B U S I N E S S

Dollar hegemony faces a real threat
Can this unilateral war on Iraq prevent a catastrophic fall of the dollar against the rising Euro? This question was answered by Prof Fritz Zimmerman at the Yale University, just three days before President George Bush issued a 48-hour ultimatum to Iraqi President Saddam Hussein in March 2003. He told this writer that Newton’s law now applied to both physics and geo-political sphere as well.

Bikes boom, scooters, mopeds decline
New Delhi, April 20
A booming motor cycle market helped two-wheelers post a 16 per cent growth in sales during 2002-03 even as scooters and mopeds went on a downhill ride.

Poor nations hit by debt relief strings
Chancellor (Finance Minister) Gordon Brown announced in December 1999 that Britain was writing off all debts owed to it by the world’s poorest countries, it seemed like the best Christmas present they could get. When the rest of the world’s richest nations appeared to be following Brown’s lead, victory for the Drop the Debt campaign looked assured.

FIIs net buyers in equities
Mumbai, April 20
The foreign institutional investors (FIIs) were net buyers in equities at Rs 34.3 crore ($ 7.3 million) while abstaining from any activity in debt market during the trading week ended April 18.

Inflation falls
New Delhi, April 20
Halting its upward journey, the annual rate of inflation declined by 0.07 per cent in the first week of this fiscal to 6.17 per cent due to a substantial fall in the prices of naphtha and fuel oils in the wake of softening international crude prices.

MARKET SCAN

Technical scrips tumble: scope for revival
Last week was bad for the stock market, technical scrips tumble. Sensex declined sharply, Metrological Department forecast stated that moonsoon is likely to be below normal. Hindustan Lever’s first quarter results were discouraging.

CHECKOUT

Right to get defective vehicles replaced
We may not have a Lemon Law (as in the United States) to protect consumers from defective automobiles, but two recent orders of the apex consumer court can well bring about an attitudinal change in the automobile manufacturers in the country, vis-a-vis defective vehicles.

Dollar hegemony faces a real threat
Batuk Vora

Can this unilateral war on Iraq prevent a catastrophic fall of the dollar against the rising Euro? This question was answered by Prof Fritz Zimmerman at the Yale University, just three days before President George Bush issued a 48-hour ultimatum to Iraqi President Saddam Hussein in March 2003. He told this writer that Newton’s law now applied to both physics and geo-political sphere as well. Action had its reaction in equal measure. The United States was dominating other countries primarily through the dollar.

It also succeeded in monopolising the world trade. But when the monopoly began to be threatened in Europe and Middle East, with the Euro’s rise and spread, the Bush administration has perhaps concluded that only a permanent military presence in the Middle East, first by replacing Saddam Hussein, could protect their flawed structure. Saddam was the first in that region to convert Iraq’s $10 billion food for oil currency into Euro. Iran did the same with almost half of its reserves. What would happen if other OPEC countries followed, particularly Saudi Arabia? Mainstream media of the U.S. was keeping total black-out on such a vital issue. Prof Zimmerman came out with some revealing statements.

The U.S. economy had run into tough problems, including a record-high trade account deficit (almost 5 per cent of the GDP) and around $6.021 trillion internal debt against a $10.5 trillion GDP! One should also note the recent return to annual budget deficits in hundreds of billions. Why was the dollar strong despite such a structural flaw? Because, dollar presented two unique advantages compared to other currencies. Dollar became an international reserve currency since 1945, and also a fiat currency (de-linked from gold reserve since 1971 — at $35 per ounce) for global oil transactions.

He said world trade was now a big gamble in which the U.S. produced dollars and the rest of the world produced consumer goods that dollar could buy cheap. The entire U.S. market ran like this. The world’s inter-linked economies no longer trade to capture a comparative advantage; they compete in exports to capture dollars to service dollar-denominated foreign debts and to accumulate dollar reserves to sustain the exchange value of their domestic currencies. China, India, and Russia or other developing nations are no exception. To prevent speculative and manipulative attacks on their currencies, the world’s central banks must acquire and hold dollars in corresponding amount to their currencies.

Prof Zimmerman further explained that by definition, dollar reserves must be invested in U.S. assets, creating a capital account surplus for the U.S. economy. Such surpluses actually finance the U.S. trade deficit. The more the U.S. prints greenbacks, the higher the price of U.S. assets! A unique agreement to this effect with Saudi Arabia worked in dollar’s favour and allowed the Federal Reserve to create a massive debt and credit expansion (or credit bubble, in the words of some economists).

