IMPORTANT ECONOMIC NEWS

October, 2000

 

 

Foreign direct investment in the insurance sector has been shifted to the automatic route easing the procedural norms for foreign companies' participation in the equity of Indian insurance companies. Shifting to the automatic route would mean that the foreign companies seeking to take equity stake in Indian private insurance ventures would not be required to take the approval of the Foreign Investment Promotion Board (FIPB). Instead, the details of the investment have to be sent to the Reserve Bank of India.

 

According to Government sources, the decision to put insurance sector FDI under the automatic route is in line with the policy of removing pre-entry hurdles for foreign investors.

Moreover, it also clears the way for the Insurance Regulatory and Development Authority (IRDA) to grant licenses to insurance companies with foreign equity provided they satisfy the legal and the regulatory requirements.

 

The Special Secretary (Insurance), Ministry of Finance, pointed out that since a legislative cap had already been placed on foreign investments in insurance companies and since no company was likely to seek any relaxation of the norm, it was desirable that the entire thing should be placed under the automatic route. The IRDA Bill, 1999 has placed a 26 per cent cap on foreign equity in insurance companies. He said that though prima facie, it always appeared that the foreign investment in insurance sector would not have to be routed through the FIPB, the necessary official sanction for putting it under the automatic route had to be accorded as a procedural requirement.

 

Applications from a dozen insurance companies are pending before the IRDA for registration. Out of them, nine companies are joint ventures involving foreign partners. Several more applications are expected to be filed during the course of the coming months. (The Hindu, 20^th October, 2000)

 

 

The Information Technology Act came into effect, with the government notifying the Act and appointing the Controller of Certifying Authority (CCA) to supervise the authorisation of digital signatures. The government has decided to appoint executive director of the Centre for Development of Telecomatics (C-DoT)  as the CCA . Information Technology Minister Pramod Mahajan said.

 

India will be the second country after Singapore in Asia to implement a law for electronic commerce; only very few countries in the world have a similar law.  Mr. Mahajan said that the government has also decided to cover the entire north-east and Jammu and Kashmir with information kiosks equipped with computers and access to the Internet. The Planning Commission has agreed to extend the programme, originally designed for the north-east, to Jammu and Kashmir. The government has asked the Planning Commission to further extend the programme to Himachal Pradesh, Uttaranchal, Chattishgarh, Jharkhand and the tribal districts of Orissa. ``We want to take IT to rural and tribal areas so that the digital divide could be avoided,'' Mahajan said.

 

The newly-appointed CCA will act as the nodal agency for certifying digital signatures which can be used for authenticating electronic records. The Act provides for use of electronic documents for all kinds of elctronic commerce activities. The Act also provides for retention of electronic records and acceptance of such documents in government offices. It also brings electronic crimes such as hacking and computer crimes under the ambit of the law. (Financial Express, 18^th October, 2000)

 

September, 2000

 

 

The Securities and Exchange Board of India (Sebi) allowed mutual funds to invest in venture capital funds (vencaps). The regulator also provided an exit route to vencaps by allowing them to invest in unlisted shares through the Over The Counter Exchange of India (OTCEI). The moves are part of the new set of guidelines for both domestic and foreign venture capital funds announced by the regulator after its board meeting.

 

Under the new regulations, vencaps are required to make 75 per cent of their investible funds in unlisted securities or equity-linked instruments, while 25 per cent can be invested in initial public offers (IPOs). The fund's investment in a single company will be limited to 25 per cent of its investible corpus. Moreover, the fund cannot invest in associate companies of ventures it finances. The vencaps will also be eligible to participate in the IPO through book-building route as a qualified institutional buyer. And the acquisition of shares by a company or promoter from venture funds will be exempt from the Sebi takeover code. The guidelines are expected to boost the venture capital sector in the country and thereby augment the inflow of capital into the country.

 

Mutual funds have also been permitted to invest in venture capital funds. A mutual funds can invest up to five per cent of its corpus in case of open-ended schemes and up to 10 per cent of its corpus in case of close-ended schemes. Sebi has stipulated that the maximum investment in single by a foreign venture capital investor cannot exceed 25 per cent of the funds committed for Investment in one venture capital fund. Further, at least 75 percent of the investible funds must be invested in unlisted equity shares or equity linked instruments. Also, foreign venture capital investors cannot invest more than 25 per cent of the investible funds by subscription to the initial public offer of a venture capital undertaking whose share are proposed to be listed (subject to lock-in period of one year) and debt or debt instruments.

 

Sebi has defined venture capital funds as a trust or a company registered with it, having a dedicated pool of capital raised as per regulations and which invests in venture capital undertaking in accordance with the regulations.

 

It also allowed foreign venture funds registered with it to invest in domestic companies through an automatic window subject to sectoral caps prescribed by the government.(Business Standard, 15^th September, 2000)

 

 

The government has decided to allow royalty payment up to two per cent for export and one per cent for domestic sale on the use of trademarks and brand names of the foreign collaborator without technology transfer under the automatic route. The decision which marks a significant departure from the earlier policy is designed to benefit the SSI sector and promote investment, an official release stated. The release says payment of royalty up to eight per cent for export and five per cent for domestic sale by wholly-owned subsidiaries to offshore parent companies will now be allowed under the automatic route without any restrictions on the duration of royalty payments.

 

It has also been decided to allow FDI up to 100 per cent through the automatic route for all manufacturing activities in the special economic zones. The sectors that are excluded from this dispensation are arms and ammunition, explosives and allied items of defence equipment, defence aircraft and warships, atomic substances, narcotics and psychotropic substances and hazardous chemicals, distillation and brewing of alcoholic drinks, cigarettes/cigars and manufactured tobacco substitutes. The proposal to allow 100 per cent FDI in SEZs was announced by commerce and industry minister Murasoli Maran while unveiling the revised export and import policy on March 31.

 

Further, says the release, FDI up to 100 per cent is being allowed for the following activities in the telecom sector: Internet service providers not providing gateways (both for satellite and submarine cables), infrastructure providers providing dark fibre (IP category-I), e-mail and voice mail. The above activities will be subject to the certain conditions. First, that companies allowed 100 per cent FDI divest 26 per cent of their equity in favour of the Indian public in five years if they are listed in other parts of the world. Second, the above services are subject to licensing and security requirements wherever necessary and, finally, proposals for FDI up to 49 per cent will be considered by the Foreign Investment Promotion Board on a case by case basis. (Financial Express, 13^th September, 2000)

 

 

 

August, 2000

 

 

The government liberalised investment norms for insurance companies allowing them to invest 50 per cent of funds in government securities and the remaining in other instruments including equities.

 

As per the notification, Insurance Regulatory and Development Authority (IRDA) stipulated that pension funds can invest up to 60 per cent investment in triple 'A' rated corporate bonds and securities. The remaining 40 per cent of the funds are allowed to be invested in government and other approved securities.  Insurance companies could invest 15 per cent in infrastructure and social sector bonds, another 15 per cent in unapproved securities. Twenty per cent of the funds are allowed to invest in other bonds governed by prudential norms. Currently, insurance companies are required to invest 75 per cent in government securities and the remaining in corporate bonds.

 

The norms also make it mandatory for insurance companies to have a seperate committee to look into the investments. It should be headed by the chief executive officer and have two non-executive directors, chiefs for investment and finance. For the life insurance companies, the appointed actuary will also be the member of the committee. The norm for accounting stipulates segmented accounting mandatory and auditors in insurance companies have to be selected from a list approved by the authority. (Times of India, 18^th August, 2000)

 

 

The government will permit cash and carry wholesale trading with 100 per cent foreign equity but has ruled out FDI in retail trading. In this regard, a proposal of a Chennai-based company has been granted approval to undertake cash and carry wholesale operations in the country. The clearance is subject to the restrictions on imports and retail trading. Cash and carry wholesale trading essentially means building a chain of large distribution infrastructure to facilitate manufacturers to cut the length of supply chain by dealing directly and efficiently with the small and dispersed community of retailers as their customers.

 

FDI up to 100 per cent is also be permitted in case of trading involving exports and bulk imports with export/ex-bonded warehouse sales. Further, foreign investment up to 51 per cent for trading is allowed through the automatic route subject to the condition that the undertaking concerned is an export house registered under the provisions of the export and import policy in force.

 

Liberalising its policy recently, the government has allowed 100 per cent FDI in e-commerce activities subject to the condition that the concerned companies divest 26 per cent of their equity in favour of Indian public in five years if they are listed in other parts of the world. Further, these companies engage only in business to business (B2B) e-commerce and not in retail trading, implying that the existing restrictions on domestic trading would be applicable to e-commere as well.

 

FDI in the oil refining sector has been upped from 49 to 100 per cent while removing the upper investment limit of $ 349 in respect of power projects relating to electric generation, transmissioin and distribution (other than atomic reactor power plant).

 

The Industry Ministry believes that FDI is not a threat to an efficient domestic industry. However, while considering FDI proposals, a declaration is obtained from the applicant company whether the foreign collaborator has any previous joint venture or technology transfer/trademark agreement in the same or allied field in India. (The Financial Express, 18^th August, 2000)

 

 

The Centre announced the first-ever national agriculture policy. The policy aims at achieving a growth rate of over 4 per cent per annum by introducing `rainbow revolution' in the next two decades so that the total GDP growth can be sustained at 6.5 per cent.

 

The policy was tabled in Parliament.  A detailed plan of action comprising specific programmes for achieving the objectives of the policy will soon be formulated in consultations with states and other concerned agencies. The Union Agriculture Minister, Mr. Nitish Kumar, said that he was not in favour of imposition of tax on agriculture. He stated that agriculture needed incentives for growth and taxing the sector would be a retrograde step. He, however, stated that if the government so intends, it could impose tax on large plantations of coffee, tea, rubber and spices which have large holdings and are mainly owned by big corporate houses and not on other agro commodities grown by farmers. Farmers will be exempted from payment of capital gains tax on compulsory acquisition of agricultural land. The Minister said he was not in favour of agriculture being given the status of an industry but that he would bestow it benefits similar to industry.

 

The policy document has called for stepping up public investment for narrowing regional imbalances, accelerating development of supportive infrastructure for agriculture and rural development particularly rural connectivity. A time bound strategy for rationalisation and transparent pricing of inputs will be formulated to encourage judicious input use and to generate resources for agriculture. Input subsidy reforms will be pursued as a combination of price and institutional reforms to cut down  costs of these inputs for agriculture. Resource allocation regime will be reviewed with a view of re-channelising the available resources from support measures towards asset formation in rural sector.

 

A conducive climate will be created through a favourable price and trade regime to promote farmers' own investment as also by investments by industries producing inputs and agro-based industries. Private sector investment will be encouraged in agricultural research, HRD, post-harvest management and marketing. All distortions in incentives will be removed. Rural electrification will be given high priority for adequately meeting the demand of agriculture in a cost-effective manner. All on-going irrigation projects will be completed and modernized and integrated plan of augmentation and management of national water resources will be launched. Marketing infrastructure will be upgraded and modern techniques of preservation, storage and transportation will be developed. Producers markets will be encouraged. Setting up of agro-processing units in producing areas will be encouraged. Collaboration between producer cooperatives and the corporate sector will be encouraged in the processing industry. 

 

Consolidation of land holdings will be pursued on the pattern of northwestern states. There will be redistribution of ceiling surplus lands and wastelands to landless farmers and unemployed youths with initial start-up capital, tenancy reforms to recognise the rights of tenants and share croppers, development of lease markets for increasing the size of land holdings by making legal provisions for contract farming. Land records will be updated and computerised and land pass books issued to farmers.

 

There will be progressive institutionalisation of rural and farm credit. Distortions in priority sector lending by commercial banks will be removed and cooperative banks will be revamped and given more autonomy for professional functioning. National Agriculture Insurance Scheme will be made more farmer specific and effective and to provide package insurance policy from sowing to post-harvest operations. Contingency agricultural planning against natural calamities will be taken up.

The policy document calls for diversification of agriculture, encouragement of value-addition, removing curbs on movement of agro produces within the country, encouraging exports and protecting farmers against cheap imports by raising tariff.(Financial Express, 29^th July, 2000)

 

In a bid to promote rural credit, the Government has allowed foreign equity in companies doing micro and rural credit activities in the country.  The activities would cover extension of credit facilities at micro level to small producers and small micro-enterprises in the rural and urban areas, an official release said.  It said prevailing guidelines applicable for foreign investment in approved activities of the non-banking financial companies (NFBC) will henceforth be applicable to foreign equity participation in the micro and rural credit activities.

Under the guidelines for foreign equity investment in non-banking financial companies issued earlier in 1997, 1998 and 1999, foreign equity investment is permitted in 17 NBFC activities. They are merchant banking, underwriting, portfolio management services, asset management, venture capital, custodial services, factoring, credit reference agencies, credit rating agencies, leasing & finance, housing finance, forex broking, credit card business and money changing business. (Economic Times, 30^th August, 2000)

 

The Union Government has liberalised the norms for telecom operators to acquire and transfer foreign equity and permitted Internet service providers (ISPs) to set up landing stations for submarine cables. The government has also allowed the paging companies to switch over to revenue sharing arrangement from present licensing system, with effect from August 1999.

 

Announcing the decisions taken by the Union Cabinet, Parliamentary Affairs Minister Pramod Mahajan said that as per the new guidelines, Indian telecom players would be allowed to acquire the shareholding of their foreign partners or substitute them with others with the same equity limit. The Minister added that the transfer of equity between existing Indian promoters would be permitted provided the majority partner continued to hold the present shareholding for not less than five years from the date of licence agreement.

 

The decision to allow paging companies to switch over to revenue sharing model is expected to give a boost to the crisis-ridden paging industry. The revenue-sharing model will also help the industry to reduce operating cost. 

The Minister added that the decision regarding allowing setting up of landing stations for marine cables will increase the bandwidth connectivity for the country. The ISPs will also be permitted to lease their bandwidth to other users to make the services cost-effective, he added.

 

Meanwhile, the Union Cabinet has also decided to do away with the sales tax on aviation turbine fuel (ATF) sold to foreign airlines and bring a bill in Parliament to exclude the fuel for the purpose from the purview of states. Mr. Mahajan said that the foreign airlines would be charged universally accepted international price on ATF.  (The Financial Express, 10^th August, 2000)

 

 

The Government eased foreign direct investment rules in the information technology sector, allowing automatic approval to foreign investors with previous collaboration agreements.  Earlier, Government rules barred the automatic FDI route, which involves a waiver of clearance by the Foreign Investment Promotion Board, for investors who have had previous joint venture, technology transfer or trademark agreements.  "Considering the special nature and needs and with a view to further simplifying the approval procedures and facilitating greater investment inflows...it has been decided that FDI proposals relating to the IT (information technology) sector will, with immediate effect, be exempt from the condition..," the statement said.(The Economic Times, 30^th August, 2000)

 

The draft renewable energy policy statement has proposed an ambitious plan that non-conventional sector will contribute 10 per cent of all new power capacity generation in the country for the period 2000-2012. It has plans to electrify 18,000 villages on priority basis in the country which are considered economically non-viable for grid-connected power.

 

The policy statement drafted by the Union Ministry of Non-Conventional Energy Sources (MNES) has also proposed to take steps to promote business development and export of renewable devices as well as support setting up of renewable power and water heating projects in overseas market. It claimed that Indian technologies can prove to be very cost competitive since many areas of renewable energy have a high labour component and India is already being perceived as a leader in the renewable energy industry. The policy statement has marked a gradual shift from the subsidy regime to commercialisation of technologies, promoting grid quality power and strengthening R&D.

 

The ministry is promoting and developing various renewable energy technologies which includes improved chulhas (traditional stoves), biogas plants, biomass gasifiers, solar thermal and solar photovoltaic systems, wind farms, wind mills, biomass based cogeneration, small and micro hydel systems, energy recovery from urban, municipal and industrial wastes, hydrogen energy, ocean energy, fuel-cell, electravans and gasohol. In each of these areas there are programmes for resource assessment, R&D, technology development and demonstration.

 

The products which are being exported include solar photovoltaic systems, selectively coated sheets for thermal applications, solar cookers, wind turbines and parts. Technical know-how for manufacturing biomass gasifiers has been recently released to a private company in Switzerland. Indian scientists and engineers have provided consultancy services on different aspects of non-conventional or renewable energy through various UN agencies like UNDP, UNESCO, UNIDO and similar other organisations.

 

India now ranks fifth in the world in wind power generation after Germany, US, Denmark and Spain. It has the world's largest wind resources assessment programme. The wind power potential had initially been estimated at 20,000 MW, but according to a recent study the gross wind power potential is now estimated to be 45,000 MW at 50 m hub height. The technical potential is presently estimated at 9000 MW. Similarly the capacity of small hyrdo plants has been raised from 15 MW to 25 MW. (The Financial Express, 7^th August, 2000)

 

 

 Government has said that a company can undertake additional activities which are covered under the automatic route without seeking approval from the Foreign Investment Promotion Board (FIPB).  It is clarified that regardless of whether the original activities were undertaken with government approval or by accessing the automatic route, if the additional activities proposed to be undertaken under the automatic route, these maybe undertaken without seeking approval through the FIPB.

 

This clarification follows queries as to whether a company holding an approval through FIPB needs to apply afresh to add activities in addition to those already permitted. (PTI News, 1^st-7^th August, 2000)

 

 

 

With the Government paving the way for making India an uplinking hub, all television channels, irrespective of their equity holding, ownership and management control, will now be allowed to uplink their programmes from the country. Information & Broadcasting Minister Mr. Arun Jaitley announced the Government decision to open up the uplink business to non-broadcasting companies, with foreign equity cap of 49 per cent. With this, both broadcasting and non-broadcasting companies with a minimum Indian ownership of 51 per cent will be allowed to set up uplinking hub or teleport facilities for purpose of using it for themselves or hire it out to other broadcasters.  These companies will be permitted to uplink only those television channels which would be specifically approved or permitted by the government. This does away with the earlier policy of allowing broadcasters with up to 20 per cent foreign equity to set up their broadcasting facilities. (Financial Express, 27^th July, 2000)

 

 

Mining, financial services and e-commerce have emerged as the new favourites of foreign investors. A quick look at the FDI inflow into several sectors show new patterns emerging. Computer software industry is the favourite, accounting for more than quarter of all investments approved.
While the four areas together received just about 8 per cent of the total FDI approved since August 1991, the first six months of 2000 show that the share of these sectors has gone up to almost 50 per cent of all investment approved.

Traditional favourites such as the energy sector comprising oil refineries and power continue to attract major chunk of all approvals. However, their share in the total FDI approval has come down. Such is the case of transportation sector comprising automobile manufacturers and ancillary industries.

(Economic Times, 23^rd August, 2000)

 

ABN Amro Bank is sprucing up its retail operations in the country. Even as the Dutch banking major is open to the idea of acquiring retail portfolios in line with its embedded growth through acquisition strategy, in the immediate future, it will invest close to $ 9.5 mln in its credit-cards business and for technology upgradation. The bank plans to set up a national call centre and is also in talks to introduce bancassurance products in the country. "We will introduce credit cards by the end of this year... we are also in the process of upgrading our technology platform so as to offer better service to our customers", ABN Amro Bank's country-head (India) said, adding: "We are also in talks with a few for a tie-up to offer bancassurance products, and are looking at co-branding". He was of the view that India remained a key market for the bank, and its foray into credit-cards, for one, is a recognition of the potential this business has in the country. ABN Amro Bank, has of recent, introduced a whole suite of retail banking products and services in the country. These include `Loans against Shares', car finance and personal loans. The eight-branch bank will shortly open new ones in Bangalore and Hyderabad. It has an automated teller machine network of 29 as of now. An additional three ATMs is to be installed shortly while a further 10 ATMs may be up by the year-end. The bank has also has five corporate-ATMs spread over Pune, Chennai and Delhi.

 

ABN Amro Bank has nearly 220,000 customers accounting for 20 per cent of its business in the country. Last year, it had aqcuired the retail banking portfolio of BankAm. ABN Amro Bank's retail portfolio is a shade over $ 476 mln now. In 1999-2000, ABN Amro Bank posted a net-profit of $ 28 mln, up by 36 per cent over the preceding fiscal while operating profit rose to about $ 55 mln. (The Financial Express, 8^th August, 2000)

 

 

Infrastructure Development Finance Company (IDFC) and Dutch-based Rabo India has entered into a strategic alliance to develop and imbibe the best of international practices in the Food & Agriculture(F&A) industry.  Rabobank, with assets of over 280 billion dollars, is focussing on the food and agricultural sectors and IDFC believes India has a tremendous growth potential in the sector and is in need of international practices, the Vice President of IDFC said.

 The government has already liberalised the domestic F&A sector allowing private participation and foreign investment in the creation of bulk handling, storage and transportation of foodgrains. This has been done to bring down post-harvest losses to create an additional storage capacity. (PTI News, 15^th-22^nd August, 2000)

 

 

Minister of State for Chemicals and Fertiliser, Mr. Ramesh Bais has said that flow of foreign direct investment (FDI) in the chemicals sector, which dropped drastically in the last fiscal year, may improve this year as a result of the number of steps taken by the government to attract more foreign direct investment (FDI) in the country.  He added that the measures taken by the government to attract more FDI in the country might lead to a heavier inflow of foreign investment in the chemicals sector. The decision to de-license manufacture of chemicals except for a few hazardous ones will act as an incentive for foreign players. The government has made access to automatic route easier for FDI. Time-frame for consideration of FDI proposals has also been reduced. The government will now take thirty days instead of six weeks for communicating its decision on investment approval. Requirement of foreign-owned Indian holding companies to obtain prior and specific approval of the foreign investment promotion board for down stream investment in priority activities has also been dispensed with subject to specific conditions, the minister pointed out. Mr. Bais added that setting up of the Foreign Investment Implementation Authority to provide a single point interface between foreign investors and the government machinery both at the Central and the state-level will also help in attracting more foreign investments in the chemicals sector. (Financial Express, 1^st August, 2000)

 

 

The Cabinet Committee on Disinvestment (CCD) decided to sell Hindustan Zinc Ltd (HZL), Sponge Iron India Ltd (SIIL), Mineral Exploration Corporation Ltd (MECL) and Hindustan Insecticides Ltd (HIL) to strategic partners. Disinvestment Minister Mr. Arun Shourie announced the decision regarding the four PSUs after the CCD meeting. (Financial Express, 30^th August, 2000)

 

 

ICICI Ltd launched `Payseal' - a payment gateway which ensures safety and security of online transactions. Payseal interfaces between the internet shopper, web merchant and banking systems in a secured environment to facilitate online payments.

The gateway has been implemented by Compaq India for the server technology and QSI Payment Technologies (Australia) for the software solutions. The gateway will initially accept credit card payments with ICICI Bank as the acquiring bank. Later, it will be able to handle a variety of payment modes such as debit/smart cards and direct bank debits. ICICI proposes to tie up with other banks to enable B2C payments. ICICI has already signed up with over 15 web merchants, which include magiccart.com, eIndia.com and Rediff.com. The business-to-consumer (B2C) gateway will allow shoppers to transact on the internet using their credit cards. In the coming months, the gateway will be available on more than 50 sites. "`Payseal' is already operational on magiccard.com, with online testing underway with other sites. Five other sites will be operational within the next 10 days," a senior General Manager with ICICI said. (The Financial Express, 20^th July, 2000)

 

 

Top global equity firm, Carlyle Group has earmarked $250 million for investments in technology firms in India. The fund will be utilised primarily to invest in telecom infrastructure, networking infrastructure and software companies. The funds allocated for investments in India are part of the $750 million technology venture fund which aims to invest in Asia-Pacific region with a clear focus on Greater China (including Taiwan and Hong Kong) and India. The investments will be made over a period of three years.

The group has already made nine investments in the Asia-Pacific region including six technology companies in the country during the last five months. Carlyle has already committed $20 million in the six Indian firms. The company will make an average investment of $10-25 million in each company.

The company has targeted a 35 per cent return on investment for its investments in the Asia-Pacific region. The firm stated that the most likely exit strategy that Carlyle will take in India will be through strategic sale rather than an IPO. (Times of India, 18^th August, 2000)

 

 

Cellular subscriber base across the country has grown by 16 per cent during the first three months of the current financial year and stood at 2.18 mln as on June 30, according to the data released by Cellular Operators Associations of India (COAI). Total cellular subscriber base has stood at 2,181,807 on July 1, 2000 against 1,884,311 on April 1, COAI said.  (The Financial Express, 1^st August, 2000)

 

July, 2000

 

INTEGRATED ENERGY POLICY ON THE ANVIL: PM

 

Prime Minister A B Vajpayee said an integrated energy policy is on the anvil. The policy, he said, will aim at high levels of efficiency, equitable distribution and use, keeping in mind environment protection issues.  The Prime Minister was speaking at the inaugural of a new complex of the Tata Energy Resources Institute through teleconferencing. “Clearly we need an integrated energy policy that aims at high levels of efficiency in the entire energy cycle, ensures equitable distribution and use, and protects our natural resources and the environment,” Vajpayee said. The government, he added, will, on its part, do whatever was required to popularize the efficient use of energy through the energy policy that would “cover all forms of supply and all means of consumption”. (The Economic Times, July 4, 2000)

INDIA MUST AIM FOR 10% GROWTH – PM

 

The Prime Minister, Mr. Atal Bihari Vajpayee, called for spreading equity culture among more and more sections of society and in newer regions of the country. “Stock markets cannot be a closed club of a small group of participants. There is no reason why stock exchanges should not launch a massive education campaign to attract even wealthy villagers to invest their savings in the equity market, rather than in unproductive assets such as gold,” Mr. Vajpayee said addressing an august gathering on the occasion of 125th anniversary of the Bombay Stock Exchange (BSE).

On economy Mr. Vajpayee said, “we are already one of the fastest growing economies in the world, whose rate of growth is expected to be 7 per cent. This is clearly not enough. We can, and we must, aim at achieving rates of growth that are above 10 per cent on a long-term sustainable basis…India is a nuclear power now. Our economy must reflect our new, self-confident status on the world scene,” he said.  “For this, the capital markets, including the operations of financial institutions should be completely free from all kinds of political interference,” the Prime Minister promised to a captive audience. “Faster economic growth requires a far higher level of resource mobilization as investments into all the productive sectors of the economy. This is where our stock exchanges have a critical role to play. I see the stock markets as the torchbearers of faster economic reforms,” he added.

He underlined the urgent need for strengthening the “regulatory environment” of capital market. On the other hand, the stock exchanges should also keep their internal management tight, he said.

The Union Finance Minister, Mr. Yashwant Shina, said insurance and pension funds would enter the stock markets soon which would give more depth to equity market. 

Mr. Sinha said more funds must flow from capital market to the infrastructure sector. The Finance Minister said that India was recognised as one of the fastest growing economies with the current growth rate of 6.8 and 6.4 per cent during the last two years. If India had to grow at a rate of 8-10 per cent, resources needed to be mobilised to achieve this growth.

Mr. Sinha urged stock exchanges to protect the interest of small investors, who were the backbone of equity markets. ``Unless small investors feel that not only their investments are safe, but interests are also protected, they will not come to equity market,'' he said. According to him mass participation should be there for the growth of the country.

Mr. Sinha added, ``We have moved from few to many. If markets have to grow, we have to move from many to masses.'' (The Hindu, 10^th July, 2000; Indian Express, 10^th July, 2000)

LONG DISTANCE TELEPHONY FREED

Prime Minister A B Vajpayee announced complete deregulation of national domestic long distance operations before August 15 without ceiling on number of operators. "Recognising the benefits of large scale competition, the government has decided to fully deregulate national long distance operations with no artificial restrictions on the number of licences to be issued. The country has already seen the gains of such a liberal licensing policy in the sharply falling internet tariffs for the consumer," Vajpayee told a conference of state IT ministers.

The Prime Minister's announcement means that any number of new private operators would be able to enter NLDO operations subject to payment of an entry fee and a revenue share.  He also said that VSNL would be asked to make necessary changes in its agreement with international submarine cable operator FLAG so that FLAG’s bandwidth capacity can be fully utilised.

Yet another announcement made was that internet service providers would be allowed to set up landing stations for submarine cable operators. "Private ISPs will be allowed, either singly or jointly, to set up their own landing stations anywhere in India in collaboration with international undersea bandwidth carriers." Later in the conference, it was decided that the centre and the state governments will allow free right of way facility to access providers to lay optical fibre cable networks along national highways, and other roads. Only a nominal fee will be charged for this. (The Economic Times, 16^th July, 2000)

INDIAN ECONOMY TO MAINTAIN PRESENT GROWTH RATE -- UN SURVEY

The economies of India and China, growing at the rate of six or seven per cent, are expected to continue at the similar pace and there is a possibility of strong growth in the world economy in the medium-term, especially if IT revolution "is matured and diffused" around the globe, a UN survey says.

The World Economic and Social Survey for the current year also predicts the world economy to grow at three and half per cent in the current year, registering an increased growth rate for the second year in succession. It says continued strength is expected in North America and improvements in South and East Asia and Europe.(Indian Express, July 4, 2000)

ECONOMY TO GROW AT 7% -- FM

Finance Minister Yashwant Sinha expects the economy to grow at 7 per cent during the current financial year as compared to 6.4 per cent during the last fiscal. According to Sinha, the economic growth was expected to be better during the year because of normal monsoon, good agriculture output and robust industrial growth. The industrial sector, he added, has been doing well during the current year. Addressing members of the Consultative Committee of Finance Ministry, he expressed the optimism that, "our services sector has also grown robustly and will continue to do so."

Sinha added that the world perception about India has changed due to advances in the field of information technology and hoped that in the next few years about 7-8 mln jobs would be created in the IT sector.

The Finance Minister also emphasised that globalisation was a necessary part of the process of economic development. He said that the extent of globalisation over the last nine years has been nominal as during 1998-99, foreign direct investment (FDI) into India constituted only 0.3 per cent of the global FDI flow. Similarly, he added, India's share in global exports was only 0.6 per cent.

Therefore, he argued, globalisation could not be blamed for problems like poverty and unemployment which have existed for 50 years. He said, "while globalisation can help in enhancing economic growth, it is not a panacea for every ill facing India society." The central theme of economic reforms, he stressed, "remains elimination of poverty and generation of adequate employment opportunities."

Sinha also emphasised the fact that the Indian economy has gained greater resilience during the 1990s as demonstrated by the stability in the face of both internal and external shocks. He said that it goes to the credit of Indian policy makers that India remained largely immune from the negative affects of South-East Asian crisis during 1997-98. It also withstood the sharp rise in the oil prices since then, he said.

