L E A D S T O R Y
Enter The Dragon
By early next year, China will likely become a member of the World Trade Organization (WTO). For India, this is a cause for both cheer and concern. In one go, it will open up the Chinese market to Indian exports that are now constrained by the limits of bilateral agreement. Once in WTO, China will have no choice but to provide the most favoured nation status to India. But that's where the good news for India ends. In a fight that promises to be unequal, India could get mauled by the brute force of Chinese trade. Already, what India buys from China is more than what it sells to the dragon nation. Since 1996-97, India's exports to China have slid from Rs 615 crore to Rs 548 crore (last fiscal). By contrast, India's imports from China in the same period have shown a sharp upswing: from Rs 757 crore to Rs 1,293 crore. Notes B. Bhattacharya, 56, Dean, Indian Institute of Foreign Trade: ''The threat from China is very real.''
Next year also is the time when quantitative restrictions on imports go. Greater economies in export will enable China to sell its goods even cheaper. At the moment, 10 major items-including organic and inorganic chemicals, electronic goods, coal, medicines, textiles, and silk-make up 70 per cent of imports from China. But the range could quickly widen to include leather, light engineering products, and iron and steel.
In fact, a recent study by the Kiel Institute in Germany is categorical that South Asian countries will be the net losers when China joins the WTO. Another study, by trade economists Bibek Debroy and Nilanjan Banik of the Rajiv Gandhi Foundation, reveals that if Chinese exports were to prove 20 per cent cheaper, then India would lose its export shares in lobsters, chemicals and garments. In the last four years, there has been a flood of cheap imports into India from China - tyres, bicycles, toys, plastics and dyes, and bulk drugs. So much so that of the 47 anti-dumping duties imposed between 1997 and April, 2000, 21 were against China.
A big part of Chinese exporters' clout in international markets comes from the huge subsidies their government doles out. Explains Banik: ''Since China is not a member of the WTO, it indulges in 'actional subsidies' through two methods: one, it forces foreign companies operating in China to source a part of their raw materials locally and two, it actually offers cash subsidy for exports.''
That's something even joining the WTO may not change. Here's why: there are a lot of provincial subsidies that may not be a part of the macro subsidies China will be obliged to remove as part of the WTO agreement.
Small gains may come India's way because of the MFN status. But given the fact that Indian exports comprise low value-added products like iron ore, marine products, cotton yarn, and fabrics, the benefits are unlikely to be significant. To move up the value chain, Indian exporters will need to manufacture to global standards, upgrade technology to keep pace with international competitors, and simply become more aggressive.
To be fair to Indian exporters, though, there are severe infrastructure constraints that blunt the competitive edge. Power, ports, and roads are just some of them. Ultimately, the economic environment must turn favourable if the Indian pachyderm is to make its weight felt.
Despite its obvious benefits, the government's decision to bring about consolidation in the oil sector isn't buoying the spirits of the two oil giants-Indian Oil Corporation (IOC) and Bharat Petroleum Corporation Ltd. (BPCL). The reason? The book value of the companies that these two are supposed to buy-IOC is to acquire Bongaigaon Refineries and Petrochemicals Ltd. (BRPL) and Chennai Petroleum Ltd. (CPL); and BPCL takes over Kochi Refineries Ltd. (KRL) and Numaligarh Refineries Ltd. (NRL)-is much higher than their market price. Says P. Sugavanam, 53, CFO, IOC: ''At the most, there should be a 10-15 per cent premium over the market price.''
On the face of it, IOC and BPCL are right to haggle over price (See The Price-Value Equation). In truth, however, they have little to complain about. Even at their book value, the target companies cost much less than a new refinery. For instance, a 7-million tonnes per annum (MTPA) refinery like KRL's costs Rs 7,000 crore in contrast to its book value cost of Rs 700 crore. If at all, it is IOC which should be complaining, because BRPL is nearly 26 years old, and has an unviable capacity of 2.75 million tpa. To survive in the free market regime-a key reason for the consolidation-BRPL will need larger economies of scale and modern refining technology.
