withdraw both corporate and personal surcharge. This had been
emphasised strongly in the pre-budget meeting also. I, however,
support the 1 per cent calamity surcharge and for one year, a 2 per
cent Gujarat surcharge which should be used exclusively for the
rehabilitation of the victims of the Gujarat tragedy. Though industry
share is hardly 23 per cent of DGP they pay 80 per cent of the taxes,
while the fast growing services sector which contributes more than 50
per cent of the GDP pays less than 15 per cent of the taxes. It is,
therefore, in the fitness of things that all services should be
included in the 5 per cent service tax. However, to avoid multiplicity
of taxes, it should be modvatable.
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Gujarat quake shakes Punjab industry The impact of Gujarat quake has also been felt by the industry in Punjab and elsewhere. For Punjab’s industry there is another quake-like situation in the closing of Delhi’s industry. These two happenings have caused a huge monetary loss to the state’s industry. Punjab’s industry has a fairly large volume of business with Gujarat. Auto parts, bicycle and parts, pipe fittings, rubber chappals go to various parts of Gujarat from Ludhiana and Jalandhar. For steel furnaces of Punjab bulk of steel scrap comes from Gujarat. Similarly Delhi is the bulk buyer of Punjab’s products of sorts. Suddenly the happenings in Gujarat and Delhi have resulted in a heavy loss to the state’s industry. Outstanding payments are not likely to be received in the
foreseeable future and bulk of them may be lost. Apart from this financial loss this has created a liquidity crunch for industrial units. Industry is finding it hard to run the routine business with heavy amounts going into doubtful category. Kandla port is the main sea port through which bulk of imports and exports are moved. Imported steel scrap is mainly routed through Kandla. With heavy damage to the port flow of raw material has been chocked. As a result rates of steel scrap in Punjab have soared, making the steel costlier by more than Rs. 400 a tonne. On the other hand, due to recession the engineering industry cannot absorb this sharp rise. So a downward spiral has been triggered. Due to damage to the port, delivery of imported and exported goods will be delayed which also translates into a financial loss. On the face of this crisis, the Central Excise Department is putting its own undue pressure on industry. The department is squeezing the industry to deposit more revenue without availing Modvat credit. Although this happens every year, this year the pressure on revenue officials seems to be unbearable. The Finance Ministry is taking the plea that PLA has grown by 8.37% only where as Modvat has shown a growth rate of 35.83%. PLA has gone from Rs. 691 to 755 crore whereas Modvat credit has increased from Rs. 973 to Rs 1233 crore. This is being made the basis for unusual pressure on industry. Every year the Excise Department pressurises the industry to postpone the availment of Modvat to the next year and deposit cash with the department. So the amount of Modvat credit goes on accumulating. This is the reason for higher growth of Modvat. Even as per the government’s own statistics, industry is going through a slowdown phase. If industrial growth is low compared to the previous year, how can revenue grow by 10%. Viewed from another angle, this window dressing of the Budget is against the norms. Cash instead of availment of Modvat credit simply means that the government is borrowing cash from industry. Any borrowing must be reflected in the Budget. By not doing so the Finance Minister is breaching the norms. This window dressing needs to be done away with. In view of this Punjab’s industry in particular may be allowed at least 10% over-drawls of the sanctioned limits. Where the loss to industry is more, over-drawl should match the outstandings in Gujarat and Delhi. The Punjab Government should also stop the recovery of interest-free loans extended to industry. In view of these hardships the Punjab Government should also postpone the recovery of interest free loan extended to industry by at least one year without penal interest. In view of protests against the high-handedness of the Excise Department. The Chief Minister should take up the matter with the Finance Minister. The Income Tax Department like the Central Excise Department is also resorting to undue pressure on industry. |
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Capital Bank opens branch Hoshiarpur, February 18 Mr Surinder Kumar, while addressing a large gathering, complimented the promoters for revolutionising the banking segment in the semi-urban and rural areas.