The Finance Minister also stressed that efforts were being made to formulate new schemes to directly attack poverty and unemployment. He said that there was a consensus on the need to improve the quality of life of the common people especially in the rural areas.  (Indian Express, 7^th July, 2000)

CMIE SEES ECONOMY GROWING 7 PER CENT

 The Gross Domestic Product is expected to grow at 7 per cent during the current fiscal 2000-01 on the back of an expected robust growth in agriculture, said the Centre for Monitoring Indian Economy. According to the latest monthly review on the economy released by the agency, the GDP is projected to increase by 7 per cent compared with the estimate of 6.4 per cent in the previous year. This would be mainly on account of a higher growth anticipated in agriculture: it’s expected to surge from 1.3 per cent in 1999-00 to 4.5 per cent in 2000-01. The industry and services sector is projected to maintain their performance trend of 1999-00, recording a growth of 8.6 per cent, said CMIE.

According to an official release, exports would record a growth of 13 per cent and imports would rise by 10 per cent in 2000-01.  Under the forecast, current account deficit would remain around one per cent of GDP. The release by CMIE points out that the index of industrial production has already recorded a growth of 12 per cent in April. (The Economic Times, 11^th July, 2000)

SOFTWARE TRADE ZOOMS TO MAKE UP 11% OF TOTAL EXPORTS

India's infotech software and service industry grew by a whopping 53 per cent in terms of revenue to $ 5.8 bln (Rs 24,350 crore) during 1999-2000 as against $ 3.8 bln (Rs 15,890 crore) earned during the previous year. Software exports posted a 57 per cent growth in dollar terms to touch $4 billion (Rs 17,150 crore) as compared to $ 2.65 billion (Rs 10,940 crore) in 1998-99, a National Association of Software and Service Companies (NASSCOM) survey stated.

The survey ranked Tata Consultancy Services (TCS) as the number one exporter company followed by Wipro Ltd,  Infosys Technologies, Satyam Computer Services, HCL Technologies, NIIT and Silverline Technologies Ltd. The survey estimated the market capitalisation of listed software companies in India at $55 billion as on June 30, 2000 compared to $4 billion in market cap in January 1999.

The survey projected a robust 57.5 per cent growth in software exports at $6.3 billion during the current year.

Out of the total revenue of Rs 24,350 crore ($ 5.7 billion) during 1999-2000, software exports accounted for a total of Rs 17,150 crore ($ 4 bln) and the domestic software market for Rs 7,200 crore ($ 1.7 billion). Indian software exports accounted for 10.5 per cent of the country's total exports during 1999-2000, up from just over 2.5 per cent five years back. According to the survey, more than 185 of the Fortune 500 companies have outsourced their software requirements from India.

The Chairman of Nasscom said opportunities in e-commerce software solutions would be the next major driver of growth in the Indian infotech sector. The Nasscom-McKinsey study in 1999 had predicted that the country can earn income of $10 billion from E-business solutions by 2008. In 1999-00, IT-enabled services generated total revenue of Rs 2,390 crore for the Indian industry. During the reference year, e-commerce software solutions worth $ 500 million were exported, and this is expected to increase to $ 1.4 billion during the current year.

The Nasscom survey said research and development (R&D) spending in the software industry in India increased from 2.5 per cent of the total spending in 1997-98 to about 3.4 per cent during 1999-2000. Also, in software exports, R&D outsourcing orders from overseas companies fetched about Rs 950 crore. ($ 222 mln). “Solution for Y2K revenues accounted for about 12 per cent (480 million dollars) of the country's software exports while the Indian software industry earned a cumulative $ 2.5 billion during 1996-99 from Y2K solutions,”  the Nasscom President said.

The US and Canada accounted for 62 per cent of India's software exports. Europe accounted for 23.5 per cent exports while 3.5 per cent each was from South East Asia and Japan. West Asia and Australia accounted for 1.5 per cent share each.

The survey projected an over 50 per cent growth in Indian software industry to Rs 39,500 crore ($ 8.75 billion in revenue) during the current year. (Indian Express, July 4, 2000)

INDIA TO SURPASS GROWTH FORECAST IN 2000-01: IMF

The IMF has predicted that India, buoyed by a revival in exports, increased industrial output and a pickup in domestic demand, should enjoy growth in 2000-2001 in excess of the 6.25 per cent it forecast in May. Such favourable prospects, according to an analysis by International Monetary Fund directors, should enable authorities to take bolder reform moves.

Directors, in a report released here on Friday, "emphasised the need for a more rapid deregulation of the industrial and agricultural sectors in order for India to benefit fully from the growing globalisation of goods and capital markets."  While trade liberalisation has gained momentum in India, they said, the level of protection remained high and called for continued tariff reduction and the avoidance of non-tariff barriers.

India's Gross Domestic Product moderated to 6 per cent in 1999-2000 from 6.75 per cent in 1998-99, according to the Fund. But GDP in 2000-2001 should rebound and surpass the fund's may prediction of 6.25 per cent.

Directors acknowledged the wisdom of the government's cautious approach to liberalisation in the flow of capital.  But they also stressed that "faster progress in liberalising foreign direct investment flow could have significant benefits, including for infrastructure development." (The Economic Times, July 2, 2000)

INDUSTRIAL GROWTH PEGGED AT 11%

For the first time in the last half decade, India is likely to post a double-digit industrial growth with the government projecting a 11 per cent rate for 2000-01.

Upbeat about the country's industrial performance in 2000-2001, the Industry Secretary said the industrial growth was expected to touch 11 per cent in 2000 as against 8.3 per cent in 1999. "We have done extremely well so far in the current financial year and we expect to end the year with 11 per cent growth rate," he said.  Industrial growth has ranged between three to eight per cent for the past five years.

In April, industrial production grew at the rate of 12.3 per cent, compared to only five per cent in corresponding period last year, mainly due to remarkable growth in the manufacturing sector which grew at 14 per cent. Even the mining and quarrying sector posted a positive growth rate of 5.2 per cent as against negative growth rate during most part of the last financial year.

According to analysts, if this trend continues, achieving a growth rate of 11 per cent in 2000-01 should not be a difficult target (The Economic Times, July 2, 2000)

 

RBI PLANS FOREX BUREAUX

The Reserve Bank of India is considering allowing foreign exchange bureaux and shops on the lines of telephone STD booths in major cities. “The RBI will encourage enlargement of foreign exchange facilities in India and will look at removing regulatory constraints. It will also welcome setting up of foreign exchange shops/bureaux on the lines of STD/ISD booths,” the RBI Executive Director said.

Addressing a discussion session arranged by the Forum of Free Enterprises in Mumbai he said that visitors coming in to the country, whether for business or as tourists, should not face difficulties in encashing their traveller cheques. The RBI has been, for some time now, considering strengthening of the existing network of bank branches and money changers.

He added that the RBI is also not averse to the idea of setting up different types of retail outlets for encashment of traveller cheques and international credit cards in foreign currency. The central bank has discussed the issue with banks, credit card issuers in the country and also those giving travel related services to encourage them to seek alliances or implants for enlarging the network. This will help vistors to India to easily encash their travellers cheques or make payments or take Indian currency through international credit cards.

It will also consider initiatives to give more money-changing licences to medium-size hotels and departmental stores who could offer such services on a round-the-clock basis. Rao added that the RBI was willing to take a positive look at any regulatory constraints to set up foreign exchange bureaux. (Indian Express, July 6, 2000)

GOVT INVITES BIDS FOR 74 PC STAKE IN HTL

The Government of India, as a part of its disinvestment programme, will sell 74 per cent of its shareholding in HTL Limited, formerly known as Hindustan Teleprinters Limited, including transfer of management control, to a strategic partner. As part of this decision, the government invited expression of interest (EoI) from companies interested in participating in the proposed divestment. KPMG India Private Limited, a member of KPMG International has been retained as global advisor in connection with the proposed sale, officials said.  Interested parties would have to submit their bids by August 1 with the latest audited annual report and a company profile describing their business and operations, officials added.

The current lines of business of HTL include manufacture of various sizes of digital electronic telephone exchange equipment for rural and urban network with features and facilities for ISDN and intelligent network, main distribution frames, transmission systems and data communication products. (Indian Express, 11^th July, 2000)

100% FDI IN TEA, COFFEE 

 

The Industry Ministry has decided to permit 100%t foreign equity in the tea and coffee sectors under the automatic route subject to foreign companies divesting 26 per cent of their equity in favour of their Indian partners within a period of five years. These companies will also be debarred from future land use change without obtaining prior and specific permission from the state governments concerned.

 

The Reserve Bank of India will make the necessary stipulation while notifying the facility of automatic route. The decision, approved by the group of ministers (GoM), awaits the Cabinet's approval. The GoM noted that the proposal to permit FDI in tea plantations had been recommended by the Assam Chief Minister and by the Consultative Committee of Plantation Associations. The GoM was also informed that possibilities of FDI and technology flows existed in a similar measure in the coffee sector and the automatic route for FDI should be considered for coffee also. (Financial Express, 10^th July, 2000)

 

GOVT ALLOWS 100% FDI IN B2B E-COMMERCE
 
The Government has decided to extend curbs on FDI in domestic retailing to e-tailing, while allowing 100 per cent foreign equity in business-to-business e-commerce activities.  The relaxation comes with the condition that foreign investors will divest 26 per cent of the equity in such ventures, in favour of Indian public, within a period of five years.

The government has also permitted 100 per cent FDI in refinery projects, scrapped the upper limit on foreign investment in power projects eligible for automatic approval, and removed the dividend-balancing condition for the consumer goods industries.

The proposals had been cleared by the cabinet last month, but they have been notified only now.

An official release said the removal of dividend-balancing clause for consumer goods industries will come into effect immediately. As per the clause, it was mandatory for consumer goods industries to balance foreign exchange outgo on account of dividend payments through exports.

In the case of power projects, the government, through a notification in ’98, had stated that automatic approval for 100 per cent FDI will be allowed in power projects only if the foreign equity did not exceed $ 375 mln. This restriction has now been lifted for hydroelectric power plants, coal/lignite-based thermal power plants, thermal power plants, and gas-based thermal power plants.  Generation, transmission and distribution of electrical energy produced in atomic reactor power plants will not be eligible for automatic approval, the notification said. (Economic Times, 18^th July, 2000)

 

GOVT PRESCRIBES HEALTH SERVICES PRIVATISATION
 
The Government is planning privatization of health services. On the cards is a range of joint ventures with private companies in the health sector.  The government's plan includes privatisation of major hospitals in the country through a bidding process. Also under consideration are 50-50 joint ventures with private companies for setting up new district hospitals.

The Ministry appreciates the need for private capital in improving the health infrastructure in the country, Union health minister Dr C P Thakur said. The health ministry is preparing the ground and working out modalities for setting up joint ventures with private companies. “We shall ask the industry to be our partner,’’ he said.

The government feels that apart from improving the running conditions of hospitals, especially in the districts, privatization would greatly benefit the rural population. Being in line with the government’s emphasis on the social sector, these hospitals could turn in a small profit as well, Dr Thakur said. The minister, however, clarified that the charges for treatment would not be allowed to be too high. (The Economic Times, 11^th July, 2000)

INDIAN COS TO INVEST $ 5 BN IN BANDWIDTH

India's hunger for entertainment, a liberalized expansion of telephone networks and dizzying growth in software are together driving a boom in bandwidth investment. With the flood of private investment announced this year could make wobbly connections a thing of the past, analysts say.

Private sector leaders and state-run giants have lined up investments totaling at least $5 billion to build domestic fibre optic pipes that will carry sound, pictures and text. "If most of the planned projects were implemented, there would be a glut of bandwidth. Anyway, it would take some time for that to happen," Nitin Bhat, telecoms analyst at consultants Frost and Sullivan said. "This is in tune with international trends where backbone bandwidth is increasingly getting commoditised." Old economy giants that dominated textiles, petrochemicals and engineering are now jumping on the bandwidth bandwagon.

Petrochemical leader Reliance group is believed to be investing more on "infocom" than it did on its crown-jewel refinery that cost Rs 14,250 billion ($3.2 billion);  the Tata group recently merged its four power utility companies and also announced plans to invest Rs 375 crore to build a 400-km (250-mile) fibre optic network in Mumbai. Some 1,200 km are planned later. While such companies focus on infrastructure as a prime offering, entertainment groups like Zee Telefilms are building bandwidth to feed their cable TV customers.  Zee plans to link 26 cities through optical fibre links, involving a total investment of Rs 2400 crore.

India's software industry is growing at more than 50 per cent per year. Cable TV penetration is expected to grow from the current 25 million to around 80 million by 2008, and Internet subscribers to around 35 million from the current one million.

Besides these, key bandwidth demand is expected from an emerging boom in application service providers (ASP), who manage and rent out software over networks. India is also going through the paces of a new regime to end a state monopoly on bandwidth-hungry long-distance telephony.

State-run units have jumped to take advantage. Powergrid Corp is scouting for a global partner to build a telecoms backbone around its 13,800-km electricity network. Gas Authority of India Ltd is using its natural gas pipelines to build long-distance communication links. The Indian Railways plans an optic fibre network around its sprawling 62,800-km route through a joint venture.

The new projects are in addition to the more than 100,000 km of fibre links built by the Department of Telecommunications. A good portion of the investments are in the southern states of Andhra Pradesh, Tamil Nadu and Karnataka, where software is powering a broad-based urban and industrial growth.

In addition to domestic groups, US-based Enron Corp aims to invest Rs 600 crore on fibre optics in Karnataka. There is also a drive to spread affordable Internet.

In Madhya Pradesh, Reliance plans to set up 7,800 cyber kiosks through a joint venture and BSES plans 1,000 in Bombay. Britain-based WorldTel, in partnership with Reliance, will build 1,000 community Internet centres in Tamil Nadu. (Indian Express, 11^th July, 2000)

INDIAN IT SERVICES MKT TO TOUCH $ 25 BILLION BY 2004 -- GARTNER

Information technology (IT) services market in the country is projected to grow at rate of 45 % annually in the next four years to touch $25 billion by 2004 from current $5.5 billion, according to a study by an international research agency. The lion's share of this would come from IT development and integration services which would account for $21.1 billion, from the current size of $3.9 billion, the study on IT services market in India by Gartner said.

According to Gartner, development and integration, which currently accounts for 71.9 per cent of the overall IT services market in the country, would grow to represent 84.3 per cent of the total market size by 2004. The sector is estimated to grow at a compounded annual growth rate (CAGR) of 51 per cent over the next four years. The study said education and training would emerge as the second largest revenue generator accounting for $2.1 billion in 2004 compared to $0.6 billion in 2000.

The software maintenance segment would touch $0.9 billion by 2004 end, reflecting an annual growth rate of 16 per cent from $0.4 billion in 2000, it said. On the hardware services, Gartner said that the market would increase to 0.22 billion over the next four years, up 10 per cent from 0.15 billion this year. (Indian Express, 10^th July, 2000)

JM MORGAN STANLEY GLOBAL ADVISOR FOR AI SE1LOFF
 
The Government  set the ball rolling for disinvestment in public sector undertakings during the current fiscal by announcing global advisors for 16 PSUs. The Department of Disinvestment (DoD) picked JM Morgan Stanley as the advisor for privatising Air-India.

DoD has appointed Lazard India as global advisor for sale of stake in ITDC and IDBI, ANZ Grindlays and Speedwing consortium for disinvestment in Indian Airlines, an official statement said.

Global advisors announced by the government included ICICI Securities and Bank of America consortium for Madras Fertilisers, IDBI Sumitomo bank consortium for Hindustan Copper, Rabo Finance for National Fertilisers, IDBI for Instrumentation Ltd and A F Ferguson for Jessop and Co.

Other global advisors are Warburg Dillon Read for IPCL, Jardine Fleming for Balco, S B Billimoria for RBL Ltd, SBI Capital Markets for Bharat Leather Corp and Nepa ltd, I-sec for Hindustan Cables, KPMG for HTL and Price Waterhouse Coopers for Scooters India.

The privatisation of IPCL and BACLO are in advanced stages. IDBI, which was appointed advisor for sale of stake in 3 PSUs, got the maximum number of mandates, followed by ICICI Securities and SBI Capital markets with two each.

The Cabinet Committee on Disinvestment had approved the sale of government stake in these PSUs in the current fiscal year. The CCD had also empowered DoD to appoint global advisors to streamline the disinvestment procedure. (The Economic Times, 11^th July, 2000)

 

SWATCH PLANS GLOBAL LAUNCH OF E-WATCH FROM BANGALORE

Swatch, the world's leading watch-maker, is planning a big splash in Bangalore in a few months from now for the world-wide launch of a “futuristic” watch.

World celebrities of Hollywood, sports, India's own beauty queens and Bollywood heart-throbs, some leading lights of the trade and dozens of foreign journalists are expected to come to Bangalore to witness the launch of what some in the industry call the world's “most sensational” watch.  In hushed tones, the new watch is being described as an “e- watch” or an “Internet watch.”  For strategic reasons, the company is not ready yet to disclose details of the product.

Why Bangalore? Why not Bangalore? asks Swatch, the world's No. 1 watch-maker with revenue in 1999 of US $ 2.2 billion. “Bangalore is the hub of information technology,” said Swatch's Regional General Manager (South Asia). “It will be a good marriage between Bangalore and the futuristic technology of the new watch.” According to him, the event will happen “any time from September onwards.”  Swatch already has a watch that shows what it calls Internet time and another one that has pagers incorporated into it. “The new watch will be much more than all that,” he said, refusing to disclose any more details. (Times of India, 8^th July, 2000)

 

 

June, 2000

 

 

Prime Minister Atal Bihari Vajpayee, while speaking at the Indo-EU Summit in Lisbon (on 29 June, 2000), asked the European Union to provide better market access to Indian products and services and said the tendency to rely on non-tariff barriers to preserve markets and perpetuate the current balance of trade should be resisted by all.  “In order to benefit equitably from global trade and commerce, we must ensure genuine multi-lateralism. The tendency to rely on non-tariff barriers to preserve markets and perpetuate the current balance of trade should be resisted by all” he said  while addressing the plenary session of the summit .

The Prime Minister said there was tremendous potential for further strengthening India-EU relationship by building upon the complementarities in the economies. “We hope that some of the trade issues that have persisted will be overcome. I am referring to the release of exceptional flexibilities on textiles to India and to our problems with anti-dumping and anti-subsidy procedures.” He criticized the tendencies to overload the WTO with social and other non-trade issues. “We feel strongly that such issues need to be kept off the WTO agenda if developing countries are to secure their rightful share in international trade commensurate with their development needs and economic capabilities,” he said.

Prime Minister Vajpayee said as founder members of both GATT and WTO, developed countries had a strong commitment, faith and responsibility to strengthen a rule-based multilateral trading.” It is, however, our sincere belief that this system would  stand to gain from review and introspection coupled with frank and objective discussions among member states,” he said.

The Prime Minister said the developed countries should demonstrate political acumen and will to address the various concerns of developing countries and restore their confidence in the fairness of WTO.

Outlining India’s priorities in the infrastructure development and strides in telecom and information technology sectors, he said India had been making sustained efforts to move towards a more open trade and investment regime.

Vajpayee made a strong plea to the EU to support India’s case for a permanent seat in an expanded UN Security Council and join hands in fighting the scourge of international terrorism. (June 29, 2000, Economic Times)

 

 

The government is targeting a growth rate of at least 10 per cent for the next decade to eliminate poverty in the country, Finance Minister Yashwant Sinha said. Addressing a seminar on ‘Green revolution in Assam,’ Sinha  regretted that the growth rate in 1999-2000 was expected to go down to only 6 per cent as against 6.8 per cent the previous year, which was largely due to a decline in agricultural growth rate. “To make the economy stronger, the government is targeting 10 per cent growth rate for the next ten years to give agriculture its due share,” Sinha said. (June 20, 2000, Economic Times)

 

 

Finance Minister Sinha, while seeking investment in crucial sectors, has assured investors that their money would be safe in India irrespective of the government in power as there was consensus among political parties on economic reforms.

 

The Finance Minister , addressing U.S. investors and later the Chicago Council of Foreign Affairs, spoke of the Government’s  determination to go ahead with the reform process and open up more sectors for foreign investment. Infrastructure, telecommunication, and agribusiness were among the major sectors he highlighted for investment.  India, he said, is the world’s second largest producer of fruits and vegetables and the world’s largest producer of milk. “Yet a minuscule proportion of these are processed today resulting in massive waste and misallocation of our resources,” he said.

 

Stressing on the wide scope for investment that existed in India, Mr Sinha related country’s plans to build 13,000 kms of national highways, including a six-lane corridor of 7000 kms. At current prices, he said, the cost translated to $37 billion by 2005 and $70 billion by 2010. Also, there were plans to upgrade five central airports and develop several greenfield airports, he told the U.S. business leaders who were treated to a road show to acquaint them with incentives provided and facilities made available to those who invested in India.

 

Stressing the vast scope in the power sector, the Finance Minister said that India had to develop capabilities in generation, transmission and distribution to meet its demand of nearly 200,000 mw by 2012.

 

Sinha identified knowledge-based product and service areas in which the United States and India enjoyed a competitive edge, including broadcasting, entertainment, e-commerce, information technology, telecommunication and research and development. (June 01 2000, Economic Times)

 

 

India is now the fourth largest economy in the world, pushing formidable Germany to fifth place. According to the world development indicators released by the World Bank recently, India is a $2 trillion economy (1998 GDP figures) behind just the US ($8 trillion), China ($3.8 trillion) and Japan ($3 trillion).   This is when GDP (gross domestic product, the value of goods produced by a nation) is measured in terms of PPP, or purchasing power parity.

 

It may be pointed out that India’s average annual GDP growth rate in terms of PPP for the last 33 years has been a decent 4.9 per cent. This indicates a sustained growth in the economy. (June 09, 2000, Economic Times)

 

 

India can attract foreign investments (direct plus portfolio) of $5 bln plus every year for the next decade. Accelerating the reform process in order to integrate itself with the global economy would make it happen, feel foreign investors. On the global markets India's stocks are at a record high, thanks to an increasing influence of the fast growing convergence sectors - infotech, media and entertainment, and telecommunication.  Besides, India is perhaps passing through the longest bull phase that can run for over a decade. This is the general consensus among international fund managers tracking Indian markets.

 

Fund Managers state that the convergence sector revolution can leap-frog in India by at least 20 to 25 years in the new millennium and offset the slow growth witnessed in the industrial revolution phase.The domestic stock markets should rise by a conservative 25 per cent in 2000 and the barometer 30-stock sensex should stabilise around the 5,000 level by the turn of the year, they predicted.

 

Tim Dickson, portfolio manager (Asia), UK-based Foreign & Colonial Emerging Markets, said he was optimistic that the Indian economy would rebound under a stable political situation. India can comfortably witness a compounded growth of 7-8 per cent in GDP that can double the GDP size in less than 12 years if it accelerates the reforms process and offers incentives to entrepreneurs, he added. He expects four sectors : software, pharmaceuticals, capital goods and petroleum  to outperform in coming years, while textiles and banking sectors will have tough times ahead since they are saddled with a lot of inefficiencies and excess labour, said Dickson.

 

The UK-based fund manager of Manek Investments said India’s population was a big strength for the IT industry.  “India’s large population can be utilised effectively if proper training and education is provided. The IT industry’s ambitious target of $50 bln by 2008 can be achievable going by the hefty compounded annual growth rate of 60 per cent. Telcos (telecom companies) and media firms are expected to emerge as dominant players from India,” he said. (June 05 2000, Economic Times)

 

 

The Asian Development Bank has once again reposed confidence in the capability of the Indian economy to record 7 per cent growth in 2000 and 2001, in its latest Asian Development Outlook 2000, (April 2000).

 

Most economic indicators confirm the ADB's optimism this year. While the rate of inflation is creeping up from the historic low of around 3 per cent, export growth is back into double digits and industrial growth rate is getting there, the current account deficit is low at 1.5 per cent of gross domestic product, and foreign exchange reserves are moderately high ($ 35 billion).

 

Analysts of the Indian economy are almost unanimous, whatever their differences on specifics, that India is capable of sustaining 7 per cent growth in the medium term. A critical requirement is increased investment in infrastructure. Equally important is political stability. 

 

With  political stability restored and the government adopting some forward-looking economic policies, the hopes of sustained above-average growth have once again resurfaced. Indeed, if the ADB forecast of 7 per cent growth over the next two years is borne out, the long-term average rate of the growth of the Indian economy will itself shift upward.

 

From 1900 to 1940, British India recorded a growth rate of near zero per cent. Between 1947 and 1980 India's average annual rate of growth was just about 4 per cent. Between 1980 and 2000, the average rate of growth works out to between 5.5 and 6 per cent. (June 07, 2000,Economic Times)

 

 

The Government announced disinvestment of its equity in 33 state-owned companies, including privatisation or outright sale of 26 public sector undertakings (PSUs), during the current financial year while leaving the oil and telecom sectors largely untouched.

 

The sale of equity is part of the annual plan for disinvestment approved at the meeting of the Cabinet Committee on Disinvestment (CCD), headed by the Prime Minister, Mr. Atal Behari Vajpayee.

 

The Shipping Corporation of India, trading houses Metals and Mineral Trading Corporation and the State Trading Corporation, Hindustan Zinc, Madras Fertilizers and National Fertilizers are among the companies listed for outright sale or privatisation. While directing the Ministry of Disinvestment to go ahead with the sale of equity in 19 PSUs, already approved by the Government, the CCD accorded, in principle, approval in 14 cases including disinvestment in the Indian Oil Corporation and IBP.

 

The CCD has asked that the Ministry for Disinvestment expedite appointment of global advisers for nine PSUs, already cleared for divestment, for sale through strategic route or fresh issue of shares. These include the Hindustan Copper, Indian Airlines, Air India, Madras Fertilizers, National Fertilizers, Engineers Project, Instrumentation Limited, Jessop and Company and the Indian Tourism Development Corporation.

 

Fourteen companies for which the Department of Disinvestment, would bring specific proposals for the CCD's approval “very early” are Hindustan Zinc, the Shipping Corporation of India, Hindustan Organic Chemicals, Hindustan Insecticides, MMTC, STC, MSTC, Sponge Iron, Hotel Ranchi Ashok, Hotel Utkal Ashok (all privatisation), IOC and the Container Corporation. The road map for disinvestment during the current fiscal year also includes ten companies for which strategic advisers have already been appointed. These are BALCO, Scooters India, Bharat Leather, Nepa Limited, HTL Limited, Hindustan Cables, RBL Ltd, Bharat Brakes (all privatisation), IPCL and Hindustan Latex. (The Hindu, June 24, 2000)

 

 

Government has announced a new policy on External Commercial Borrowing (ECB) which allows the Reserve Bank of India to approve ECB’s up to 100 million dollars besides liberalizing automatic route for fresh ECBs up to $ 50 million. The government has decided to delegate further the ECB sanctioning powers up to $ 100 million under all windows to RBI. Consequent to this decision, firms and institutions will have to submit their ECB applications to the RBI.

 

The new policy also said Power, Telecommunication, Railways, roads, Ports, Industrial Parks, Urban Infrastructure will qualify for ECBs up to 200 million dollars under the Infrastructure category.

 

The ECB guidelines are revised every three months and the annual ceiling for ECB in 2000-01 is $ 8.5 billion. (PTI News, 12^th-19^th June, 2000)

 

 

The Haldia Dock Complex (HDC) has chalked out plans to augment its cargo handling capacity to 45 million tonne per annum by 2006-07. This would ensure a 100 per cent jump in its capacity in just five years. The capacity augmentation would primarily be on account of  construction of a second dock arm with 15 berths at an estimated investment of US $ 235 mln. This would ensure capacity addition of 22.5 million tonnes per annum in the course of the next five years. The proposal for selecting a consultant for undertaking a detailed feasibility study at a cost of $ 0.5 mln has already been sent to the Ministry of Surface Transport.

 

On a larger time frame, the dock complex has plans to augment its cargo handling capacity to 61 million tonne per annum.

 

In terms of commodity handling, crude has emerged as the primary cargo to be handled at Haldia over the years. During 1999-2000, the dock system handled 20 million tonnes of cargo which included over 10 million tonne of POL crude and products. The other major commodities included thermal coal and coking coal at three million tonne each.

 

In terms of projections, by 2001-02, HDC will handle over 29.5 million tonne of cargo including 17 MT of POL crude and product. Thermal coal and coking coal will constitute another 6.5 MT during the year. By 2006-07, the cargo handling will go up to 42 million tonne. This will include 25 MT of POL crude and product and 11 MT of thermal and coking coal. (June 26, 2000, Economic Times)

 

 

The government is weighing the possibility of letting ‘international financial centres’, better known as offshore banks, to come up in the special economic zones (SEZs). The proposal, which entails a liberal regulatory environment to banks operating in the region, is in line with the recent measures announced by Commerce Minister Murasoli Maran for SEZ units.

 

Under this, there could be minimum or no reserve requirements for bank branches in these zones. Besides, they may enjoy greater freedom in foreign exchange transactions. It is being felt that lesser regulations would help banks lower their cost of funds and subsequently pass on the benefit to exporters drawing trade finance from them.

 

For all regulatory purposes, these bank offices may report to the Central Bank. But they will be treated as banks operating in a foreign territory. The key factor is that the monetary authority and the government will have to decide on giving special dispensation to these bank branches. Besides scrapping the cash reserve requirement or fixing the minimum three percent level, these financial services providers should enjoy a greater flexibility in handling fund remittances abroad and receipt of forex inflows. (June 01, 2000, Economic Times)

 

 

The government is considering several proposals which will take Indian corporates forward on the road to full convertibility. The proposals include fungibility to corporates and permission to the institutions to buy bonds of other companies in the international market.  Another proposal which is also under the active consideration of the government includes permitting foreign investors to directly invest in the Indian market.

 

As far as fungibility to corporates is concerned, the government is proposing to permit companies to automatically issue GDRs up to the extent they stand extinguished. Simply put, it means that if a company holds GDR/ADR clearances for $400 million, of which $300 million have been extinguished through conversion, it would be free to reissue GDRs equivalent to those extinguished without coming to the government for approvals. (June 28, 2000, Economic Times)

 

 

Dutch Social Affairs Minister Willem Vermeend has agreed to allow Dutch companies to hire thousands of IT specialists abroad, mainly in India, temporarily for a period of two years. The companies must at the same time train Dutch people to replace the Indians within two years. Some companies have already requested permits from the public employment offices to hire Indians in information technology functions. The Netherlands’ IT Federation said around 25,000 IT specialists are needed, half in the telecom sector and half in computer services. (Media Monitor, 30^th June, 2000)

 

 

ABN Amro Bank has applied to the capital markets regulator Securities & Exchange Board of India to set up an asset management company to undertake the mutual fund business. “The proposed AMC will have a paid up equity capital of $ 2.5 mln though we haven’t decided at this stage, whether this will be held by ABN Amro Holdings or ABN Amro Securities India,” ABN Amro Bank Chief Executive in India said.  “We manage $105 billion of third party funds globally and we have also begun marketing third party mutual funds through our bank branches in India,” he said.

