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India - News
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News Updates - 5
March 2001 India's privatization plan is on track - Forbes magazine India's breakthrough budget? - The Economist No Biz like New Biz - The Industry Standard
India began to decentralize in 1991, after its socialist economy fell apart and the government was forced to mortgage a large part of its gold reserves to avoid defaulting on international debts. At that time, liberalization and divestiture of state-run companies were seen as a critical step to righting the economy. But all attempts to sell off state-owned assets were met with stifling opposition from labor groups and politicians worried about ceding control, and most of the divestiture program undertaken a decade ago languished and gathered dust. All of that changed last week when the government handed over managerial control and a 51% stake in Bharat Aluminum Co. (BALCO) to privately owned Sterlite Industries for $119 million, and announced plans to divest a full slate of companies ranging from the domestic and international air carriers to zinc, cooper and oil companies. All of the usual suspects vociferously went into action to gut the BALCO deal when it was announced. Former Prime Minister Chandra Shekhar got a rousing burst of applause in the Parliament from opposition members of Congress when he said, "You are selling out the country," and opposition parties demanded a parliamentary probe into the privatization of BALCO. Ajit Jogi, a leading opposition congress member, argued that the government was selling control of the profitable company at ten times under-market value. Arun Shourie, India's divestiture minister, countered, saying that if the opposition could find a buyer willing to pay a higher price, the government would accept the offer. He then sent the matter to the Indian parliament, which voted 239-119 in favor of the transaction. Technically, the government is not obligated to seek parliamentary approval of executive decisions, but it is acutely aware that it needs to maintain a high degree of transparency in these deals and avoid the appearance of impropriety. Addressing that issue, Shourie told Parliament, "Once the transaction is complete, all documents and all papers relating to BALCO's divestment will be submitted to the office of Comptroller and Auditor General. In this case, as in every case of divestment, the CAG will prepare a thorough assessment, send it to Parliament and release it to the people." The deal was the first big-ticket privatization for India since the program was announced in 1991. It's high time that the Indian government, lead by the National Democratic Alliance party, got serious about privatization. These measures are critical if India is to attract foreign investments and introduce greater competition and efficiencies into the Indian marketplace. Finance Minister Yashwant Sinha told the press that the BALCO deal is just the first of many divestments scheduled to take place in the next two years, and that total revenue from privatization would total $537 million for the current year ending March 31. In addition to BALCO, the government is close to finalizing two deals before the end of this fiscal year, both with undisclosed financial terms: Kochi Refineries will buy state-run Bharat Petroleum; and Indian Oil will buy Madras Refineries and Bongaigaon Refineries. Next year, according to Sinha, the government hopes to raise $2.6 billion through the sale of stakes in 27 companies. Sinha underlined the seriousness of the plan late last week when he released his annual budget to Parliament. In that business-friendly budget, which Sinha called a "new deal," he raised the cap on equity holdings in domestic companies by foreign institutional investors from 40% to 49%, made it easier for companies to lay off workers, and promised to reform the state electricity boards and shrink the civil service. Sinha also said he will aggressively counter "ill-informed" statements on the negative effects of privatization. "We're determined to go ahead with the privatization of public sector units and will take any risks to do what we think is economically correct." This is just the balance of talk and action for which the international community has been waiting. Here, then, is a look at some of the more attractive state assets that India is looking to divest itself of next year.
India’s
breakthrough budget? New Delhi: The lip-service so long paid to economic reform by India’s government now starts to sound more genuine. THE mood was grim before India’s finance minister, Yashwant Sinha, stood up in Parliament on February 28th to tell the country where the government would try to lead the economy during the forthcoming fiscal year. Growth is said to have declined sharply, to what is expected to be under 6% in the fiscal year just ending. Farmers and industrialists are fretting about the impending removal of the last import quotas (on April 1st) and about cheap manufactures from China. The economic reforms that began a decade ago have slowed to a crawl.