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‘Spare farmers inconvenience’ Chandigarh, February 18 |
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SBP launches 7-day working Jalandhar, February 18 The inauguration of these services was done by Mr R.S. Nanda, General Manager, at the bank’s specialised personal banking fully computerised branch on the Cool Road, Jalandhar. |
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Seminar on potatoes today Chandigarh, February 18 Dr G.S. Kalkat, Vice-Chancellor, PAU, Ludhiana, will inaugurate the seminar. Eminent scientists from Central Potato Research Institute, Shimla, PAU, Ludhiana, and Panjab University, government officials, exporters, processors, cold storage owners and growers will participate in the seminar. |
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Security lax at Kathmandu The Airports Authority of India’s (AAI) bookled has been considered by 40 odd users at the Indira Gandhi International Airport (IGIA) as a “very useful document.” The AAI has trained several personnel who are stationed at pivotal positions during the operation of a flight. These persons know how to use facilities without any loss of time in emergencies. Similarly, employees of users have been provided tips so that they are able to help facilitate safety of passengers and others working at the airport. This booklet has been brought out after an eight-year-old girl, Jyotsna, was crushed under the wheel of the escalator. Many officials were present but none knew where the button was to stop operation of the escalator. The booklet among several suggestions and guidelines carries valuable tips pertaining to “five preventions”. It also contains guidelines for operation on various security equipments installed at the airport. Indeed there is “marginal improvements” at the IGI but conditions prevailing at the other airports international and national are substandard, if not pathetic. The Kolkata airport, for example lacks in basic infrastructure. There are only two x-ray machines for about 4,000 passengers who take off for national and international flights. The immigration staff is not adequately trained. This leads to delay in clearing passengers. As a result flights get delayed. What is the cause for worry is that many metal detectors are lying non-functional. Even after 14 months of the Kandahar hijack incident, security at Kathmandu is lax. Nepal squirms at India’s proposal for airport vigil. Nepal refuses to take stringent security measures because it fears its tourism will be affected. What is more important: safety of passengers or tourism? Both the governments have however introduced an identification drill for passengers taking the New Delhi-Kathmandu-New Delhi route. The forum for discussing these measures was provided by the recently constituted Indo-Nepal joint working group (JWG). A proposal to deploy the special services bureau (SSB) at vulnerable border stretches is at the “consideration stage”even 14 months after the hijack. Raised after the 1962 Indo-Sino conflict, the SSB has been frequently using along with the borders in the North-East. The government feels that privatisation of the national carriers — Air-India and Indian Airlines and four metro airports will provide much needed boost for the ever-expanding civil aviation. The experts do not subscribe to the government view. The analysis is not against privatisation. But, the government, governed by ill-informed politicians has placed so many “do’s and don’ts in the process of disinvestments exercise that it is bound to have hiccups in its take-off. Experts hold the view that privatisation means complete freedom to consortiums to function independently. But if the government keeps poking its “imaginary spokes”, the entire exercise will be a failure and the situation will worsen instead of improving. |
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Pre-Budget jitters grip the stock market Last week, the sensitive index registered a loss of 1.52 per cent. Despite wide fluctuations during the last fortnight, the Index fell from 4352.26 points on February 2 to 4330.32 points on February 16. If the FIIs were buyers, the UTI and many other mutual funds were sellers. Even during the current week, the market is likely to be range-bound. No major company, except ABB, is expected to announce its results. With the Parliament meeting for its Budget session this week and with the Finance Minister’s announcement that no relief was likely in the next Budget proposals, even traders are not inclined to take any risk. The Reserve Bank of India has cut both the bank rate and the CRR (cash reserve ratio) by 0.50 per cent. The bank rate would now be 7.5 per cent. The CRR would be lower by 0.25 per cent with effect from February 24 and by another 0.25 per cent with effect from March 10. This announcement came after the trading had closed on February 16, so it had no impact on the market. The lowering of the bank rate and CRR