 

The idea behind floating its own mutual fund is to leverage on its distribution capability and retain maximum share of profit within the group by providing a proprietary alternative to bank customers. (June 22 2000, Economic Times)

 

 

French glass company Saint-Gobain plans to invest an additional $ 150 mln in its Indian float glass manufacturing unit near Chennai which is scheduled to be commissioned in September. The company has already invested $ 122 mln in the plant. The additional investment will be dependent on the demand for the company’s products.  Saint-Gobain proposes to export 30 per cent of the production. (June 23 2000, Economic Times)

 

May, 2000

 

 

 

Prime Minister Atal Behari Vajpayee called upon the Union Ministries and the State Governments to keep in mind environmental concerns while planning developmental activities. “We need to address environmental concerns while preparing development policies. Policy evaluation should not be based on financial cost-benefit analysis alone. No development activity that severely depletes our natural resources or degrades our environment can ultimately benefit the people,” the Prime Minister pointed out. He said, “Protecting our environment does not mean putting a stop to development activity, nor does it mean putting a halt to progress. We have to look for pragmatic solutions to problems posed by developmental projects. We have to bear in mind their long-term impact on the environment and ecology of the region, the state and the nation”, he said inaugurating a two-day conference of the state environment and forest ministers.

 

Vajpayee asked the Union and the state governments to adopt a developmental model that ensures a sustainable development, ”We have to balance progress and consumption with conservation of resources” he said. (Business Standard, May 17, 2000)

 

According to the proposal the upper limit of $ 360 mln may be abolished or enhanced for power projects with foreign equity of 100%. The move to ease foreign direct investment inflows is apparently aimed at increasing execution of power projects on the ground. (The Hindustan Times, May 22, 2000)

 

 

At the the Asian Development Bank's annual meeting in Thailand, Finance minister Yashwant Sinha showcased five major infrastructure sectors of India as holding major potential for foreign direct investment. Participating in the ADB's high-level round table meeting, Mr Sinha identified power, telecommunications and information technology, roads, ports and civil aviation as the five sectors in India where vast opportunities were available.

 

He said India needed $71bn alone in roads and communication in the next 4-5 years and policy initiatives had been put in place for this purpose. In telecommunication, he said, abundant investment opportunities existed in basic and cellular telephony, communication infrastructure, optic fibre cable, gateways, satellite-based communications, software development, IT enabled services. “It is estimated that 75m telephone connections would be required by 2005 and 175m by 2010. At current prices, this translates into additional investment of nearly $37 bn by 2005 and 70 bn dollars by 2010,” he said.

 

Mr Sinha said investments worth estimated $34 bn were needed till 2005-2006 for the development of national and state highways, of which private sector investment was to be $8.3bn. “Opportunities (for FDI) exist in highway construction, four-laning of over 35,000 km of national highways and highway related en route activities like restaurants and motels,” he said.

 

Port areas identified for private sector investment included leasing out of existing port assets, creation of additional assets, leasing of equipment and floating craft from private sector, pilotage and captive facilities for port based industries, he said. “Government is encouraging private sector participation in construction and operation of new airports like Bangalore and Goa,” he said adding it has also been decided to restructure some of the airports of the Airport Authority of India through long term lease.

 

On the power sector, Mr Sinha said enhancement of capabilities in generation, transmission and distribution to meet a demand of nearly 200,000 MW by 2012 would offer a huge potential for FDI. Import of LNG was being considered for setting up large capacity combined cycle power plants, he said adding FDI on liquid based projects would be considered by the government. "Transmission projects for power transfer are also available for competitive bidding both within states and inter-state,” he said. Noting that major constraint in the way of India's rapid economic growth was inadequacy of infrastructure, Mr Sinha said, “We will be moving ahead with programmes of corporatisation of public sector service providers in telecommunications, ports and airports.”

 

On macro-economic matters, he said the government had been able to give right direction to the economy, managing a broad-based industrial recovery. “Our export growth has also turned the corner and exports recorded a growth of 11.6 per cent in 1999-2000,” he said adding much higher growth was expected in the current year.

 

Mr Sinha said the country had undertaken reforms to facilitate greater investment in the economy, enhance the competitive edge of Indian industries, strengthen the role of private sector in industries and promote integration with the world economy through expansion of international trade. (May 07 2000, The Economic Times)

 

 

Finance minister Yashwant Sinha announced a series of  industry and market-friendly amendments on direct and indirect tax  proposals while moving the Finance Bill 2000 for consideration in the Lok Sabha (Lower House of Parliament).

On the direct taxes front, the changes include a 10-year tax holiday for software exports from Software Technology Parks (STPs), taxing ESOPs not as perks but as one-time capital gains tax at the time of their sale, providing tax-free status to venture capital funds, handsome sops for housing loans and doubling the rebate on investment in infrastructure bonds.

To give impetus to exports, including software exports, the cut-off for the 10-year tax holiday will continue until 2010 for units in STPs and FTZs. This means units registering up to that point would be eligible for a tax holiday up to 2010.

 

To encourage R&D in knowledge-based industries, particularly pharmaceutical and biotechnology, a 10-year tax holiday is proposed to be extended to R&D companies. Additionally, the weighted deductions for expenses for these companies has been increased from 125 per cent to 150 per cent.

On the indirect taxes front, Mr Sinha's focus has been on providing protection to domestic industry by hiking customs duty on a host of commodities like tea, coffee, poultry, meat and their preparations, marble slabs and tiles and non-coking coal.

 

While speaking during the debate on Budget 2000, the Finance Minister, Mr Sinha stressed that the performance has been as good, if not better, and the economy was looking good and getting better. With the industrial recovery last financial year, Mr Sinha said the government was confident of achieving seven per cent growth this year if not more. “We are determined to achieve it, if not exceed it.” Referring to the decline in the tax-GDP ratio in recent years, he said it had started going up now as it had increased from 8.2 per cent of GDP in '98-99 to 8.9 per cent in '99-00. The government proposed to get back to the '91-92 level of 10.5 per cent during this financial year. (May 04 2000, The Economic Times; Business Standard, May 5, 2000; May 05 2000, The Economic Times)

 

 

The much-awaited Information Technology (IT) Bill which is to facilitate e-commerce and growth of internet was passed by a voice-vote in the Lok  Sabha with the Government proposing to set up a special police task force to deal with cyber crimes.

 

Replying to the two-day debate on the amended bill, Information Technology Minister Pramod Mahajan said that a special task force would be set up within the police to deal with cyber crimes incorporating the recommendations of the standing committee. Internet service provider (ISP) should not be punished for the “misuse” of computers by a subscriber if the former was not ware of such wrong doing, he said.

 

Maintaining that only a small percentage of people in cities were using computers, he said the task would be to penetrate towns and villages to bridge the “digital divide” in the country. “If we can do it now, in 10 years we will be global leaders in information technology...it was not important that we become the leader or not but it would help us serve our one billion population better,`` the Minister said.

The industry association, NASSCOM, stated that with the passage of the IT Bill, India will have a legal framework for the authentication and origin of electronic records/communications through digital signature. The resultant IT Act would eliminate barriers resulting from uncertainties over writing and signature requirements and promote legal and business infrastructure necessary to implement e-commerce, spurring the use of internet, e-mail and e-commerce, he said. (Deccan Herald Wednesday, May 17, 2000)

 

 

The Securities and Exchange Board of India is considering allowing mutual funds, pension funds and banks to invest a portion of their corpus in venture capital funds.  Sebi is also in talks with the Reserve Bank of India to allow foreign venture capital investors to invest in India through the automatic route. “We are in deliberations with RBI to allow foreign venture capital investors to invest through the automatic route in order to provide a hassle-free investment climate for them and boost availability of funds for new ventures,” Sebi officials said.

 

According to the officials, Sebi is also considering allowing mutual funds, pension funds and banks to invest a portion of their corpus in Sebi-registered VCFs. It is also in discussions with the government and the RBI on the issue, the officials added.  Although the exact quantum of funds that can be invested by mutual funds in VCFs is yet to be decided, it is likely that they may be permitted to invest up to 10 per cent of their corpus in Sebi-registered funds. The 10 per cent limit will be a ceiling within which individual mutual funds may be allowed to have their own prudential limits. The move will give retail investors the opportunity to participate in high-growth enterprises through the institutional mechanism of mutual funds. (May 11 2000, The Economic Times)

 

 

In an effort to increase foreign direct investment (FDI) in the mining sector, the Indian government has allowed 100 per cent foreign investment for all the minerals except diamonds and precious stones.

The areas where 100 per cent FDI has been allowed include exploration, mining, mineral processing and metallurgy.
In the  case of diamonds and precious stones, foreign equity upto 74 per cent will be allowed on an automatic route for both exploration and mining operations. For proposals seeking more than 74 per cent stake, the cases will have to come to the Foreign Investment Promotion Board (FIPB) for approval.

Minister of Mines and Minerals P R Kumarmangalam in a meeting with the consultative committee of the ministry said that FIPB has approved 60 applications amounting to Rs 34.67 billion for FDI upto March 2000. He said in 1999-2000, FIPB had approved six proposals of FDI amounting to about Rs 1.31 billion in the mining sector. The committee informed the minister that entire taxation regime applicable to the mineral sector is being studied in detail by a multi-disciplinary committee to suggest appropriate tax structure conducive to rapid development of the mineral sector.  (Times of India, 13^th May, 2000)

 

 

The Reserve Bank of India will allow Non-Banking Finance Companies (NBFCs) with $ 120 mln net worth to float insurance ventures. The draft guidelines have propounded that any NBFC registered with RBI having net-owned fund of $ 1.2 mln will be permitted to undertake insurance business as agent of insurance companies on fee basis, without any risk participation. Announcing the draft guidelines for the entry of NBFCs into insurance sector, the central bank has stipulated though the maximum equity contribution of an NBFC in its insurance venture will be capped at 50 per cent, on a selective basis it may permit a higher equity contribution by a promoter up to 74 per cent.

The other eligibility criteria for joint venture participant will be: the capital adequacy ratio of the NBFC engaged in loan and investment activities holding public deposits should be not less than 15 per cent and for other NBFCs at 12 per cent; the level of non-performing assets should be not more than 5 per cent of the total outstanding leased/hire purchase assets and advances taken together; and the NBFC should have net profit for the last three continuous years. It also said the track record of the performance of the subsidiaries, if any, of the concerned NBFC should be satisfactory. All NBFCs registered with RBI which satisfy the eligibility criteria will be permitted to set up a joint venture company for undertaking insurance business with risk participation, subject to safeguards, said the draft guideline.

 

The RBI will give permission to NBFCs on case-to-case basis. It should be ensured that risks involved in insurance business do not get transferred to the NBFC and that the NBFC business does not get contaminated by any risks which may arise from insurance business. In case where a foreign partner contributes 26 per cent of the equity with the approval of Insurance Regulatory and Development Authority/Foreign Investment Promotion Board, more than one NBFC may be allowed to participate in the equity of the insurance joint venture. No NBFC would be allowed to conduct such business departmentally. A subsidiary or company in the same group of an NBFC or of another NBFC engaged in the business of an non-banking financial institution or banking business will not normally be allowed to join the insurance company on risk participation basis, the RBI said. For NBFCs not eligible as joint venture participants, the RBI rules permit them to make investments up to 10 per cent of their owned funds or Rs 50 crore, whichever is lower. (Financial Express, May 16, 2000)

 

 

The Finance Ministry has finalised a Fiscal Responsibility Act  which will cap the fiscal deficit, set a time-frame for bringing down the revenue deficit, provide for accounting on accrual basis as well as provide for revenue and expenditure projections over a  three-year rolling time-frame. Provisions would also be made for reportage to Parliament, so that responsibility is fixed on the government to stick to the commitments made in its projections.

 

Experts stated that a three-year time-frame would permit all market players to firm up their investment and borrowing plans, provide for transparency in both budget making and government expenditures, while clearly indicating to investors the direction of development. Such transparency is particularly needed when the market has been opened up to foreign investors, who have alternate choices before making long-term investment commitment in a country. For domestic corporates, definitive information of the quantum of debt to be  raised by the government would be particularly useful, since they would get an idea in advance the quantum of resources that would be available to the private sector. They would also have some idea of the medium term interest rate movements, which would make business projections easier. (May 11 2000, The Economic Times)

 

INDIA'S GDP GROWTH RATE PEGGED AT 6.6-7% IN 2000-01

 

Indian economy is likely to register a higher growth  rate between 6.4 to 7.2 per cent in the current financial year  as against six per cent achieved last year, according to National  Council  for Applied Economic Research (NCAER).
"The growth is contigent on a good performance of agriculture which again is conditional on the monsoon for the year," the leading think tank's Review of the Economy release said.

The review has also forecast the overall inflation to hover between 4.5 to 5 per cent during 2000-01. Assuming a five per cent depreciation in the exchange rate, NCAER has pegged the trade and current account deficits at 2.5 per cent and two per cent respectively. The fiscal deficit of the centre would be in line with the estimates of the 2000-01 budget projections of 5.1 per cent, provided there are no expenditure over-runs or serious short falls in the disinvestment of public sector undertakings. "The fiscal deficit relative to real economic gross domestic product (GDP) will be close to five per cent only if overall GDP growth remains above 6.5 per cent," NCAER said in the review. The review has forecast that the industrial growth rate during 2000-01 would be led by dynamic segments of information technology and telecom in the overall manufacturing and services in the economy. (PTI News, 1^st-7^th May, 2000)

 

 

The government has agreed to privatise state-run international carrier Air India. The cabinet decided to offload 60 percent of the airline's equity, said Disinvestment Minister Arun Jaitely. The Minister announced that the government would offload 40 percent equity to strategic partners, including 26 percent to a foreign partner. “The foreign partner can be a foreign airlines,” he said, adding that the government would retain 40 percent equity. The Minister said that the government had also decided to give 10 percent equity to employees of Air India through a stock option scheme. “The remaining 10 percent equity will be sold in the domestic market,” he said and stressed that at no point in time would foreign equity exceed 26 percent. (News Today, 26th May, 2000)

 

 

 

The Insurance Regulatory Development Authority (IRDA) has decided to de-link the 26 per cent cap in foreign equity from FII holdings in insurance JVs. This means that a foreign insurance company will be able to acquire up to 26 per cent equity in the proposed joint venture with an Indian company. Even if the Indian partner has a substantial FII holding. The IRDA's decision will make it easier for domestic companies with FII holdings to tie up with foreign insurance companies.

 

FIIs can invest up to a maximum of 40 per cent in an Indian company via market operations. Of this, up to 30 per cent can be acquired without any restrictions; the additional 10 per cent would require shareholder approval via an EGM. Moreover, the IRDA said the FII holding would be in the Indian parent and not in the JV formed for the insurance business. (May 08 2000, The Economic Times)

 

 

Units located in special economic zones can now retain their entire foreign exchange earnings and will no longer need a licence to manufacture items so far reserved for the small-scale sector.  Besides these measures, the commerce ministry is considering removing sectoral ceilings on foreign direct investment in SEZ units. These units have also been allowed to pay for all their transactions in rupees, except for domestic expenses like salary. They will also have the right to pay domestic suppliers in dollars. Dollar payments will be allowed in case of inter-unit transactions as well.  As of now, exporters are allowed to retain 70 per cent of the foreign exchange earned by them. The remaining 30 per cent has to be converted into rupees immediately on receipt.

 

In case of FDI, the Commerce Ministry wants to scrap all sectoral caps except the prohibited list which includes items like alcohol and cigarettes. Announcing  operationalisation of the SEZ project, the Industry & Commerce Minister Mr. Maran said the liberal scheme will attract FDI like a magnet and create employment for millions.  The EPZs (export processing zones) located at Kandla, Visakapatnam, Mumbai and Cochin are being converted into SEZs. They will be the first SEZs to get off the block, followed by greenfield projects in Tamil Nadu and Gujarat. The governments of Orissa, West Bengal, Maharashtra and Andhra Pradesh have also sent proposals for setting up SEZs, the Minister said.

 

In terms of procedures, SEZs would be liberal in outlook as the primary aim is to get rid of inspector raj. There will be no questions on value addition, valuation of imports and exports, or disposal of scrap. The Commerce Ministry's proposal to do away with checking of goods and accounts by agencies other than the Development Commissioner of the concerned SEZ has also been accepted.  If SEZ units undertake domestic sales, the transactions will  be subject to customs, excise and sales tax rules. However, Commerce Secretary P P Prabhu said that the primary aim is to encourage 100 per cent exports.

 

A concept that has been introduced into the SEZ system is that manufacturers and service providers who do not directly export will also find a place in what is likely to be the most liberal avenue in the country.  As long as their entire production goes into manufacture of items which are exported, individual non-exporters will also enjoy SEZ benefits. Prabhu said the only mandatory condition is that their entire production has to be consumed within the Zones. The idea is to encourage development of specialised  services and supply of specialised components. Maran said SEZs will help in boosting the country's exports and generate employment. The overall export growth target for 2000-2001 will be around 18 per cent. The textiles sector expects 28 per cent growth while chemicals and engineering sectors expect 20 per cent growth. (Times of India, May 31 2000)

 

 

The Reserve Bank of India has allowed Indian companies to borrow in Rupees from NRIs or a person of Indian origin resident outside the country or overseas corporate bodies, by way of investment in non-convertible debentures (NCDs), under the newly enacted Foreign Exchange Management Act (FEMA), 2000.

 

Coming into force from June 1, the new act, which replaces Foreign Exchange Regulations Act (FERA), 1973, allows companies to borrow in Rupees “on repatriation or non-repatriation basis”, subject to certain conditions, according to latest RBI notifications on FEMA. The conditions make it mandatory that NCDs must be issued by a public offer and their period of redemption be not less than three years, RBI said. The NCD interest rate should not exceed the prime lending rate (PLR) of  State Bank of India as on the date of approval of the company general body of its borrowing plan, plus 300 basis points (three per cent), it clarified. (News Today, 22nd May, 2000)

 

 

The government has decided to merge Madras Refineries Ltd with Indian Oil Corporation, and Cochin Refineries Ltd with Bharat Petroleum Corporation Ltd. A draft note has been prepared for the Cabinet Committee on Economic Affairs and it will be circulated amongst the various concerned ministries. The move has been prompted by the recommendations of the Nitish Sengupta committee which had suggested that the government should offload its entire stake in the two refineries in favour of IOC and BPCL so that the stand-alone refineries could withstand competition from foreign multinationals, once the petroleum sector is decontrolled after March 2002. (Business Standard, May 8, 2000)

 

 

The Semiconductor Integrated Circuits Layout-Designs Bill passed recently by Parliament provides for protection of semiconductor integrated circuits layout-designs by process of registration, and a mechanism for distinguishing layout-designs which can be protected.  The Bill also provides for rules to prohibit registration of layout-designs that are not original and commercially exploited, and offers a 10-year protection period for layout-designs. Payment of royalty for registered layout-design and also a provision for determination of royalty payment for innocent infringement have been provided for by the Bill. Willful infringement of layout-design now attracts punishment. (May 19 2000, The Economic Times)

 

 

Led by a remarkable recovery in the manufacturing sector, industrial production during 1999-2000 posted an impressive eight per cent growth as against 3.9 per cent recorded during the previous year.

The manufacturing sector grew by an impressive nine per cent during April-March 1999-2000, compared to only 4.3 per cent same period last year, according to quick estimates of Index of Industrial Production (IIP) released by  Central Statistical Organisation (CSO) said.

Other sectors which attributed to higher industrial growth during last financial year were electricity sector which grew at 6.6 per cent compared to 6.5 per cent in 1998-99 and mining sector registering a growth rate of 0.6 per cent as against a negative 1.7 per cent. For the month of March 2000, the industrial production registered a growth rate of 8.6 per cent compared to 4.4 per cent in March 1999, the estimates said.

The manufacturing sector, which accounts for nearly four-fifths of the total weight of IIP, grew by a whopping 9.6 per cent in March 2000, as against 5.4 per cent last year. Among the use-based category, the recovery was led by consumer durables and intermediate goods. Consumer durables posted a growth rate of 12.2 per cent during the last financial year as against 4.7 per cent in 1998-99. The sector during March grew at 6.7 per cent. (PTI News, 8^th-14^th May, 2000) 

 

 

India's exports have moved into the double-digit orbit. Aided by a  recovery in several sectors, exports from India registered a 11.58 per cent growth in '99-00 to $37,537m as compared to $33,641 mln the previous year. In contrast, exports growth during '98-99 was just 3.7 per cent.   In rupee terms, the growth during 1999-2000 was 14.9 per cent, according to the Commerce Ministry's preliminary estimates. Imports during 1999-2000 grew by 10.19 per cent to $46,153 mln as compared to $41,886 mln during 1998-1999. While oil imports during the year grew by  64.26 per cent to $9,655 bn as compared to $5,878 mln the previous year, according to the Commerce Ministry's estimates. Non-oil imports during the year stood at $36,498 mln, a marginal growth of 1.36 per cent over the previous year's level of $36,008 mln.

 

According to the Commerce Ministry's estimates, the trade deficit for 1999-2000 was $8,616 mln as compared to $8,245 mln the previous year. Exports during March 2000 were $3,720m, 9.58 per cent higher than the March 1999 level of $3,395 mln. Imports during the month stood at $4,139 mln, a growth of 15.72 per cent as compared to the March 1999 level of $3,577 mln. In rupee terms the growth in exports during the month was 12.51 per cent while import growth was 15.72 per cent.

The double-digit growth has been powered mainly by a strong show in the gems and jewellery, engineering, electronics and software and handicrafts sectors. Plantation items like tea and coffee as well as farm-based items like rice and wheat have faired poorly with negative growth. (May 02 2000, The Economic Times)

 

 

India’s leading market research company ORG-Marg has become majority foreign owned with $2.8 billion Dutch information services giant VNU increasing its shareholding from 35 per cent to 85.2 per cent. The Reserve Bank of India permissions came through recently. (Business Standard, May 16, 2000)

 

 

India and China are among the top ten countries registering maximum number of dotcom companies this year with Network Solutions, the global leader in domain registrations. According to Network Solutions' latest Dotcom index for the year upto February end released today, India is in the 10th place, while China is placed at seventh. India was in 11th place in 1998 and fell to 12th position in 1999, but is back among the top 10 nations registering maximum dotcoms, according to the statistics.

Meanwhile China, which was in 8th position 1998, but fell to 14th position, bounced back to 7th position this year.
The top ten non-US countries with maximum number of dotcom registrations this year are United Kingdom, Korea, Canada, France, Germany, Japan, China, Spain, Italy and India. From India, Mumbai found place among the top 10 cities for dotcom registration, but in the 10th place. The other cities in the top 10 league are Seoul, London, Toronto, Istanbul, Paris, Singapore, Beijing, Madrid,  Vancouver and Mumbai. Mumbai was in 23rd position followed by Delhi in 24th position in 1999. Network Solutions has been maintaining leadership among website registrations with over 10 million domains by the end of February. (PTI News, 1^st-7^th May, 2000)

April, 2000

 

 

The draft Civil Aviation Policy made public includes proposals for setting up of a statutory autonomous Civil Aviation Authority and allowing foreign equity participation in airport infrastructure up to 74 per cent with automatic approval and 100 per cent with special permission of government.

 

The new Civil Aviation policy will be finalised on the basis of the feedback received on the draft, said Union Minister for Civil Aviation Sharad Yadav while addressing a conference on Air Transport and Airports of Tomorrow.The CCA will decide on issues like market dominance, predatory pricing, fixing tariffs and ensure safety and security and effective regulation in the liberalised environment.

 

To encourage and facilitate private sector participation, the government is proposing to introduce an Airport Approval Commission and Airport  Regulatory Board shortly, he said while addressing another meeting organised by ASSOCHAM. While the proposed commission will be an independent statutory body, the regulatory authority will function on as an appellate body to look into the grievances related to tariff fixation, traffic movement and allotment of space in airport, he said.

 

The new policy will also address the problem of opening up Civil Aviation in the country to all regions by promotion of general aviation as well as operation of small aircraft operations. Restructuring of major airports of Airports Authority of India will be undertaken through long-term lease to private investors for efficient management, improvement of standards of services/ facilities and attracting private investment says the draft policy. Private sector participation will be a major thrust area in the civil aviation sector for prompting investment, improving quality and efficiency and increasing competition.

 

Conducive competitive regulatory framework with minimal controls will be created to encourage entry and operation of private airlines/ airports, it says. Private sector participation will include participation of state government, urban local bodies, private companies, individuals and joint ventures on Build-Own-Operate basis or any other pattern of ownership and management depending on the circumstances.

 

The government will also ensure that the procedures followed by various agencies like health, immigration, customs etc are streamlined and simplified . This will contribute significantly to the  efficient functioning of airports, said Yadav.

 

India should also be able to phase out ground based navigational aids by 2010, he added. A quantum jump in air traffic management services is in the offing with the introduction of satellite based CNS systems in place of ground based CNS systems.

The capacity of air traffic will increase manifold and aircraft will be able to land with the help of satellite based systems, he said. (Business Standard, April 20, 2000)

 

 

The Government will soon set up a Civil Aviation Authority to regulate air traffic in the country, according to the Civil Aviation Minister Mr. Sharad Yadav. “It will not be a division of the existing Ministry but will act as a regulator to decide on issues like market dominance, predatory pricing and fixing the tariff,” the Minister said. The Minister said the authority would ensure security and effective regulation in the liberalized environment. (Press Trust of India)

 

 

The government has decided to give the airports at metro cities – Delhi, Mumbai, Calcutta and Chennai - on long term lease to private entrepreneurs, according to the Minister for Civil Aviation, Mr. Sharad Yadav. Stating that this was part of the government’s policy to give encouragement to private participation in civil aviation. The Minister further said “to promote private sector participation in cargo handling, process has been initiated to forge a joint venture between Airports Authority of India and a private sector company”.

 

Close on the heels of the recent decision to upgrade six airports to international standard, the Government plans to add six more airports to the list, according to the Minister for Civil Aviation. Additional airports to be modernized are Gaya, Khajuraho, Jaipur, Lucknow, Agra and Varanasi. The government will permit “even upto 100% foreign investment” in modernizing these airports he said. The government had recently decided to accord international status to airports at Hyderabad, Bangalore, Kochi, Goa, Amritsar and Guwahati.

 

 

The Industry Ministry has decided to recommend raising of foreign direct investment limit in the telecom services sector from 49 per cent to at least 74 per cent. A top industry ministry official said that the move has the full support of Commerce and Industry Minister Murasoli Maran.

 

Maran is keen to hike FDI limits in industries which are unrelated to national security and are also not politically or socially sensitive to provide a major thrust to FDI inflows. He took the initiative to permit up to 74 per cent FDI in plantation companies. However, he is not in favour of permitting FDI in land ownership for agriculture. The Industry Ministry believes that allowing majority equity in the telecom sector would give a major boost to foreign direct investment in the sector. It would also increase competition in the telecom industry, giving consumers better services at optimum prices, sources said. The existing policy permits 49 per cent foreign direct investment in basic, cellular, paging and value-added services and global mobile personal communications by satellites, subject to the grant of licence from the department of telecommunications (DoT). There is no equity cap in the manufacturing sector and 100 per cent foreign direct investment is allowed through the automatic route.

 

As a signatory to the World Trade Organisation (WTO), India is committed to open the telecom market to 25 per cent foreign direct investment, but it has already allowed FDI upto 49 per cent, they added. Telecommunications sector is the second largest recipient of foreign direct investment after power in the country since 1991. The sector accounted for 17.5 per cent of the total approved FDI at $ 9160 mln till December 1999. (April 24, 2000, Financial Express)

 

 

In April, 2000, the Union cabinet took a number of decisions, including deregulation of the coal and lignite sectors for exploration and mining, creation of a dedicated fund for highways through imposition of a $ 0.03 cess on petrol and diesel and approval of the $ 13,500 mln National Highway Development Project.

 

The cabinet also allowed use of liquefied petroleum gas as an auto fuel and approved plans to change the Foreign Trade and Regulation Act, 1992, to re-impose quantitative restrictions on imports if necessary.

 

The cabinet decided to create a dedicated fund for financing, development and construction of national highways through imposition of a $ 0.03 cess on every litre of petrol and diesel consumed. The government will soon introduce a Bill in Parliament for the purpose.The fund would not be part of the consolidated fund of India, and would not be allowed to lapse. It would be usable only for road and highway development, said Parliamentary Affairs Minister Pramod Mahajan.

 

The cabinet also decided to deregulate mining and exploration in coal and lignite for all companies incorporated in India. For this, the Coal Mine Nationalisation Act of 1973 will be amended to enable non-captive mining of coal and lignite by Indian companies. Until now, private mining of coal was permitted only for captive consumption. The new law would free mining for all, but prescribe certain conditions on location and minimum size of the mines so that a coordinated and scientific development can take place, Mahajan said.

 

The cabinet also decided to amend laws to impose quantitative restrictions on imports of items which may hurt the domestic industry. This would be done through amendment to the Foreign Trade Development and Regulation Act, 1992 and would have clear mechanism for identifying what constituted imports that hurt domestic industry. Such quantitative restrictions could be imposed for a maximum period of four years and could be extended by the government for a maximum total period of ten years. Mr. Mahajan said the country was entitled to the mechanism under the WTO provisions of agreement on safeguards. Article 19 of the General Agreements on Tariffs and Trade (GATT) of 1994 provides for safeguards from excessive imports which were harmful to the domestic industry. (Business Standard, April 07, 2000)

 

 

The Reserve Bank of India announced its credit policy for the first half of 2000-2001. The policy has, as expected, left key interest rates unchanged and instead focused on reforms for widening and deepening the financial markets. The policy also issued the final guidelines for banks’ entry into the insurance sector. Unveiling the policy document, the RBI Governor promised to continue with the current stance of ensuring that “all legitimate requirements for bank credit are met while guarding against any emergence of inflationary pressures due to excess demand”. He also hinted at further reductions in banks’ cash reserve ration (CRR) as and when required.

 

Among the set of measures announced, the most significant one was the introduction of a full-fledged liquidity adjustment facility (LAF) in phases on the lines of the Narasimhan committee recommendations on financial sector reforms. The LAF to be introduced in three stages will include repo auctions and reverse repo auctions.

 

The RBI also tightened the prudential norms by advising banks to voluntarily adopt a consolidated balance sheet by “notionally” building in the risk weighted components of their subsidiaries.

