Business , Economy , Banking News - MAY

Tata Motors has sold more than 10,000 units of Nano in April at 10,012. The company has delivered 1.10 lakh Nanos and the car is now freely available across the country, says a company release. In addition to 619 regular sales outlets, the car is available at more than 100 Special Nano Access Points and Tata authorised service centres. Tata Nano comes with a four-year/ 60,000 km (whichever is earlier) manufacturer warranty. Tata Motors Finance provides a special Tata Nano finance scheme.

The Annual Policy 2011-12 was substantially different from all other recent monetary policies announced by the Reserve Bank of India (RBI). While it stressed more on the current as well as future inflationary pressures and the ways and means to mitigate its horrors, the RBI decided to sacrifice the prevailing growth rate and cut that to 8 per cent for 2011-12 from the last year's 8.6 per cent.

A subdued RBI Governor D. Subbarao was at pains to explain how inflation would affect growth. He has also admitted that RBI failed to judge or foresee the inflationary pressures early, which even affected the credibility of the RBI.

Even though the trend of moderating inflation and consolidating growth in the second and third quarters of 2010-11 justified the calibrated policy approach of the central bank, the resurgence of inflation in the last quarter of 2010-11 was a matter of concern.

Economic stability

By dropping its earlier calibrated approaches, the RBI has entered a mission in this financial year to focus on economic stability by anchoring inflation expectation instead of sustaining growth momentum. It hiked the repo rate by 50 basis points from 6.75 per cent to 7.25 per cent, tightened some provisioning norms and there is also a 50 basis point increase in the interest rate on savings deposits from 3.5 per cent to 4 per cent.

While the RBI expects inflation to be close to 9 per cent in the first-half of the current fiscal that began in April, it has projected the headline number to moderate to 6 per cent by end-March 2012.

At present, inflation is hovering between 8 per cent and 9 per cent or close to 9 per cent, a high level as compared to RBI's target levels. The objective or the endeavour of RBI will be to condition an environment to bring inflation down to 4-4.5 per cent and to bring an environment in the medium term of 3 per cent inflation consistent with the global inflation scenario. Meanwhile, Chief Economic Advisor Kaushik Basu is hopeful that April headline inflation is expected to ease to 8.3 per cent. The number rose to 8.98 per cent in March from 8.31 per cent in the previous month.

RBI fixes grace period

Now the RBI has fixed a grace period for the rising prices to take a reverse trend, by “the first-half of the current year”. However the situation is very bearish and negative as global commodity prices are moving up and demand also is rising. Complexity in economic situation would reach its nadir once inflation remains near 9 per cent or above 8 per cent and growth momentum falls below 8 per cent as at end September 2011. The central bank's expectation of a growth momentum was based on the assumptions of a normal monsoon and global crude oil price of $110 a barrel. Once the present socio-political scenario in the Middle East and North African nations worsens, commodity prices would escalate further.

This annual policy has also surprised the markets. When the RBI signalled the market by raising the repo rate — the rate at which banks borrow funds from the central bank — by 50 basis points — the equity market dipped by 463.33 points or 2.44 per cent to 18534.69 with banking, real estate and automobile counters leading the decline on May 3. For the week ended May 6, it closed at 18518.81 compared to the previous week's close of 19135.96, a loss of 617.15 points. The market was expecting a rise of 25 basis points. However, the markets belatedly accepted the fact that the RBI's move clearly reflected its concern about rising prices. Hereafter RBI will have only one single policy rate, the repo rate, to indicate the rate changes in the banking system.

The significant changes announced by the RBI in its operating procedure of monetary policy are expected to bring in more clarity in the policy rates. Further, this would enhance the transmission of monetary policy and reduce volatility in overnight call money rates. The reverse repo rate (the rate at which banks park their funds with the central bank) will continue to be operative, but it will be pegged at a fixed 100 basis points below the repo rate. Hence, the reverse repo rate will no longer be an independent variable.

Further, the RBI has instituted a new Marginal Standing Facility (MSF). Banks can borrow overnight from the MSF up to one per cent of their respective net demand and time liabilities or NDTL. The rate of interest on amounts accessed from this facility will be 100 basis points above the repo rate. As per the newly introduced scheme, the revised corridor will have a fixed width of 200 basis points. The repo rate will be in the middle. The reverse repo rate will be 100 basis points below it and the MSF rate 100 basis points above it.

The RBI has demonstrated, as an aggressive central bank, with nine rate rises since March 2010, post-global financial crisis. But gradual policy tightening (a “baby step” of 25 basis points each) failed to quench the fuelling price rise.

With the “long step” of a rise by 50 basis points, tough conditions would prevail in the economy. Rising commodity prices, increased fuel subsidy, subsequent risk of overshoot in government borrowing and pressure on trade gap are factors which would make the central bank's task more difficult.

Three factors that shaped the monetary policy

Three factors have shaped the outlook and monetary policy for 2011-12. First, global commodity prices, which have surged in recent months are, at best, likely to remain firm and may well increase further over the course of the year. This suggests that higher inflation will persist and may indeed get worse.

Second, headline and core inflation have significantly overshot even the most pessimistic projections over the past few months. This raises concerns about inflation expectations becoming unhinged.

The third factor, one countering the above forces, is the likely moderation in demand, which should help reduce pricing power and the extent of pass-through of commodity prices. This contra trend cannot be ignored in the policy calculation. However, a significant factor influencing aggregate demand during the year will be the “fiscal situation”.

