Tracking India Business and Economy News: American wine: India delays WTO probe

• Government Policy & Infrastructure
• Manpower & HR
• Sector Specifics
• Agriculture
• Economy

Indian consumers topping charts for being the most upbeat and fatter paychecks for freshers show an image of one India. There is another India too – where farmer suicides are debated upon to differentiate between “agrarian crisis” and “agrarian distress” and where a farmer has to offer collateral equivalent to Rs 40 lakh to purchase a tractor worth Rs 3 lakh.

- Chillibreeze Business Research Team

Government Policy & Infrastructure

American wine: India delays WTO probe

India blocked a World Trade Organization investigation of its import duties on American wine and spirits on Monday, temporarily delaying a US government complaint over allegations that Indian rules discriminate against products such as Napa Valley wine and Jack Daniel's whiskey.

The Geneva-based trade referee is already reviewing a European legal challenge of wine and liquor restrictions in a number of Indian states. A second investigative panel examining Washington's arguments will almost certainly be established at a meeting later this month of the WTO's dispute settlement body.

"The layers of customs duties India applies to US products, in particular to wine and distilled spirits, are not in line with its WTO commitments," US Trade Representative Susan Schwab said last month while announcing plans to seek litigation. "We must ensure a level playing field for US products around the world."

India's basic import duties on wine are 100 per cent, while the tariff on spirits is 150 per cent, both within WTO limits. However, various government surcharges take the tariffs up to levels reaching as high as 550 per cent, depending on the Indian state. Tamil Nadu goes further still, shutting out foreign alcohol and allowing shops to sell only Indian-made spirits and wines.

The United States, the European Union and Japan, by contrast, allow nearly all spirits to enter their markets duty-free. China tacks on only a 10 per cent charge on foreign liquor.

Under WTO rules, a second request for a formal investigation is automatically approved. A case can result in punitive sanctions being authorised, but panels take many months, and sometimes years, to reach a decision.

June 4, 2007
Source: The Times Of India

Duty cuts on edible oils not benefiting consumers
It may seem ironical: In recent times, whenever the Centre has reduced import duties on edible oils or announced sops for sugar exports, the ultimate beneficiary has been the foreign supplier or buyer and not the Indian consumer or farmer.

Take crude palm oil (CPO), on which the effective import duty has been gradually reduced since last August from 88.8%to 51.5%. Initially, the basic customs duty (BCD) on CPO was 80%, which, along with a 2% education cess and 4% special additional duty (SAD, computed on 180), added up to 88.8%. On August 11, the BCD was cut to 70%, effectively translating into 78.2%. The BCD was again slashed to 60% on January 25, bringing down the effective duty on CPO to 67.6%. In his 2007-08 Budget, the Finance Minister, Mr P. Chidambaram, dispensed with the SAD on edible oils, while raising the education cess to 3%.

The result: the effective duty fell further to 61.8%. With the last cut in the BCD to 50% on April 13, the effective import duty on CPO is now 51.5%.

What is significant, however, is that the duty cuts have meant little for the consumer, as the average landed price of CPO has gone up from $490 per tonne in August to $777 in May (currently, they are ruling at $830). In fact, imported CPO prices have risen much sharper than soya oil, despite duties not coming down as much for the latter.

Te duty cuts have not benefited the Centre either. While for other commodities, higher international prices generate additional customs revenues, this is not so for edible oils, where duties are levied on 'tariff values'. The only gainers, then, have been suppliers in Malaysia or Argentina, who have reacted to every round of duty reduction here by jacking up their export prices. And being the world's largest edible oil importer and consumer has not really helped.

June 3, 2007
Source: Hindu Businessline

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Sector Specifics

Energy

Another Left shock to power privatisation

In a move aimed at appeasing the Left, the Union power ministry is considering dropping the requirement that states purchasing electricity from a project with a mega-power status should privatise power distribution in all cities with a population of more than one million. The development comes in the backdrop of a threat from the Left to pull out of the UPA co-ordination panel over the Centre’s refusal to factor in its reservations while framing policy initiatives. States too have opposed the tie-in between mega-power status for power projects and the privatisation of distribution.