is a positive factor for both the corporate sector and the banks. But this announcement is not likely to raise the market indices this week because of the uncertainties of the coming Budget proposals and the general view that there may not be much relief for the industry in these proposals. The Finance Minister has already indicated (at the Assocham meeting on February 14) that the industry should not expect any cut in the direct taxes, for the direct tax rates were (as he said) “eminently reasonable” and except for two other countries in the world these rates were among the lowest. He also hinted that the import tariff rates may be lowered and advised the industry to brace itself to face competition from imports. Last week, Hindustan Lever declared its results, which were better than market expectations. The net profit was higher by 22.4 per cent (at Rs 1,310 crore) even though the net sales at Rs 10,604 crore revealed a lower growth rate. The EPS (annualised) per share of Re 1 was Rs 5.95 as against Rs 4.86 for the last accounting year. The company has proposed a final dividend of Rs 2 per share. The company has already declared an interim dividend of Rs 1.50 per share. The total dividend adds up to Rs 3.50 per share. With an equity capital of Rs 220.06 crore, the company has free reserves of Rs 2267.50 crore. The share is, however, fully priced at present, and no bonus issued expected during 2001. Aksh Optifibre has done very well for the first 10 months (April to January) of its accounting year. Its net profit is Rs 1247.85 lakh as against Rs 533.50 lakh for the previous 12 months for the accounting year March 31, 2000. The company has also announced its results for January, 2001, and this is a very welcome practice if followed up later too. Its net profit for this month is Rs 644.42 lakh. This is a splendid performance and the share, which is being quoting in the Rs 135-36 range on the stock exchanges (for its Rs 5/- paid equity share), deserves a higher rating. It can be recommended for long-term investment. Prizer is still mulling over the proposals of setting up a 100 per cent subsidiary in India even though it has obtained the government permission to do so. In case, this subsidiary is set up, the market rating of pfizer (the present company in India) would go down, hence the consideration by the parent company that cent per cent subsidiary company may not be set up and even if it is set up, new drugs should be sponsored through the existing company. |
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Cotton arrivals decline Bathinda, February 18 Cotton trade sources said that cotton arrivals, which were about 8,000 bales a few days ago, have now touched 5000 bales daily. The trend may continue and the season can come to an end before its normal tenure. Up to February 13, 2001, about 24.76 lakh bales of cotton, including Narma and Desi, have arrived in the markets of North India as compared to 20.17 lakh bales which arrived the markets last year in the corresponding period. So far the markets had received 6.02 lakh bales of Desi Cotton and 18.74 lakh bales of Narma while the quantity of these varieties in the corresponding period same year was 3.91 lakh bales of Desi and 16.26 lakh bales of Narma. On the other hand, the abrupt decline in the arrival of cotton has surprised traders and they have started reviewing their business dealings. The Northern India Cotton Association (NICA) has also started revising its estimates. The NICA estimated the production of cotton at about 31.44 lakh bales when the arrivals started in the market which was revised to 32.33 lakh bales. In September, the estimates were again revised and production figure came down to 32.20 lakh bales. The estimate fell to 30.10 lakh bales in November, 2000, and it again went down to 28.50 lakh bales in January 2001. NICA sources said that as per the present trend, the estimates will be revised further and production will go down. Mr Ashok Kapoor, Director, Export penal, NICA, said that the abrupt fall in the cotton arrivals was due to the fact that in the initial months of the season almost 80 per cent of the total expected cotton production had been unloaded in the markets. He said farmers continued to get remunerative prices. They were getting Rs 1,375 to Rs 1575 for Desi Cotton and Rs 2,075 to Rs 2,375 for Narma as compared to Rs 1,330 to Rs 1,430 for desi and Rs 1,730 to Rs 1,930 for Narma in the corresponding period last year. The prices of Desi Cotton and Narma had remained steady so far. The prices did not go up as main textile mill owners had started importing cotton from Australia and West African countries as the international prices are lower than the domestic prices. Mr Kapoor said about seven lakh bales of cotton had been imported and there was a target of importing about 15 lakh bales. He said if the present trend of cotton arrivals persisted, the ginning and pressing mills would stop functioning due to unavailability of raw material.