 

The RBI Governor also announced a string of reforms for the money market. In order to reduce excess volatility in the inter-bank call market, he slashed the minimum daily requirement for maintaining CRR balances from 85% to 65%. The minimum maturity for certificates of deposit (CDs) has been reduced to 15 days and a modification of the current guidelines on commercial paper (CP) is on the cards. He has also proposed to chalk out a timeframe for removing non-bank entities from the call money market and making it purely an inter-bank affair. Efforts have also been made to improve the market by allowing sale, settlement and transfer of gilts on the same day. Among other measures, the RBI has proposed to allow banks and primary dealers to automatically invoke undrawn refinance facilities from the central bank for facilitating smooth securities settlement.

 

In order to provide operational flexibility, the RBI has allowed banks to offer differential interest rates on NRE/FCNR(B) deposits on the lines of domestic deposits. The stipulation that banks can offer fixed rate loans only for projects has been removed. Banks can now offer all loans on fixed or floating rates.

 

The RBI has also liberalized the export credit refinance facility by removing the base date of February 16, 1996, and making the outstanding export credit as the basis for fixing refinance limits. This will enable banks to use re-discounting of export bills without any reduction in refinance limits.

 

Financial institutions have been given the freedom to fix interest rates on term deposits without reference to the State Bank of India. The cap on the coupon rate on institutional bond offerings has also been lifted. The RBI Governor said that institutions can transform themselves into banks provided they satisfy the prudential norms applicable to banks and give the RBI a transition formula.

 

The additional capital required may be provided in the banks’ books in phases beginning from fiscal 2001. The norms for banks’ entry into insurance cap the sponsor’s stake in an insurance venture at 50%. “However, higher equity contribution by a promoter bank may be allowed initially, on a highly selective basis, pending divestment of the equity in excess of 50% with a prescribed period,” the policy document said. (Financial Express, 28^th April, 2000)

 

 

The Insurance Regulatory and Development Authority (IRDA) is planning to restrict foreign insurance brokers to a minority stake of up to 49 per cent in domestic joint ventures. The regulatory body, which is expected to announce its draft guidelines for the insurance brokers, is likely to peg the capital requirement for a broking firm at $ 63,000. The capital requirement may be higher, around $ 125,000, for composite brokers who want to do business in all segments-life, non-life and reinsurance broking. Though the Government has allowed only26 per cent foreign participation in domestic insurance venture, the limit will be higher for insurance brokerages.Currently, the law does not permit the operation of broking firms in the domestic insurance business, except for transacting reinsurance deals for local non-life companies. The IRDA Act, however, provides for opening upbroking services in both the life and non-life segments. Insurance industry sources feel that there is a massive potential for domestic broking business as this will be one way of improving linkages between the customer and the insurance company. It is anticipated that there will be a mad rush to undertake insurance broking, particularly in the life segment, where the annual premiums collected exceed $ 5300 mln. The total non-life premium is pegged at around $ 2500 mln annually.

 

The IRDA is expected to regulate the commissions by prescribing a maximum (perhaps around 15 per cent) limit for brokerage. Big international insurance broking firms like Aeon, Willis, Vitasia, Jardine Insurance, and Chubb Reinsurance, among others, are waiting to set up operations in the country. (Financial Express, April 6, 2000)

 

 

 

The personal and medical insurance business will be the trend-setters of the future, according to N Rangachari, Chairman, Insurance Regulatory & Development Authority (IRDA). With immense potential in these areas, insurance companies should be prepared to tap this emerging large market, he said. Mr Rangachari was addressing a conference of the Golden Trust Financial Services in Calcutta. Elaborating on the personal insurance portfolio, which comprises areas like health, mediclaim, personal accident, household insurance packages, the IRDA chairman said there lies a large untapped market which has a large potential. "Marketing these policies have to be done with a lot of conviction and trust. Moreover, services should not be confined to urban areas alone and should be spread to semi-urban and rural areas as well,” he said.  IRDA has also said that the present agency structure has to be regulated in order to bring about increased levels of efficiency and professionalism. The structure has to be upgraded in three years time, said the IRDA chairman. (April 19,2000, The Economic Times)

 

 

Government has opened up financial services sector further by allowing 100% foreign direct investment (FDI) in downstream non-banking finance companies, subject to a minimum capital of 50 million dollars. The downstream companies would have to offload a minimum of 25% stake in three years through a public offer. Earlier, 100% FDI was allowed only for holding companies with a minimum capitalization of 50 mln dollars. NBFCs were allowed only 75% foreign holding in downstream activities. The other provisions of NBFC guidelines continue to hold good. (Press Trust of India)

 

 

The Reserve Bank of India has said that the automatic approval route available to companies for foreign direct investment and investment by non-resident Indians and overseas corporate bodies will be available only where the total sum does not exceed $ 150 mln. The RBI clarified that the cap includes both foreign direct investment and investments by NRI and OCBs put together.

Automatic approval will not be available to industries in the restricted list and for companies where there is a sectoral cap. The RBI also listed out the industries with specific caps. The RBI also said investment by non-residents both through the FDI and NRI/OCB route in export oriented units, export processing zones and software technology parks is fully eligible under the automatic route.

The RBI’s notification gives effect to the government’s decision in February this year to put all FDI proposals on the automatic route, save for industries on a negative list. The RBI notification says that all items excluding specific sectors will be eligible for foreign investment (FDI and NRI/OCB) under the automatic route up to even 100 per cent of capital. There is further a list of sectors where automatic approval is available only up to a certain level of investment. Investment in these sectors would have to go through the Secretariat for Industrial Approvals and Foreign Investment Promotion Board route.

 

The areas where investment is not allowed through the automatic route are banking; Non-banking finance companies; activities in financial services; civil aviation; petroleum including exploration, refineries and marketing; venture capital; investing companies in infrastructure and service sectors; and print media and broadcasting. Automatic approval is available from the RBI only up to 49 per cent in basic, cellular mobile, paging and value added services, and global mobile personal communications by satellite, and up to 74 per cent in the pharmaceutical industry in case of bulk drugs, their intermediaries and formulations. (Business Standard, April 06, 2000)

 

 

Foreign Direct Investment (FDI) inflows are up 26 per cent and industrial output saw a significant spurt in 1999-2000, according to the annual report of the department of industrial policy and promotion, and the department of industrial development of the ministry of commerce and industry.

 

Foreign direct investment (FDI) was 26 per cent higher during calendar ’99. During 1999 (Jan-Dec), FDI inflows (including GDRs) were $ 4016 mln against $ 3175 mln during 1998 (Jan-Nov). The cumulative FDI since 1991 adds up to over $59.7bn (including GDRs) and the total inflows upto December 1999 are nearly $19.2bn, accounting for a success rate of over 33 per cent.

 

The report also said industrial production had been on the upswing with the general index of output showing a growth of 6.2 per cent during April-December 1999 compared to a 3.7 per cent growth during the corresponding period of the previous year. While manufacturing sector recorded 6.7 per cent growth during 1999-2000, electricity sector grew by 7.7 per cent. A new industrial policy for the north-east is being implemented to improve industrial development in the area. The report said that the Patent Information System has been modernised under an UNDP-assisted project, with modern equipment such as computer and online access to external and internal data bases.

 

The department of industrial development has also set up the Quality Council of India to improve the competitiveness of industry. The department of industrial development has since been merged with the department of industrial policy and promotion. (April 21, 2000, The Economic Times)

 

 

India's foreign exchange reserves rose nearly 17 per cent in the fiscal year 2000 triggered by heavy foreign investment flows. The reserves hit an all-time high of $38.036 billion on March 31, 2000, up from $32.535 billion on April 1, 1999. Analysts said the spectacular rise in forex exchange reserves may prompt the Central Government to move to the capital account convertibility at a relatively faster pace. The record forex reserves and low inflation will also provide an ideal backdrop to the Reserve Bank of India's (RBI) monetary and credit policy for the first half of fiscal 2001 to be announced by Governor Bimal Jalan on April 27.

 

Of the $5.5 billion rise in forex reserves in 1999-2000, March, 2000 alone witnessed a surge of more than $2 billion, thanks to the central bank's continuous intervention in foreign exchange market through a clutch of public sector banks. The sterilisation exercise infused liquidity into the system as the RBI pumped in rupee for every dollar it bought from the market. The rise in the RBI's foreign exchange assets during the year is the highest in recent years.

 

The currency assets rose $5.49 billion during 1999-2000 (from $29.56 billion in March 1999 to $35.05 billion March 2000) compared with just over $3.4 billion in 1998-99. The assets consist of portfolio investments as well as foreign direct investments (FDI). In contrast, gold reserves and special drawing rights virtually remained unchanged.

 

Foreign funds invested over $1.5 billion in Indian debt and equity markets in 1999. Investments in March were just $378 million, but total investments in 2000 so far have crossed $1.3 billion. Since March 1999 the top 30-share benchmark index of share - Sensex - has risen nearly 40 per cent. It close dat 5,219.2 points on Friday. FDI flows were estimated at $3 billion in April-September 1999 and the Government hopes to attract around $10 billion a year.

 

Indian firms tapping overseas equity markets are expected to bring in at least $4 billion in the early part of 2000/01. The inflows last year not only explained the surge of liquidity into Indian bond and equity markets during the year but probably reflected the attractiveness of the new technology-driven economy, analysts said. (Financial Express, April 9, 2000)

 

 

The expert committee report on draft Textile Policy has recommended 100 per cent foreign direct investment in the garment sector. The report has also recommended doing away with the current stipulation of 50 per cent export obligation on foreign collaborated ventures in this sector.

 

The committee, headed by S. Sathyam, has also recommended allowing upto 51 percent FDI through the automatic route of approval in the garment industry. While advocating a liberal FDI policy for this sector, the committee has recommended de-reservation of the garment industry.

 

Currently, only upto 24 per cent FDI is allowed in the garment sector with the condition that such ventures have to mandatorily export 50 per cent of their total production. The restriction on FDI in this sector exists because the garment industry falls under the SSI sector.

 

The textile and apparel industry is still out of the list of industries enjoying the automatic approval for 51 per cent FDI. Such approval can be thought of in some areas considered crucial for the garment sector, according to the report. It would still be better to have a dedicated FDI policy for apparel sector spelling out where such approvals will be automatic and where they will be on a case by case basis, it says. The report has also commented on the long standing demand of the industry to take out knitting and garment-making activities out of the ambit of small scale industries to promote FDI in this sector.

 

In order to derive maximum advantage arising out of economics of scale and scope depending upon the entrepreneurs assessment of financial and commercial viability, the level of investment may be left to the discretion of the concerned entrepreneur by removal of the garment sector from SSI reservation, it says.  The report has also suggested to promote joint ventures or strategic alliances with leading international manufacturers to bring in world's best practices in manufacturing. (Business Standard -  April 25, 2000)

 

 

India, which has captured 55% of the global diamond market, expects to have an export growth of 8% in gems & jewellery this year after a record 30% growth in 1999-2000. Forecasting about $ 8.5 billion exports this year, the Gem & Jewellery Export Promotion Council expected impressive growth in jewellery sector by five times in the next two years. India has achieved 100% growth in gem and jewellery in the past four years mainly due to cut and polished diamond exports which have now reached almost 80% of the world market in terms of caratage and 90% in terms of pieces. (Financial Express, 20^th April, 2000)

 

 

The government will sign production sharing contracts (PSCs) for all the 25 oil exploration blocks awarded in January under the new exploration and licensing policy (NELP). Senior officials in the petroleum ministry said that 22 blocks have already been cleared for signing the PSCs. The remaining three blocks, regarding which some clarifications are awaited, are also expected to be cleared.

Of the 25 oil blocks awarded, two were on land blocks, seven deepwater offshore oil blocks and 16 shallow water offshore blocks. This was for the first time deepwater blocks beyond 400 meters isobath had been offered in the country and this had opened a new prospective area for hydrocarbon exploration.

A total of 21 companies, including 10 foreign companies, had participated in the first round of NELP bidding. The remaining 11 Indian companies include six private companies.

The government expects a minimum investment of $ 250 million in the first phase of the exploration. In case the exploration goes to the second and third phases as well, the investment expected is of the order of around $ 1 billion. (Business Standard, April 7, 2000)

 

 

US biotech giant Monsanto Chemicals'  FDI proposal was among the 56 cleared by Commerce and Industry Minister Murasoli  Maran on 11^th April. A total of $ 127 mln of proposals were cleared by him based on the recommendation of the Foreign Investment Promotion Board. DSQworld.com was allowed to bring in 40 per cent foreign stake in its ISP and portal venture.  Computer Associates International has been allowed to set up two separate ventures for software development in the country. HSBC Securities India Holdings and JP Morgan Securities India and Citibank Overseas Investment Corporation were also allowed to amend their earlier approval for setting up an NBFC. Another NBFC, Capital Group International was allowed to set up shop in India.

 

In another meeting, the Minister cleared proposals worth $ 0.6 bln which included proposals of the firms Moser Baer and Bayer. (April 12,2000, The Economic Times; Press Trust of India)

 

 

The Government of India has decided to set aside $ 36 mln to kick-start research and development activities in the pharmaceutical sector. While the fund will provide some initial support to R&D work in the pharma sector, the Centre is also working out a separate package of incentives to give a major boost to R&D activities. The government is also planning to invite world leaders in the sector to India for the 2001 international exhibition and also proposes to have a round-table conference of potential global investors in the pharmaceutical sector. While disclosing this, Mr.Suresh Prabhu, Minister for Chemicals and Fertilisers further said, the government of India is seeking help from the private sector players. According to him, it's the private sector players who will have to take initiative in R&D. To help the private sector players, a separate package is being worked out to woo investment in R&D in the pharma sector, said Mr Prabhu. Growth in pharma industry is normally led by research activities. (April 22, 2000, The Economic Times)

 

 

March, 2000

 

EXIM POLICY

 

Union Commerce and Industry Minister Murosali Maran announced the setting up of special economic zones, removal of import curbs on 714 items and a phase out of some existing export incentives as part of the amendments to the Export-Import policy.

 

Merging the concept of free trade zones and export processing zones, the Minister said the special economic zones may permit the setting up of units with 100 per cent foreign direct investment.  Units in the Special Economic Zones will be given a lot of flexibility, and will be able to import goods and raw materials duty free and would also be able to access these from the Domestic Tariff Area (DTA) without payment of terminal excise duty. Within the SEZ, no permission would be required for inter-unit sales or transfer of goods. Further, senior government sources said that the government was considering certain tax breaks for units located in these zones and the proposal is being studied by the Finance Minister.

 

While keeping 714 items on the restricted list, the amended policy delivered on the country’s trade commitments by lifting import curbs on several consumer goods including coffee, tea, tobacco, paper, fabrics, watches, photographic films and sewing machines.

The Minister signaled the phasing out of the post-export duty entitlement passbook scheme by March 31, 2002. The scheme had been termed inconsistent with World Trade Organisation norms by some of India’s major trading partners. It will be subsumed by 2002 into the drawback scheme.

 

The amended policy targets 20 per cent growth in exports in the current fiscal year. A massive rationalisation of deemed export benefits has been attempted, while the Export Promotion Capital Goods scheme has been simplified. The amended policy also attempts to involve state governments in the export promotion effort. Besides, sector-specific initiatives have been unveiled for gems and jewellery, agrochemicals and pharmaceuticals.

 

In a major liberalisation of the import regime for capital goods, Minister Maran extended the EPCG scheme to all sectors and to all capital goods without any threshold limit on payment of 5 per cent customs duty. The scheme has also been extended to certain service sectors. No additional customs duty and countervailing duty will be required.

 

In all cases, the export obligation fulfillment period is being extended to eight years. Imports of second-hand capital goods which are less than 10 years old will be allowed without any license on surrender of special import licences.

 

A duty-free replenishment licence scheme has been introduced for over 5000 export products. Under the scheme, after completion of exports, the exporters will be able to obtain transferable duty-free replenishment certificates for importing inputs used in export products as per the standard input output norms.

A massive overhaul of the deemed export regime was also carried out in the amended policy by expanding the scope of the scheme to several new infrastructure sectors, including coal, hydrocarbons, civil aviation and renovation of power plants. In general, the benefits have been extended to core infrastructure sectors, involving an investment of $ 25 mln and above. Uniform benefits extended to eligible categories under deemed exports. The definition of capital goods has been expanded to include all such items, components, spares and accessories which go into making capital goods. Deemed export benefits have been extended to supply to projects funded by UN agencies.

 

The Minister said the first two special economic zones will come up in Gujarat and Tamil Nadu. Besides, the existing export processing zones at Mumbai, Kandla, Vishakapatnam and Cochin are also being converted into special economic zones. The units in these zones shall not be subjected to any pre-determined value addition, export obligation and input-output norms. As per the proposal, the units will be treated as being outside the customs territory of the country. Sale in the domestic tariff area by the units in these zones will be permitted only on payment of full customs duty. (April 1, 2000, Business Standard)

 

 

The world’s three leading rating agencies seem to be bullish on India’s prospects, as illustrated by their positive ratings for the country.  Almost all the three international rating agencies - Standard & Poor’s (S&P), Moody’s Investors Service and Fitch IBCA - seem to differ on their projections for the key economic indicators of the sovereign for the year ’00.

 

For instance, while S&P forecasts a real gross domestic product (GDP) growth rate of 4.5 per cent and consumer price inflation (CPI) of seven per cent for the year ending March ’00, whereas Moody’s pegs India’s real GDP growth at 5.5 per cent and CPI at five per cent. On the other hand, the world’s third largest rating agency  Fitch IBCA forecasts an even higher real GDP growth rate of six per cent. While Moody’s forecasts a total government debt to GDP of 62 per cent, Fitch IBCA’s forecast for the year ’00 stands at 61 per cent for general government debt to GDP. Thus, the agencies differ on not just how fast the Indian economy is expected to grow but also on how high the debt burden is likely to be. While Moody’s forecast for the crucial parameter of foreign currency debt to GDP was 21.3 per cent, Fitch IBCA forecasts gross external debt to GDP at a much higher 24.2 per cent despite its higher rating of BB+ assigned to India. Fitch IBCA has forecast that India’s current account balance to GDP will touch negative 1.4 per cent as of March 31, ’00, while Moody’s forecast pegs the figure at negative one per cent. (March 27, 2000, The Economic Times)

 

 

International credit rating agency Standard & Poor’s have revised the outlook on India’s foreign currency sovereign rating from stable to positive in view of its comfortable external liquidity and better prospects of an accelerated pace of economic reforms in the near term. In a statement, it pointed out that India’s external resiliency as shown by strengthening of its liquidity position is likely to improve in the coming years. Foreign exchange reserves, which exceed 300 percent of short-term debt, mitigate risk of a sudden drop in external confidence, it reasoned. It further added, the recent liberalization of rules for foreign direct investment along with the rising number of Indian companies raising equity abroad should sustain external liquidity even as imports rise with removal of import quotas next year.

The statement said that growing export earnings, especially from services, should be complemented with higher non-debt foreign capital inflows which would result in the country’s total external debt declining to around 150 percent of exports this year compared to over 180 percent in 1996 and fall further in the coming years. (22^nd March, 2000, News Today)

 

 

The historic trip to India by Bill Clinton, the first by a US President in the last 22 years, culminated with the signing of business agreements worth $3 bn between business communities in India and USA.

 

All these agreements were concluded prior to Mr Clinton’s address at the Bombay Stock Exchange (BSE). The business deal signed represents over $2 bn worth of commercial signings and the balance in US Export Import Bank financing. William Daley, US commerce secretary after signing these agreements on behalf of US delegation said, “These agreements demonstrate the positive impact that US technology, expertise and world class equipment will have on the development of India’s infrastructure and overall economy. US will do everything necessary to bring the power of prosperity to the doorstep of world markets like India, a  prosperity that also grows jobs at home.”

 

Some of the major deals concluded were:

 

* Hughes Network Systems signed a $70m contract for supply of 50,000 VSATs to S Kumars.Com. The network is designed to promote electronic communication with focus on rural India. This supply contract is claimed to be as the world’s largest order for VSAT.

* Motorola signed a MoU with Essar Telecom to develop a local multipoint distribution system to provide wireless broad- band  access. Essar plans to offer a variety of internet access services across 52 cities in phase I.

* ICICI and Hughes Network Systems signed a $225m debt underwriting financing agreement that will allow HNS and its partners to raise funds to install broadband communication network in Maharashtra and Goa.

* Enron Corp and Ispat Energy signed a agreement for picking up 49 per cent stake in the latter and also for supply of natural gas to the latter’s power plant at Dolvi.

* IDBI and The Principal Financial Group signed agreements for setting up an asset management company.

*  BSES and Foster Wheeler India signed agreements for part financing a feasibility study for a coal washery in Madhya Pradesh. 

* Hydro Air Techtonics and Global Market Resources for supply of  Hydroclave systems technology and equipment for installation into Mumbai’s medical waste treatment facility.

 

In addition to above commercial agreements, Mr Daley signed two MoUs on behalf of US Exim with Exim Bank of India and the second with Industrial Development Bank of India (IDBI) and Small Scale Industries Development Bank of India (SIDBI).  Under the two MoUs, US Exim has pledged $1 bn for Indian small businesses to purchase US made goods and services. Mr Daley also used the signing opportunity to highlight Exim bank’s approval of a preliminary commitment for $358m in financing and 12-year guarantee to support the purchase of 10 Boeing aircraft’s for Jet Airways.

 

Mr Daley earlier told the gathering that he was proud to note that the US was India’s largest trading partner even as he hoped for growing co-operation and partnership between the countries. “This has been a terrific trip and a tremendous five days in a great country,” he said. (March 26, 2000, The Economic Times)

 

 

Banks will be permitted to invest up to 50 per cent of their paid-up capital in insurance joint ventures. The government and the Reserve Bank of India (RBI) have also decided to allow three-way tie-ups by banks in the insurance sector to ensure that the 26 per cent foreign equity cap is not breached.  In the draft guidelines on insurance sector, the RBI had stipulated a 30 per cent investment cap for banks. The norms were so stringent that only HDFC Bank could hope to go in for a tie-up for insurance entry.  Sources said the net Non-Performing Asset (NPA) norms in the draft guidelines are also being revised to ensure that more public sector banks would be able to enter the insurance business.  The provision for three-way tie-ups is being included to ensure that a local company of foreign origin does not violate the foreign equity cap of 26 per cent by coming in as an Indian partner. The government has, however, made it clear that it would not permit enhancement of foreign equity beyond 26 per cent by back-door entry. (March 11, 2000, The Economic Times)

 

 

 

India is now the fourth most promising investment destination for Japanese business, as per a recent survey by the Japanese Bank of International Co-operation. It is placed behind China, US and UK, in that order. 

Japan's ambassador to India told newspersons that from a long-term perspective, India was the third most promising investment destination. In terms of cumulative investment in India, he estimated that Japan ranked fifth.

 

Japan's perception of India's importance was, he said, based on five factors: India's geo-strategic location; its commitment to democracy; it's significance in the management of the global economy whether in terms of the WTO, the World Bank or the more recent proposal for an Asian Monetary Fund; its culture; and its relevance to the solution of global issues like poverty and the fight against international terrorism and drugs. (March 18, 2000, The Economic Times)

 

 

Government has decided to modify the Drug Policy of 1994 to allow foreign investment up to 74 per cent from the present 51 per cent in the case of bulk drugs, their intermediates and formulations. Foreign investment above 71 per cent would be considered on case by case basis in areas where investment is otherwise not forthcoming, particularly in the manufacture of bulk drugs from basic stages and their intermediates and bulk drugs produced by the use of recombinant DNA technology, an official release stated. (13^th March, 2000, News Today)

 

 

Hydrocarbon Vision 2025, which is expected to be the blueprint for the hydrocarbon industry, has recommended foreign direct investment  in the refining sector to be increased to 100 per cent from the present 49 per cent and deregulate the exploration business abroad. The report was submitted by a high level group which was chaired by the Finance Minister, Petroleum Minister, Deputy Chairman of the Planning Commission, Minister for External Affairs among others. The vision paper which may be further ratified by the Cabinet at a later stage when some of its recommendations are taken up for implementation has specific suggestions for different sectors like refining and marketing, exploration, restructuring etc. In the refining and marketing section, which is expected to generate maximum international interest given the marketing margins, the group has recommended an upward revision of FDI. It has also called for greater operational flexibility to refineries in crude sourcing and for managing risk through hedging. It has emphasised on the need to grant full operational autonomy to existing PSUs to establish and maintain marketing networks while allowing new players through transparent and clear criteria. It has, however, reiterated that a company will be required to invest $ 500 mln in E&P, refining, pipeline or terminal to acquire marketing rights. With regard to tariff and pricing, it has been suggested that existing subsidies should be phased out as early as possible. (March 24, 2000, The Economic Times)

 

 

In a fresh set of liberalisation, the government has made it easier for Indian companies to acquire companies abroad. The ceiling for automatic approval for overseas investment has been raised from the existing $15m to $50m. Additionally, the liberalised norms for overseas acquisition through ADR/GDR stock swap has been extended to companies in the infotech, entertainment software, pharmaceuticals and biotechnology sectors. Companies in these sectors can acquire business up to $100m abroad through stock swap subject to existing guidelines. The proposals for direct investment in a JV or wholly-owned subsidiary abroad will be subject to profits in the three preceding years. The proposal will also have to be in its area of core activity, defined as one accounting for half the turnover. (March 24, 2000, The Economic Times)

 

 

 

The Finance Ministry relaxed the foreign investment guidelines for the non-banking finance companies (NBFCs), whereby operating  companies have been given the freedom to bring in domestic partners over a period of three years, and the domestic partner need not be a domestic NBFC but could be the public.

 

As a result of this relaxation, foreign NBFCs have a three-year period to scout around for a domestic partner, failing which they could divest a minimum of 25 per cent equity in the operating company in favour of the public. Such a divestment would take place through an Initial Public Offering (IPO). According to a Finance Ministry statement, the relaxation has been made since foreign NBFCs had complained that they were unable to bring in a domestic partner despite the various relaxations given to them.

 

Under the existing guidelines, a holding company in the NBFC sector has to be capitalised at $50 mln. However, since the norms also debarred holding companies from operating in the country, the foreign NBFC had to set up a subsidiary, with a minimum capital of  $5 m. Norms demanded that this subsidiary must have a domestic partner with a minimum 25 per cent stake. (March 28, 2000, The Economic Times)

 

 

The Government lifted a three-decade-old ban on forward trading in securities with effect from March 1. The Government, in a statement said, that it had also issued a notification delineating the areas of responsibility between the Reserve Bank of  India (RBI) and market regulator Securities and Exchange Board of  India (SEBI).

 

“...The contracts for sale and purchase of government securities, gold-related securities, money market securities and securities derived from these securities and ready forward contracts in debt  securities will be regulated by RBI,” it said. “Such contracts, if executed on stock exchanges, will however be regulated by Sebi in a manner that is consistent with the guidelines issued by RBI,” it added. The statement said the ban on forward trading in securities was imposed in 1969 “to curb certain unhealthy trends that had developed in the securities market at that time and to prevent unhealthy speculation”. The relevance of this ban was greatly reduced now as the functioning of the securities market had improved greatly, it said.

 

“The Securities Laws (Amendment) Act, ’99 and the repeal of the ’69 notification would permit development of the derivatives market...,” the statement said. 

 

An RBI official said a government notification will not be needed to carry out ready forward contracts in government securities (repos).  “This will enable index futures trading,” a senior Reserve Bank official said. The government has already allowed derivatives trading under the Securities Laws (amendment) Act, ’99. (March 3, 2000, The Economic Times)

 

 

The Department of Telecommunications (DoT) has finalized the national long distance privatisation policy and prescribed a minimum revenue share of 15 per cent as annual licence fee. In addition, prospective entrants into the $ 1750 mln STD market will have to pay universal-access levy and other expenses towards meeting  the universal service obligation (USO) commitments.

 

The Telecom Commission (TC) has also decided, “that no minimum reserve price should be fixed for bids” and said that provision should be made for pre-qualification of bidders with greater transparency and adequate performance guarantees. The commission has also said that there should not be any condition for a bidder to have “minimum” experience. 

 

On the proposal for allowing a national long distance operator to carry traffic up to Videsh Sanchar Nigam's gateways, the TC while approving this idea, said, “the choice of carrier for domestic portion of an international call be only given to the access provider and not to a subscriber”. (March 9, 2000, Financial Express)

 

 

 

The Telecom Commission has decided to do away with the policy of  allowing only the Internet Service Providers (ISP) to set up gateways for international connectivity. The Department of Telecommunications (DoT) would soon allow the private companies to set up gateways and sell bandwidth to the ISPs.  The international gateway will be used only for carrying the internet traffic. As per the existing policy, the ISPs can set up gateways for international connectivity within their licence area. This also restricts them to sell their bandwidth to other ISPs within the licence area.

The telecom authority shall have full rights to monitor all the traffic that goes through the gateway. It will be the duty of the gateway operator to ensure that the bandwidth provider (the satellite company) gives the complete monitoring rights to the telecom authority.

 

In December, the government permitted the internet service providers the use of foreign satellites for international connectivity. They can use both c band and ku band for carrying internet traffic. However, ISPs cannot set up a gateway using submarine cables. They will have to go through VSNL for international connectivity through submarine cables. (March 13, 2000, The Economic Times)

 

 

The government is now looking to set up ‘knowledge parks’ to promote R&D efforts in pharmaceutical, chemical and petrochemical industries. “Complete solutions is what we'll offer,” Chemicals and Fertiliser Minister Suresh Prabhu said. He said the modalities had more or less worked out and an official announcement would come soon.  Mr Prabhu said efforts were aimed at creating “a hassle-free environment” for scientists and technologists. The creation of the parks would provide an exclusive zone without bureaucratic and procedural problems, the minister said. He said the climate to promote R&D was right, as the intellectual property rights (IPR) bill was under consideration. He said the knowledge parks would epitomise the tremendous scope for R&D investments in India by giving Indian corporates and MNCs an opportunity to pursue projects without problems of customs, excise, labour, and power supply.

Mr Prabhu was emphatic about the required attitudinal change for India to attract investment to the country. He said efforts were on at all levels to provide the right atmosphere in an era where “complete solutions” is the only acceptable business proposition. He said he was meeting US, Swiss, French, German and Dutch  corporates and ministers in this context over the next couple of months. “We will go all out to make it possible to offer corporates  what they want, rather than tell them what we have, so they bring investments to India”, he said enthusiastically. (March 11, 2000, The Economic Times )

 

 

The Government is planning to privatise canalising agents MMTC and STC through an outright sale of majority stake. Since both companies are considered non-core, plans are afoot to move ahead quickly with the disinvestment.