The power ministry proposes to amend the exisiting mega-power policy to replace the clause on mandatory distribution with efficiency and performance parameters. This would mean that if the state-owned utilities are able to commit and achieve these standards, then thermal power projects with capacities of more than 1,000 mw (and 700 mw in the north-east and Jammu & Kashmir) and hydro power projects of 500 mw (350 mw in the north-east and J&K) supplying power to more than one state will be able to avail of fiscal benefits even if states buying power have not privatised their distribution circles.

Sources said that it is unlikely that the finance ministry will oppose this move as it doesn’t materially alter the income tax holiday or duty concessions that are given to mega-power projects. The proposal, however, is not going down well with private power companies and proponents of privatisation in the sector.

June 8, 2007
Source: The Economic Times

Indian power show on global stage

It’s an Indian power show in the global energy arena. After having bought power company Globeleq Americas for $568 million in partnership with Israel Corp, India’s DS Construction is forming a joint venture (JV) with the Israeli firm to acquire power companies in Peru, Canada and Africa.

The JV will also bid for power projects in the country, including ultra-mega power projects (UMPPs) in Jharkhand, Maharashtra and Orissa. Globeleq has assets in Tanzania, Cote d’lvoire and Kenya with a power generation capacity of over 500 mw.

It is also into electricity distribution in Uganda. Globeleq has sold its 683 mw power plant in Egypt to a consortium of Tanjong Energy Holdings (Malaysia) and Aljomaih (Saudi Arabia). The Egyptian asset was also part of Globeleq’s African business. Globeleq is 100% owned by CDC Group plc. Actis, the leading private equity investor in emerging markets, manages CDC’s investment in Globeleq. The JV is looking to acquire a 200 mw power plant in Peru and some power assets of 350-400 mw in Canada,

The $568-million acquisition of Globeleq Americaswill be financed through equity capital and debt financing. A special purpose vehicle will be incorporated jointly, which will be the holding company. The equity investment is expected to be around 20% and the balance will be raised through debt financing. The deal is likely to get approval from the authorities by the end of this month.

DS Construction, which is a multinational infrastructure developer, has recently entered the power business. In March 2006, it bagged the 1,000-mw Naying hydro-electric power project in West Siang district of Arunachal Pradesh. In January this year, it bagged its second power project, the 260-mw Kutehr Hydro unit in the Himachal Pradesh, where it is both developer as well as operator.

June 4, 2007
Source: The Economic Times

Telecom

Idea, Aircel, Spice in merger talks – report

Aircel Cellular Ltd. is in talks to merge with Idea Cellular Ltd. and Spice Telecom, the Mint newspaper said on Tuesday, citing industry executives close to the negotiations.

Idea, Spice and Aircel planned to merge to create "a pan-Indian presence" to compete with larger players, the paper said.

One executive at Aircel - majority-owned by Malaysia's top mobile phone firm Maxis Communications - confirmed the talks, the paper said.

Idea, India's fifth-largest mobile services firm, listed earlier this year, while Spice, which is 49 percent owned by Telekom Malaysia, plans an initial public offering. Last week, a Spice official said reports that it would merge with larger rival Idea were speculative.

India's mobile market, the world's fastest-growing, is dominated by Bharti Airtel Ltd., Reliance Communications Ltd., state-owned Bharat Sanchar Nigam Ltd. and Hutchison Essar.

June 5, 2007
Source: Reuters

Steel

Arcelor Mittal finalises Brazil arm buyout price

Arcelor Mittal, the world's largest steelmaker, said on Monday it had finalised its offering price to buy out the minority shareholders in its Arcelor Brasil arm.