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R.N. Lakhotia Q. Please clarify about the rebate of Rs. 5,000 from the income-tax (calculated) for the financial year 2000-2001 and assessment year 2001-2002 under Section 88C for Indian women under 65 years of age. Also tell me the tax liability if my approximated income for the financial year 2000-2001 is Rs. 1,67,000. I am doing government job. — Vimla Vali, Moga Even a woman under the age of 65 years will be eligible to claim tax rebate under Section 88C to the tune of Rs. 5,000 in respect of income pertaining to the financial year 2000-2001 relevant to the assessment year 2001-2002. The approximate tax liability in your case on your gross income from salary of Rs. 1,67,000 after granting standard deduction would be Rs. 20, 000. Now, as a woman tax payer you are eligible to claim tax rebate of Rs. 5,000, while on the other hand if you are making investments in tune with Section 88 of the Income Tax Act you will be eligible for the tax rebate thereby the tax payable can further be reducted. Q. The housing loan for residential accommodation was availed by me before 31-12-99 i.e. on 29-9-1995. Now I have availed housing loan for repair and renovation of same house after 1-4-99. Please advise me as to whether deduction at source u/s 24 is entitled for the full amount of interest applied (upto maximum ceiling amount of Intt. i.e. Rs. 1.00 lakh for the A.Y. 2001-2002) on both the original housing loan availed on 29-9-95 for construction of house and loan availed for repair and renovation of same house after 1-4-99. D.C. Bansal, Bathinda On the facts stated by you, the deduction in respect of housing loan that will be permissible to you will be calculated based on the interest pertaining to the period ending on 31st March, 1999 and also in respect of the interest pertaining to loan taken after 1st April, 1999. On account of interest pertaining to housing loan which was taken prior to 1st April, 1999, the maximum deduction that could be claimed by you would be restricted to Rs. 30,000 while on the other hand, the interest paid by you for housing loan taken after 1st April, 1999 would be permissible as a full deduction. The aggregate amount of deduction in any case cannot exceed Rs. 1,00 lakh. Q. I am a retired university employee. My amount of pension, interest on fixed deposits in NBFC for F.Y. 2000-2001 is expected to be as under: Pension — Rs. 72,000; F.D. Intt —Rs. 20,000. Please let me know my total tax liability for the year. — G.Singh, Patiala In respect of your pension income of Rs. 72,000 and fixed deposit interest with NBFC, interest amounting to Rs. 20,000, you will be eligible for standard deduction on the pension amount @ one-third of the pension thereby the net taxable income of yours in respect of financial year 2000-2001 relevant to the assessment year 2001-2002 would be Rs. 68,000. On this income, the income-tax and surcharge payable would be Rs. 2860. |
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Thapars may hike stake in Crompton Birla not to buy FI stake in Kesoram SBI announces 50 basis point cut in PLR FIIs net buyers in equities MTNL to offer tariff packages Reliance Telecom to enter STD sector Datum Tech issue opens on Feb 22 |
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prepares
budgets accordingly. It is very easy to take decisions which are so
called politically correct but could be disastrous from the economic
point of view. The government has to see what are the important areas
for general and economic development of the country without recourse
to the so called politically correct decisions.
India has emerged one
among Information Technology powers on the international firmament.
The Draft Convergence Bill 2000 that would converge the Information,
Communication, Entertainment (ICE) sectors, has been cleared.
Convergence between real economy and new economy has started taking
place in the economy. Once this process achieves its intended goal,
the Indian economy is bound to emerge as the world leader in many more
fields apart from IT. There have been a spate of recent policies by
the Centre like the Prime Minister’s golden quadrilateral project
under the NHDP that would join four mega cities of the country. The
government emphasis through the Rs 60,000 crore, seven year project,
is the need for building highways and rural roads to improve national
connectivity.