The budget estimates offered reassurance of a fiscal rollback. However, the critical assumption that petroleum and fertilizer subsidies would be capped, is bound to be seriously tested at prevailing crude oil prices. Even though an adjustment of domestic retail prices may add to the inflation rate in the short run, the Reserve Bank believes that this needs to be done “as soon as possible”. Otherwise, the fiscal deficit will widen and will counter the moderating trend in aggregate demand.

The latter portion of the third factor is the operative and crucial part which shapes the monetary policy outlook for the current fiscal. The RBI is in a hurry to pass-through the high oil prices to consumers. Otherwise, navigating inflation to a soft landing of 6 per cent at end March 2012 would end up as an unfinished agenda for the central bank.

The monetary policy trajectory that is being initiated in this annual statement is based on the basic premise that over the long run, high inflation is inimical to sustained growth as it harms investment by creating uncertainty. Current elevated rates of inflation pose significant risks to future growth. Bringing them down, therefore, even at the cost of some growth in the short-run, “should take precedence”.

The calibrated monetary policy aimed at taming inflation and at the same time sustaining the growth process has been given up. The Reserve Bank of India Governor D. Subbarao is anxious that persisting high inflationary levels should be effectively tackled, even with the growth process getting slowed down, for avoiding the emergence of new pressures.

Towards this end, the repo and reverse repo rates have been raised by 50 basis points for the first time in recent months. Different procedures are, of course, being adopted for reckoning variations in key interest rates though the actual cost of credit will be one percentage point higher than the repo rate.

Though it is generally agreed that the monetary authorities have adopted a conservative approach and inflationary pressures have to be effectively checked even if the earlier calculations about the pronounced growth in gross domestic product GDP will get reduced to 8 per cent, many questions remain unanswered.

In some quarters it is felt that food inflationary pressures are getting under control and new difficulties have risen only on account of imported inflation.

Having regard to the assertion of inflationary pressures, the world over it can be safely claimed that the situation in India is comparatively less uncomfortable than the conditions in other countries.

Foreign trade

The trends in foreign trade in 2010-11 clearly indicate that agro as well as manufactured products are competitive in the traditional markets in the West as well as new areas in Latin America and elsewhere.

This will be borne out by the fact that the uptrend in exports in the past year has been sustained and shipments of textiles, leather, gems and jewellery, engineering goods and other items have fetched handsome foreign exchange earnings.

Also, there is no suggestion that the demand for various goods and services will be less keen. Indeed, having regard to the development in world markets, the uptrend in exports will be sustained and the plans for achieving growth in exports in excess of 25 per cent will be easily feasible. It will not then be difficult to secure forex earnings of $500 billion yearly in three years.

The favourable developments in 2010-11 facilitated a growth in export earnings of 67.12 billion while imports have risen by $62.32 billion despite an increase in the oil import bill.

The trade deficit could, therefore, be contracted by $4.80 billion to $ 104.83 billion. The favourable trends in exports and a pick-up in net invisible receipts, the current account deficit for October-December could be reduced to $9.7 billion ($12.2 billion). There will, of course, be an increase in this deficit for the whole year because of the unfavourable experience in April-September on account of a slow down in net invisible receipts.

The balance of payment position has remained comfortable as the bigger current account deficit could be easily absorbed as the net foreign exchange assets have increased to $273.70 billion (at the end of March 2011) from $252.76 billion (at the end of March 2010).

Agro sector

Another favourable factor for the economy as well as consumers is the extremely commendable performance of the agricultural sector in the 2010-11 agricultural season ending in June.

The latest estimates indicate that an all-time record has been established with the output of foodgrains rising to $235.88 million tonnes from the earlier peak of 234.47 million tonnes (2008-09). Even with a lower yield of rice, procurement purchases have been encouraging in the current marketing season so far. Also, it is hoped that wheat procurement will surpass the 25 million tonne mark (April-March). Taking into account the estimated current account deficit of $46 billion for the whole of 2010-11 and the outflows for investment purposes, the gross addition to forex assets were $68 billion.

As the meteorological experts expect that the monsoon will behave satisfactorily in the forthcoming kharif season, the Ministry of Agriculture has estimated that the output of food crops may be even 250 million tonnes. If these expectations materialise, it will be well nigh impossible to store bulging food stocks in good condition.

If exports have to be effected in limited quantities even after meeting the requirements of those below the poverty line on the stipulated basis, higher export prices for fine cereals may push up prices for both these cereals in the domestic market which will get reflected in a higher food inflation index. Fears in this regard have perhaps been responsible for continuing the ban on exports. Even otherwise the food index has been fluctuating irregularly around 8.5 per cent and if there has been no noticeable drop from this index in this level it is due to higher prices of other products which are not available in the desired volume or which are becoming costlier due to adjustments in procurement prices.

In fact, in respect of wheat the minimum support price (MSP) for the current season has been raised and some State governments also have agreed to raise the procurement price by Rs.100 a quintal.

A further drop in food index depends on the developments in the coming months with supply constraints in some directions getting moderated and availability from indigenous sources turns out comfortable.

Against this background, it is imperative that there should not be any disincentive for creating additional capacity wherever necessary and maximising production with the existing facilities. In fact, the earlier calculations regarding a pronounced growth in GDP by 9 per cent were based on the scope for raising the yield of food and cash crops to new high levels and a satisfactory growth in industrial output.

Though the trends in industrial production in 2010-11 have given rise to misgivings about sustained increase in industrial output, there is reason to believe that the details relating to variations in industrial output have not taken into account adequately the commendable performance of the textile, leather, consumer durables, gems and jewellery, engineering goods and other segments of the industrial sector.

If industrial growth slackens on account of paucity of resources for implementing on-going and new schemes, there will be a distorting effect.