Currently efforts are on to revalue the assets of the two companies and identify a global advisor. The government owns 91 per cent of STC, which is listed, and all of  MMTC. Nine per cent of STC's stake is held by FIs and the public. (March 15, 2000, The Economic Times)

 

 

Energy major Enron Corp and telecom infrastructure company Global Telesystems are jointly investing close to $ 150 mln to build a  5,000-km fibre-optic link across key towns and cities in Maharashtra. The deal is the first major broad-band investment in the country. Sources said the network will result in creation of high-speed data and content transmission exchanges within the state. Besides, it will help pump out rich media and live, streaming video - faster than the internet. Besides, some 1,000-km of intra-state broadband networks are.expected to go live within a year The Maharashtra State Electricity Board (MSEB) and Enron will hold 40 per cent stake each in the proposed three-way joint venture, with Global Telesystems picking up the remaining 20 per cent. Enron is already in the fray for similar broad-band networks across the country, including a tie-up with British Telecom and Indian Railways.

 

The sources said the fibre-optic links will be hitched to the transmission towers of the MSEB. The move will work out to be cheaper and offer maximum security, they said

 

 Enron Broadband is expected to throw its entire marking expertise into the joint venture. It will also bring in the Enron Intelligent Network, its proprietary broad-band technology which, in the US, carries network-hosted applications and entertainment content, such as videoconferencing and distant learning, through some 10,000-km of  fibre-optic cable. The proposed joint venture will also market broad-band capacity to internet service providers (ISPs), basic telecom service providers, cellular phone services, government agencies and any other content provider. (March 21, 2000, The Economic Times)

 

 

The Union Minister for Commerce and Industry, Mr. Murasoli Maran, approved  28 cases of foreign direct investment (FDI) amounting to $ 24 mln, which were earlier recommended for approval by the Foreign Investment Promotion Board (FIPB).

 

According to an official release, Adidas India Pvt. Ltd. has increased its paid-up capital by around $ 7.3 mln, while increasing its equity holding in downstream venture, Adidas Trading India Ltd., from 80 per cent to 91.4 per cent. The Minister has also given approval to a proposal by Investmart India Ltd. to allow a 20 per cent foreign equity participation, envisaging a flow of around $ 4.75 mln. (March 29, 2000, The Hindu)

 

 

February, 2000

 

 

In the budget for the year 2000-2001 presented to Parliament, Finance Minister, Mr. Yashwant Sinha, has decided to double the tax on dividend to 20 per cent and increased the additional surcharge on personal income tax to 15 per cent. The budget has reduced peak customs duty to 35 per cent, and rationalized the central excise structure to a single rate. However, Sinha has been  kind to the information technology industry by drastically reducing duties on various inputs.

 

The revenue generation measures are expected to yield an additional Rs 6,904 crore (app. $ 1726 mln). While Rs 5,080 crore (app. $ 1270) will be mobilised from direct taxes and Rs 3,252 crore (app. $ 813 mln) from excise rationalisation, the proposals on the customs side will result in a revenue loss of Rs 1,428 crore (app.$ 357 mln).

In order to accelerate the GDP growth rate to 7 to 8 per cent, Sinha has also attempted to push the economic reforms process. He permitted FIIs to invest upto 40 per cent in domestic companies and announced measures to cut subsidies, downsize government, lower interest rates on general provident fund by 1 per cent, reduce government equity in banks to 33 per cent, and recapitalise weak banks. The fiscal deficit has been targeted at 5.1 per cent, down from 5.6 per cent in the revised estimates for 1999-2000.

 

The Finance Minister reduced the minimum alternative tax (MAT) to 7.5 per cent from 10 per cent and abolished interest tax. He tried to rationalise the central excise structure by introducing a central value added tax (CENVAT) at 16 per cent.  Major giveaways have been on the customs side with the Finance

Minister deciding to reduce the peak customs duty rate from 40 per cent to 35 per cent. In a bid to encourage the information technology sector, the Minister has reduced taxes on a host of items which include computers, cellular phones, floppy diskettes, CD ROMs etc. The duties on crude oil and petroleum products too have been reduced to 15 and 25 per cent respectively.

 

The Finance Minister has also liberalised the tax treatment for venture capital funds to give an additional push to the IT sector. Norms for takeover of foreign companies by Indian firms have been relaxed. In addition to revenue mobilisation efforts, the budget is sought to be balanced by expenditure control measures such as reduction in food and fertilizer subsidies.

 

The target for disinvestment has been retained at app. $ 2500 mln. The disinvestments strategy will include restructuring and reviving potentially viable PSUs; closing down of PSUs which cannot be revived; bringing government equity in all non-strategic PSUs to 26 per cent or lower; and fully protecting the interests of workers.

 

Some of the key proposals are given below:

 

Direct Taxes

 

Dividend tax up: Rate increased from 10% to 20% on dividends distributed; shareholders' income to remain tax-free.

 

Export exemptions on income tax to go: Income tax exemption to be phased out over a period of five years beginning 20% from 2000-01

 

New regime for venture capital

 

Exemption for shipping industry: Deduction of profits kept as reserves for purchase of new ships raised to 100% from 50%

 

Minimum Alternate Tax (MAT) structure changed:  MAT to be levied at revised rate of 7.5% of book profits instead of existing effective rate of 10.5%. Exemptions from MAT reduced

 

Indirect taxes

 

Single rate of 16% excise

 

Slabs of 8%, 16% and 24% merged into one basic rate as precursor to Vat.

 

Custom duty on IT sector-related products reduced: Duty down on computers, mother boards and floppy diskettes from 20% to 15%

 

Peak import duty reduced to 35%

 

Discrimination between manufacturer importers and trader importers abolished

 

Custom duty exemptions for telecom products: Duty on cellular phones reduced from 25% to 5%; concessional 5% rate extended to internet service providers

 

Major concessions for entertainment industry: Custom duty cut from 40% to 25% on cinematographic cameras and equipment and films

 

Other changes

 

FII limit raised from 30% to 40% of a company's capital base;

 

Overseas acquisitions eased: $100 million ceiling for software companies to be raised; ceiling for other companies raised from $15 million to $50 million

 

All ongoing schemes to be subjected to zero-based budgeting. 96 schemes scrapped.  Divestment proceeds to be used to retire government debt.

 

Fiscal Responsibility Act to be presented before parliament within a year

 

Promises major relaxation in venture capital norms. Sebi to be single point nodal agency for all matters related to venture capital

 

Ceiling for acquisition abroad, under automatic route enhanced from $15 million to $50 million.

 

FII investment limit in all sectors enhanced from 30% to 40 %

Government stake in public sector banks to be cut to 33 per cent in line with the recommendation of the Narasimham committee; public sector nature not to be changed

 

Greater operational freedom for Reserve Bank of India in terms of  monetary policy; Securities Act to be introduced

 

Customs rates on Platinum and non-industrial diamonds to be cut from 40 % to 15%

Basic customs duty on crude cut from 20% to 15% and for petroleum products from 25% to 20%, except for kerosene

(Indian Express, Business Standard – 1^st March, 2000)

 

 

The Economic Survey (1999-2000), released on 29^th February, asked the government to intensify reforms, especially in financial and labour sectors, to give a fillip to industry which was experiencing a turnaround in the current fiscal after a two-year downtrend.

 

The Survey expressed concern over infrastructure shortfalls and said “constraints in roads, power and telecom need to be removed by creating higher capacities for sustained industrial growth”. Attributing the improved industrial performance mainly to the growth in manufacturing sector, it said “further, various policy measures of the Union Budget (1999-2000), including those aimed at specific sectors like housing, information technology and infrastructure, have bolstered the revival”.

 

A low inflation and an increased demand led to improved capacity utilisation and the trend was supported by a pick up in exports and good agriculture performance, which created a strong rural demand, to help industry record impressive performance during the year. The Survey also called for legislative reforms to facilitate rapid redeployment of investment from unproductive to productive lines of activity in view of the rapidly changing domestic and international economic environment. Stating there were clear “feel good” factors in the economy, the Survey said industrial production was likely to be reinforced by better performance by the infrastructure industries.

 

“Industrial recovery is also helped by the improved perceptions of international credit rating agencies and investors, rise in Business Confidence Index, better corporate performance and bullish sentiments in stock markets,” it said. The broad-based nature of the recovery was evident from good performance of  basic, intermediate and consumer goods, the Survey said adding there was still scope for continued recovery.

 

Major Highlights of Economic Survey 1999-2000:

 

An industrial recovery is underway from the cyclical downturn of previous two years. Growth of GDP from manufacturing will almost double to 7 per cent in 1999-2000 from 3.6 per cent in 1998-99.

 

The Indian economy is projected (by CSO) to grow by 5.9 per cent in 1999-2000. The slower growth from 6.8 per cent in 1998-99 is due to a fall in agricultural growth from 7.2 per cent in 1998-99 to 0.8 per cent in 1999-2000.

 

Corporate investment edged up to 8.8 per cent of GDP (constant prices) showing companies’ positive

response to challenges of competition.

 

The century ended with the country’s food grains output crossing 200 million  tonnes. The country has also emerged as a marginal exporter (2 to 4 million tonnes) of food grains.

 

Real private investment in agriculture has been rising over the nineties but there has been decline in public investment in the same period. There is need to shift the emphasis of public support for agriculture from subsidies to investment.

 

Industry growth as measured by the Index of Industrial Production has shown a firm and broad based recovery this year with 6.2 per cent growth in April-December, 1999 as compared to 3.7 per cent in April-December, 1998.

 

Infrastructure performance has improved substantially during 1999-2000. Financial year 1999-2000 was characterised by low inflation and a comfortable supply position of most items of daily consumption. The Wholesale Price Index of all commodities increased by 3.3 per cent during 44 weeks of the current financial year.

 

The flow of funds from banks comprising non-food credit and investment during the financial year up to January 14,2000 increased by 11.6 per cent as against 10 per cent in the corresponding period of last year.

 

Capital markets remained buoyant most of the year, primary issues have also started recovering, with a growth of 46 per cent in April-December, 1999 over the same period last year.

 

Exports showed a strong recovery growing by 12.9 per cent in April-December, 1999 in US $ value. The capital account in the balance of payments has improved significantly in 1999-2000. The inflows during April-September 1999 were $4247 million compared to $ 3057 million during April-September, 1998.

 

The foreign currency assets of the RBI increased by about US$ 2.4 billion in 1999-2000 till end January, 2000.The total foreign exchange reserves (including gold and SDRs) amounted to US$ 34.90 billion at the end of January, 2000.

The external debt rose marginally from $97.68 billion in March, 1999 to $98.87 billion in September, 1999. The external debt to GDP ratio was however, lower at the end of September, 1999 at 22.3 per cent compared to 23.5 per cent in 1998-99. (Press Information Bureau; February 29, 2000, Indian Express)

 

 

Barring a few core areas such as defence, government will soon free foreign investment from controls and ‘push ahead’ with the reforms process, finance minister Yashwant Sinha said. The government is finalising a proposal to free foreign investments from all government approvals and controls, Mr Sinha told a special session on “India: new beginnings on economic reforms” on the sidelines of the World Economic Forum held at Davos.

 

Details about the equity structure, terms and conditions details, enlarging the automatic route for FDI and transparent procedures will be some of the salient features of the mechanism, he said.

 

Mr Sinha said government will push ahead with the reforms process. The governments Budget will further ‘push ahead’ the economic reforms process, he said.( February 01 2000, Economic Times)

 

 

The Government is considering a nascent proposal to raise the ceiling of foreign equity investment in the telecommunication service sector, thereby permitting foreign firms to hold majority holding in Indian ventures. According to sources in the Government, the Union Cabinet has discussed the issue and considering favourable opinion, decided to induct the Minister for Communications, Mr. Ram Vilas Paswan, in the Group of Ministers which has been set up to review the existing FDI policy and suggest amendments to sectoral caps. At present, there is a fixed ceiling of 49 per cent on telecommunication services  basic, cellular mobile, paging, value-added services and global mobile personal communications by satellites. Project approvals are also subject to grant of licence from the Department of Telecommunications (DoT).  Wholly-owned subsidiaries of foreign companies are allowed in telecom equipment manufacturing and 51 per cent foreign holding is permitted in a few value-added services such as e-mail and fax-mail services.

 

In case there is a review, foreign firms may be allowed a majority holding in service companies: 51 per cent or a maximum 74 per cent in the joint venture's share capital, sources said. A maximum FDI holding of 74 per cent will mean that the domestic equity holders will retain the power to veto special resolutions at the board level. (February 03, 2000, The Hindu)

 

 

Union Government is considering legalising Internet telephony in the country since it was felt that ‘sooner or later, it has to be legalised,’ Minister of State for Communications, Tapan Sikdar, said. “Our ministry is fully aware of the pros and cons and the issue is being currently examined by the group on telecom and convergence,” Sikdar told the ‘Third Telecom Summit’ organised by the Confederation of Indian Industry (CII).

He said Government has so far achieved high levels of telephone penentration through its various initiatives. Speaking at the summit, chairman and CEO of the Finnish mobile phone company Nokia said there would be 1 billion mobile phone users in the world by 2002, up from 480 million last month. He predicted that the number of mobile phone handsets connected to the Internet would be more than those connected to personal computers (PC) by 2003. “The future of technology will not be PC-centric, but will be mobile phone-centric,” he added.  He lauded the efforts being taken by India in speeding up reforms in the telecom sector and spreading information technology in this part of the world. (Indian Express, February 11, 2000)

 

 

 

Major ports in India would be corporatised in a phased manner and maximum autonomy would be accorded to them to function on commercial lines, according to Union Surface Transport Minister Rajnath Singh. Corporatisation of Jawaharlal Nehru Port (across Mumbai) would be completed by June, Singh told a news conference. Similarly, the ministry would embark upon development of JNP and Chennai ports as hub ports, he said adding that deeper navigational facilities would be developed at these two ports for the fourth and fifth generation vessels. Developing JNP as hub port would be done at a cost of about $ 150 mln and the work would be completed within 2-3 years, the Minister said.

 

Modernisation of equipment and management practices at the ports have also been planned, Singh added. The Minister said Shipping Corporation of India would be strengthened and Finance Ministry was being consulted for giving soft loans to Indian shipping companies. (February 21, 2000, The Economic Times)

 

 

The reforms in the domestic power sector will continue and the sector would complete the transition in the next few years, the Minister for Power, Mr. P.R. Kumaramangalam said. “The power sector has seen more reforms in the last three years than the previous 11 years. We will complete the reforms process in the next few years,” he said at the meeting of the Indian-Japan Business Cooperation Committees. (PTI News : 31.1-5.2.2000)

 

 

India has posted higher returns in the post-’91 period - after the reforms were introduced - as compared to most of the emerging markets, except China. Also, for both the BSE sensex and S&P CNX Nifty, contrary to common perception, the intra-day volatility (open-close) is less compared to inter-day volatility (close-close or open-open). Open-open inter-day volatility is the highest among all inter and intra-day estimators: such as high-low. Possibly, the reason for this high volatility could be that a large amount of information is likely to  be accumulated overnight. Varying settlement periods adapted by different stock exchanges in India appear to have contributed to higher inter-day volatility.

These are some of the findings of a comparative study of stock market volatility by the research department of the Securities and Exchange Board of India (Sebi). “The study tracks volatility across 13 developed and emerging stock markets over a 15-year period,”the Executive Director, Sebi said.

 

The period of the study was from ’85 to ’98 and was broken up into two sub-periods - January ’85 to June ’91 and June ’91 to August ’98.

 

A few findings of the research paper are as follows:

* The average mean daily returns in percentages for the six developed markets show more stable conditions than emerging markets. The emerging markets display a wider variation of the average mean  returns for the entire period and sub-periods also.

 

* In ’97, most of the Asian markets except India and China posted  negative returns.

 

* The average mean daily returns (percentage) range between 0.4-0.7 for India during the entire period. It is higher than that of most  of the Asian markets except China and comparable to the developed markets. Post-’91, the returns for India are higher than most of the emerging markets except China.

 

* Asian markets were more volatile than the developed markets during the entire period, which includes two major financial crises - ’87 and ’97.

 

* India exhibited resilience recording the lowest variation in stock prices not only among the emerging markets but also compared to the Hong Kong stock market. Fragility in India is almost one-half of Malaysia, Indonesia and Thailand. (February 03, 2000 Economic Times)

 

 

India Inc's confidence in the economy is at an ‘unprecedented high’ level, not only in terms of the current performance of the economy, but also in terms of the expectations for the future, according to the findings of the sixth Business Confidence Survey conducted by the Federation of Indian Chambers of Commerce & Industry (FICCI).

 

The FICCI survey showed that the unexpected increase in GDP (6.8 per cent in 1998-99), improvement in industrial growth, dramatic buoyancy in the stock market, strong macro-economic fundamentals like inflation, exchange rate, comfortable foreign exchange reserves, strong sentiments for economic recovery and the passage of some of the crucial economic legislations had led to the upswing in business confidence. The survey, concluded a fortnight before the budget, shows a rise of 2.2 points to 27.8 points, up from 25.6 points in the previous survey held in October 1999.

 

Corporates view the convergence among major political parties for the passage of key economic legislations like Insurance Bill and FEMA as indicative of the democratic maturity of the Indian political party system. Over 95 per cent of the respondents are upbeat about the passage of insurance and FEMA legislations. They expect the Government to initiate steps for the passage of pending bills like companies amendment bill, amendment of contract labour regulation act and patent bill.

 

The industry is also bullish about the industrial growth during the current fiscal with 62 per cent of the participants expecting a growth rate between 6-8 per cent. However, 18 percent of the industrialists surveyed estimated the industrial output to be over 8 per cent. (February 17, 2000, Financial Express)

 

 

Net FII investments have crossed the $500-million mark in the current month, which translates into the largest inflow in a single month in the last one year. The renewed interest in the Indian markets has also attracted fresh FII registrations taking the total to 503 to date. In local currency, the net investments translate into a whopping about $ 577mln, with nearly half of the amount coming in the last four trading sessions.

 

There has been a remarkable shift in the pattern of FII investments. The markets have attracted in just 15 trading sessions in February, a third of what it had received during entire 1999. During 1999, the net inflows were $ 1725 mln while in February so far, the net investment has been $ 577 mln. The resurgence in FII inflows comes ahead of the budget, taking the Sensex (Mumbai Stock Exchange Index) past the 6000-mark. A unique feature of FII investments in February is the fact that the net inflows have been positive on all the days. (February 23, 2000, Financial Express)

 

 

The Government has relaxed the external commercial borrowings (ECB) guidelines by permitting the ECB exposure in all infrastructure projects upto 50 % of the project cost, enhancing the limit to $200 million for financing equity investment in downstream infrastructure projects and allowing 100% pre-payment from EEFC accounts.

 

According to an official announcement, infrastructure projects in power and some other sectors will be permitted to have ECB exposure of more than 50% depending upon the merit of the case. The others, however, can increase their ECB exposure to the extent of 50% of the project cost as appraised by a recognised financial institution/ bank.

 

The ECB guidelines earlier fixed the ceiling of $50 million for companies seeking equity investment in a subsidiary/joint venture company for implementing infrastructure projects. The limit is now being raised to $200 million to provide greater flexibility to companies for funding downstream projects in infrastructure sector. The guidelines also stipulate that henceforth denomination of debt service in post default situation will be in rupees or in foreign exchange as envisaged initially in the contract document. Earlier, the liability of an Indian company was denominated in rupees and debt servicing in equivalent foreign exchange.

 

The Government has also permitted 100% pre-payment of ECBs where the source of fund is from EEFC accounts. Earlier, the pre-payment of ECBs upto 100% of outstanding was permitted provided the prepayment was effected from foreign equity inflow or residual maturity was upto one year. As per the revised guidelines, 100% export oriented units would be permitted to have foreign currency exposure upto 60% of the project cost.

The end-use norms have been considerably relaxed with companies being allowed to use proceeds for any purpose except for investment in real estate and capital markets.

 

As far as procedures are concerned, presently a borrower has to approach government twice, once for obtaining in-principle approval and secondly for submission for loan agreements for taking on record (TOR). After TOR, the borrower approaches the RBI for FERA approval and permission for draw down.

 

Thus, there are three stages. As a measure of simplification, the government has decided that the regional offices of RBI would take loan agreement/ documents on record of all ECB approvals once they have been approved by the government/ RBI as the case may be.

 

With regard to default interest, it has been stipulated that interest not exceeding 2% over the applicable rate will be incorporated in the approval letter/TOR letter itself. No further approval would be required from the government or the RBI. (Financial Express, February 10, 2000)

 

 

The Commerce and Industry Ministry has drawn up a major push for the  IT industry, recommending 100 per cent FDI through the automatic route for all operations that provide infrastructure for this industry. This includes e-commerce enabling activities and internet backbones. The new FDI proposal has a specific focus on areas of  infrastructure, be it the IT sector or airport infrastructure or even telephony. The view is that there is a need to beef  up the country’s infrastructure in all areas. Also, in all these sectors’ infrastructure requires huge funding and state-of-the-art technology.  So, if it is airports, 100 per cent FDI should be allowed so that the best is available to travellers and airlines. If it is for laying of cables or internet backbones or even e-commerce infrastructure, similar liberal norms should be applied. Only under such circumstances would funds flow, the Department of Industrial Policy and Promotion (DIPP) is believed to be contending. (February 4, 2000, The Economic Times)

 

 

The Union government approved 31 cases of foreign direct investment amounting to app. $ 100 mln including the proposals of Satyam Computer Services Ltd and US-based Sunrider International which envisages setting up of wholly-owned subsidiary at an investment of app. $ 30 mln. Other approved proposals include those of Reliance Industries Ltd, Concorde Motors Ltd, Tecumseh India Pvt Ltd, Sun Chemical group BV of The Netherlands, Infinity Technology Trustee Pvt Ltd, Tefal India Household Appliances Ltd and Four Soft Pvt Ltd.

 

In another meeting, the FIPB approved FDI proposals worth app. $ 290 mln. These included ICICI bank's $125 million American Depository Receipt (ADR) issue and South African Breweries' joint venture holding company. Other proposals were those of ModiLuft, Portals Ltd of England, Samsung, Hotline Wittis, Reebok India,  Siemens SA of France, Godrej Pacific, Web Neuron, Learning Universe, Hybrid Rice International and Astro eCom. (News Today, February 11, 2000; February 4, 2000, Financial Express)

 

 

The commerce and industry ministry has proposed opening up the domestic plantations sector for foreign investment. This would include investment in key industries like tea, coffee and rubber.

The core group of the Foreign Investment Promotion Board (FIPB) will decide on the proposal. The move follows Unilever Plc’s proposal to acquire 74 per cent in Calcutta-based tea plantation company Rossell Industries.

 

According to the proposal, Unilever is to acquire the stake in Rossell through its Netherlands-based subsidiary Unilever Overseas Holdings BV.  The FIPB, which took up the Unilever proposal three weeks ago, deferred a decision on it, after the commerce ministry pointed out that FDI is not allowed in the plantation sector. (8^th February, 2000, Business Standard)

 

 

The government has thrown open the gates for foreign direct investment (FDI), except a few categories in the ‘negative list’ which will be subject to FIPB (Foreign Investment Promotion Board) clearance. All other kinds of investment would be allowed under the automatic route, according to an announcement made by the Commerce & Industries Ministry. The categories under the negative list include proposals for which industrial licence is necessary and cases where FDI of more than 24 per cent is made in items reserved for small scale industries (SSIs). All proposals where the foreign collaborator already has a  joint venture or tie-up will also be routed through the FIPB. Proposals where the FDI proportion exceeds notified sectoral caps will also be subject to FIPB clearance. In such cases, the government insists on a no-objection certificate from the previous domestic collaborator. The negative list also includes areas where FDI is not permitted.

 

Proposals where FDI is related to acquisition of shares in an Indian company would be subject to FIPB clearance. The industrial licensing category would include items which need permission on account of locational policies notified by the government. For FDI in public sector units and export-oriented units, the automatic route will be conditional. The same will be the case for export processing zone, EHTP/ STP units. The Reserve Bank of India will continue to monitor and report on FDI inflows as per current practices. Items which are covered under the automatic list will continue to be governed by existing rules. Areas which are not open for FDI now will continue to remain closed till the government modifies the relevant policies, the statement said. (February 12, 2000, The Economic Times)

 

 

The government today decided to privatize National Fertilisers (NFL) by divesting 51 per cent equity and management control to a strategic buyer. The Cabinet Committee on Disinvestment also approved the appointment of a merchant banker through global competitive bidding to work out the details of the proposed disinvestment, a spokesperson said. The disinvestment process in the public sector is proposed to be completed by December 31 this year.

 

At present, government holds 97.6 per cent stake in the company. The remaining 2.4 per cent is held by financial institutions and employees. The Disinvestment Commission has classified the company as non-core and recommended that government should sell a minimum 51 per cent equity to a strategic buyer with transfer of management control. “This decision will lead to better utilisation of capitalised value of divested shares,” the spokesman said. (February 16 2000, The Economic Times)

 

 

The Surface Transport Ministry will soon come out with a policy on developing the inland waterway system in the country, according to the Secretary in the Ministry of Surface Transport. “The Federal government will offer incentives to the private sector for developing the infrastructure as well as operating services in the three main inland waterways in the country”, he said. The policy which would be unveiled shortly would allow development righs on a Build-Operate-Transfer (BOT) basis, he said. (PTI News: 12-17.2.2000)

 

 

Sun Chemical Group BV, the Netherlands-based supplier of graphic-art products, is making an open offer to the shareholders of Coates of India (COIL) to acquire up to 17,21,385 fully paid-up shares, representing 25 per cent of the company's equity, at Rs 165 a share. The acquisition will cost Sun Chemicals about Rs 28.39 crore. The offer is being made under regulations 10 and 12 of the Sebi takeover code. The Dutch firm has already received the Foreign Investment Promotion Board's approval for the acquisition. (Financial Express, February 21, 2000)

 

 

Citibank announced the launch of the e-shopping facility: `Citibank e-Shopping', in association with satyamonline.com, rediff.com, and fabmart.com.  The facility, the first of its kind by any bank in the country, will enable Citibank's customers to shop on-line through a state-of-the-art payment network.

 

Announcing the launch, Citibank's Chief Executive Officer (India) said: “With the Internet fast becoming an integral part of everyday life, there is a growing demand for services that offer security and convenience for on-line payments”.

 

This move by Citibank is also the first that facilitates card holders to use the card for web-enabled shopping transactions in the domestic market. Industry watchers pointed out that Citibank's three-way deal with satyamonline.com, rediff.com and fabmart.com with credit-card usage thrown in will help also help the spread of plastic money. With over million-and-half cards on the Visa International, MasterCard International and Diner's payment loops, Citibank will now be able to provide its cardholders more opportunities for card usage. (February 17, 2000, Financial Express)

 

 

January, 2000

 

 

The Dutch Minister for Foreign Trade, Mr. Gerrit Ybema, visited India from the 9^th-14^th January, 2000, accompanied by a 43–member business delegation. During the visit, the Dutch Minister had meetings with several Ministers of the Indian government which included the Minister for Commerce & Industry, Minister for Surface Transport, Minister for Petroleum & Natural Gas, Minister for Agriculture. He also attended a number of seminars/meetings, including the CII Partnership Summit. During his visit, a Memorandum of Understanding was signed between the CII and the VNO-NCW for cooperation between the two organisations. His visit covered the cities of  New Delhi, Mumbai and Hyderabad and provided an important stimulus to strengthening Indo-Dutch trade relations.

 

In Andhra Pradesh, The Netherlands identified several priority sectors and is keen to bring in investments.  Mr Ybema said “There are many unrealised investment and growth opportunities in Andhra Pradesh which we want to exploit. As an initial step, we have identified a few key sectors that include information technology, ports and airports, transportation, agriculture, fruit processing technology, energy, medical technology, water management and social sector”. Mr Ybema added that the visiting trade delegation, which consisted of representatives from some of the biggest Dutch companies, is enthusiastic about investing in Andhra Pradesh.) (Bombay Chamber News Bulletin; Economic Times, January 15, 2000)

 

 

The Minister for External Affairs, Mr. Jaswant Singh, reassured the domestic and international community that the Vajpayee Government is committed to the reforms process. “Our Government is committed to reforms, including bringing about reforms in Government so that it becomes a facilitator. This is something to which my Government is fully and irrevocably committed,'' Mr. Singh said, while delivering the inaugural address at the Partnership Summit 2000. The summit, organised by the Confederation of Indian Industry (CII), had ‘Managing globalisation in the new millennium’ as its theme.

 

Mr. Singh said that apart from bringing about reforms in diverse sectors such as insurance and banking, the Government wanted to ensure that the people have a better quality of life and have access to safe drinking water, proper sanitation and health facilities. On the changing global environment, Mr. Singh said that no global system will work unless it looked at the “demands, needs and urges” of more than two-thirds of the world population who are forced to survive on $1-2  per day.  “Over four billion people of the entire world population of about six billion live below the poverty line and no system will work if the demands, needs and urges of these people is not looked into,” he said. Turning his attention to managing globalisation, Mr. Singh felt that as long as there is no clarity on what globalisation is, it will be difficult to address the issue of managing globalisation. He pointed out that in the last 40 years, the gap between the rich and poor countries had doubled. He felt that these issues should be considered before assessing the benefits of globalisation. (The Hindu, January 10, 2000)

 

The stock markets are not the only ones who are bullish on India. US Secretary of Treasury Lawrence H Summers, who is on a visit to India, has predicted a 10 per cent economic growth, provided the Indian government policies are conducive enough to ignite the explosive economic growth by creating world-class infrastructure and plugging subsidy loopholes.

 

Addressing a Confederation of Indian Industry meeting, Summers said the economic developments in India have the potential to transform in two decades not only India, but the world economy and the US has great stake in what happens here. “The 6.5% growth rate that India has achieved in recent years is impressive. But 10 per cent growth is well within India's grasp. At that pace, Indian standards of living would be five times higher in 2020 than they are today,” he said.

 

“With a strong commitment to openness, to a more efficient and competitive financial system and a new role for the state that works more to complement market than exclude them, I would expect India to be one of the largest economies in the world in less than a generation,” he said. The challenge, he said, is to reconcile three widely shared objectives: realising the benefits of trade and integration; support of public purpose in areas such as promoting environment and regulating financial risk.” (Financial Express, January 18, 2000)

 

 

In a major policy shift, the Government has opened most of the industrial sectors for foreign direct investment (FDI) on automatic route, barring six areas which have been put on negative list.