Now, such a structure can survive only if the nations purchase oil in dollars. However, the Euro has become a significant new phenomenon, with most Europeans nations except UK, Baltic countries and some Arab nations turning to Euro. What would happen if China and India, which are large buyers of oil, turn to Euro too? It is a prospect totally unpalatable to the U.S. industrial-military complex. Besides, 12 original members of the European Union, ten additional countries were approved as full members in December 2002. By 2004, this will result in an aggregate GDP of $9.6 trillion and 450 million people, directly competing with the U.S. economy ($10.5 trillion GDP and 280 million people).

A speech delivered by Javed Yerjani, head of the OPEC’s Petroleum Market Analysis Department in Spain (April 2002) is worth mentioning. He dealt with oil transaction currency problem. This was widely discussed in European media but ignored by its American counterpart. He said the question was, whether the Euro could establish itself in world money markets, challenging the supremacy of dollar. By the late 1990s, more than four-fifths of all foreign exchange transactions and half of the world’s exports were denominated in dollars. The U.S. currency accounted for about two thirds of all official exchange reserves. This was disproportionately higher than America’s global output.

Now, the Euro zone has a bigger share of world trade than the U.S. and the Euro areas has a more balanced external accounts position. Euro-zone is also a larger importer of oil than the U.S. There is also a stronger trade link between the Euro-zone and the OPEC countries. Forty-five per cent of the total merchandise imports by Arab countries come from EU members. The only problem is that Europe’s only oil producers — UK and Norway — are not using Euro. It is believed that if UK adopts Euro — its possibility has receded due to US-UK war alliance and weapon production collaboration between the corporations of these two nations — then Euro could take over dollar in large parts of OPEC. Tony Blair was advocating adoption of Euro till recently.

After talks with intellectuals in Washington, this writer found that the ordinary people of America were largely oblivious of the economic risks of this war. If Iran and Venezuela too move over to Euro, OPEC countries might speed up their adoption of Euro. This could end the dollar hegemony, to prevent which the U.S. wants such unilateral military actions to continue. IPA

Bikes boom, scooters, mopeds decline

New Delhi, April 20
A booming motor cycle market helped two-wheelers post a 16 per cent growth in sales during 2002-03 even as scooters and mopeds went on a downhill ride.

Kinetic Engineering also registered a decline of 49.7 per cent to 39,232 units. PTI

Poor nations hit by debt relief strings
Nick Mathiason

Chancellor (Finance Minister) Gordon Brown announced in December 1999 that Britain was writing off all debts owed to it by the world’s poorest countries, it seemed like the best Christmas present they could get. When the rest of the world’s richest nations appeared to be following Brown’s lead, victory for the Drop the Debt campaign looked assured.

Only it was never that simple. What seemed like a radical breakthrough that should have seen $41bn of developing countries’ debt written off has been mired in rigid conditions and unrealistic targets.

There are 41 poverty-stricken countries that can’t sustain debt. Of those, 24 are eligible for full relief from G7 countries, the IMF and the World Bank. But more than two years down the line, just eight have qualified for it.

To qualify for the Heavily Indebted Poor Countries (HIPC) initiative, governments have to convince the world’s top financial institutions that they have controlled their economies. The hoops they have to jump through can mean privatising industries, ruthlessly cutting public spending and foisting increased charges on basic services to citizens.

Privately, even senior officials in the World Bank now admit that some of the privatisation demands are inappropriate. It believes, however, that inefficient state-run industries that drain poor countries of desperately needed resources should be taken in hand.

The Malawi case is just one of a catalogue of controversial demands by the IMF and World Bank. They include:

1. Zambia being told by the IMF to privatise its bank. It initially refused but relented as famine and debt escalated;

2. Senegal refused enhanced status until it privatises its state-run peanut business;

3. Ghana told to make a vast increase in petrol prices and impose VAT on goods;

4. Rwanda forced to rein in social outlay and told it has too high a budget deficit;

5. Guyana told to privatise its sugar business and cut its civil service. It refused;

6. Honduras told to privatise its bank and electricity businesses and cut wages.

‘The HIPC initiative is being ground to a halt by unnecessary conditions designed to protect the interests of creditors rather than to make a real difference to the world’s poor,’ says Jubilee research economist Romilly Greenhill. ‘Desperately poor countries are being denied debt relief because they refuse to cut public spending, sell off the family silver or further squeeze the wages of their civil servants. It is ironic that Rwanda, one of the poorest countries, is being denied debt relief because of her “excessive” budget deficit, while the world’s richest country racks up record deficits to provide tax cuts for the wealthy.’