The fears of the monetary authorities in regard to rise in inflation rate in the coming months on account of upward adjustments in prices of petro-products and the impact of external factors there will surely be a heightening of inflationary pressures in the short-term as visualised by the monetary authorities. (Luckily, there has been a short break in crude prices by more than $10 a barrel due to favourable developments in the Middle East and on the terror front.)

If world crude oil prices get stabilised at lower levels and the turmoil in the Middle East and West Asia is out of the way in a short period, the happenings in the latter half of 2011-12 should not be embarrassing.

Even if, according to the RBI, it is desirable to have slower growth with a view to tackling long term inflationary pressures, there should not be any disinclination to review the monetary policy after October especially, as the calculations of the Union Finance Ministry relating to the collection of indirect taxes should not be adversely affected. Also, reduced availability for domestic consumers and continuing brisk exports should not be inhibited due to slower industrial growth.

Tax collections

Any heavy shortfall in tax revenues over the budget estimate will get reflected in a higher fiscal deficit if it also becomes difficult to realise the anticipated proceeds of Rs.40,000 crore under the disinvestment programme. It will not be possible to ensure success of offers of sale by public sector units if the bourses continue to remain depressed and fresh forex inflows are not at the desired rate.

The decisions of the RBI and other developments brought about a steep drop of over 1,400 points in the Bombay Stock Exchange Sensitive index.

Fast moving consumer goods (FMCG) major Hindustan Unilever Limited (HUL) on Monday reported a 4.7 per cent increase in its net profit at Rs.2,306 crore for 2010-11. The board of directors of the company has proposed a final dividend of Rs.3.50 for the year, subject to approval of the shareholders at the annual general meeting. Together with interim dividend of Rs.3, the total dividend for the year amounts to Rs.6.50.

While the domestic consumer business grew by 11 per cent, driven by a strong 13 per cent volume growth, the profit before interest and tax margins declined by 190 basis points on account of higher input cost inflation and 60 basis points increase in brand investment.

Company Chairman Harish Manwani said: “Our performance has been strong and consistent through the year, driven by our strategy of growing the core and leading market development of the segments and categories of the future. Input costs remain high with the added challenge of volatility, while the competitive environment has further intensified. In this context, we will continue to focus on the best value for our consumers and customers through innovations and strong cost efficiency programmes. The business is being managed even more dynamically to deliver long-term competitive, profitable and sustainable growth.

The company reported a marginal 2 per cent drop in its net profit at Rs.569 crore for the fourth quarter of 2010-11 compared to the same period last year, largely due to extraordinary income during the year-ago period. The net profit before exceptional items, however, was up 22 per cent at Rs.515 crore.

Net sales jumped by 13.5 per cent to Rs.4,899 crore from Rs.4,315 crore while the exceptional gain for the quarter was Rs.84 crore as against Rs.143 crore. Input cost inflation continued to remain high and volatile driven by crude and palm oil and cost of goods sold went up by 290 basis points. Buying efficiencies and cost saving programme remain a priority and are being further scaled up. Advertising and promotion spends, at Rs.623 crore, remained competitive at 12.7 per cent of sales, with increased brand investment in personal products and foods.

The profit before interest and tax grew by 8.4 per cent with the margin on profit before interest and tax lower by 60 basis points on account of input cost inflation.

During the quarter, the domestic consumer and the FMCG business grew by 14 per cent, with strong performance across home and personal care and foods segments. Personal products continued its strong momentum with 16.2 per cent growth during the quarter. The foods business grew by 15.4 per cent across categories.

Hindustan Unilever on Monday said that it would demerge its exports business into a separate entity — Unilever India Exports —soon.

The board of the Indian arm of the global MNC, Unilever Plc, has already approved a proposal to spin-off its exports business, that currently contributes to around 5-6 per cent of its overall business at Rs.1,000-crore.

The company had mentioned that the spin-off included specific exports- related manufacturing units of the company into Unilever India Exports Ltd from April 1.

India will fast track the Free Trade Agreement (FTA) negotiations with New Zealand to enhance economic engagement and work towards taking the total bilateral trade to $3 billion by 2014 from the present $1 billion.

Speaking at the Indian New Zealand Joint Business Council meeting held here, Mr. Sharma said he was hopeful that the FTA would be concluded by early next year paving the way for greater economic and investment ties between the two countries. The joint meeting has been organised by the Federation of Indian Chambers and Commerce Industry (FICCI) and the India New Zealand Joint Business Council.

New Zealand Trade Minister Tim Groser was present on the occasion.

“The FTA will not only increase the economic opportunities for both sides but will also open up big segments of investment and services,'' he added. Both sides had held four rounds of negotiations and the fifth round was likely to be held soon to work and resolve contentious issues.

Asserting that India had a great potential for investments in the agro processing and cold chain sectors, Mr. Sharma said his country could utilise the expertise of New Zealand entrepreneurs and companies which had a strong presence in these two sectors. “We are looking at an investment of $200 billion in this sector in the next three years. We want the New Zealand participation in a greater manner in this engagement so that the Indian farmers get a better deal by reduction in the wastage incurred from transporting fruits and vegetables from farms to the markets,'' he said.

Mr. Groser said Mr. Sharma's visit, at the invitation of the New Zealand Government, was an excellent opportunity to advance negotiations. “We in New Zealand place great importance to strengthening our economic as well as bilateral relationship with India and hope that the new economic agreements will give it a further impetus,'' Mr. Groser said.

“The free trade agreement is an exciting prospect. It will provide a framework for our trade and economic links to reach that potential. The more open access and investment flows that can come from the FTA will be of benefit to businesses in both countries,'' Mr. Groser said.