Arcelor Mittal, which owns about 66 percent of the unit, said it would pay a combination of 10.82 reais in cash and 0.3568 Arcelor Mittal share per Arcelor Brasil share or 53.89 reais ($28.35) in cash.

The offer price is based on the New York Stock Exchange closing price of $63.37 per Mittal Steel shares as of June 1, converted to Brazilian reais at the average exchange rate of 1.9052 to the dollar on that day.

The results of the offer will be announced after the market closes in Brazil on Monday. Arcelor Mittal said it would delist Arcelor Brasil if it acquired two thirds or more of the unit's free float.

June 4, 2007
Source: Reuters

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Agriculture

The National Bank for Agriculture and Rural Development's (Nabard) guidelines for financing of farm machinery requires farmers to offer not only the underlying asset (tractor) but also land as collateral security. Moreover, this land pertains to a minimum holding of eight acres, that too "perennially irrigated". Given that this kind of land nowadays fetches no less than Rs 5 lakh, it means pledging an asset worth Rs 40 lakh for a loan of Rs 1-3 lakh. What is more, this minimum landholding norm applies to any loan, irrespective of size or horsepower, and even for purchase of second-hand tractors!

The result: While the domestic sales of cars and two-wheelers doubled over the last five years to nearly 11 lakh and 80 lakh, respectively, tractor sales have been stuck at around 2.5 lakh.

According to Mr L.D. Mittal, President, Tractors Manufacturers' Association, banks are so rigid with regard to tractor loans that "even if a couple of defaults or delays in payments take place in a village, the entire village is barred from accessing finance."

That, in turn, has led to a virtual stagnation of an Rs 8,000-crore industry.

June 7, 2007
Source: The Hindu Businessline

Cotton output may rise by 5% in 2007-08 season
The 2007-08 cotton season could once again prove beneficial for the country going by domestic and global trends. Southwest monsoon of course holds the key to a bountiful crop. India may well be in a position to export significant quantities of cotton.

Going by trends of last three years, it may be reasonable to assume an expansion in cotton area (especially under Bt. Cotton) and improvement in yield. From the current year's 270 lakh bales, output has the potential to increase by about 5%.

The international market conditions are turning favorable, with export prices expected to firm up. While global cotton production is forecast to decline by one per cent to 25.1 million tonnes, world mill use is expected to expand by 2.6 per cent to 26.8 mt in 2007-08. In other words, output will once again trail consumption, resulting in drawdown of stocks and higher prices.

However, a strong rupee may blunt India's export competitiveness, which could result in downward pressure on domestic prices.

Driven by China, India and Pakistan, Asia is expected to account for 55 per cent of world cotton production, up from 53 per cent in 2006-07, and for 76 per cent of world mill use in 2007-08, up from 74 per cent in 2006-07, the Washington-based International Cotton Advisory Committee (ICAC) said in its latest report.

June 2, 2007
Source: The Hindu Businessline

Farming does kill, no matter how you say it
Earlier this month, when the state told the Prime Minister’s Office that farm suicides in Vidarbha were on the decline, it had the right statistics to quote. The state told the PMO that the number of suicides due to “agrarian reasons” had come down to 20 per month in 2007, from 60 per month in early 2006.

But what the state did not tell the PMO is this: between January 1 and April 30, 2007, more than 400 suicides have taken place in six districts of Vidarbha, where the PMO is implementing a special rehabilitation package. By May 30, the suicide toll had touched 416, according to Vidarbha Jan Andolan Samiti (VJAS), which is meticulously recording every farm suicide in the region.

What’s intriguing is the state’s effort to differentiate between “agrarian crisis” and “agrarian distress”. A committee under the district collector probes every incidence of suicide to conclude whether it happened due to agrarian reasons — debt, crop failure or drought. This is how only 42 of the 416 suicide cases this year have been found to be eligible for government compensation.