BPCL, on the other hand, has much to gain from the investments. At present, its production at 8.87 mtpa is much smaller than the 18.86 mtpa it sold last year. The shortfall is made up by sourcing from other refineries. With KRL and NRL (3 mtpa) in its bag, BPCL's capacity will soar to 18.87 mtpa. Says S.P. Gupta, 56, CFO, Hindustan Petroleum Corporation: ''BPCL will gain in the long run, depending on the price it has to pay.''
In any case, the acquisition price is to be fixed jointly by the ministries of petroleum and finance, and will likely reflect the book value and not the lower, market price. In the end, the pressures of a growing fiscal deficit will overbear the grumblings probably of oil companies.
Until the end of last month, all that the greens of DLF Golf & Country Club had known in the name of four-wheelers were its tiny golf carts. Then, it happened. Two new station wagons were launched-within seven days of each other-on the lush greens in Gurgaon, near Delhi. The first was Baleno Altura, a variant of Maruti Udyog's three-box notchback, Baleno. And the other, Siena Weekend-from the stables of Fiat India-is a modified version of Palio Weekend, which first made its global appearance in 1996. Says Giovanni Ravina, 51, Managing Director, Fiat India: ''Siena Weekend will help us further in breaking our link from Padmini, which we stopped making 40 years ago.''
Maruti, in keeping with its policy of steering clear of diesel vehicles (Zen diesel is the only such car in its portfolio), has stuck to the same 1,600-cc petrol engine that powers the Baleno. Fiat-which had a brief success with its diesel small car, Uno-has opted for the cheaper fuel, although a petrol variant has also been launched. The price: Rs 8.15 lakh ex-showroom (Delhi) for the Altura, and Rs 7.27 lakh for the Siena Weekend petrol and Rs 7.87 lakh for the diesel version. Points out Jagdish Khattar, 57, Managing Director, Maruti Udyog: ''Our strategy has been to create new segments.''
The critics, however, want a simple question answered: will the stationwagons sell? ''Our research suggests that station wagons will have a niche market, either as the second or even third car in urban areas or in certain rural areas if the size is appropriate and the fuel is diesel,'' claims B.V.R. Subbu, 45, Director (Marketing & Sales) of Hyundai Motors India, which is not looking to launch a stationwagon.
The two cars are positioned mainly as lifestyle products, and neither manufacturer is dwelling on sales projections. The target customers are successful executives in the 35-40 age group, who are now buying sports utility vehicles but don't really need the 4x4 and other off-roader features. Will golf addicts bite?
-Suveen K. Sinha
Desperately seeking, well, not Susan, but actuaries, insurance experts, marine law specialists, chief knowledge officers ...the list goes on. As new sectors open up and some old jobs die, corporate India's hunt for talent gets even more desperate.
Take actuaries, for example. Before the opening up of the insurance sector, there was limited demand for actuaries. But now they are considered hot properties in the job market. According to an Ernst & Young report, the average age of actuaries in India is about 55-same thing that disqualifies them for most corporate jobs. Similarly, with increasing demand for knowledge in anti-dumping laws or sports, entertainment, or media-related legal expertise, renowned law firm Amarchand & Mangaldas & Suresh A. Shroff & Co. found that there are precisely five anti-dumping experts in India. Affirms Pallavi Shroff, 44, partner: ''In fields like anti-dumping, infrastructure, media and sports law, there is a real dearth of specialists, considering the sudden spurt in demand for them.''
Further, there are jobs that have morphed with the changes in business and market scenario, and now demand skills that the existing functionaries simply don't have. For instance, systems managers now need to be knowledge managers and provide strategic direction in infotech management. In hr, similarly, there is a need for business exposure and accountability as a line function. And on the shopfloor, few companies employ quality inspectors. Instead, they want quality assurance experts.
What is the way out? ''Train managers and rotate them cross-functionally in jobs like infotech and hr and develop new talent in fields like actuarial practices,'' says Vinay Batra, 47, Director, A.F. Ferguson. Meanwhile, pray hard that you don't have to hire an actuary any time soon.
-Paroma Roy Chowdhury
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