By the time Mr Sinha finished presenting his budget, people were feeling better on all three counts. He cut income-tax and interest rates, giving the economy an old-fashioned lift. He imposed high enough tariffs to reassure those producers who are most anxious about quantitative restrictions being lifted, especially car-makers and farmers. At the same time he shaved the peak duty on most items (from 38.5% to 35%) and promised to cut it to 20% within three years. Most heartening was Mr Sinha’s willingness to hack away at some of India’s most gnarled policies, such as those that limit employment and hamstring small business under the illusion of protecting them. It is where he is being most ambitious, though, that the government will have the hardest time delivering. Although fiscal deficits (of some 9% of GDP, including those of the states) are thought to be India’s biggest economic problem, Mr Sinha did not present a fiercely austere budget. This did not seem to matter much - partly because the economy appears to be slowing, partly because the deficits are a drag rather than an immediate disaster. Despite them, India has $40 billion of foreign-exchange reserves. Mr Sinha congratulated himself for hitting this year’s unambitious deficit target for central government of 5.1% of GDP. He is aiming for a modest decline to 4.7% of GDP next year. But the budget sows the seeds of bigger deficit cuts in the future. Interest rates are kept artificially high by government-mandated rates on small savings and pensions. So Mr Sinha cut them, by a higher-than-expected 1.5 percentage points, and hinted that he would move towards letting the market determine them. This is the budget’s “most central feature”, says Surjit Bhalla, head of Oxus Fund Management in Delhi. It “attacks the debt trap head-on” by cutting the government’s interest cost, which is nearly as high as the deficit and by far the largest single item in the budget. Mr Sinha pleased taxpayers by dropping tax surcharges - of 15% for individuals and 11% for companies - while leaving in place a temporary 2% surcharge to help deal with the effects of the earthquake in Gujarat. He hopes to recoup some of the revenue by taxing some previously untaxed services and extending a programme to catch tax dodgers. There is help for the capital markets, including a halving of tax on dividends to 10% and elimination of taxes on long-term capital gains that are invested in new equity issues. Mr Sinha whetted knives for four troublesome sacred cows. The simplest to dispatch will be rules that restrict many activities to small companies only, a policy that in effect guarantees they will be unfit for international competition. Mr Sinha plans to end such reservations for 14 products in three industries, leather, shoes and toys. The other reforms will require co-operation from a stroppy opposition and unenlightened state governments. One is the dismantling of the oppressive labour-law regime. Mr Sinha wants to allow companies with fewer than 1,000 employees to be able to lay off workers without government permission; the new ceiling is 100 employees. To promote outsourcing, he suggests ending a ban on contract labour. These ideas drew shouts of anger from the assembled members of parliament, who must endorse them. It is mainly up to the states to clean up the mess India has made of its electricity industry. The losses of the state electricity boards, which generate and distribute much of the country’s power, come to 240 billion rupees a year (about $5 billion, or 1.2% of GDP). Their bankruptcy means erratic power supplies and high costs for businesses that cannot afford interruptions. The threat of default by Maharashtra’s electricity board on payments to an American-owned power plant is rattling the confidence of all foreign investors in India. For his part, Mr Sinha plans to make some financial aid to states contingent on reforms, such as the metering of all customers and the setting of tariffs by independent regulators. Mr Sinha aims to raise 120 billion rupees next year from privatisation, bravely in light of the government’s failure to come anywhere close to this year’s less ambitious target. The ministries that run privatisable companies hate the idea, as does the opposition. The government has just agreed to its second-ever “strategic sale”, of an aluminium company. A fuss by the opposition has forced the government to put the deal to a parliamentary debate, though it promises to go ahead. The government bases its plans for next year on the experience it has now acquired in selling stakes in enterprises to firms that will manage them, and the priming of several for at least partial privatisation. These include two airlines, the biggest car manufacturer and a telecoms company. The budget sent share prices soaring and prompted economists to raise their growth forecasts for the next fiscal year. Lower tax and interest rates and an array of sops are a big part of the reason. The enthusiasm must also reflect the hope that, in its upper reaches, India’s government is no longer a half-hearted defender of economic reforms but their champion. No Biz Like New Biz - Startups shot up in 2000, but that includes those nasty temp gigs.5 March 2001, Industry Standard, By David Lake What with all those dead dot-coms, you'd think people would have soured on startups. Not so. Fifty-two percent of adult Americans say now's a fine time to hang out a shingle, according to new research from Babson College and the Kauffman Center for Entrepreneurial Leadership. That's down a mere 5 percent from a year ago, when the dot-com craze was at its craziest. India is the 9th most Entrepreneurial counry on earth. Source: Kauffman Center and Babson College, December 2000
*Individuals who started a company within the last year that had not yet paid salary or wages to anyone for more than three months. Based on a survey of 2,000 adults in each country. |
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