Mr. Sharma is also scheduled to meet Prime Minister John Key, Agriculture Minister David Carter and Mr. Groser in the next two days. Mr. Sharma is accompanied by 30 delegates from India, led by Robin Banerjee, Chief Financial Officer of Suzlon Energy.

Areas identified

The New Zealand delegation is headed by Wenceslaus Anthony, who chairs the India New Zealand Business Council. Among the areas identified for joint venturing were agriculture technologies, food supply chain, and wood and green technologies. IT innovation, tourism and film were the other areas for possible coopeation.

Reserve Bank of India Governor D. Subbarao on Monday said it was unrealistic to expect the central bank to deliver on an inflation target in the short-term.

“In an emerging economy like ours it is not practical for the central bank to focus exclusively on inflation oblivious of the larger development context. The RBI cannot escape from the difficult challenge of weighing the growth-inflation trade off in determining its monetary policy stance,” said Dr. Subbarao while addressing the meeting of Central bank governance group in Basel.

The drivers of inflation in India often emanate from the supply side, which are normally beyond the pale of monetary policy. In particular, given the low income levels, food items have a relatively larger weight in the consumption basket in India compared to advanced economies and even many emerging market economies.

India has three consumer price indices each covering different segments of the population with the weight for food ranging between 46 and 70 per cent. “Monetary policy, as is well known, is an ineffective instrument for reining in inflation emanating from supply pressures.”

“An alternative that is put forward is that we could target core inflation rather than headline inflation. That is not a feasible solution either.” An inflation index, with half the basket excluded from it, hardly reflects reality. Moreover, the exclusion of food from the core index can be justified if average food inflation is the same as the average non-food inflation. “If food inflation is higher, as is typically the case in many low income countries including India, then we would be underestimating inflationary pressures on a systemic basis. That would mislead policy prescriptions,” he added

Further Dr. Subbarao said India had a problem about which inflation index to target. The headline inflation index was the Wholesale Price Index (WPI), and that did not, by definition, reflect the consumer price situation. However, getting a single representative inflation rate for a large economy with 1.2 billion people, fragmented markets and diverse geography was a formidable challenge.

“The recent introduction of CPI-Urban and CPI-Rural is welcome, but it still does not solve the problem of heterogeneity.”

Transmission of monetary policy

“A necessary condition for inflation targeting to work is efficient monetary transmission. In India, monetary transmission has been improving but is still a fair bit away from best practice,” Dr. Subbarao pointed out.

There are several factors inhibiting the transmission process such as an asymmetric relationship between depositors and banks, administered interest rates on postal savings that are not adjusted in line with prevailing interest rate trends and rigidities in the financial markets. All these factors dampen the efficacy of monetary signals and complicate the adoption of an inflation targeting regime in India.

Given the compulsions of democracy and the large population of poor, any government in India had always to be, and indeed had been, sensitive to price stability even if it means sacrificing output in the short-term, said Dr. Subbarao, adding, both the government and the RBI had to factor in the short-term growth-inflation trade off in their policy calculations.

Vodafone Essar has written to the Telecom Regulatory Authority of India (TRAI) opposing the regulator's move to review the interconnection usage charges (IUC) regime that can lead to end of mobile termination charges, hence cheaper tariffs.

Stating that it will be a deviation from the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) and Supreme Court's directions on the issue, the mobile operator has said the TRAI's proposal “does not take cognisance of or has deviated from the directions of both the bodies (TDSAT and Supreme Court), in relation to the timing, (of the consultation paper which was floated by TRAI last month) the principles enunciated and guidance given by them in several key areas.”

Mobile termination charge (MTC) is paid by an operator to another on whose network the call ends. Doing away with the termination charge is likely to bring the mobile tariffs down.

Interestingly, while new operators given licences in 2008 are demanding an end to MTC, while old operators, who have more than 90 per cent of the subscribers, are against it.

Automotive and non-automotive components manufacturer Bharat Forge on Monday, through its wholly-owned subsidiary Bharat Forge Infrastructure Ventures Ltd. (BFIVL), signed a shareholders' agreement with David Brown Systems India (Holdings), part of the David Brown Group, a global manufacturer of gearing products and services, to form a 50:50 joint venture company David Brown Bharat Forge Gear Systems.

It will serve the domestic heavy engineering industry, supplying new build gearboxes and comprehensive aftermarket services.

Initially, the joint venture company is intended to be operational from Bharat Forge's current facilities.

In one of its biggest buyouts in over three decades, Microsoft will snap up Skype for $8.5 billion in cash, a move that will bolster the software major's presence in the highly competitive Internet market.

The deal, announced on Tuesday, would be a shot in the arm for cash-rich Microsoft in competing with strong rivals such as Google and Apple apart from strengthening its footprint in the consumer markets. “The companies have entered into a definitive agreement under which Microsoft will acquire Skype, the leading Internet communications company, for $8.5 billion in cash from the investor group led by Silver Lake,” the two firms said in a joint statement.

The transaction has been approved by the boards of directors of the two companies.

Skype, a popular communications software, uses of voice over Internet protocol technology that makes international voice and video calls cheaper. Microsoft is estimated to have cash worth $48 billion and the Skype deal would become its largest acquisition in around 36 years. The software major's last big-ticket deal was the $6 billion purchase of advertising firm aQuantive in 2007.

“Skype is a phenomenal service that is loved by millions of people around the world. Together we will create the future of real-time communications so people can easily stay connected to family, friends, clients and colleagues anywhere in the world,” Microsoft CEO Steve Ballmer said.

Post-acquisition, Skype would become a new business division within Microsoft, and Skype CEO Tony Bates would become President of Microsoft Skype Division. Skype would support Microsoft devices such as gaming console Xbox, Kinect as well as a wide array of Windows applications.

