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EXECUTIVE SUMMARY Opening The Doors To A Few Dollars More Did the rash of pre-Budget reforms and incentives for investment really presage a grim Union Budget 2000? In
China, 2000 may be the year of the dragon. But the Indian tiger is
readying to roar. In one dollar-hungry week, the Vajpayee Administration
did away with prior approvals for Foreign Direct Investment (FDI), allowed
foreign companies to list on India's stockmarkets, and said it may soon
permit them to repatriate profits without the Reserve Bank of India's
approval.
There
was more good news for foreign investors. The Commerce and Industry
ministries indicated that they were considering allowing foreign
investment in the plantations industry. And, in a move that requires the
amendment of the Indian Constitution, the Vajpayee Administration authored
a new devolution formula for sharing its tax-revenues with state
governments. However, entailing as it does the devolution of net-and not
gross-revenues, it is unlikely to better the lot of the
financially-strapped governments of the states. Meanwhile, soon after
publicising its Draft Airline Policy, which suggested that the private
airlines may be allowed to fly international routes, the Government of
India took a step back by announcing that Indian Airlines and Air India
would have exclusive rights to fly such routes for 5 years after their
privatisation. With I&B Minister Arun Jaitley taking disinvestment by
the horns, the coming fiscal year could see the government meeting its
targets. And, with the Insurance Regulatory & Development Authority
announcing that it would release guidelines for entry by April, 2000, and
start issuing licenses to private players by September, 2000, the
insurance sector seems set to witness frenetic activity. There were sops for the infotech industry too. In a move that could jump-start the Net industry (which doesn't seem to need it, incidentally), the government waived the 3-year profitability requirement for venture capital-backed, infotech-related companies planning a public offer. And the worldwide wait on the Net could also end soon, with the Department of Telecommunications following up on its November, 1999, decision of allowing private Internet Service Providers (ISPS) to establish gateways by allowing Dishnet DSL, and other ISPS, like Satyam Infoway and Bharti BT, to set up their own, ending the Videsh Sanchar Nigam's monopoly. Truly private, truly wired, truly global. -Dwaipayan
Chakraborty What's
At Stake? Only Corporate Control! Suddenly,
they are trying to ensure their pieces of the insurance pie. The American
insurance major, New York Life, announced its plans to invest Rs 200 crore
through its 74:26 joint venture with the Delhi-based Max Group. And
another insurance giant, Metropolitan Life Insurance (MetLife), said it is
picking up a 34 per cent stake in First Asia Asset Management, promoted by
the Chennai-based MAC Group company, The First Leasing Co.. Increasing
control was the flavour of the month. Praxair, the American industrial
gases company, is planning to invest $200 million in its Indian venture,
and France's Elf Antargaz is turning its Indian joint venture, Elf Gas
India, into a wholly-owned subsidiary by picking up a 26 per cent equity
stake from Raysif India. Deals
were a-ringing in the telecom industry. The Bharti Telecom-owned JT Mobile
said it will invest Rs 400 crore in expanding and upgrading its cellular
phone services in Karnataka and Andhra Pradesh. Tata Cellular intends to
buy the 39 per cent equity-stake held by its foreign partner, Bell Canada,
to take the Tata Group's stake in the company to 90 per cent. Following
suit is Y.K. Modi, who is buying Korea Telecom's 35 per cent stake in his
paging company, Modi Korea Telecommunications. On the M&A front, the
buzz was that the Shreekant Bangur Group has put its synthetic filament
yarns company, Shree Synthetics, on the block, and that Reliance
Industries is eyeing it. M&AS and restructuring could well be
corporate India's y2k theme. -Dilip
Maitra Without
A Worry In February Uncle
Sam was here. In the fortnight that saw the official announcement of US
President Bill Clinton's visit to India, the US markets cast their shadows
on India's stockmarkets. Thus, the indices moved in tandem with the
movements in the Big Apple: the BSE Sensex declined to 5,313 during the
fortnight before touching a high of 6005.85 on February 11, 2000, the same
day the NASDAQ Composite Index closed at a record 4,427.50 points. The CNX
Nifty, too, touched an all-time high of 1,771.65 before closing at 1,756
on February 11, 2000. The inflow of money from the Foreign Institutional
Investors (FIIS), estimated at Rs 1,441 crore till February 10, 2000, was
behind the surge in the indices. The 620-points gain recorded in the
second week of February, 2000, is the biggest ever gain in a single
settlement period on the BSE. As usual, the bulls rode on the back of
software, banking, and media stocks. Wipro's market capitalisation crossed
Rs 1,00,000 crore to lead the value-listing (Today, a Wipro share, with a
paid-up value of Rs 2, has a market-price of Rs 6,065). The
underperformers of the fortnight were fertiliser, food and beverage, and
hotel stocks. However, fertiliser stocks could move up after the