FDI up to 74 per cent has been allowed for prospecting and mining of gemstones on automatic route. With regard to gold, silver, diamonds, and other minerals 100 FDI has been allowed. But, metallurgy and processing has been kept out from the automatic route. In films the government has approved 100 per cent foreign equity in film making, financing, production, distribution and exhibition. However, 74 percent FDI in advertising companies has been allowed on automatic route.  In the case of film industry, the centre has set some conditions for foreign investment inflows. The foreign companies with an established track record in films, TV, music, finance and insurance would be permitted to invest in the country. Each company needs to have a paid up capital of not less than US $ 10 million in case of single largest equity holders. FDI on automatic route has been allowed in coal and lignite mines involved in supplies to private Indian companies setting up or operating power projects. For the first time, the centre has allowed FDI up to 100 percent in manufacture of pollution control equipment on automatic route. Highlights of the changes are:-

* Foreign Direct Investment through automatic, instead of through the FIPB, route in all sectors barring defence, aeronautics, explosives, alcohol, tobacco products.

* 100 % FDI in mining and prospecting of gold, silver, diamond and other minerals.

* 100 % FDI in coal and lignite supply to pvt Indian power cos.

* 100 % FDI in pollution control-related equipment.

 

* 74 % FDI in advertising.

 

* 100% FDI in films.

 

* Prior approval for FDI beyond 24 percent in items reserved for SSIs

 

* Shares acquisition in any existing Indian company requires clearances

 

* 74 % equity offered to foreign and domestic investors in Bangalore international airport joint venture.

 (The Hindustan Times, February 2, 2000)

 

 

The Government has scrapped the dividend balancing condition for foreign companies investing in India, starting January 1. Under dividend balancing, foreign investors exports are linked to the extent of dollars taken out as dividend earnings. Henceforth, the dividend pay-out for foreign investors will not be worked out on the basis of their exports. This will enable MNCs to function more freely. Dividend balancing has been a problem area for most foreign investors who have felt that such norms only restricted their operations and general business.

At present, foreign companies investing in India have to maintain a foreign exchange balance between export earnings and dividend outgoes. The idea was to minimise the risk on India's foreign exchange reserves. However, with only a few MNCs treating India as an important export base, it became difficult to repatriate dividends.

According to government officials, India had recently committed to the WTO that it would do away with dividend balancing “and December 31 seemed to be the best date”. This move falls in place with the government’s overall thinking and the commitments it has made at different levels. Over time, trade barriers and quantitative restrictions (QRs) are also to be removed. The norms on dividend balancing are among such barriers.

Officials also said India's foreign exchange reserves have been looking up, exceeding $30 bn for most of the year. It is unlikely that this level would decrease. The government has decided to reduce and in some cases completely remove barriers that have proven to be hindrance for foreign investors. The primary objective is to attract as much international cross-border investment and take the current annual inflows up from about $ 3bn to about $ 10 bn.

 

Among the reforms considered was to cut down the red tape by trimming the role of the Foreign Investment Promotion Board and at some stage eliminating it totally. The Foreign Investment Implementation Authority is to assist in expediting state government approvals so as to make FDI clearances meaningful. At the same time, as the role of the Reserve Bank of India (RBI) is likely to grow, the automatic approval list is expected to expand. Obviously, other changes involved opening up more areas to FDI and to reduce government interference in business — this included the dividend balancing, officials added. (Economic Times, January 3, 2000)

 

 

 

 

The Union Government modified the drug policy by raising the foreign direct investment limit under the automatic route for all bulk drugs, their intermediaries and formulations to 74% from the existing 51%.

The proposal to hike the FDI limit in pharmaceutical sector was approved by the Cabinet Committee on Economic Affairs (CCEA). The move is aimed at attracting foreign investors to invest more in drugs and pharmaceutical industry, an official spokesperson said. While raising the FDI limit, the CCEA also agreed to consider investments above 74 per cent on a case-to-case basis in areas where investment is otherwise not forthcoming. This will be in the manufacture of bulk drugs from basic stages and their intermediaries, bulk drugs produced by the use of recombinant DNA technology as well as the specific cell/tissue-targeted formulations, the spokesperson said. (The Hindu, January 7, 2000)

 

 

The Union Cabinet cleared a proposal to allow registered Indian companies to set up and operate their own satellites. A cap of 74 % has been set for any foreign direct investment, including that by NRIs, in such companies. Indian companies will also be allowed to provide telecommunciation and broadcasting services by uplinking of TV signals with Indian satellites. The Department of Telecommunications or the Ministry of Broadcasting will deal with these cases. The cabinet has also decided to set up an Insat co-ordination committee for allocation of time to private companies on Insat. Until now only Doordarshan, All India Radio, defence services and other government agencies were allowed to make use of Insat.

The government had approved a policy to liberalise satellite communications in June, 1997. However, the terms and conditions for the liberalisation had still to be worked out. These guidelines were later worked out and had been put up for cabinet clearance. (The Hindustan Times, January 13, 2000)

 

 

The Government also decided to lease out the airports in Mumbai, Calcutta, Chennai and New Delhi to private parties for 30 years.  The revenue generated by leasing out Mumbai, Calcutta, Chennai and New Delhi airports to private parties for 30 years would be utilised by the Airport Authority of India (AAI) to provide subsidy to the loss-making airports in the country. The proposed international airport at Bangalore would also be leased out, Civil Aviation Minister Sharad Yadav said.The Airport Authority of India (AAI) Act would be amended by the Government to provide the enabling legislation for the lease plan. Decisions to this effect were taken at a meeting of the Union Cabinet. The leasing plan is likely to be executed over a period of two years. The proposed Bill to amend the AAI Act would be tabled during the Budget session of Parliament beginning 23^rd February, 2000. (The Hindustan Times, January 13, 2000)

 

 

The Centre has decided to advance the date for lifting quantitative restrictions (QRs) on the remaining about 700 import items by two years to March 31, 2001. An agreement to this effect was signed with the US in Geneva, ending the dispute between the two countries on an early phase-out of QRs on the items. The QRs were to be removed phase-wise in accordance with a six-year plan formulated by India from April 1, 1997 to March 31, 2003.Barring the US, the plan had been accepted by its other trading partners : the European Community, Australia, New Zealand, Canada, Switzerland, and Japan (as third party). India has already shifted 600 items from the restricted to the special import licence (SIL) list, allowing their imports freely. This will bring the total number of import items that will be allowed freely to about 1,300.These items will, however, attract the applicable levels of customs duties. Commerce Ministry sources said that India had, in any case, been lifting the QRs on imports maintained by it for balance of payments reasons every year since April 1, 1997. During 1997-98,the first year of the phase-out plan, 406 items were freed from QRs. During the second year (1998-99), on March 31, 1999, a total of 894 items had been made free and 414 items been shifted to the SIL list. In both the cases, India had gone far beyond its commitment to the WTO. (Financial Express, December 30, 1999)

 

 

The Government has brought software companies’ overseas acquisition plans under the automatic approval route. This is aimed at helping domestic software firms to fully exploit their inherent strengths and become global players. According to the revised guidelines, Indian companies will not require either the approval of the special committee for overseas investment or the Centre for accessing the American Depository Receipts (ADR)/ Global Depository Receipts (GDR) route for acquisition. Also up to 100 per cent of ADR/GDR proceeds can be used for acquisition. It was further clarified that the automatic facility would be available only to those companies that have already floated ADR/GDRs and had a track record. Those companies, which have not floated ADR/GDRs, will be eligible to obtain a "one-time blanket approval" from the Special Composite Committee for availing the automatic facility. The value limit for the scheme will be $100 million, which will be an annual limit for each company for one or more acquisitions. Cases involving business acquisition exceeding $100 million will be considered by a Special Composite Committee, which will be a composite committee both for the purposes of overseas investment as well as for approving ADR/GDR floats. The applications for the consideration of the special committee would have to be made to the Reserve Bank in existing forms for overseas investment. As per the new guidelines, the ADR/GDRs to be issued under the scheme would be by way of expansion in the capital base by issue of fresh underlying shares of the company. The acquisition of shares of foreign companies will be done by giving adequate GDR/ADR so as to cover the acquisition cost. The proposals would have to conform to the valuation norms as per the recommendations of an investment banker, which in the case of a listed overseas company will be based on the current market capitalisation of the overseas company (based on the monthly average trading on the overseas exchange, for the three months preceding the month in which the acquisition is committed to) and premium, if any. (Financial Express, December 28, 1999)

 

 

The Dutch company Vialle BV announced its intent to forge a joint venture in India and has already concluded the first round of negotiations with majors like Maruti and Daewoo for fitting petrol-driven vehicles with its compressed natural gas (CNG) systems. The USD 35 million dollar company has already signed a memorandum of understanding (MoU) with the Faridabad-based Praja group for a 50:50 joint venture and this is likely to be formalised shortly. The Managing Director of Vialle BV said "We want to make India a manufacturing base for Vialle's global operations but only after economies of scale have been reached - say, 30,000 kits are sold annually by us here." Vialle group is a global major in fitting alternative fuel systems that use CNG or liquefied petroleum gas (LPG) in passenger and commercial vehicles. (News Today, January 12, 2000)

 

The cabinet committee on disinvestment has approved the bid of Hindustan Lever Ltd (HLL) for buying out 74 per cent government stake in Modern Foods Industries Ltd (MFIL). The committee approved the technical and financial bid of the FMCG major. MFIL is a wholly-owned government Public Sector Undertaking (PSU) under the Department of Food Processing Industries. (Financial Express, January 26, 2000)

 

The Government also approved a proposal to sell 51 per cent stake in Indian Airlines to a strategic partner, employees, the public, and financial institutions (FIs). "The cabinet committee (on disinvestment) has approved disinvestment of 51 per cent Government equity in Indian Airlines. Of the 51 per cent to be disinvested, 26 per cent will be to a joint venture strategic partner, 25 per cent to employees, FIs and (the) public," a Government spokeswoman said. (Financial Express, January 26, 2000)

 

The Indian Government would soon ratify the International Labour Organisation (ILO) convention on elimination of worst forms of child labour, a senior Labour Ministry Official stated. “Child labour is not irreplaceable and we need to create a congenial environment at workplaces. As long as the workplaces continue to be dull, demotivated children will continue to work with adults and will not be able to replace them”, said the Labour Secretary. (Press Trust of India)

 

The Securities & Exchange Board of India (Sebi) approved the recommendations of the Birla Committee on corporate governance and allowed trading of shares through Internet. The market regulator also approved, in-principle, venture capital norms recommended by the K.B. Chandrasekhar Committee. On corporate governance, Sebi has drawn up a time-frame of implementation, which will be enforced through the listing agreement. On Internet-based securities trading, the market watchdog approved the order routing system in the absence of cyber laws. In its board meeting held in New Delhi, Sebi also permitted foreign corporates/ individuals to invest in the Indian capital markets albeit with some restrictions. (Financial Express, January 26, 2000)

December, 1999

 

 

Following up on the moves to open up the insurance business, Prime Minister A B Vajpayee declared that the government would move decisively in introducing reforms in major infrastructure sectors like power and telecom to attract private and foreign investment while deepening other financial sector reforms.  Opening the India Economic Summit 1999, Vajpayee said passage of the Insurance Bill along with Foreign Exchange Management Act in the Lok Sabha (Lower House) was a major success and the government would now embark on further financial sector reforms that would improve the efficiency in banks, financial institutions and stock markets. "We will move decisively in areas like power, telecom, ports and airports," he said at the three-day summit held by World Economic Forum and the Confederation of Indian Industry.  “We are determined to speedily increase the size of the export basket and also to diversify its contents,” he said.

 

Detailing the approach, the Prime Minister said the government’s emphasis would be on improving decision making and implementation of policies and projects to make all these sectors more attractive to private and foreign investment. “Towards this end, the government shall radically simplify the rules and procedures that caused delays,” he said. Mr Vajpayee said that his government has resolved to follow a bold pro-growth programme of economic reforms for 7-8 per cent growth annually. Identifying information technology as an area of immense promise for wealth creation and, hence, needing special focus, Mr Vajpayee said: “Our government is determined to create the necessary conditions that will enable bright enterprising and young Indians to re-create the magic of the Silicon Valley while living and working in India.”  (Indian Express, December 6, 1999)

 

 

Prime Minister Atal Behari Vajpayee asserted that despite the failure of the WTO talks in Seattle, India would protect its core interests. At the India Economic Summit 1999, Mr Vajpayee emphasised the need for early negotiated settlement of trade issues. “The need for negotiated settlement of trade issues between nations, based not on dominance and unilateral advantage, is obvious.”  In his first response to the Seattle ministerial meetings which ended without any agreement, Mr Vajpayee said developing and largely populated countries like India have core interests to protect. India will do that. The Prime Minister asked the rich nations to be sensitive to core interests of developing nations.

 

A spirit of consensus and avoidance of linking trade with extraneous issues is necessary to reach a settlement, he stressed. The summit, organised by the World Economic Forum and the Confederation of Indian Industry, was also attended by British Deputy Prime Minister John Presscot, leading industrialists from across the globe and a virtual who`s who of Indian trade and industry. Stating that globalisation would increase interdependence of nations, especially in trade and economy, Mr Vajpayee said in an unequal world it, however, tends to get distorted into a relationship between the dominant and the dependent. Mr Vajpayee virtually outlined a globalisation “mantra” saying that “the greatest challenge before all those in governance, business and administrations is to steer the growth in global trade, business and economy along the lines of fairness, equity and sustainability. For this, the watchword would have to be the good of all, and not the greed of a few, long-term growth and not short-term gains, and co-operation based on complementary strengths and not conflict rooted in unhealthy competition.”  The Prime Minister said people in both developing and developed countries were willing to support liberalisation and globalisation if they were credibly reassured that reforms would benefit everybody, the environment would be protected and their cherished national and cultural identities would be preserved. Mr Vajpayee also exhorted national and global business associations to participate in this effort for their own future and said it was not the responsibility of governments and politicians alone to voice these concerns. There was also apprehension because of the continuing inequalities and imbalances and their consequences for regional and international security, he added. (Deccan Herald, December 6, 1999)

 

 

In a bid to boost reforms through greater “convergence and consensus”, Prime Minister A.B. Vajpayee reconstituted the implementation review committee and set up special groups on 8 economic themes. The review committee under the chairmanship of the Finance Minister will include the Commerce Minister and the Dy. Chairman of the Planning Commission. The eight themes are: good governance in the private sector, policy for private investment in education and health, strategy for reconvened WTO meet, disinvestment, freeing industry from controls, pitfalls of globalisation, power reforms and policy to attract wealth and talent of NRIs.

 

Well-known industrialists NR Narayana Murthy and Kumar Mangalam Birla constitute the special group on good governance, Mukesh Ambani and AC Muthiah on education and health, N Srinivasan and Rahul Bajaj for WTO strategies and GP Goenka and Rajiv Chandrasekhar for the group on  disinvestment. The fifth group on unshackling Indian industry from regulations will comprise Ratan Tata and Nusli Wadia and the sixth on globalisation pitfalls will have Rahul Bajaj and Sanjeev Goenka. The other two would be one-man groups with GP Goenka for power and Mukesh Ambani for NRIs. Announcing this at the first meet of the reconstituted trade and industry council, Mr Vajpayee said the review committee would take urgent steps for putting into action recommendations of the six specialised groups which would receive “high priority” of the government.

 

The six specialised groups were set up by the previous trade and industry council which has since submitted their recommendations, some of which are under implementation. The six groups cover: food and agro industries management policy, infrastructure, capital markets and financial sector initiatives,  knowledge-based industries, service industries and administrative and legal simplifications.  The main purpose in setting up the eight groups is to help the government in evolving enabling policy framework in these areas of reforms. (The Economic Times, December 12 1999)

 

 

The Insurance Regulatory and Development Authority (IRDA) bill received parliamentary approval  with the Rajya Sabha (Upper House) passing it without any changes. With the passage of the measure, the insurance sector will now be open to private Indian companies who can tie up with foreign partners with an equity cap of 26 per cent. Finance Minister Yashwant Sinha reiterated that the insurance sector was being opened to the private Indian and foreign companies in order to garner much needed resources for the infrastructure sector. (Financial Express, December 8, 1999)

 

 

 

Insurance brokers, including foreign brokerage firms, will soon be allowed to operate in India. Draft regulations, being compiled by an Insurance Regulatory Development Authority (IRDA) committee, will be circulated shortly for debate. The regulations will have to be approved by Parliament before being implemented. One of the key issues before the regulator is the foreign equity limit for domestic broking firms.

The IRDA has said only Indians would be allowed as insurance agents. However, the regulator has not yet decided on the foreign equity limit for broking firms. Sources said reinsurance brokers were likely to be allowed a majority stake in their Indian ventures. However, a decision on the foreign equity ceiling for both insurance and reinsurance brokers would be spelt out by the IRDA in its rules and regulations, expected by April.

 

A number of foreign brokerage firms are waiting to enter the Indian market, including giants like Aon, Jardine Insurance Brokerage and Willis Coroon. Unlike insurance agents, which sell products of only one company, the brokerage firms sell products of a number of insurance firms. (Business Standard, December 9, 1999)

 

 

The Government is likely to consider the issue of allowing foreign direct investment in the country's print media following a consensus among policy makers, Information and Broadcasting Sectretary said.

Addressing an interactive session on "Entertainment and Media" of  India Economic Summit organised by the Confederation of Indian Industry , he said that the Government would shortly review the 1995 resolution of the Union Cabinet which had barred FDI in the print media.  Justifying the proposed move, he said that the ban on foreign media in the country was imposed as the domestic print media was in its infancy. However, the situation had changed as domestic companies in the print media are on a stronger footing. The Government is also planning to re-introduce a draft Broadcasting Bill in Parliament during the budget session with fewer restrictions to facilitate greater private sector participation in the broadcasting. The secretary said that the Government would also review the 1997 Broadcasting Bill in an effort to lessen restrictive provisions. "If the new Bill is not be referred to any of the Parliament committees, then the broadcasting law would be in place by March 2000", said the secretary. The Government, he said, would also issue licences to 100 private companies for launching FM radio service in 40 cities including four metros. (The Hindustan Times, December 8, 1999)

 

 

The Cabinet approved the second short amendment to the Companies Act, 1956, making it mandatory for companies to inform the Company Law Board of default in repaying deposit within 60 days of maturity. The amendments to the Companies Act proposes to delete the provision relating to deemed companies, and provide a minimum paid-up capital requirement of us $ 2400 for private companies and us $ 9600 for public firms. The proposed amendments will raise the penal provisions for fines for offences relating to capital markets, and entrust the administration of matters relating to issue and transfer of securities of public-listed companies to the Securities & Exchange Board of India. The bill also requires companies with a paid-up capital of us $ 1.2 mln or more to set up audit committees, and firms with a paid-up capital of US $ 24,000 to obtain a secretarial-compliance certificate from a company secretary in full-time practice. The bill also seeks to limit the number of offices a person can hold as a full time director to 15, and treat an offer to more than 50 persons as a public issue.

 

The amendment to the 1970 Patents Act is to incorporate measures to protect bio diversity, traditinal knowledge and national security. The amendment also proposes to simplify and rationalise procedures in an attempt to modernise the countries patent laws and is to comply with the time bound WTO obligations contained in the Trade Related Intellectual Property Rights (TRIPS). (Indian Express, December 16, 1999)

 

 

Encouraged by bulging foreign exchange reserves and a narrowing gap between domestic and global interest rates, the government has decided to ease the restrictions on external commercial borrowings (ECBs).  The new ECB guidelines - cleared by a high-level committee - will remove discretionary controls based on end-use of funds.  However, borrowers will continue to be prohibited from investing the proceeds of overseas loans in stockmarkets and real estate.

 

The new policy will also retain the minimum maturity clauses of the existing guidelines. These stipulate that ECBs up to and including $20m are to be held for a minimum average maturity of three years, and loans worth more than $20m are to be held for five years. The government might retain restrictions on pre-payment of overseas loans. At present, companies can pre-pay only 10 per cent of their total outstanding forex loans if the residual maturity is more than a year. The most important measure is the removal of restrictions on end use of ECB funds specified in paragraph 15 of the April 1, 1999  guidelines on ECBs. The para stipulates that ECB proceeds are to be used to import capital goods, project-related expenditures or to buy locally-built ships. At present, funds for capital goods imports have to be used "at the earliest" and are subject to RBI guidelines and monitoring. And proceeds for project expenses, have to be brought into India immediately. Once the change is carried out, these restrictions will go.

 

The government feels that the end-use norms, originally designed to ensure that forex loans are not squandered, are actually superfluous. Overseas lenders already perform project appraisals before sanctioning loans, and a second layer of checks and controls is unnecessary. (The Economic Times, December 16 1999)

 

 

The Government introduced in the Lok Sabha the much-awaited cyber law legislation to provide the legal framework for electronic commerce and to enable electronic governance in the country. Titled “Information Technology Bill 1999”, it also seeks to make consequential amendments in the Indian Penal Code and Indian Evidence Act of 1872.

 

The Bill, introduced by the Information Technology Minister Mr. Pramod Mahajan, provides for equal legal treatment to users of electronic communication with other conventional forms, including paper-based. The new legislation is consequential to the United Nations resolution that all countries should favourably consider its modal law on electronic commerce framed in 1996. The significant part of the Bill is that it provides for a regulatory regime to supervise digital signature system, essential for carrying out financial transactions through Internet and other electronic modes. It is proposed to amend the 1934 Reserve Bank of India Act as well to facilitate electronic fund transfers between financial institutions and banks besides amending the 1891 Bankers' Books Evidence Act to give legal sanctity for accounts maintained in electronic form by banks. To enable electronic governance, the Bill proposes the use and acceptance of electronic records and digital signatures in Government offices and agencies making interaction between citizens and the Government easy.  The Bill also proposes to create civil and criminal liabilities for contravention of the proposed legislation. It seeks to have an electronic gazette where all regulations, rules, orders, bye-laws and notifications can be accessed over Internet.  (The Hindu, December 17, 1999)

 

 

The subgroup on Hydrocarbon Vision 2025 headed by Mr. K.V. Kamath, MD & CEO of ICICI, has recommended that the foreign direct investment ceiling in refining be increased up to 74 per cent. The subgroup has also recommended infrastructure status to refining sector along with adequate duty protection. The group has favoured extension of benefits for grassroots refineries for capacity additions and addition of downstream processing units for modernisation and meeting environmental norms.The Task Force on Indian Hydrocarbon Vision 2025 was constituted in March 1999 under Finance Minister Yashwant Sinha. It had set up six subgroups. The Kamath panel prepared its report on the development of  refining, marketing, transportation and infrastructure requirements based on demand projections. (Financial Express, December 20, 1999)

 

 

Leading consultants McKinsey & Co have predicted that market  capitalisation for Indian IT companies would touch $225 bn on an annual turnover of $87 bn by the year 2008 in a study on “Indian IT strategies”. The study, commissioned by Nasscom, was released by the Managing Director (worldwide), McKinsey & Co. It indicates 2.2m jobs, an annual FDI of $4-5 bn and  contributions of more than 7.5 per cent of GDP growth and explosion in e-business due to growth in the Indian IT sector by 2008. In his inaugural address at the “Indian IT Strategy Summit" organised by Nasscom he said India is on the threshold of a "second tryst with destiny". “We got political freedom the first time and now the second tryst with destiny is for economic freedom. The study indicates an opportunity of $87 bn for Indian companies in 2008 which includes $50 bn of exports” he said.

Elaborating on the agenda for action, the McKinsey chief said the newly-formed IT ministry should play a catalytic and facilitator role. “While the government is doing a lot and should be commended, we think more needs to be done. The IT ministry should serve as a nodal authority: to ensure consistency and integration of policy across multiple agencies; focus on implementation of all IT-related rules, laws and policies; and execute with speed and ensure impact on initiatives that encourage improved capability building, innovation and entrepreneurship in the industry," he added. (The Economic Times, December 18 1999)

 

 

The Securities and Exchange Board of India (SEBI) committee on venture capital funds (VCFs) has said in its draft proposal that the funds can have single-window clearance under the board like the FIIs and mutual funds, instead of various agencies regulating it.  “The multiple set of guidelines and requirements create inconsistencies and detract from the overall objectives of development of the venture capital industry in India,” the panel said. It suggested a review of guidelines to look into whether companies with VCF investment and listing in global stock exchanges could be permitted to list without profitability track record.  VCFs are currently regulated by various agencies such as the SEBI, Government of India Guidelines for Overseas Venture Capital Investment India, Central Board of Direct Taxes, the Reserve Bank of India and the Foreign Investment Promotion Board (FIPB). (The Hindu,  December 9, 1999)

 

 

Power Minister P R Kumaramangalam said that the country must add 15,000 MW a year in order to target the much-needed growth yardstick of 14 to 15% in the power sector that is performing behind schedule. He was speaking at the India Economic Summit co-organized by World Economic Forum (WEF) and Confederation of Indian Industries (CII). “The increase in the level of tariff is worrying in India. We cannot hike it in a knee jerk fashion but has to happen gradually,'' the Minister said pointing out that the tariff rates in the country is one of the lowest in the world. The Minister said that India's top priority being infrastructure it needs an investment of USD 100 bn in the first ten years and another USD 150 bn in the following decade. He pointed out that the financial institutions are behaving conservatively. “Reforms in attitude is required. There is no point in saying that developing countries must grow.” The Minister said that an 'Energy Efficiency Bill' is likely to be tabled in the parliament during the next session that will check the huge transmission and distribution losses in the country. (News Today, December 6, 1999)

 

 

The government is contemplating a new Computers Act and amendments in the Indian Penal Code (IPC) to prevent computer frauds and crimes, Minister of Law, Justice and Company Affairs Ram Jethmalani said. “We are aware of the computer frauds and in order to prevent it, a separate legislation ‘Computers Act’ in line with British Computers Act would be framed,” he said at the inaugural address of the Conference on  International Trade and Cyber Laws organised by the Institute of Company Secretaries of India.

 

He said the government will also amend the IPC as the exisisting code does not cover frauds or crimes through computers. All these changes are being worked out in order to prevent the theft of intellectual property through the electronic mode, he said. "Increasing dependence on computers and lack of efficient legal framework is causing anxiety in this area," the Minister said, adding that very few cases of computer frauds have been reported or prosecuted in the country.  Jethmalani said, at a time when `electronic pulse'(Internet) had gained prominence and a high degree of dependence, it had become important for the government to look into the crimes related to it. “The new legislation will protect the intellectual property the way WTO has asked,” he said.

 

On the new competition law, the Minister said, “it will ensure that the companies do not form any cartel, increasing mergers and acquisition to reduce competition and hike prices.” In the next millennium, consumer will be the king and the companies should harmonize the interest of shareholders.

 

The much-awaited Information Technology (IT) Bill to provide a legal framework for eletronic communication would be tabled in Parliament, Secretary in the IT Ministry P V Jayakrishnan said. The Bill, which provides legal framework for electronic communication, trade and commerce was cleared by the Cabinet early last month. (Financial Express, December 10, 1999)

 

 

The Information Technology Ministry is giving finishing touches to a bill which will enable Indian companies and individuals to take patent rights for computer chips design. This is for the first time that India will bring semi-conductor design underthe purview of trade related intellectual property rights (TRIPS) regime. The bill seeks to confer exclusive right to the creator of an integrated circuit (IC) or computer chip and protect the layout design on the chip from copyright infringement or unlawful commercial exploitation. The bill envisages the creation of a "Registrar of IC layout design" and an "IC layout design board". Persons who are Indian nationals or domiciled in the country will be eligible to claim protection on their designs. Significantly, companies commissioning chip-design projects in India will also be able claim similar protection under the proposed legislation. The bill shall make it illegal to copy either in part or full of a protected design. In addition, import, sale or commercial distribution of  protected layout design without proper authorisation will also invite legal censure.The layout design shall be considered original if it is the result of an individual's own intellectual effort and is not common place among creators of layout design and manufacturers. The bill also suggests that registration of patent can be sought if the design has not yet been commercially exploited or has been used for less than two years. The bill suggests that the right to a layout design shall belong to the creator of the design. It may be assigned or transferred in succession. In case the layout is a result of a group effort, the right shall belong to them jointly. On the other hand, if the layout was created in execution of a commission or an employment contract, the right shall belong to the person who commissioned it, unless agreed otherwise by the two parties. Protection and registration of the layout design would be effective for 10 years from the date of the first commercial exploitation, anywhere in the world, or from date of filing of registration.

 

The bill is expected to encourage foreign investment and attract major international companies to use India as a low cost design base. It can also pave the way for joint ventures with the state-owned chip manufacturer Semiconductor Complex Ltd (SCL), the only facility of its kind in India and neighouring countries. (Financial Express, December 13, 1999)

 

 

Prime Minister Atal Bihari Vajpayee launched the much-awaited US$ 25 mln national venture fund for software and IT industry. This fund is a new initiative in a territory “uncharted”, Vajpayee said urging the promoters to learn and adopt best international practices in managing it.

 

Expressing confidence that the fund will help in starting successful new IT businesses, Vajpayee said it had been created to enable the growth of world class IT enterprises on Indian soil. Finance Minister Yashwant Sinha, who also spoke at the launch, assured that the government will expand the size of the fund “as we go along”. Already, there have been applications from it companies for US$ 32 mln venture capital as against the corpus of a US$ 24 mln in the fund, he added. Information and Technology Minister Pramod Mahajan said this was only a “small step” in the ambitious journey to make India an IT superpower. “We are here to welcome IT companies to start units in the country with red carpet and certainly not with red tape,” he said sending positive signals to non-resident software engineers that the government will not be bureaucratic while dealing with information technology. (News Today, December 10, 1999)

 

 

Internet Service Providers (ISPs) will be allowed to uplink directly to foreign satellites on both Ku-Band and C-Band, for the purpose of setting up connections from their gateways to overseas Internet backbones. The decision was conveyed by Union Communications Minister Ram Vilas Paswan .

International gateways set by private ISPs will now be able to uplink directly to any satellite of choice, without having to go through Videsh Sanchar Nigam Ltd. (VSNL). Use of Ku-Band for Internet traffic will enable signals to be received through easy-to-install small satellite dishes around a metre wide.

Applications for such uplinks will be cleared through a committee consisting of representatives of the Department of Telecom (DoT), Department of Space, Department of Telecom Services (DTS), Ministry of Information Technology and the Wireless Planning and Co-ordination Wing (WPC). The committee will look into technical issues, including co-ordination with other satellites.

The decision to allow free uplink has been taken in view of the fact that INSAT capacity is not currently available for such applications, which require uplinks to international backbones in the US. In the case of Very Small Aperture Terminals (VSATs) companies, they will continue to be used. “Since these are domestic applications, VSAT services are routed through the INSAT system, which is intended for the Indian market”, pointed out Executive Vice President, HCL Comnet.