Microsoft will connect Skype users with Lync, Outlook and Xbox Live.

“Together, we will be able to accelerate Skype's plans to extend our global community and introduce new ways for everyone to communicate and collaborate,” Skype CEO Tony Bates said.

Bharti Airtel has launched its mCommerce service “airtel money” in Chennai. Following its launch in Gurgaon (National Capital Region) earlier this year, Airtel customers in Chennai are the second in India to benefit from this new service that will enable over the counter and remote transactions via mobile handsets.

To ensure wide acceptance of payments through “airtel money”, the company has established deep partnerships with over 750 merchants across Chennai — including Oriental cuisines, Univercell, Poorvika, Inox, Bharti AXA and LIC. Airtel customers will be able to pay bills, shop and make payments at these outlets without worrying about the need to carry cash or change.

Addressing a press conference here on Tuesday, Sriram Jagannathan, Chief Executive Officer, mCommerce, Bharti Airtel, said this mode of payment was secure and convenient.

When asked whether mobile phones would replace credit cards, he said it would be an additional tool of payment mechanism.

He said the challenge was with the people to adopt this method of payment mechanism though government regulations were more technology friendly. Mr. Jagannathan said it was a (subscriber identity module card) a sim-based application and the payment could be made from anywhere at anytime. He said if the mobile was lost, the person concerned would get in touch with the company and ask them to stop the payment.

Rajiv Rajgopal, Chief Executive Officer, Kerala and Tamil Nadu, Mobile Services, Bharti Airtel, said customers would also be entitled to special discounts and schemes that would be applicable exclusively for transactions made through “airtel money”.

With the new provisions of service tax pertaining to air-conditioned restaurants with liquor licences coming into effect from May 1, the Centre on Tuesday came out with a host of clarifications on the applicability of the levy, ostensibly in view of the confusion and problems that the modified norms may have created.

For one, to bring some cheer to corporates and travelling executives, the Central Board of Excise and Customs (CBEC) has clarified that food when served in hotel rooms from their air-conditioned restaurants with liquor licences would not be subject to service tax. “When the food is served in the room, service tax cannot be charged under the restaurant service as the service is not provided in the premises of the air-conditioned restaurant with a licence to serve liquor,” the CBEC said in its circular.

The CBEC also made it clear that under the provisions of service tax to be levied on services provided by air-conditioned restaurants with licence to serve liquor, the Value Added Tax would be excluded from the taxable value. “For the purpose of service tax, State VAT has to be excluded from the taxable value,” it said. Likewise, luxury tax would also be excluded in case of short-term accommodation service. Alongside, bills for short-term accommodation provided by hotels, inns, guest houses, clubs or campsites were also to go up by 5 per cent. In its circular, the CBEC has now clarified that service tax cannot be charged under the provision of short-term accommodation if the bill for food is raised separately and does not form part of the declared tariff. It also pointed out that service tax is leviable on services provided by a restaurant if it has facility of air-conditioning in any part of the establishment and has licence to serve alcoholic beverages.

The Centre will divest equity in National Building Construction Corporation (NBCC) in the second half of the current fiscal, while disinvestment in big public sector companies such as SAIL and ONGC is likely to happen in next two months, Disinvestment Secretary Sumit Bose said here on Tuesday.

Mr. Bose, who was addressing a press conference to announce the Power Finance Corporation's further public offer (FPO), said the government would meet its target of Rs.40,000 crore from disinvestment in the current fiscal, as announced by Finance Minister Pranab Mukherjee in his budget speech this year.

“We are beginning with PFC and next month we will do FPO of SAIL, followed by disinvestment of 5 per cent in ONGC in July. NBCC and Rashtriya Ispat Nigam will come up in the later half of the current fiscal,” Mr. Bose said.

On the issue of disinvestment of Hindustan Copper that has been pending since last year, he said: “They (the company) are taking certain investment decisions in new mines. As soon as that is completed, we will take a call on time of the issue.”

The government is likely to fetch Rs.7,000-8,000 crore from SAIL's offer, while another Rs.13,000 crore will come from disinvestment in ONGC.

From the PFC offer, the government is likely to garner over Rs.1,100 crore. Besides, there would be a 15 per cent fresh equity sale worth over Rs.3,300 crore.

The government has proposed a disinvestment target of Rs.95,000 crore from the sale of shares in public sector companies in the next three fiscals, including Rs.40,000 crore in the current fiscal. In 2010-11, the government had raised Rs.22,400 crore through disinvestment in PSU companies by coming out with three IPOs and three FPOs.

Country's largest lender State Bank of India on Tuesday announced a hike in lending rates by 75 basis points (bps), making housing, auto and other loans dearer for both new and existing borrowers.

State-owned SBI has increased the Base Rate or the minimum lending rate by 75 basis points to 9.25 per cent. The new rate is effective from May 12, the lender said in a statement.

The hike in SBI's lending rates comes a week after the Reserve Bank of India raised its lending and borrowing rates by 50 basis points.

SBI has also increased its Benchmark Prime Lending Rate (BPLR) by 75 basis points which would mean that the existing borrowers will also have to pay more for their loans. With this, the BPLR goes up to 14 per cent.

Deposit rates

SBI has also raised the deposit rates by up to 225 basis points on select four maturities.

Many banks have been on a rate hike spree since the RBI's decision to raise short-term key rates in its annual credit policy on May 3.

Over a dozen banks, including Punjab National Bank, ICICI Bank, Oriental Bank of Commerce and Corporation Bank, have raised the interest rates in the last one week.