Sudhir Goyal, divisional commissioner, Amravati, HQ of all relief measures, acknowledges that the rate of farm suicides continues to be the same. But the bureaucrat, who was the chief of state’s agriculture directorate, wants to look beyond numbers. “When the prime minister talked about the agrarian crisis at the National Development Council, he did not mean numbers. The suicides are the symptom of a much larger socio-economic disease that has gripped agriculture not only in Vidarbha, but almost everywhere in rural India. The rate of suicides due to agrarian distress continues to be the same in all the states reporting the phenomenon. That’s why statistics is not a good way to approach this crisis,” Dr Goyal pointed out.

VJAS president Kishore Tiwari, who has unwittingly earned the reputation of being a spokesperson of this agrarian tragedy, echoes the same view. “The phenomenon has to be defined as rural crisis and not an agrarian crisis. For the debate to be more inclusive and the entire exercise to be corrective, we must address the larger issue of systemic failure,” Mr Tiwari said. He pointed out that post-1991, rural India had undergone drastic changes in its socio-economic profile, which have added new dimensions to the crisis.

“The lifestyle of farmers has also changed. Market forces have entered hinterland, but the farm income has not kept up. Cost of education, healthcare and household items has gone up. The inability to keep pace with these changes has also contributed towards the crisis,” Mr Tiwari said.

June 2, 2007
Source: The Economic Times

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Manpower & HR

GeNext IT grads to get bigger paychecks

If the glamour of working in the IT industry is not enough for engineering graduates, the fact that most of the companies have hiked their freshers’ salaries, some by even 30-40%, should attract attention.

IT majors — TCS, Infosys, Wipro and Cognizant — have hiked their annual salary package in the bracket of Rs 2.7 lakh-3.2 lakh from the previous Rs 2 lakh-2.4 lakh. This is because the trend of the campus recruitment blitz across engineering streams that the IT bigwigs muscled through is now being reversed, points an HR head.

Says Shrikant Lonikar, global director for HR and OD, Honeywell Technology Solutions Lab, “I don’t think this trend of the biggies hiking their salaries is unnatural. While some players, who were big names abroad, were hiring freshers in a few hundreds and paying them much higher, the ones with muscle power and brand have been generally underpaying till now.

But now, the competition to these companies is not just from the smaller IT companies, but also other booming sectors like manufacturing, engineering and retail.” For example, some manufacturing companies have jacked up their annual salaries from Rs 1.2 lakh to Rs 3.5 lakh this year, proving a be a big magnet with students from that background.

Another reason is the huge demand for freshers, according to Amitabh Das, CEO of Vati Consulting. Currently, about 4 lakh students graduate every year from engineering colleges, while the IT industry is expected to add about 3.5-4 lakh people this fiscal.

But will the hikes by the IT majors see other companies that paid in the Rs 3 lakh bracket so far, hike their salaries to outmatch the former? Some companies like Mindtree Consulting and Sasken are reportedly planning to rework their salary packages. However, Gautam Sinha of TVA Infotech, opines, “Compensation increases will depend on an organisation’s business model and its margins. The industry has matured now and the smaller companies will not increase salaries just because the market leaders have changed theirs.”

June 4, 2007
Source: The Economic Times

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Economy

India tops global consumer index, HK surges

Consumers in India are the most upbeat in the world while consumer confidence in Hong Kong is at an all-time high, bucking a dip in global sentiment from six months ago, a survey by The Nielsen Company showed on Wednesday.

Scandinavians were also bullish, while Japanese, South Koreans and Hungarians were among the most pessimistic consumers, according to the survey, which gauges consumers' outlook for the next 12 months.

Forty percent of consumers globally considered the next 12 months a good time to buy things, but in India, Hong Kong and Scandinavia that figure rose to more than 60 per cent.

Consumer sentiment in the United States, the world's biggest economy, dipped 2 points from a previous survey taken in November to 106. However, that was still better than most countries and on a par with China, whose score was unchanged.