The VSAT service providers will however be allowed to use the Ku-Band for their services and around 50 per cent of the capacity on the INSAT 3B, which is scheduled for launch in February 2000, will be earmarked for these services, said an officla of DoT. The DoT is also likely to permit the use of VSATs to offer Internet services, according to information conveyed to the industry by a senior DTS official. (Business Standard, December 11, 1999)

 

 

The government set up a dedicated Department for Disinvestment under Mr. Arun Jaitley, Minister of State for Information and Broadcasting. Mr Jaitley has been given independent charge of the department in addition to the I&B ministry. The department will deal with all matters relating to disinvestment, including the modalities for sale, restructuring and pricing and other issues related to the sale of government equity. The PSU in question will, however, continue to report to its parent ministry for all other purposes.

 

With this move, the government has effectively taken the PSUs out of the control of the parent ministry for purposes of disinvestment. (The Economic Times, December 11 1999)

 

 

India’s potential to emerge as a global platform for research and development (R&D) activities has been reinforced further. Multinational General Electric (GE) is setting up a $40m research centre in India, called GE India Technology Centre. Phase one of the project, considered to be one among the country's largest multi-disciplinary research centres, is to be completed by September 2000.

 

The GE India Technology Centre is a strategic investment by GE to provide critical technology and R&D for its global businesses.  The centre, which will form an integral part of GE's global R&D resources and expertise, will closely work with the company’s corporate R&D centre in Schenectady, New York. Besides, it will  provide leading-edge research, development and engineering support to GE's diverse global businesses.

 

At the foundation-stone laying ceremony in Bangalore, the President & CEO, GE India, said, “India's potential to become a global R&D platform is acknowledged worldwide. Our focus is to help broadbase this talent from information technology to multi-disciplinary research, engineering and technology expertise.” “India is a key enabler for technology and there are great synergies between its engineering and R&D skills and GE's multi-disciplinary research efforts,” he  said.

 

 The centre plans to recruit 500 research scientists specialising in chemical engineering, material and polymer sciences, IT, mechanical engineering, electrical engineering and power electronics by December 2000. It will provide R&D support in critical areas such as chemical process modelling, e-commerce analytics, financial services systems, six-sigma quality manufacturing processes, new polymers, composites & alloys, image & signal processing and others. (Economic Times, December 7 1999)

 

 

The Foreign Investment Promotion Board (FIPB) has approved Pfizer Inc's proposal to set up a wholly-owned subsidiary in India. The approval has paved the way for other foreign MNCs, which have listed Indian subsidiaries with small shareholders but without any local joint venture partners, to set up wholly-owned subsidiaries The FIPB nod also puts to rest the issue regarding sufficiency of board resolution from companies in which there are no Indian joint venture partners but minority shareholders and institutional stakeholders. (Financial Express, December 8, 1999)

 

 

Energy major Enron, which is now diversifying into the telecom sector in India, is looking for an opportunity to acquire a stake in state-run oil companies.

On the sidelines of the India Economic Summit 1999, Enron CEO said the company, which is developing a mega power plant at Dabhol and an LNG terminal, is exploring these possibilities in line with its future business options in the country. The company recently bought into India's premier gas pipeline firm Gas Authority of India Ltd in a recent GDR issue.

Given that the government is currently working on restructuring the petroleum industry, offers by such multinational energy companies could have far-reaching implications. Enron is already in talks with several companies for its pipeline project. Enron CEO and Chairman said his company was interested in entering the telecom sector in India and would develop the fibre optic capability in the country to cater to its telecom requirements.  “We want to diversify into telecom and develop the fibre optic capability by bringing our technology from the US,” he said .The company initially plans to focus on the high bandwidth segment by providing multimedia and video type data based services, he said. (The Economic Times, December, 7 1999)

 

 

 

India’s sovereign rating is likely to go up by a notch or two, within the next six months, said a Deutsche Bank report on emerging markets. A cross-country analysis incorporating 2000 forecasts of short-term external debt, GDP growth and total public debt (as percentage of GDP) suggests that India deserves a sovereign upgrade in the near future. Significantly, Moody's has already placed India's Ba2 rating on ‘positive watch’.

“Rating agencies had downgraded the sovereign rating in 1998 in the midst of anti-nuclear sanctions, faltering growth, the Asian crisis and an unstable political environment. These factors have now eroded and the markets will increasingly focus on the economic transformation...” said the study.

 

According to the bank's regional economist (Emerging Markets Research -Asia), a 6.5-7.5 per cent GDP growth over the next five years will place India among the fastest growing economies in the world. While underscoring some of the familiar structural reforms being talked, the report asserts that relative political stability and a cyclical upturn have raised investors' appetite for Indian assets. (The Economic Times, December 18 1999)

 

 

Infotech major Wipro Corporation has decided to enter the competitive home Internet services market early next year through a joint venture with Royal Dutch Telecom (KPN). Wipro Net, the joint-venture of the Rs 2,200-crore Wipro Corporation and the $8 billion Dutch telecom operator Royal Dutch Telecom, which currently provides a host of Internet-based services to its corporate clients, will be entering the home segment early next year.

 

"We have already test-marketed consumer Internet services in select cities and will formally launch them early next year," the CEO of the firm said. The company is aiming to be among the top three Internet service providers (ISPs) by banking upon its connectivity to KPN's international Internet protocol network, he said. (Financial Express, December 29, 1999)

 

November, 1999

 

 

The Dutch Prime Minister, Mr. Wim Kok, during a visit to India, offered to facilitate the creation of a task force to promote trade and investments between India and the Netherlands. The task force would be a special gesture to mark 400 years of relations between the two countries. Adressing a meeting organized by the Federation of Indian Chambers of Commerce & Industry (FICCI) he said that it would be the right occasion to provide a further boost to bilateral economic exchanges. He also offered to consider a proposal to hold a seminar for special Dutch initiative for improving port facilities in India to boost shipping between Indian ports and Rotterdam. (The Hindu, November 24, 1999)

 

 

Prime Minister Atal Bihari Vajpayee constituted a task force on pharmaceuticals and knowledge based industries to evolve a strategy within three months for their rapid development. The task force, headed by Human Resource Development Minister, Mr. Murli Manohar Joshi, was set up pursuance of the announcement to this effect by President K.R. Narayanan in his address to the joint session of Parliament last month. (Indian Express, November 16, 1999)

 

 

The Indian Cabinet has cleared the much awaited Information Technology Bill to provide a legal framework for electronic communication, trade and commerce and prevent computer crimes. The bill, to be taken up in the winter session of Parliament, envisages a secure regulatory environment for e-commerce by providing legal validity for internet and other electronic transactions. It will also permit computer data as evidence in court. The I.T. bill proposes to set up a machinery for monitoring and dealing with issues such as primary and secondary evidence, privacy protection, jurisdiction, origination, authentication, intellectual property and computer crimes.

 

 

The Government is planning to permit 100 per cent foreign ownership of telecom manufacturing units through the automatic approval route. Currently investments beyond the 51 per cent limit in the manufacturing sector require a case-by-case approval from the Foreign Investment Promotion Board.(FIPB). Under the proposed dispensation, the companies will require only Reserve Bank of India (RBI) approval for channeling the investments into the country.

 

It is also proposed that for investments upto 51 per cent in e-mail, voice-mail, data retrieval, on-line information, data processing, store and forward fax services companies would also be permitted through the automatic route. Currently, such investments are only permitted through FIPB approvals. This is the among the first instances where foreign investment is being permitted through the automatic route for telecom service companies.

 

For all other services, including cellular, basic and paging, a sectoral cap of 49 per cent is applicable. All foreign investments, even within the sectoral cap require FIPB approval.

 

In the case of manufacturing firms, the proposed norms will apply to all categories of companies - switching, transmission, access products etc. The move is expected to boost interest in the manufacturing sector.

 

According to official figures, the manufacturing sector has received Foreign Direct Investment (FDI) of US $ 159 mln, as compared to US $ 455 mln for the cellular industry, US $ 64 mln for basic services, US $ 22 mln for the radio paging industry and US $ 16.5 mln in the case of e-mail operators.

 

These moves are part of the Government's move to liberalise approval norms for FDI proposals in all sectors. The list of sectors where automatic approval will be accorded is also set to be expanded. (Business Standard, November 5, 1999)

 

 

The Finance Minister, Mr. Yashwant Sinha, expressed optimism that the economy would grow this year at the rate of more than 6.5 per cent. Addressing a meeting of economic editors, he said the overall economic situation was good and the upturn in the economy was now confirmed by macro-indicators. The foreign exchange reserves, the index of industrial production, estimated food production, exports and other parameters were all positive, leading to the estimate that the gross domestic product (GDP) this year could grow at the rate of 6.5 per cent plus, the Minister said.

On the fiscal front, Mr. Sinha said that higher spending was expected on defence and food and fertilizer subsidies, but the Government was determined to maintain expenditure within budgeted levels, he said. (The Hindu, November 18, 1999)

 

 

The Union Finance Minister, Mr Sinha,  said that the government would start zero-base budgeting next year onwards. He said a notification to this effect has already been issued to different ministries. He said he shall meet representatives of the entertainment and media industry before presenting his zero-base Budget. “We will consider what needs to be done to promote these activities and their exports,” he said.

The Federation of Indian Chambers of Commerce & Industry (FICCI) President said that the chamber had a meeting with over 30 representatives from the entertainment world and he felt that the industry could emerge as the second biggest sector for exports after infotech. On the sidelines of the FICCI meeting, the Finance Minister said that this decision has been taken to control expenditure. According to Mr Sinha, the concept of zero-base budgeting is that whatever reliefs and concessions are given in a particular budget would not be carried forward unless there are justifications for it. On the forthcoming WTO ministerial conference in Seattle, Mr Sinha said that the country's interests would be protected and India would resist efforts for lowering the bound rates of duty. (Economic Times, November 5, 1999)

 

 

The very mindset that reforms are a design to help a few top industrialists and will erode economic sovereignty, must change to carry the country through the second generation of reforms, said the Finance Minister. Speaking at what he called the ‘first road show on second generation reforms’, Union Finance Minister Yashwant Sinha said “the problem lies in the mind. This is the single most important block in the industry, government, trade unions and political parties,” he told a gathering of industrialists at the seminar organised by FICCI.

“I don't need the IMF to tell me that I have to balance my budget. Like a housewife, it is my concern and I don't need the neighbours to tell me. The typical mindset is that everything is being done at the behest of these international agencies. We are not indebted to them. I must declare unambiguously my resolve and the resolve of the government to fight this mindset,” said Mr Sinha. But economic reforms cannot be the downfall of any government. Even those with the most populist of policies have toppled,” he observed. In the same vein, the Minister said it is significant that we invite private pension funds and give them access to the capital market.  Incidentally, the last budget had allowed pension funds to park five per cent of their incremental reserves in the capital market. (The Economic Times, November 5, 1999)

 

 

The Union Cabinet approved a proposal to repeal the Trade and Merchandise Marks Act and replace it with a new trade marks law. The new Trade Marks bill, which is likely to be introduced in the winter session of Parliament, is part of four bills the government is planning to legislate to strengthen intellectual property rights (IPRs) regime in the country. Briefing newspersons after the meeting, an official spokesperson said the Trade Marks bill proposes to introduce a system of penalities for trade marks violations. Along with Patents (Amendments) bill, Designs Bill and Geographical Indications bill, the new Trade Marks bill is aimed at strengthening the IPR regime and make it simpler, more flexible and more effective, the spokesperson said. The four legislations would enable India to discharge its commitments under the trade related intellectual property rights (TRIPS) agreement under WTO, the spokesperson said.

 

 

 

 

The Reserve Bank of India (RBI) has said that banks should issue smart or debit cards only to customers having a good financial standing and who have maintained the accounts satisfactorily for at least six months. The guidelines issued include criteria on the eligibility of customers to whom the cards can be issued, payment of interest on the balances transferred to the smart/debit cards, treatment of liability in respect of outstanding/ unspent balances on the smart/debit cards, security aspects and other terms and conditions for the issue of these cards by the banks.

 

Although banks need not obtain prior approval of the RBI, the card issuing banks should review the operations of smart/debit cards on a half yearly basis. The RBI said in case of smart-cards having stored value (as in case of the off-line mode of operation of the smart-card), no interest need be paid on the balances transferred to smart cards while in debit-cards or on-line smart cards, the payment of interest should be inaccordance with the interest rate directives issued to banks from time to time under the Banking Regulation Act (1949).  (Indian Express, November 17, 1999)

 

 

In a landmark decision, the States in India have agreed to implement uniform floor sales tax rates, phase out sales tax based incentives by January 1, 2000, to end introduce a unified value added tax regime in the country by April 1, 2001. The States also agreed to rationalise central sales tax and have constituted a standing committee of state finance ministers to monitor these decisions. The floor sales tax rates would be zero, four, eight and twelve percent besides two special rates of one and twenty percent.

 

 

The government has proposed to introduce rolling settlement system in the physical segment as part of capital market reforms to control excessive speculation, according to the Finance Minister Mr. Yashwant Sinha. “The transition to rolling settlement will bring India’s

 

equity market trading practices closer to international standards,” the Finance Minister has said.  Under the rolling system, settlement of transactions in the capital market will be done on a rolling basis instead of doing it on a fixed day in a week as at present.

 

The government has already introduced rolling settlement system for all trades in dematerialised segment to bring in certainty of trades, reduce risk and delay in settlement besides keeping excessive speculation under control.

 

 

After raising India’s Ba2 sovereign foreign currency rating outlook to positive from stable, international rating agency Moody’s Investors Service (Moody’s) has upped the projections for India’s real GDP growth rate for the current fiscal from 4.5% to 5.5 %.

Moody’s move stems from expectation that the current government will last longer and its belief, now, that political leaders across the spectrum are convinced that fundamental reform is needed to resuscitate growth. Moody’s has also drastically cut its forecast for the consumer price inflation rate for the year ’99-’00 from the previous level of 12% in December ’98 to 5% now. The rate forecast for growth of industrial production by the agency has meanwhile been doubled from 3% to 6%. Moody’s has lowered the forecast for the foreign currency debt to gross domestic product ratio from 23.70 to 21.50 per cent. Current account balance balance to gross domestic product (GDP) figure is forecast to be at a much lower -1 per cent from -3.70 per cent earlier. The agency has also forecast a trade balance to GDP of -3.50 per cent, down from -6.10 per cent forecast earlier.  For the fiscal year ’00-’01, the agency has forecast an even higher real GDP growth rate of six per cent with a lower foreign currency debt to GDP ratio of 21.1 per cent. (Economic Times, November 29, 1999)                

 

 

Enron Communications (ECI), an affiliate of the $31 bn energy major Enron Corp, is preparing for a major push in the Indian communications sector. Enron will start off by forming a joint venture with the public sector Ircon (Indian Railway Construction Company) to enter the telecommunication business. “Enron will provide very high capacity broad-band networks as well as services, followed by bandwidth trading in India,” said the Enron South Asia CEO and Managing Director. Enron’s joint venture with Ircon is expected to help the former use the Indian Railway’s reach for laying the fibre-optic networks.Enron already has 32,000 kilometres of fibre-optic broadband network in the US connecting 18 cities. “The next-generation broadband network will incorporate both terrestrial components like fibre-optic cable and space components like satellites. While the network and the services will be rolled out nationally within six to eight months, Enron, the world’s largest gas and electricity trader, will get into bandwidth trading activity in India only about two years from now,” the CEO said.“Broad-bandwidth networks will be the infrastructure of the future,” he said, adding, “Enron will use its expertise in energy trading for bandwidth trading.” The networks and services will allow applications like video-conferencing and video-delivery. “We will target multiple customers, including ISPs and corporates with requirement for high bandwidth,”he added.

Bandwidth trading will allow under-utilised networks to be used to full capacity, as excess capacity will be sold when not needed by particular customers. These initiatives will also allow hosting of burgeoning Indian content within India, thus facilitating the domestic Internet market, as Internet usage becomes easier and more cost-effective, he said. (Economic Times, November 16, 1999)

 

 

Intel, the world's largest chip manufacturer will invest $10 million for a 20 per cent equity stake in Bharti Telespatiale Ltd, the holding company for the Bharti group's V-Sat and Internet joint ventures with British Telecom. Intel's proposal has been cleared by the government. Bharti Enterprises’ Chairman & Managing Director confirmed the same and said that with the approval coming through, talks would be held with Intel to work out the exact details of the investment plan.

“We will sit with them and finalise the time frame of the inflow and other issues like whether the entire sum will be brought in at one go or in tranches, he said. The sum of US $ 10 mln has been earmarked for promoting the Internet and V-Sat business, he added.

This is the second major foreign investment deal that the firm has clinched this year. Earlier this year, US-based investment major Warburg Pincus picked up a 20 per cent stake for $80 million in Bharti Televentures,the telecom services arm of the group.

 

 

Royal Dutch Shell had recently held discussions with the Union Government for marketing of controlled petroleum products in India, Mr. Hofmeister, Director, Human Resources, Shell International, has said. Under the existing policy, a company is required to invest at least US $ 476 mln in refining or produce three million tonnes of crude oil to enter retail marketing of controlled petroleum products. Asked whether Shell has sought changes in the existing policy, Mr. Hofmeister said top

officials have expressed their views on the issue in their recent meetings with the Government. Mr. Hofmeister was speaking to presspersons after his talk on ‘Transforming an organisation - The Shell Story’, organised by the Confederation of Indian Industry (CII). Mr. Hofmeister said there may not be a need for additional refining capacity in India. The Shell group would like to tie-up with an Indian partner to enter marketing of petroleum products in the country. Shell had plans to emerge as a prominent player in the oil and gas, power and chemicals sectors in India. The company also had plans to participate in the natural gas sector in India.

Shell has a presence in India's oil sector through its exploration activities in Rajasthan and its joint venture with Bharat Petroleum Corporation Ltd under Bharat Shell. Bharat Shell, primarily engaged in marketing of lubricants and LPG, is now looking at entering marketing of other petroleum products as well. The joint venture is looking at marketing bitumen which is in short supply. The product, the demand for which is seasonal in nature, would be imported and sold here, according to top officials.       (The Hindu, November 24, 1999)

 

October, 1999

 

 

President K R Narayanan said the government accorded top priority to the second phase of economic reforms in financial and infrastructure sectors to make the Indian economy more sound and vibrant.

 

Addressing the first session of both Houses of Parliament after elections to the 13th Lok Sabha, he said the government will evolve a programme for achieving fiscal rectitude through improved expenditure management, undertake far reaching tax reforms and secure speedier restructuring and disinvestment of public sector undertakings, including strategic sales. “The government also proposes to initiate steps to ensure foreign direct investment (FDI) inflow of at least $10 billion per annum. There shall be an automatic route for FDI clearance except in a small list of carefully chosen areas,” Narayanan said. A task force on tax reforms shall be constituted to recommend a time-bound programme of reforms of tax structure, both direct and indirect. Reform in banks and financial institutions, would be accelerated by reducing non-performing assets and strict application of prudential norms, he added.

 

Expressing the government commitment to promote the interest of labour, the President said the second Labour Commission will study the changes needed in various labour laws in order to better achieve the welfare of labour, faster generation of additional employment, and accelerated industrial growth and exports. Narayanan said that during the current year, the Indian economy is expected to grow by more than six per cent. Inflation as measured by the wholesale price index is around two per cent, the lowest in the past two decades. Notwithstanding an adverse global economic environment last year, the balance of payments position remained comfortable and foreign exchange reserves were at a record level of nearly $33 billion. In the field of infrastructure, the government will take urgent steps to improve the situation by involving greater participation of private sector within a strong regulatory mechanism, Narayanan said and added that in the power and energy sector, the Centre will work closely with state governments for time-bound corporatisation of state electricity boards. Generation, transmission and distribution of electricity will be unbundled as separate activities. Tariff reforms, privatisation of transmission and distribution of power and setting up of state electricity regulatory commissions will be accelerated, he added. The recommendations of Hydrocarbon-Vision 2020 report will be implemented. An accelerated timeframe for dismantling the administrative price regime will also be finalised quickly, he said.

 

The President said the Coal Mines Nationalisation Act will be suitably amended to remove hurdles in the growth of this important sector of the economy. The Ministry of Surface Transport has been reorganised into the department  of Road Transport and Highways and the department of Shipping. An integrated transport policy shall be soon finalised, he said. The National Highways Authority of India will be strengthened to enable it to quickly implement the National Highways

Development Project including  the east-west and north-south corridors. A railway reforms commission will   soon be set up to evolve a new resource mobilisation strategy, rationalise tariffs and prioritise the project portfolio.The Telecom Regulatory Authority of India (TRAI) will be strengthened to increase investor confidence and create a level - playing field between public and private operators by suitably amending the TRAI Act.

 

A group of experts will be constituted to recommend a new legislation in place of Indian Telegraph Act, 1885 to enable India to seize the new opportunities, created by the technological convergence between telecom, computers, television and electronics, he said. President Narayanan said a new ministry of information technology has been created as a nodal institutional mechanism for facilitating all the initiatives in the Central government, state governments, academia, the Indian private sector and successful IT professionals abroad. The ministry will implement a comprehensive action plan to make India an it superpower in the early part of next century and achieve a target of $50 billion software exports in the next nine years.

 

Legislation to promote e-commerce will be introduced soon. A task force for pharmaceutical and other knowledge-based enterprises will be constituted for making India a world leader in this sector. President Narayanan said infrastructure initiatives will lay a firm foundation for the revival and expansion of India's industrial base. As a member of the World Trade Organisation (WTO), India will continue to interact with other nations to further protect and promote national interests. Towards this objective, the government is preparing a well thought strategy for the coming Seattle Conference, he added. (News Today, October 25, 1999)

 

 

Prime Minister Atal Behari Vajpayee said that his new government was committed to second-generation reforms and there need be no doubt about it. Soon after he was appointed Prime Minister, Vajpayee told newspersons at the forecourt of Rashtrapati Bhavan: "We have a clear majority and a decisive majority...We are committed to second-generation reforms." (Financial Express, October 12, 1999)

 

 

Finance Minister Yashwant Sinha said he will present in Parliament a comprehensive document spelling out the agenda for second-generation reforms. This will include a medium-term fiscal consolidation plan through expenditure control, restructuring of Public Sector Undertakings (PSUs) and deepening of financial sector reforms as per the recommendations of the Narasimhan Committee. The agenda will also include the government divesting its majority stake in banks. Soon after assuming charge, Mr Sinha said that the opening up of the insurance sector topped the government's agenda. The other legislation that will be tackled include the Foreign Exchange Management Act, the Money Laundering Bill, the Sick Companies Industries (Amendment) Bill as well as amendments to the Securities Contract Regulation Act to permit derivatives trading. All these bills will be moved in the winter session of Parliament.

 

In the case of banking sector reforms, the minister said the government will go beyond the recommendation of the Verma Committee. “The Verma Committee addresses the narrow issue of weak banks, but we will go for the implementation of the Narasimhan Committee report, where some recommendations have already been implemented and we'll process the others,” Mr Sinha said. The Narasimhan Committee addresses the crucial issue of de-nationalisation of banks.

 

Mr Sinha said the government proposed to move a white paper on second generation reforms, which would be place before the Parliament for public debate. The white paper will be a comprehensive document, spanning several issues like rural economy, international issues, financial sector and infrastructure-related issues, and will lay down the roadmap for the next round of reforms. The white paper will also address issues like competition law, which are hitherto ignored areas of concern.The white paper will be placed before the House during the winter session of Parliament.

 

Expressing concern about the growing fiscal deficits of the both the Centre and the states, he said steps would be taken to check expenditure over-runs to contain the fiscal deficit within the budgetary targets of four per cent of GDP.

 

Stating that the government proposed to bring down the fiscal deficit to 2 per cent in the medium term, Mr Sinha said this year's fiscal deficit target will be met through a cut in expenditure, meeting disinvestment targets. The Minister was also hopeful that meeting the targets set for housing would push up growth.  (October 15 1999, The Economic Times 

 

 

The government cleared a slew of long-pending legislation for tabling in Parliament ``as soon as possible'' to put economic reforms on the fast track.  The Union Cabinet put its seal of approval on revised bills relating to the long-awaited Foreign Exchange Management Act (FEMA) - which will replace the outdated and draconian Foreign Exchange Regulation Act  (FERA) - and the Money Laundering Prevention Act.  It approved amendments to the Securities and Contract Act  (SECA) for introducing trade in futures and options on stock exchanges. It also cleared other amendments to SECA as well as changes in the SEBI Act and the Depository Act seeking to transfer the appellate authority under these laws from the government to an independent Securities Appellate Tribunal. It also confirmed the July 1999 package for private telecom service companies aimed at accelerating the growth of this infrastructure sector. Through these decisions, as well as the clearance accorded earlier to the IRA Bill , the Cabinet has sought to give a big push to economic reforms. (22 October 1999, Times of India)

 

 

 

 

 

 

 

Measures to promote FDI include an expanded automatic list, FDI in retail chain stores, permits to import cars for retailing, easier norms for fee-based NBFC operations and easier state clearances to facilitate quick project-implementation.

 

This policy decision is in accordance with a commitment made to the World Trade Organisation (WTO).  Foreign retails stores such as Sainsbury will be allowed to set up shop in India. Though an equity cap may be imposed, it will be in force for a short while only and eventually foreign control will be permitted. The only criterion will be to keep away from hurting grass roots retailers, which is unlikely to be an issue since most retail chains cater to the premium segment. However, the government will emphasise on more sourcing from India, though commitments to the WTO may make it easier to import several items. Whatever can be done, will be implemented, government sources  said.  As part of this, import of fully-built up cars will be allowed. Government sources said since retail trade will be opened up, import of cars and  retailing of the same will not be considered out-of-bounds for foreign investors.

 

In the non-banking financial companies (NBFC) area, a deterrent may soon be removed. Fee-based activities may be out of the purview of minimum capitalisation norms.While the FIPB may be left with a negative list besides being a policy-framing body, the recently set-up Foreign Investment Implementation Authority will help in making approvals at the RBI-level (automatic approval) more meaningful. State-level clearances will be dealt with quickly, assuring quicker flows.

 

As for the much talked-off expanded automatic list, sources said a list has already been put together by the Department of Industrial Policy and Promotion. This goes by a simple formula: it recommends that all sectors that have foreign equity caps be moved to the automatic list and out of the case-to-case clearance systems of the FIPB. Even in the area of 100 per cent FDI being permitted, the automatic route under the RBI would be the clearing body.

 

The add-ons in the reform phase may come through quicker than expected. This may entail the opening up several areas under the 74 per cent equity limit to 100 per cent. (October 25, 1999, The Economic Times)

 

 

The government will soon make foreign direct investment (FDI) approvals automatic virtually in all sectors and set up a implementation authority for speeding up such projects, while speaking at a FICCI seminar, Finance Minister Yashwant Sinha said.“We will soon formulate a transparent FDI framework,” Mr Sinha said, adding "we want to have an automatic route for FDI in most of the sectors and approvals should be only for projects that are outside this framework.”

 

The Finance Minister said the government would create an implementing authority to speed up FDI projects that have so far been marred by procedural delays. “The only way to attract FDI is to keep us (government) out from the decision making process,” he said adding FDI should be free from all kind of approval procedures that can push up the implementation.”  The implementation authority will involve all related ministries to remove the bottlenecks that may crop up to ensure that “FDI can flow into the country in a larger manner than has been possible in the past.”

 

Mr Sinha warned that reduction in the tariff structure and removal of quantity restriction as per the stipulations of the World Trade Organisation within the next few years would necessitate domestic competition for enabling to gear up for global competition. “Competition is inescapable and unavoidable,” he said, adding that amalgamation, mergers and demergers route will have to be adopted in certain areas to face competition.

 

Addressing the issue of labour reforms, the Finance Minister said, the setting up of the second Labour Commission was aimed at looking at the nitty-gritty of the problems of workers. “The commission will be going into all aspects and will be presenting an interim report that will serve as an input for labour reforms,” he said. Mr Sinha assured that the government will not work towards any anti-labour reforms and would protect the interest of workers. “We have to take the people with us and carry the society,” he said. “People should be convinced that labour reforms are in the interest of the workers and if we do all this it will be possible to move forward in this direction,” Mr Sinha said. He asserted that the government was committed to frame a national competition policy to remove impediments in the growth of domestic industry. (October 24, 1999, The Economic Times)

 

 

The Department of Industrial Policy & Promotion (DIPP) has worked out the broad contours of a shift from the case-to-case regime to the automatic system of approvals for foreign direct investment proposals (FDI). The proposed system aims to reduce red tape and hasten the pace of clearances. It has been suggested that sectors in which foreign equity is currently limited to 51 per cent, be allowed up to 74 per cent foreign equity and through the automatic route. And similarly, in sectors where the 74 per cent limit applies, be permitted 100 per cent FDI with automatic approval. This means 74 per cent FDI will be allowed in automobiles, auto components, petroleum, bulk grain and tourism. The 100 per cent automatic route will be available to non-conventional energy, films, roads and ports. Areas such as banking will face some restrictions for a short period though. Only 40 per cent FDI will be permitted through the automatic route and 49 per cent on a case-to-case basis. Currently, 40 per cent FDI is permitted in banking. The FDI cap in the telecom sector, too, will be raised, but a figure has not been decided as yet. For e-commerce activities, FDI norms are likely to be more liberal, even giving foreign investors control over their operations here. The percentage will be decided at the cabinet level, sources said.

 

There are other significant changes: the automatic route with the Reserve Bank of India (RBI) will be modified a bit. The apex bank will give in-principle clearances to facilitate the FDI inflow. These clearances will be issued almost immediately. This slip of paper will hold good with just about any government department, be it at the state or at the Centre. (29^th October, 1999, Economic Times)

 

 

Global investment bank Morgan Stanley Dean Witter (MSDW) has projected that the `January effect’ for emerging markets this year would be the most powerful since 1995 and has advised its clients to be fully invested by the end of December, 1999 to maximise gains from equities. It has also said that its favourites are India, Brazil, Mexico and South Africa - in that order - among the global emerging markets. The ‘January effect’ refers to a phenomena under which most international investment institutions make fresh allocation of funds for equities at the start of the year. According to MSDW, the impact of these investments in emerging markets is likely to be the most in January.