German luxury carmaker BMW on Tuesday showcased its concept hybrid sports car that gives fuel efficiency of 26.5 km a litre and lesser CO {-2} emission. Powered by ground-breaking BMW ActiveHybrid technology and cutting-edge drive systems, the four-seater concept sports car that delivers 328 bhp power is capable of achieving a top speed of 250 km/hour with acceleration from 0 to 100 km/hour in just 4.8 seconds.

“BMW Vision EfficientDynamics is a road-ready technology showcase vehicle by BMW engineers and designers that illustrates a successful research and development strategy which holds tremendous potential for sustainable growth,” Minister for Heavy Industries and Public Enterprises Praful Patel said while unveiling the hybrid car.

The Minister said India still had to learn a lot in hybrid and diesel technology, but a lot of progress has been made on this front. He, however, pointed out that the new diesel technology was no more a pollutant technology and any tax should not be in the form of a penalty on diesel vehicles.

According to BMW India President Andreas Schaaf, “some of the technologies used in the BMW Vision EfficientDynamics are implemented in the current BMW models that enable enhanced performance and lower emissions; others will soon be ready for series production.”

The hybrid car is equipped with specially designed lithium-polymer rechargeable battery housed centrally in a longitudinal chassis element and the battery can be fully charged at a conventional power socket within just two-and-half hours. The use of electrical energy alone permits zero-emissions motoring with a range of some 50 km, while a 24-litre diesel tank extends the total action radius of the vehicle to up to 700 km.

Later speaking to journalists, Mr. Patel said his Ministry had asked the Union Finance Ministry to give two years to the auto industry to comply with the new import duty norms for completely knocked down (CKD) units.

In the budget for 2011-12, Finance Minister Pranab Mukherjee had redefined the meaning of CKD units to encourage local production of automobiles and increased import duty on certain parts from 10 per cent to 30 per cent.

BEIJING: India's trade deficit with China continued to rise over the first four months of this year, on the back of a record increase in Chinese exports which took the country's overall trade surplus to a higher than expected $11.4 billion in April.

Figures released on Tuesday by China's General Administration of Customs (GAC) showed India's trade with China touched $23.58 billion at the end of April, a 20.2 per cent year-on-year increase. Bilateral trade was driven by a 26.2 per cent increase in Indian imports, mainly of machinery and heavy equipment, which amounted to $14.5 billion. Indian exports to China were up 11.7 per cent in April from a year earlier, a rise attributed by officials to the resumption of iron ore exports following recent ban and a sharp increase in exports of yarn.

April saw a less than expected rise in Chinese imports across the board, resulting in the growth of China's trade surpluses with a number of countries, including India. While China's exports were up 29.9 per cent, imports grew 21.8 per cent. Tuesday's figures divided opinion among analysts here. Some attributed the lower-than-expected imports to a rise in commodity prices. For instance, China's imports of iron ore — India's biggest export to the country — fell 15 per cent from March. Others, however, expressed concern that the suprisingly low import figures reflected a general slowing down in the Chinese economy and the effects of rising inflation.

The unexpectedly quick rebound in China's trade surplus, up from only $140 million in March and a $7.3 billion deficit in February, the country's first in almost a year, is likely to strengthen calls for an appreciation in China's currency. The valuation of the yuan is at the focus of this week's Strategic and Economic Dialogue between China and the United States in Washington, where U.S. officials have reiterated calls for China to appreciate its currency, which, they say, has been kept undervalued to support exports.

However, there appears little likelihood of a significant appreciation, amid differences in opinion among different sections of the Chinese government. While the People's Bank of China and some officials have called for an appreciation as a means to boost domestic consumption and tackle rising inflation, which reached a 32-month high of 5.4 per cent in March, the Ministry of Commerce and the vast export industry have opposed any rise.

This stalemate was hinted at by Chinese Vice Premier Wang Qishan in an interview in Washington on Tuesday.

In a policy amendment aimed at attracting more long-term foreign inflows, the Cabinet Committee on Economic Affairs (CCEA) on Wednesday allowed foreign direct investment (FDI) in Limited Liability Partnership (LLP) firms, beginning with the ‘open' sectors such as mining, power and airports where monitoring is not required, subject to certain specific conditions.

“The FDI in LLPs will be implemented in a calibrated manner, beginning with the ‘open' sectors where monitoring is not required,” an official statement said. As per the CCEA approval for calibrated implementation, LLPs with FDI will be permitted through the government approval route (read Foreign Investment Promotion Board) in those sectors and activities where 100 per cent FDI is allowed through the automatic route and there are no FDI-linked performance related conditions.

However, LLPs with FDI will not be allowed to operate in agricultural and plantation activities, print media or real estate business and will also not be eligible to make any downstream investments.

With regard to funding of LLPs, the statement said that an Indian company, having FDI, will be permitted to make downstream investment in LLPs only if both the company as well as the LLP are operating in sectors where 100 per cent FDI is allowed, through the automatic route.

Also, foreign participation in the capital structure of the LLPs will be allowed only by way of cash considerations, received by inward remittance, through normal banking channels, or by debit to the NRE/FCNR account of the person concerned which is maintained with an authorised dealer or bank.

However, foreign institutional investors (Flls) and foreign venture capital investors (FVCIs) will not be permitted to invest in LLPs. “LLPs will also not be permitted to avail themselves of external commercial borrowings (ECBs),” the statement said.

“The CCEA's approval will benefit the Indian economy by attracting greater FDI, creating employment and bringing in international best practices and latest technologies in the country,” the statement said.

As per the LLP Act, 2008, which was notified in April, 2009, LLP as an entity is a new business structure with hybrid features of a partnership firm and a corporate body.