fertiliser policy is announced next week. Clearly,
the stockmarkets will remain range-bound till February 29, 2000. The ideal
strategy: book profits at higher levels and stay liquid. Or make fresh
investments on sharp declines. In effect, ride boldly: the budget isn't
likely to stop the bull-run. -Roshni
Jayakar POLICY: He
wants to stimulate the India Fever among foreign investors by doing away
with the gatekeepers. More than 2 years after Union Commerce &
Industry Minister Murasoli Maran mooted the dismantling of the Foreign
Investment Promotion Board (FIPB), the Vajpayee Administration has cleared
his proposal. All investments, other than those on a specified negative
list, will qualify for automatic approval from the Reserve Bank of India
(RBI) subject to the sectoral caps on equity laid down by various
ministries. Of course, those proposals in which the foreign investor has a
previous venture or a tie-up in India will still require clearance from
the FIPB as will proposals falling outside the notified sectoral caps. However,
the FIPB is not just another administrative appendage. Rather, it is one
of those rare government bodies that forces regular interaction between
several government departments. Applications were processed within a
relatively quick time-period of 4 weeks. Better still, the status of the
application is available on-line. Little wonder, then, that, since
1995-96, nearly 70 per cent of the investment inflows into India have been
funnelled through the Board even though the scope of the automatic
approval mechanism has been progressively expanded. That
proportion may remain high. More than a third of the FDI flowing into
India is used to buy up existing companies. Such acquisitions will
continue to require FIPB clearances. But even companies that do not have
to go to the Board for clearance will choose to do so because it provides
a stamp of government approval. As
a matter of fact, the delays in obtaining post-FIPB clearances-and not the
government's discretionary decision-making powers-constitute the main
hurdle to FDI flows. Agrees T.K. Bhaumik, 49, Senior Advisor,
Confederation of Indian Industry (CII): ''The FIPB has never been the
problem. Projects get stuck thereafter.'' Estimates suggest that a typical
foreign venture coming into India still requires at least 27 different
approvals from various agencies. Collectively, they result in an
approval-process which stretches for 2 years. The result: conversion-rates
are abysmal, with actual inflows amounting to just one-third of the $7.2
billion of FDI approved in 1998-99. So,
the government plans to set up a Foreign Investment Implementation
Authority that will look into delays at the state government-level.
Ultimately, the objective is to create a single-window clearance system
which, in turn, will require co-ordination between the central- and
state-level bureaucracies. Until that happens, inflows will not hit the
target of $10 billion per annum. And India Fever will not be catching this
summer either. -Rukmini
parthasarathy ECONOMY
FORECAST Don't
let hope grow just as yet. For, the economy isn't-not, at least, as fast
as you think. In 1999-2000, industrial growth may find it difficult to
notch up the rate of 8.10 per cent projected earlier this year. As a
result, India's GDP too may not grow either by the 6.50 per cent that the
A.B. Vajpayee Administration expects-or even the 5.30 per cent that it
managed in the last fiscal. The
warning-signs: the Index of Industrial Production (IIP) registered a
growth of only 6 per cent in the first 5 months of 1999-00, which wasn't
much better than last year's. To reach double-digit growth, it needed to
rise 12 per cent in the remaining 7 months. That too did not happen: the
Index rose by 8.4 per cent in September, 1999, and 8.7 per cent in
October, 1999. The
problem lies in sustainability, not recovery. Sure, the turnaround
sectors-the basic and intermediary industries-are growing at the rates of
over 5.4 and 9.9 per cent, respectively, versus the 1.70 and 5 per cent in
the same period last year. Even the cotton industry, which shrunk by 8.90
per cent in 1998-99, has recovered to grow by 6 per cent in the first 7
months of the current year. But the sectors that led last year are running
out of steam. For instance, the consumer non-durables industry increased
its sales by only 0.90 per cent in April-August, 1999-2000, compared to
2.50 per cent last year. And paper-product sales fell by 11.90 per cent,
which is far worse than last year's drop of 3.40 per cent even as
drug-makers registered a sharp dip of 20 per cent compared to a growth of
12 per cent in 1998-99. Says Manasi Roy, 46, Senior Director, CII: ''We
are yet to see the boom environment of 1995-96 this year.'' Worse,
the combination of competition and the end of the recession has led to a
situation where sales may be increasing, but prices are declining,
dampening value growth and reducing profits growth for India Inc.. Adds
Sanjoy Chowdhry, 40, Economic Advisor, IFCI: ''High volumes and low values
can be seen in many sectors, and is typical during the early stages of a
recovery.'' Thus, for real hi-octane growth, inventories must first be
freed. Unless that happens across the board before March 31, 2000, it
will, at best, be a 5 per cent year. -Jaideep
Lahiri |
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