 

The MSDW report says that India looked particularly good at present for a number of reasons, including the pro-reforms image of the government, low financial vulnerability, cheap valuations, controlled stock supply and “promising” macro conditions. The global giant has in fact likened the trend in the markets this year to the emerging scenario of 1990-92 implying that the factors that led to a boom in global emerging markets in 1990-92 were evident once again. It has also raised India's weightage among emerging markets worldwide and given it a leading position among the contenders from Asia-Pacific. In its strategy report, MSDW has recommended an overweight allocation - that is, above average – on India. In its global emerging markets model portfolio, MSDW has given a weightage of 13 per cent to India as compared to 9.4 per cent given to it in the Morgan Stanley Capital Index (MSCI) for emerging markets. The weightage enjoyed by India in Asia Pacific countries is next only to that of Korea, which enjoys a weightage of 14.1 percent. Even on the earnings parameter, Indian capital markets, with total capitalisation of about $115bn, are quoting at price to earnings (P/E) multiple of just 16 times to FY 1999 earnings and 12.8 times to FY 2000 earnings estimates. This compares favourably with other emerging markets in Asia Pacific. The PE levels of Indian markets are appreciably lower than those of other countries in the Asia Pacific region which have a higher weightage. As a result, Morgan Stanley, in its global emerging markets strategy, has put India amongst its favourite destinations for portfolio investments, besides Brazil, Mexico and South Africa. (October 25, 1999, The Economic Times)

 

 

Global credit rating agency Moody’s Investors Service Ltd upgraded the country’s sovereign rating outlook from ‘stable’ to ‘positive’. Strong fundamentals and an overall belief that the new government will be able to stay in power for a longer term have triggered the move. The upgrade also acknowledges that the Indian economy has grown stronger despite the sapping side-effects of global financial crises and economic sanctions.

 

Moody’s feels that Indian business confidence now seems to be less affected by political instability than in previous years. It has also drawn comfort from the fact that the country’s balance of  payments were resilient throughout the Asian and Russian crises as well as “through the international sanctions that were imposed following India’s May 1998 nuclear tests”.  The external debt maturity structure too has improved and foreign reserves have been strengthened in recent years, reducing the country’s vulnerability to external shocks, it said. (October 8 1999, The Economic Times)

 

 

Union Finance Minister Yashwant Sinha said the government is targeting to raise betweenUS $ 5000 – 6300 mln  through disinvestment of public sector units adding that he was against using the proceeds for revenue needs. “If we do this, we are doing a disservice to the country and exposing ourselves to the charge that we are selling family silver to make both ends meet,” he added.

 

In his inaugural address to ‘Presidential Summit: National Conference of Leaders of Commerce and Associations’, organised by the Federation of Indian Chambers of Commerce and Industry (FICCI) , Mr Sinha said the purpose of privatisation and disinvestment should be to create new assets and retire high-cost debts. In order to deploy the proceeds from divestment in growth-centric activities, the mobilisation of resources should be much higher - probably to the tune of US $ 5000-6300 mln - he said.

 

The Centre would soon convene a meeting of the state chief ministers with the aim of moving towards a single-rate of value-added tax (VAT), he said. Mr Sinha said the government will go “full speed” to implement hard and difficult decisions to effect fiscal consolidation and reforms, the pre-requisites for accelerating growth.

 

Asserting that fiscal consolidation is not merely an IMF (International Monetary Fund) mantra, Mr Sinha said, “It’s a real issue for all concerned as we can't afford to keep on borrowing year after year at the cost of future generations.” Emphasising the need to cut non-plan expenditure, he said the government is committed to implementing zero-based budgeting by retiring several earlier plan projects for which allocations were still made despite the fact they had outlived their utility. The projects, which are spill over of previous plan projects, are now being financed through non-plan expenditure. A monitoring group has been set up to identify such redundant projects, Mr Sinha said. The group has been asked to submit its report by December to enable the government to start zero-based budgeting from the next financial year, Mr Sinha added. (October 24, 1999, The Economic Times )

 

 

The Government will review the policy of allowing foreign companies having  existing joint ventures in India to set up wholly owned subsidiaries. A clear cut policy on this issue and unveiling of innovative methods of disinvestment are on the agenda, the Finance Minister, Mr. Yashwant Sinha said.

 

According to Mr. Yashwant Sinha, the Government is also set to unveil innovative methods of disinvesting its equity holding in state-owned units which will help it to mop up US $ 2500 mln as budgeted this year.

 

Taking up the recommendations of the Narasimham Committee along with the M.S. Verma Committee on restructuring of three banks for implementation will be on top of Mr. Sinha's agenda. Doing away with approvals and confining the role of the Government to just outlining the policy would be the cornerstone of the Government's approach towards boosting Foreign Direct Investment (FDI). Mr. Sinha also made it clear that he would adopt a hands-off approach with regard to the functioning of the Indian financial institutions and on further restructuring of the Unit Trust of India. In the financial sector, the basis of the reforms would be the recommendations of the Narasimham Committee and the Verma Committee. The Government will concentrate on certain areas like the need for banks to meet international norms on capital adequacy and also reduction in the level of Non Performing Assets (NPAs) of banks. The suggestion by the Narasimham Committee to reduce the equity of the Government in state-owned banks below 51 per cent to 33 per cent will have to be viewed in the background of those recommendations which are yet to be implemented, he said.

 

On the proposed Fiscal Responsibility Act, the Finance Minister said that the Government is now looking at the legislation and experiences of other countries along with the Constitutional provisions within India. “Our effort will be to put the draft of the Fiscal Responsibility Act for debate.”

 

On some of the measures outlined in the Budget this year which are yet to be operationalised like- a dividend tax exemption for debt schemes of mutual funds, guidelines for venture capital funds and guidelines for mergers and amalgamations, the Government would take it up in the next Budget, Mr. Sinha said. An Expenditure Reforms Commission would be set up shortly with a political nominee heading it. (The Hindu, October 15, 1999)

 

 

The Cabinet cleared the reintroduction of the Securities Contracts (Regulation) Amendment Bill, 1998, in Parliament. This will signal the introduction of trading in derivatives, regulation of collective investment schemes and delegation of regulatory powers to the RBI, after Parliamentary approval.

 

By amending the Act, derivatives and units issued by collective investment schemes will now come under the ambit of the definition of securities, thus enabling trading in these instruments. The Government has indicated that it has a road map ready for regulating derivatives trading, and also for ensuring financial strength to the operators.

 

The RBI will be in a position to regulate the Government securities market after the delegation of powers to it and the repeal of the Government notification of June, 1969, banning forward transactions in securities.

 

 By defining collective investment schemes and bringing units issued by such schemes under the ambit of the definition of securities, the onus of monitoring and regulating such schemes will now be on SEBI. The introduction of derivatives, or forward and option contracts, is expected to help companies diversify their risks and also deepen the cash market.  The Government has indicated that derivatives trading will take place on a separate segment of the existing stock exchange with an independent governing council, where the number of trading interests will be limited to 40 per cent of the total members of the council.

 

The settlement of the derivatives trade will be through independent clearing corporations or a clearing house, which will become counter party for all trades or alternatively guarantee the settlement of all trades. The clearing corporation will have adequate risk containment measures and  will collect the margin through electronic fund transfer. The Government had also indicated to the Standing Committee on Finance that there will be a phased introduction of derivatives products. To start with, index futures will be introduced, to be followed by option on index and options on stock later. (The Hindu, October 22, 1999)

 

 

 

 

The long-awaited Bill to open up insurance to private and foreign investors allowing 26 per cent foreign equity will have a nine-member statutory body to regulate the sector. It is titled the Insurance Regulatory and Development Authority Bill.

 

The minimum capital requirement for life and general insurance has been retained at US $ 25 mln and for reinsurance firms at US $ 50 mln as provided in the earlier IRA Bill. The Bill will incorporate the provisions of the earlier IRA Bill 1998 along with amendments suggested by the Parliamentary Standing Committee on Finance.

 

The Bill will seek to give a statutory status to the interim Insurance Regulatory Authority and amend the 1938 Insurance Act, the 1956 Life Insurance Corporation Act and the 1972 General Insurance Business (Nationalisation) Act to open up to the sector.  The Act also proposes tough solvency margins and retains the earlier proposal that the Indian promoter dilutes its stake to 26 per cent in 10 years. According to statement of objects and reasons of the Bill, the opening up of the sector was crucial to attract long-term resources for financing infrastructure besides providing better insurance cover to people. The infrastructure sector in the country required 150 billion dollar investment in the next 15 years and with the opening of the sector at least five billion dollar investment is expected to flow into the infrastructure annually. The minimum solvency margin for private insurers is US $ 12.5 mln for life insurance companies, US $ 12.5 mln or a sum equivalent to 20 per cent of net premium income for general insurance and US $ 25 mln for reinsurance companies. The Bill stipulates that funds of policy holders should be retained within the country besides compulsory exposure to rural and social sector which will be fixed by the authority. The Bill does not cover repatriation of profits and dividends. (Indian Express, October 28, 1999)

 

 

Duff & Phelps (DCR) is bullish on the Indian economy. In its Economy Update, DCR India has noted that the simple majority secured by the BJP-led alliance in the recent parliamentary elections is likely to lend stability to the government at the Centre. This follows DCR USA's observation that a stable coalition government would be able to focus more on correcting fiscal imbalances.

 

DCR USA has also stated that the new government has come to power at a time of cyclical recovery in the Indian economy, stressing however, on greater restructuring for sustained recovery. The Economy Update mentions that the estimated GDP growth in the first quarter (April-June ’99) reinforces the hopes of an economic recovery. GDP at factor cost has grown by 5.5 per cent compared to 3.6 per cent in the same period last year which suggests that the economy is slowly gaining in strength. DCR's perceptions are strengthened by the fact that industrial production during the first quarter has grown by 6 per cent against 4.2 per cent during the corresponding period of the previous year. Most of the growth is attributed to the manufacturing sector which grew by 6.7 per cent.

 

Another encouraging aspect of the Indian economy, according to DCR is the positive reaction of the stock markets. The sharp rise in the stock market indices is largely due to the expectation of a faster pace of economic reforms. A larger cross section of investors appear to be bullish, their behaviour exemplified by the trust in mutual funds, whose aggregated collections have soared to US $ 5250 mln in the first quarter compared to US $ 5675 mln in the entire year of ’98-99. Another important indicator is the FII investment in the first few days of October this year. Up to October 10, the FII inflow has been to the tune of $12m, compared to a net outflow of $170m during September, ’99. Also, for the third time in five months of the current financial year, exports recorded a double digit growth of 10.2 per cent in August ’99 with cumulative exports growing by nearly five per cent. Imports too recorded an increase, though there has been a negative growth in non-oil imports. (October 23, 1999, The Economic Times)

 

 

ABN AMRO Lease Holding announced the launch of its services in India by setting up a wholly owned subsidiary for helping companies in managing their vehicles. The subsidiary, Lease Plan Fleet Management, would work for individual companies in procuring and financing of vehicles for their employees and also look after the maintenance and insurance besides buying back the vehicles after an agreed period of time.(Press Trust of India, 10^th-15^th October, 1999)

 

September, 1999

 

 

 

The government has cleared several proposals seeking 100 per cent foreign investment in online services such as tele-banking, tele-medicine, tele-education and even for setting up call centres, as done by Lufthansa and GE Caps, where the processing of transactions is shifted from the country of origin to India. Though there are no clear-cut foreign investment guidelines in respect of tele-services, the government has cleared several proposals on the ground that they will shift business and employment from another country to India. For instance, GE Caps processes insurance and mortgage transactions from the United States in India through a dedicated telecom network as it is cheaper to do so in India. Seeing this trend, several overseas players now want to run this service in a dedicated way. Among the applications cleared were those of Brigade Solutions Inc from the US to create a 100 per cent export oriented unit which will “process customer support request to enable activities like on-line sale of computers, books, CDs, financial services and e-mail”. Hutchison Tele Services India Pvt Ltd has been given thegreen signal to set up a 100 per cent owned call service centre. Hutchison would offer this service to other businesses based in the US, Europe and other parts of the world. E-XL Service.Com Inc has been allowed to set up a 100 per cent-owned online service centre. This would be an export oriented unit and will have a world class transaction processing centre and Internet and voice-based customer care centre, sources said. The government has taken the view that though there is a 49 per cent limit on foreign investment in the telecom sector, tele-services are mere off-shoots of telecom and therefore must be treated as different services. Hence, 100 per cent foreign investment should be allowed in these services. The only condition put forward by the Foreign Investment Promotion Board is that these tele-services will not infringe on the jurisdiction of  their access providers and will not provide switched telephony. The Department of Telecom (DoT) has also taken the view that “other service providers like tele-education, tele-medicine, tele banking should not have any limitation of foreign equity participation”. (September 16, 1999, The Economic Times)

 

 

 

As per the World Bank’s latest World Development Report, India is the fourth largest economic power in purchasing power parity (PPP) terms, despite its unrealised potential and low per capita income. India, though ranked fifth by the World Bank on the basis of population of 989 million, would stand at the fourth position if its current population, which is over one billion is taken into account. As per the report, the gross national product (GNP) of India in 1998 stood at 1660.9 billion US dollars. (Press Trust of India, 12^th-17^th September, 1999)

 

 

The Directorate General of Foreign Trade (DGFT) has simplified procedures for export of software and electronics goods and decided to give export promotion capital goods (EPCG) licences on the basis of self-declaration by exporters. Till now, the EPCG committee had  to clear applications by exporters before giving a licence.

 

In a notification, the DGFT has said units involved in electronics and software segments can apply for EPCG licence on the basis of the ratio between imports and exports which has to be certified by the Department of Electronics. Such applications, the notification said, are not to be placed before the EPCG committee. (September 21, 1999, The Economic Times )

 

August, 1999

 

 

Prime Minister Atal Bihari Vajpayee said India had successfully tackled the situation of South-East Asian currency crisis and sanctions imposed on it after the Pokhran tests by achieving 6 per cent economic growth and bringing inflation to a 17 year low at 1.3 per cent.

 

In his Independence Day address, the Prime Minister said the economy had also been largely unaffected by the Kargil conflict which is evident from the buoyancy in the stock markets and enhancement of market values of companies in the country. “While the stock market indices in the country had reached record levels, Indian companies have been successful in enhancing their (cumulative) market value despite Kargil operations,” Vajpayee said.  While agriculture production had crossed an all time high of over 200 million tonnes in 1998-99, the current foreign exchange reserves had touched over $33 billion and the industrial growth showed a recovery, he said.  (News Today, August 15, 1999)

 

 

The Reserve Bank of India, in its annual report, has forecast the country will enter the next millennium with an improved economic prospects with stability, but warned the government on the rise in gross fiscal deficit, public debt and state finances.

The central bank has expressed satisfaction over the fiscal developments with a word of caution urging the government to "ensure that the expectations of the 1999-2000 budget are fulfilled and fiscal deficit is not allowed to increase beyond the budgeted figure". The RBI has expressed concern over the fiscal slippage in state government finances and said this would have implications for  the Centre's deficit. “If the industrial recovery in the first three months is any indication, industrial production should increase at the rate of 7 per cent which averaged in the last four years. The very good output performance of capital goods industries augurs well,” the RBI said, adding that the rate of inflation is likely to remain low and much below the long-term trend. It said “exports seem to have shown signs of rebound in the first three months of the current year. Capital inflows have also been at a reasonable level... the external current account deficit level would once again be well within the sustainable level.”

 

The RBI said the government should focus on expenditure reforms and move towards the introduction of zero-based budgeting. On the fiscal front, the central bank has advocated slashing aggregate expenditure to maintain or reduce the debt-GDP ratio. However, the central bank made it clear that the expenditure adjustment should not be done at the expense of capital expenditure which, as a proportion to total expenditure, has declined sharply from 26.1 per cent in 1991-92 to 22.6 per cent in 1998-99. “The improvement in real growth prospects in recent months has enhanced the chances of  augmenting resources,” the RBI report said.

 

On the monetary policy front, the Reserve Bank has reiterated its stance of maintaining liquidity conditions to support real sector activities. Ruling out any immediate cut in interest  rates as a fallout of low wholesale price index (WPI) based inflation rate, the RBI said the monetary policy could lean more towards bringing down medium and long term interest rates for industrial recovery. The divergence of inflation rate in the short run, according to RBI, could be an outcome of supply side shocks which disturbs the co-relation between monetary growth and inflation.  (Indian Express,  August 25, 1999)

 

 

Credit Rating Information Services of India Ltd (Crisil) and Hagler  Baily Services Inc of the US have estimated in a joint study that India, between 2000 and 2010, could draw $39.15bn as foreign direct investment from a host of global funding agencies committed to financing Clean Development Mechanism (CDM) projects all over the globe.

 

CDM is one of the three “flexibility mechanisms” adopted in the Kyoto protocol, ’97 to reduce greenhouse gas (GHG) emissions by 9 per cent from that of the ’90 level, by 2012. The CDM aims at creating an international carbon credit market whereby companies investing in the reduction of carbon dioxide emissions will get a carbon credit against their investment. Although the potential value of carbon credits in a future international carbon market has not yet been assessed, the early developers of CDM-partnerships will be  well-positioned to take advantage of such carbon credits.

 

The projected FDI inflow in India on CDM account has been estimated  by the Crisil-Baily study on the premise that industrial units in industrialised countries (ICs), which are largely responsible for escalation in the emission level of CO2 in the atmosphere, will be eager to find partners in developing countries (DCs), including India. Moreover, if they invest in carbon dioxide emission reduction projects in DCs, including India, the cost of the exercise will be less than what would have been if they undertook a similar exercise in their own countries.

 

The study uses two basic approaches to arrive at potential CDM investments for India: a top-down approach based on global macroeconomic studies and a bottom-up approach on micro-studies of some specific sectors in India. The top-down approach puts the global CDM investment flows in the range of $5.2-17.4 bn per year. It is estimated that India could collect between 7-14 per cent of these flows, or between $360,000 to $2.4bn per year. The bottom-up approach identifies three areas for future CDM investments: the power sector, increasing efficiency in electricity uses in select industries and transport. According to the study, the electricity sector which is one of the largest contributors to the GHG emissions, is a prime candidate for CDM projects. Energy efficiency improvement programmes are also crucial for industries like aluminium, cement, caustic soda, copper, fertiliser, iron and steel, pulp and paper, sugar, textiles and zinc.

 

India is a signatory to the Kyoto protocol, ’97, a follow-up of the Earth Summit in Rio de Janeiro, held in ’92. (The Economic Times, August 28, 1999)

 

 

In one of the most striking oil finds since the oil sector was opened up to private investors, the Anglo-Dutch Shell group has struck crude in India’s north-western desert. The find in Sanchor Basin, spread over Rajasthan and Gujarat, was made by Shell India Production Development BV. It struck oil in the Guda-II well at a depth of around 1,900 metres on Independence day, 15 August. “The well flowed crude oil at the rate of 2,000 barrels per day. The crude is light oil with API gravity of 35 degrees,” a statement from the petroleum ministry said. The 11,108 sq km on-land block, called RJ-ON-90/1, is being jointly explored by Shell India and Cairn Energy Plc. “It is the first find by a private international oil company in India under the system of offer of blocks that the government has followed for over 20 years,” the statement said.

It may be recalled that the petroleum ministry has offered blocks under the new exploration licensing policy including some blocks in deep water. (The Economic Times, August 17, 1999)

 

 

Dutch corporate major Philips Consumer Electronics, aggressively expanding its colour TV business, has identified India as its key market for investment along with China and the United States. The company, set to expand its presence in India, supported by a $ 10 million advertising campaign, would be launching a slew of products to woo the Indian consumers.

 

At a news conference held in Hong Kong recently, Philips kicked off the marketing campaign by outlining a focus on fast-growing consumer electronic business and electronic-commerce. “We think India will be one of the biggest markets to grow in the next millennium,'' the Managing Director of Philips Consumer Electronics said.  The Amsterdam-based company makes no bones about its target: “The plan is to offer technologically better products at an affordable cost to the consumers,” he said. The new products to be launched by October this year are a 29-inch flat panel colour TV, personal computer monitors, mobile  phones and a range of audio products. He said in the next few months Philips would concentrate to increase its market penetration in India especially in the CTV segment. Though Philips has a 30 per cent market share in the audio systems market, in the fastest growing CTV segment, it's presence is negligible.

 

The reasons to chose India over rest of the world was obvious, said the Managing Director: “ ….. India, with its growing economy and a large consumer base, is the best choice for increased investment,” he said. (Indian Express, August 23, 1999)

 

 

Tetragon Chemie, a player in the animal health and nutrition sectors, will forge a joint venture with Provimi of Holland. The venture will help develop the Tetragon group of companies, said the Managing director, Tetragon Chemie.  Holland-based $12-m Provimi is a 100 per cent subsidiary of Eridania Behin-Say. Provimi has holdings in 22 countries across the globe. “This venture will give us better market access, technological know-how, and a proper banking for our products globally,” he said. (The Economic Times, August 27, 1999)

 

 

Swiss Swedish major ABB has decided to consolidate its interests in the power business in India under one holding entity. After the consolidation, the interests will be transferred to a joint venture formed by the global merger of the power businesses of ABB and Alstom. The group’s entire holdings in companies like ABB ABL (formerly ACC Babcock Limited), routed through different subsidiaries, are being transferred to the new entity. Elsag Bailey Finance and Technology, an ABB group company in the Netherlands, has been identified for consolidation of ABB group’s interests in the power business in India for eventual transfer to the joint venture company. ABB officials said the power interests in India include the boiler business of ABB ABL, whose turnover is around US $ 33 mln, and equity in three major power projects -   Videocon, Neyveli and GVK — apart from the power generation business. ABB officials said the group has initiated the process of creating a joint venture company for the power generation business, whose size is estimated at around US $ 50 mln. The consolidation exercise is being kicked off with group company ABB ABL. ABB has sought government permission to transfer the holdings in different subsidiaries to the Dutch entity.(The Economic Times, 14th August, 1999) 

 

 

The Securities & Exchange Board of India (Sebi) has recommended that companies incorporated abroad be allowed to list on domestic stock exchanges. The norms suggested are similar to those prevalent in bourses overseas, such as Nasdaq, where foreign firms are permitted to list their shares.

 

The modality is simple, Sebi said. The foreign company will have to raise either equity or debt (as the case may be) from India before being considered for a listing. According to sources, the norms pertaining to public issues could be imposed at this stage. This could be done to protect the country’s investors, they added. Once the issue is over with, the company will be required to satisfy certain basic regulations set by Sebi as well as the Department of Company Affairs (DCA). Most of these are linked to post-capital issue norms, sources said. Sources added, the company will not have to be incorporated in India (as is the case now), to  be considered for a listing on the local bourses. The matter had come up for discussion at the meeting of the High-level Committee (HLC) on capital markets held in Mumbai. The HLC’s first meeting was chaired by the Governor, Reserve Bank of India (RBI).

 

The primary objective of this initiative is to integrate Indian stock exchanges, particularly the Bombay Stock Exchange and the National Stock Exchange, with international bourses and operations. Sebi feels India is an emerging market and that such norms would help the country’s bourses to mature. Besides, foreign entities have evinced interest in listing themselves here in addition to exchanges abroad, Sebi has said. (The Economic Times, August 20, 1999)

 

 

Industrial performance is showing signs of recovery with industrial production recording a growth of 5.6 per cent in the first quarter of the year as opposed to a growth of 4.5 per cent in the corresponding period last year.

 

In June 1999, industrial output grew by 5.5 per cent and the general index  stood at 144.6 compared to a growth of 4.8 per cent in the corresponding  period in 1998. The index for May had touched 7.2 per cent as compared to 3.7 per cent in May 98. Buoyed by the steady performance of the manufacturing sector especially consumer durables, the Index of Industrial Production (IIP) figures give indications that a revival is on the cards. Manufacturing and electricity sectors grew by 6.5 per cent and 4.1 per cent in June while the mining output dropped by 1.5 per cent, according to quick estimates of index of the IIP released by the Central Statistical  Organisation (CSO).

 

Cumulatively also, manufacturing and electricity sectors grew by 6.6 per cent and 4.1 per cent in the period April-June 1999 while the growth in  electricity sector was 4.1 per cent as compared to 10.2 per cent in the corresponding period last year. As per use-based classification, the growth in June 1999 as compared June 1998 is 9.9 per cent in intermediate goods, 4.5 per cent in capital goods and 3.7 per cent in basic goods. The consumer durables and consumer non-durables have recorded growth of  11.1 per cent and 1.7 per cent respectively with the overall growth in consumer goods being 3.6 per cent.

 

In April-June 1999, consumer goods sector grew by 3.7 per cent mainly on account of a 15 per cent growth in consumer durables. The index for the Capital goods sector rose by 4.5 per cent in June and 10.3 per cent in the first quarter. Basic goods, which account for over one-third of the total weight of IIP, recorded a growth of 3.7 per cent during the month and 2.8 per cent in the first quarter. Ten out of 17 industry groups in the two-digit classification has shown a  positive growth rate during June1999 as compared to corresponding period  the previous year.

 

Machinery and equipment other than transport equipment have shown the highest growth of 21.8 per cent followed by 16.7 per cent for non-metallic mineral products and 16.4 per cent for wool, silk and man-made fibre textiles.  (Business Standard,  August 13, 1999)

 

 

 

 

 

 

July, 1999

 

 

Finance Minister Yashwant Sinha said the economy is headed for seven per cent GDP growth during the current financial year. Mr Sinha said his conviction had been strengthened by the views expressed at the conference of the chief commissioners of excise and customs that Central and excise revenue targets for the current year would be met.

 

On whether the economy could sustain the estimated six per cent growth registered last year also during 1999-2000, Mr Sinha said, “We are looking towards a seven per cent GDP growth during the current year.”

 

According to estimates, revenue collections have recorded a 21 per cent growth in the first quarter of this year, despite an economic slowdown, thereby signalling an industrial recovery. While excise growth stood at 29 per cent in the first quarter of this year, as against a mere nine per cent last year, customs collection recorded 12 per cent growth during the period under review against just about one per cent last year. Mr Sinha also expressed satisfaction on the current trend in the growth of the industry which grew by 7.2 per cent in May this year and hoped this would be sustained.

 

On the huge rise in the Sensex and the buoyancy in other bourses in the country, he said this is a positive indication though he would not like to forecast future levels. Mr Sinha said the government would go ahead with the mobilisation of the targeted US $ 2500 mln through public sector disinvestments. “The process of disinvestment during the current year has started but since the officials will be busy during the elections, this would be accelerated only in October,” Mr Sinha said. (Economic Times, July 19 1999)

 

 

The Union Cabinet decided to set up a Foreign Investment Implementation Authority (FIIA), independent of the Foreign Investment Promotion Board (FIPB), to act as a single point interface between the investor and various government agencies. The authority is proposed to be headed by the Secretary, Ministry of Industry. Addressing a press conference, Union Minister for Information and Broadcasting, Pramod Mahajan, said the FIIA will provide proactive one-stop services to the investors in obtaining necessary government approvals. The authority will help in sorting out operational and coordinational problems between different arms of the government, he said.  (Economic Times, July 28 1999)

 

 

The Cabinet committee on disinvestment cleared the sale of equity in eight public-sector companies for raising US $ 2500 mln during the current financial year. Mahanagar Telephone Nigam Limited (MTNL), Indian Oil Corporation (IOC), Indian Tourism Development Corporation (ITDC), Gas Authority of India Limited (GAIL), Videsh Sanchar Nigam Limited (VSNL), Hindustan Zinc, Madras Fertiliser and Hindustan Latex are among the the PSUs approved for divestment. Information and Broadcasting Minister Pramod Mahajan said that the committee has approved disinvestment of up to 19 million Government shares in MTNL through an institutional offering in GDR/domestic market with a common book building. This would reduce the Centre's holding from 56 per cent to 51 per cent. The MTNL disinvestment was expected to yield US $ 100 mln, he said. With regard to VSNL, the Cabinet Committee approved disinvestment of one million Shares through a retail offering in the domestic market. In case of IOC, it was decided to complete the offering of 5 percent of the total shares in the GDR/domestic marekts during the current financial year. The Minister said the committee also cleared sale of 180 million shares of GAIL in the GDR/domestic market during the current fiscal. The Cabinet committee, he said, decided to bring down Government equity in Madras Fertiliser to 26 per cent from 32.74 per cent through strategic sale. Mr. Mahajan said that in case of Hindustan Zinc, it was decided to disinvest 25 per cent of the Government equity in domestic market with preferential allotment to small investors and employees. The company has been permitted to to appoint advisor/merchant bankers to carry out the disinvestment process. With regard to ITDC, the committee decided that the Government could disinvest up to 74 per cent. The panel also approved divestment up to 49 per cent in case of Hindustan Latex.

The approvals, which were based on the recommendations of the Disinvestment Commission, would help the Government mop up US $ 2500 mln as announced by Finance Minister Yashwant Sinha in his budget speech. Last year, Mahajan pointed out, the Government had managed to mop up US $ 1548 mln through disinvestment against the target of US $ 1250 mln. (Financial Express, July 7, 1999)

 

 

The Directorate General of Foreign Trade (DGFT) issued guidelines for the import of second hand capital goods. The guidelines have made it clear that since the new policy of restricting old capital goods import was started on March 31, 1999, any import order placed before this period would be allowed without any restriction. They state that although the import of these goods will remain on the restricted list, the DGFT’s licensing committee will automatically clear the import of capital goods not older than five years.

 

For capital goods older than five years but less than 10 years, the committee will take into consideration the comparative advantages and benefits of such imports vis-a-vis new capital goods. Import of capital goods older than 10 years will normally not be allowed except for heavy equipment in the infrastructure and core sector industries.

 

The guidelines state that if part payment for import has been made before March 31 or if the order has been negotiated or finalised then imports would be allowed without restriction. Further, if firm commitments for import such as forward contracts have been made or if payment for dismantling capital goods has been made, then these restrictions will not be applicable. (Economic Times, July 31 1999)

 

 

The Government has declared a further 2,411 kms of state highways spread over 11 states as national highways taking the total length of NH network in the country to 51,996 km. In January this year, 11,068 km were declared as national highways by the government.

 

The Ministry of Surface Transport stated that this set of additional national highways will provide a better connectivity to ports, coastal areas, tourist centres besides opening up backward and tribal areas. The states covered under the current expansion include Himachal Pradesh, Rajasthan, Uttar Pradesh, Madhya Pradesh, Bihar, West Bengal, Assam, Orissa, Andhra Pradesh, Kerala and Karnataka. The total length of the national highways till 1997-98 was 34,298 km which was expanded by another 4,219 km during 1997-98.

 

The Ministry further stated that a critical review carried out by it found that the earlier expansion was not enough to take care of the requirements of the economy. This was so because a number of backward areas, coastal areas and important routes, necessary not only for developing the economy but which are also important from commercial tourist and religious point of view needed to be connected by national highways. Together, the latest decision amounts to declaring 14 new national highways. (Economic Times, July 12 1999)