In effect, it has a company's limited liability along with the flexibility of a partnership firm. In all, a total of 4,679 LLPs stand registered with the Ministry of Corporate Affairs as of May 2 this year.

Hyundai Motor India on Wednesday launched the all-new version of its mid-size sedan Verna and announced plans to invest more towards setting up a diesel engine plant. The Korean carmaker is also gearing up to introduce a new small car to take on the competition in this crowded segment.

Called Fluidic Verna, the sedan comes with many first-in-its-class luxury and safety features, and will be available in petrol and diesel versions, with five variants each. The two petrol variants (1.4 litre engine delivering 107 PS power and giving mileage of 17.43 km a litre and 1.6 litre engine giving 123 PS power and 17 km a litre mileage) are priced at between Rs.6.99 lakh and Rs.9.64 lakh. Similarly, the two diesel variants (1.4 litre with 90 PS power and mileage of 23.5 km a litre and 1.6 litre 128 PS power and fuel efficiency of 22.32 km a litre) are priced between Rs.8.09 lakh and Rs.10.74 lakh. “The Verna has been a trendsetter since it was first launched in 2006…the all-new Fluidic Verna will create a new benchmark and raise the bar for the upper mid-size cars in India as it comes with futuristic looks, luxurious interiors, cutting-edge technology and premium appeal,” HMIL Managing Director and CEO H.W. Park said at the launch event. Hyundai Motor Company President & CEO S.S. Yang, who had especially flown in from South Korea to launch the car, said: “HMIL is important for us. To keep pace with the growth in the Indian market, we will offer our full line of products here. We have supported this market through technology and new models... we will continue to bring in new technology.” “The new Verna will help in consolidating our position in the mid-size segment. Our brand image will enhance and we will no longer be considered as a small carmaker in India,” he said.

The Competition Commission of India (CCI) on Wednesday notified regulations that require corporates to seek its approval before going in for high-value mergers and acquisitions (M&As), while CCI will take a view on the proposed merger deals within 180 days of the filing of notice by the companies.

The new regulations — Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 — will come into effect from June 1.

According to the regulations, CCI can either approve the merger proposal or reject it or modify it. Companies would have to submit a fee of up to Rs.1 lakh for getting the CCI approval. Companies with a turnover of over Rs.1,500 crore will have to approach the CCI for approval before merging with another firm. Only those proposals would need the CCI's nod where the companies have combined assets of Rs.1,000 crore or more, or a combined turnover of Rs.3,000 crore or more.

“Due care has been taken to ensure that regulation lead to certainty in regulatory framework and become a tool to economic growth of our economy.

“An attempt has been made to address the various concerns expressed by stakeholders during different stages of framing of these regulations and the final outcome is the result of marathon exercise of consultation with all the stakeholders,” said CCI Chairman Dhanendra Kumar.

India and Australia will begin the strategically important Free Trade Agreement (FTA) negotiations on Thursday in Canberra, where Union Commerce and Industry Minister Anand Sharma will hold bilateral talks with Australian Trade Minister Craig Emerson.

Mr. Sharma, arrived here on Tuesday, will go to Canberra on Wednesday to hold bilateral trade talks and work out the final formalities for the FTA negotiations. With the multilateral Doha round of free trade talks going on at a slow pace, the focus is now shifting to consolidating bilateral deals.

There is already a demand within Australia that the FTA negotiations should include talks for sale of uranium to India, something which the Australian Government has been blocking demanding that India should first become a signatory to the NPT (Non-Proliferation Treaty). India is Australia's third-largest export market. Australia is India's 14th-largest market.

The Pawan Ruia Group on Wednesday announced the signing of binding agreements to purchase two more companies in the sealant segment. While one company was to be bought from a London- based private equity-led consortium, the other was from a trustee. The price of neither of the acquisitions was revealed.

One of these is a German company, Meteor Gummiwerke K H Badje GmbH, which makes sealants for the automotive as well as non-automotive segment, with six plants spread across Germany, Czechoslovakia and the U.S. It has 2,445 people on its rolls. The other company Standard Profil Otomotv SAN, is based in Turkey with plants in Bulgaria and South Africa also. It employs 3498 people. SP will be bought from a U.K.-headquartered Bancroft Private Equity-led consortium, through a transfer of all the shares of Standard Profil A.S.

Audi on Wednesday launched two new cars in the Indian market — A7 Sportback and RS 5 Coupe. Equipped with a powerful and efficient 3.0 TDI V6 engine, A7 Sportback is priced Rs.64-lakh onwards, while RS 5 Coupe is priced at Rs.76 lakh.

“The introduction of two new cars in India reiterates our unwavering commitment to offer the discerning Indian customer with products of highest technical perfection and design finesse.

“While the A7 sports coupe is targeted at individuals who seek the luxury of customisation, the new RS 5 will further help us consolidate our position in the sports car segment,” Audi India Head Michael Perschke told journalists here.

The German luxury carmaker is also hoping to sell 10 per cent more cars this year against what was targeted initially.

“Going by the growth that we have seen in the first four months of this year, we believe that we can sell more cars in 2011 than we expected before. Earlier, we were looking to sell about 4,500 units in 2011, but now we think we can do 5,000 units this year,” he said.

During January-April this year, the company has sold 1,986 units as against 967 units in the same period a year-ago. Mr. Perschke further said: “We will be launching the Q3 model sometime next year. The A3, which was showcased at the Geneva motor show this year, has received good feedback and now we will see what will be the response from the customers in the Indian market.”

He, however, said it was too early to introduce the smaller cars like A1 in India. Audi will be launching its new A6 sedan in August.