The Nielsen Company's Global Consumer Confidence Index scored an average reading of 97 points, down slightly from 99 in the November survey. Readings are based on a series of questions to consumers, with a maximum possible score of 200 points.

The survey, conducted in the last two weeks of April, polled more than 26,000 Internet users in 47 markets worldwide.

June 6, 2007
Source: The Economic Times

Micro enterprises get 24% higher credit

Micro, small and medium enterprises (MSME) seem to have had a better time in 2006-07 in extracting credit from institutional lenders. Provisional estimates by the ministry of MSMEs and Small Industries Development Bank of India (Sidbi) suggest the credit inflow to the sector from institutional lenders including banks, Sidbi, state finance corporations (SFC) and micro finance units spurted 24% to Rs 1,32,760 crore in 2006-07.

A Sidbi official said credit disbursement by the sector-specific bank went up 13% to Rs 10,203 crore in the year from Rs 9,037 crore in 2005-06. With a shift in focus on direct financing, Sidbi managed to directly disburse Rs 4,985 crore to the sector in 2006-07.

Not to be left behind, SFCs too scaled up their commitment to the sector. Provisional estimates suggests that credit disbursement by SFCs to the units increased 8% to Rs 1,610 crore in 2006-07 compared to Rs 1,490 crore in the previous year. Though the ministry is yet to get a detailed feedback from micro finance units regarding extent of their commitment to the sector, estimates suggest more than Rs 1,000 crore flowed from those financiers to the sector.

Within the banking sector, PSU banks have taken the largest exposure. An additional Rs 20,000 crore was estimated to have flowed from those banks to the sector in 2006-07. With this, total lending by the banks to the sector is estimated to go up to Rs 1,02,500 crore during the year. Banks’ exposure to the sector may have gone up probably to comply with the government directive of achieving a 20% year-on-year growth in credit disbursement to MSMEs. Private banks are also showing greater interest in financing SMEs that have shown high growth and have so far maintained a better track record in loan refund. Many of them are driven by ambition of scaling themselves up.

June 5, 2007
Source: The Economic Times

'Emerging' economies to the fore again
The Prime Minister, Dr Manmohan Singh, flew into Germany this afternoon ahead of his meeting on Friday with leaders of the G8, the informal group of eight industrialised nations that are holding their annual get together at Heiligendamm, a small resort town on the shores of the Baltic.

It is the third year in a row that India and four other so-called 'emerging' economies have been invited to exchange views on global issues. They may not like the appellation: China for one believes it had 'emerged' quite some time ago. Their rapid pace of growth in recent years is clearly what has earned them the invitation to the portals of the once-exclusive club.

Before they get to meet the G8 at Heiligendamm, leaders of the five outreach countries will have a chance to discuss informally the issues among them on Thursday when Dr Singh is scheduled to meet separately the Chinese President, Mr Hu Jintao, and the President of Mexico, Mr Felipe Calderon.

At the top of the G8 agenda is the issue of how to address the threat of climate change. The German Chancellor and summit host, Ms Angela Merkel, has been trying hard in recent weeks to harmonise widely differing perspectives of the G8 countries on what ought to be done to reduce emissions. But whether those differences are narrowed or not, there will be hints, if not pressure, on the five emerging economies to ease up on the emissions.

A background paper prepared by the External Affairs Ministry notes that while India has 17 per cent of the world's population, it emits only 4 per cent of the global greenhouse gases. Per capita emissions are thus relatively small, just one-quarter of the world average, and 4 per cent of that in the US.

The Government will, however, be keen to show that it will not be short on earnestness. It will offer the evidence that while GDP growth has exceeded 8 per cent, primary energy growth is just 2.76 per cent.

What it hopes to seek from the developed world is a freer access to energy saving technology that the developed nations have and protected by patents. This would be similar to the one that allows countries struck by epidemics to licence production of patented drugs.

June 7, 2007
Source: The Hindu Businessline

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