Meanwhile, some of the countries that have qualified are now borrowing more money from the World Bank in dollars, which is causing them increased financial stress. Congo, which is at the preliminary stages of the scheme, has just taken out a $900m loan from the World Bank while already mired in $12bn of debt. Given that Congo is in the midst of a war, many doubt it will convince the world’s powers to alleviate its crippling debt repayments.

Attached to enhanced debt relief are projections by the World Bank focusing on the growth of exports. Debt is supposed to be no more than 150 per cent of the value of any country’s exports.

This is widely regarded as over-optimistic. Poor countries borrow more to fund infrastructure to meet those growth targets and end up in a new cycle of debt as exports inevitably grow at a slower pace.

The HIPC initiative is worth applauding. But until conditions are relaxed and the wider business world accepts that much historic debt should simply be written off, it will never reach its potential. The Guardian

FIIs net buyers in equities

Mumbai, April 20
The foreign institutional investors (FIIs) were net buyers in equities at Rs 34.3 crore ($ 7.3 million) while abstaining from any activity in debt market during the trading week ended April 18.

Mutual funds also netted purchases in equities and debt at Rs 24.47 crore and Rs 183.29 crore respectively in the period under review, according to the data available with SEBI here.

FIIs recorded net outflows of Rs 287.6 crore ($ 60.4 mn) on the first day of the trading week followed by netting purchases of Rs 94 crore ($ 19.9 mn) and Rs 227.9 crore ($ 47.8 mn) on April 16 and 17 respectively. PTI

Inflation falls

New Delhi, April 20
Halting its upward journey, the annual rate of inflation declined by 0.07 per cent in the first week of this fiscal to 6.17 per cent due to a substantial fall in the prices of naphtha and fuel oils in the wake of softening international crude prices.

It was 6.24 per cent in the previous week and 1.50 per cent in the corresponding week of the last fiscal.

The wholesale price index-based inflation rate for the week ending April 5 was higher by 0.1 per cent to 172.1 from 171.9 for the previous week. UNI

MARKET SCAN

by J.C. Anand

Technical scrips tumble: scope for revival

Last week was bad for the stock market, technical scrips tumble. Sensex declined sharply, Metrological Department forecast stated that moonsoon is likely to be below normal. Hindustan Lever’s first quarter results were discouraging. Market indices had to go down because top technological shares and Hindustan Levers have a heavy weight in the composition of Sensex and Nifty.

Infosy and Wipro results were not so bad that the market should have declined so sharply, but more than the results their future projections disappointed the market. The management of both these companies indicated that pricing were under pressure and margins were moving down. FIIs (which hold about 39 per cent of Infosys’s equity) and Mutual Funds (which hold about 3.75 per cent) were heavy sellers. On April 10, FIIs sold stocks amounting to Rs 167.7crore and were net sellers.

In the domestic market the Sensex was down by 170 points and Nifty declined by 6.60 per cent. Hughes also announced disappointing results on April 14.

Another depressing factor in the stock market was the truckers strike. Some revival did take place in the technical shares but it was not very significant.

The old economy shares on the other hand maintained their position. Hero Honda’s results were excellent. Tata Chemicals, which have been recommended in this column maintained its gains made during the last fortnight. The multinational pharma shares generally were unaffected by the sharp decline in the market indices.

Textiles shares like Nahar Spinning as well as Vardhman Group of Companies held their own. Moser Baer was one of the shares which moved up very well. This share had been recommended in this column when it was quoting around Rs 215 but it has now crossed Rs 266 figure.

It appears that investors should ignore market Indices and concentrate on individual shares which are promising and hold prospectus for appreciation as well as growth in their profitability.

Those investors who are interested in more than 7 per cent net return in the form of dividend income can make one kind of choice and those who are interested in appreciation can go in for another mode for selecting shares.

UTI Master Share, which had been recommended in this column for good dividend income is likely to have some problems now.

There is a press report that the UTI has approached SEBI for converting Master Share into an Open-ended scheme, even before the book closing date for Master Share is announced, which is normally in October.

In case Master Share is converted into an open-ended scheme before Master Share results are announced, the dividend would not be tax-free for the scheme would be delisted from the stock exchange.