Volvo and Srei BNP Paribas, a non-banking financial company, on Wednesday announced the launch of Volvo Financial Services (VFS), a private label retail finance programme. John Rakocy, President, Asia-Pacific, VFS , said the alliance would help Volvo strengthen its presence in India by offering its customers a range of finance options. Srei is to provide underwriting support to the sales of Volvo vehicles in India, he said.

D. K. Vyas, CEO, Srei BNP Paribas, said the company had now about 32 per cent share of the equipment financing business in India. “We have had had a relationship with Volvo since it established its presence in India,” Mr. Vyas said. “The alliance will do well because the market is now growing at 30 per cent,” he added.

Even as the poor show by manufacturing and mining sectors pulled down the industrial growth rate to 7.8 per cent in 2010-11 from 10.5 per cent in 2009-10, the silver lining is the vastly improved performance during March this year, which is being viewed as a ‘turnaround' for the current fiscal.

The quick estimates of the Index of Industrial Production (IIP) released here on Thursday by the Central Statistical Organisation revealed that the industry's standalone performance during March has been the best since October 2010 with a growth of 7.3 per cent, way above the dismal 3.6 per cent notched up in February.

After posting a robust expansion of 11.29 per cent in October last year, industrial growth had slumped for four straight months to below 4 per cent from November onwards, mainly owing to a sharp fall in manufacturing output, which accounts for nearly 80 per cent of the IIP basket.

The growth in factory output plunged to 2.7 per cent in November, slipped further to 2.5 per cent in December and then gradually improved to 3.95 per cent in January and to 3.6 per cent in February this year.

Commenting on the IIP data, Finance Minister Pranab Mukherjee noted that the improvement in March was not ‘totally unexpected' after four months of low growth. “Some improvement has taken place on the figures. I expected a little more but whatever is a fact, we shall have to accept it,” he said although he felt that the annual growth should also have been more.

However, Finance Ministry's Chief Economic Adviser Kaushik Basu viewed the IIP's March figures with greater satisfaction.

“After looking at these numbers, I feel a bit better. Industrial production was doing badly for four months. This is a turnaround after that,” he said.

Apart from the turnaround from a four-month span of low growth, an important aspect is that though the growth posted in March this year is just about a half of the 15.5 per cent expansion recorded in March 2010, the upward trend has been despite effect of a high base.

Harping on this fact, Planning Commission Deputy Chairman Montek Singh Ahluwalia said: “The 7.8 per cent is not a big surprise. It is roughly what we thought it would be.

“The important thing is that the monthly numbers have shown a significant improvement and that is welcome.''

Even as 13 out of 17 industry groups posted positive growth in March this year, the official data shows that the annual growth in manufacturing declined to 8.1 per cent in 2010-11 from 11 per cent in the previous fiscal. For the month of March alone also, the sector's production increase was lower at 7.9 per cent as compared to the16.4 per cent expansion achieved in March 2010.

Capital goods

Among the various segments of manufacturing, capital goods were one of the worst affected to register a growth of 9.3 per cent in 2010-11 as against a healthy 20.9 per cent increase in the previous fiscal. As for March alone, the growth in capital goods output slipped to12.9 per cent this year from 36 per cent in the same month of 2010.

Likewise, the mining sector also witnessed a fall in growth to 5.9 per cent in 2010-11 from 9.9 per cent in 2009-10. In March this year, it saw a mere 0.2 per cent growth as compared to 12.3 per cent in the same month of 2009-10.

The growth in electricity generation also slowed down to 5.6 per cent in 2010-11 from six per cent in 2009-10 while in March this year the sector posted a growth of 7.2 per cent as compared to 8.3 per cent in the same month of 2009-10.

Grasim Industries has registered a net profit, before extraordinary items, of Rs.2,265 crore during the year ended March 31, 2011, against Rs.2,759 crore in 2009-10.

The directors have recommended a dividend of Rs.20 per share. The company paid a dividend of Rs.30 per share in 2009-10.

Net revenue has increased to Rs.21,585 crore from Rs.20,195 crore. The profit, before depreciation and interest charges, is lower at Rs.5,397 crore against Rs.6,322 crore.

According to a release, shortage of cotton continued to drive prices of all textile fibres, including viscose staple fibre. High spot pulp prices also contributed to the rise. Production during the quarter ended March 31, 2011, stood at 82,932 tonnes with full capacity utilisation.

The expansion project at Vilayat, Gujarat (1.20 lakh tonnes), and Harihar, Karnataka (36,500 tonne), are on track. Both these projects are slated for commissioning in 2013.

A total capital expenditure of Rs.2,400 crore has been slated for the VSF business, comprising Rs.2,100 crore on expansion and Rs.350 crore towards modernisation.

The company has, subject to regulatory approvals, decided to acquire one-third stake in Aditya Holding of Sweden, which acquired Domsjo Fabriker of Sweden, a leading manufacturer of specialty pulp, at an enterprise value of Rs.1,570 crore.

Chemical business achieved record sales volume backed by capacity utilisation of 103 per cent. A 1.83 lakh tonne caustic soda plant and a 60 MW power plant at Vilayat, mainly for captive use, are on anvil. This will entail an investment of Rs.772 crore.

The demand growth of the cement subsidiary, UltraTech Cement, remained subdued during the quarter under review . The brownfield expansions aggregating 9.2 million tonnes annually in the Chhattisgarh and Karnataka units are expected to be operational from early 2014.

A total capital expenditure of Rs.11,000 crore has been slated for the cement business, comprising Rs.5,150 crore on expansion projects and Rs.5,850 crore towards augmentation of grinding and evacuation facility, logistics and infrastructure, captive thermal power plant and modernisation.