But those who hold Master Share will have the option to claim NAV of Master Share and can quit the scheme at that time.

The industrial growth is likely to suffer in the coming months for two reasons; global depression due to US attack on Iraq and decline in exports to those parts of the world which are affected by SARS epidemic.

But a competent agency indicates that Indian industry will do well during the current financial year.

However, election fever and the distempers that it produces in the political and economic climate of the country may stand in the way of full economic recovery.

CHECKOUT

by Pushpa Girimaji

We may not have a Lemon Law (as in the United States) to protect consumers from defective automobiles, but two recent orders of the apex consumer court can well bring about an attitudinal change in the automobile manufacturers in the country, vis-a-vis defective vehicles.

A new vehicle is expected to be defect-free, yet, automobile manufacturers and retailers in India expect a consumer who is landed with a defective vehicle to exercise utmost patience, make innumerable trips to the service centre for repairs, waste precious time, energy and money in getting the vehicle functional. Ask for a defect-free replacement or refund of the cost of the vehicle, and the manufacturers behave as if you are asking for the moon! And who cares for the inconvenience and harassment that a consumer undergoes in such cases!

Well, all that should change now. The apex consumer court’s orders not only lay down clear criteria for replacement of a defective vehicle or refund of its cost to the consumer, but also award of damages to recompensate a consumer for the inconvenience and suffering undergone in such cases. In the case of Scooters India Limited Vs Madhabananda Mohanty (Revision Petition No 240 of 2002, decided on 7.2.2003), where the complaint pertained to a defective autorickshaw purchased from B.P. Motors, the National Consumer Disputes Redressal Commission made the following points clear: (a) If a vehicle is defective, a consumer has a right to seek its replacement or refund of the price. (b) Though the burden to prove the defect would be on the consumer, yet it must be understood that the consumer is not bound to pinpoint the precise nature of defects or its causes or source. (c) The warranty which is given for a vehicle is a warranty for the entire vehicle and when it is found that the vehicle does not perform properly, the warranty would be taken to have been breached even if no individual part could be identified as defective.

(d) It is not always necessary for the consumer to give expert testimony, though if he does so it will add to the weight of the evidence. However, it must be shown that the use of the vehicle has been substantially impaired on account of the defects. (e) If the defects are insignificant than it could not be a case for replacement or refund. A consumer forum has however to take into consideration the consumer’s state of mind as well. After all, he would have invested in a new vehicle to buy peace of mind hoping that the vehicle would be trouble free and dependable. (f) However, while coming to a consumer forum, the consumer must first give notice to both the dealer and the manufacturer and give both of them reasonable opportunity to repair the defect, if it is not an inherent manufacturing defect (i) the manufacturer has to provide adequate repair facilities close to areas where the vehicle is sold. As a matter if fact, accessibility of repair facility is implicit when a new vehicle is sold, the apex consumer court has said.

In the case of Vinoo Bhagat vs General Motors (India) and Regent Automobiles (First Appeal No 150 of 1998, decided on 30.1.2003), the National Commission not only held that the consumer was entitled to a refund of Rs 7,34,244 being the price of the car with 12 per cent interest calculated form the time the payment was made, but also to compensation. Said the Commission here: “Considering that the complainant suffered because of the defective car supplied to him and also because of misrepresentation, we further award him compensation of Rs 2 lakh. This is what we call as consumer component or consumer surplus”. It also awarded Rs 10,000 as costs.

In this case, the complainant had alleged that a) the new Opel Astra bought by him was defective and b) the manufacturers had misrepresented that it was a German car manufactured in Germany, whereas the car had been manufactured in Australia by Holden Company, a subsidiary of General Motors, as per technical know-how from German company, Adam Opel AG. The Commission, after a detailed hearing, agreed with the second contention of the consumer.

As for the other allegation that the car was defective, the Commission examined the report of the Automotive Research Association of India to which the car was referred for expert opinion and their conclusion that the vehicle behaved normally and the rebuttal of the complainant. It eventually held that the report had to be discarded.. Said the Commission: “All the same we do not find defects could be of such a nature that would substantially impair the use of the car. But then the car has been sent to the respondents for repairs again and again and complaints also lodged with considerable regularity, yet the defects could not be removed. On that account, respondents have rendered deficient service. That made it a case for replacement of the car. However in view of our finding that there was misrepresentation about the make of the car we will hold that in the present case complainant is entitled to refund of the price paid by him for purchase of the car” the Commission said.