Carving up the cake

One the roads front, apart from claiming that they8217;ve speeded up construction vis-8230;-vis the NDA, there appears to be no major policy drive for an integrated transport policy. The CMP does lay emphasis on rural infrastructure development. The PM recently announced that Rs 1,70,000 crore would be spent on infrastructure but as Dr Virmani of Icrier says, infrastructure development in not about spending money. What8217;s really needed on the infrastructure front is 8216;8216;policy reform, regulatory reform and more effective innovative ways to deal with the problem 8212; something on the lines of what was done for highway development.8217;8217;

Expect a policy reform package soon that sets the tone for the remaining years of the UPA.
8212; Kandula Subramaniam

India Inc Taxing Times

What the UPA regime giveth, it taketh away. While profitability of India Inc is under no threat, and investments are doing well, thank you, sentiment 8212; and fringe benefits 8212; stand whittled. Two Budgets down, corporate confidence indices rest where they were in 2003. The culprits: Fringe Benefit Tax, new depreciation rates, the cash withdrawal tax, and the subtle but ever-present pressures on the issue of job reservations.

There is little that companies will weep for joy over, a progressive Prime Minister and reformist Finance Minister notwithstanding. Even labour reforms and the National Highways Development Programme are hanging fire.

Says Rahul Bajaj, Chairman of Bajaj Auto. 8216;8216;We need consensus on economic issues to initiate essential changes. China benefitted from lower duties by increasing textile exports, but India could not capitalise on such opportunities due to bad infrastructure and outdated laws.8217;8217;

India Inc want reforms right here, right now. Is anyone listening?
8212; Dev Chatterjee

Stock Markets What Goes Up8230;

Is the Indian market cheap or over-valued? True, the Sensex has gone up from 4,932.11 on May 20, 2004, to 6,499.50 by Friday, a rise of 31.7 per cent over the year. However, the BSE Sensex price-earnings P-E ratio has dipped to 14.78 by May 20, 2005, from 16.32 on the same day last year. This means if you invest in the Sensex via a stock index fund, you will have to pay only Rs 14.78 for each rupee of earnings this year 8212; last year, you needed to pay Rs 16.32 for the same rupee of earnings.

Though the market witnessed uncertainty before the government was formed in May last year, there has been no looking back. Of course, there have been problems and delays along the way. The long-delayed BSE corporatisation plan materialised only on Friday when Sebi gave its approval. And, thankfully, Sebi move to compile a market database MAPIN is still under consideration.

There are two issues that will dominate: one, the debate over reviewing the guidelines for IPOs and public offerings. Investor confidence remains weak and Sebi will have to work extra hard to ensure there are no repeats of the primary market boom-to-bust of the late 1990s. A stronger, more focused regulator would go a long way in propping up investor rights.

The slowdown in inflows from FIIs 8212; they brough in over 9 billion in 2004-05 8212; in the last two months and the rise in interest rates and crude oil prices abroad are also raising concerns on Dalal Street. Will there be another 31 per cent rise in the Sensex in the next one year? Don8217;t bet on it.
8212; George Mathew

Oil 038; Gas Heat 038; Diplomacy

Notwithstanding a series of diplomatic initiatives taken by Petroleum Minister Mani Shankar Aiyar to secure oil and gas assets abroad, there8217;s not much to talk about in terms of reforms. On the issue of pricing, the government has gone back to the administered price regime thanks to high international crude oil prices. The grand plan of a price band to give oil firms liberty to change prices fell flat on its face 8212; they are burdened with a huge under-recovery of Rs 20,000 crore.

On the diplomacy front, the only concrete deal till date is the Iran LNG one. Even that is far from over, with pricing and quality of product still being the bone of contention. Says Sanjay Kaul, Director, Indian School of Petroleum: 8216;8216;I don8217;t envy Aiyar8217;s job8230;What the minister needs at present is a miracle in terms of a single large oil and gas find, fully supportive Left and a quick cross-border gas pipeline.8217;8217;

The initiative of restructuring the oil PSUs is also unlikely to take off. The synergy committee set up by the government is unlikely to come up with any drastic recommendations on merging the oil PSUs. In fact, if insiders are to be believed, the committee is likely to recommend status quo. However, a lot of expectations have been generated on the fifth round of NELP. The government is also expected to push through the Petroleum Regulatory Bill in the next session of Parliament.
8212; Santanu Ghosh

Aviation A Flight Forward

The UPA government has presided over a turnaround in the civil aviation sector that showed signs of taking off in the last days of the previous regime. To that extent, the government can be credited with carrying forward the reforms in this sector despite stiff opposition from the Left. The government had to clarify its intent within weeks of taking over as the bidding process for the restruicturing of Delhi and Mumbai airports had already been set in motion. It capped foreign investment for these projects at 49 per cent but did not reverse the privatisation plan.

The major achievement, however, was the decision to allow private carriers to fly abroad last December. The promise was not an empty one as the Civil Aviation Minister Praful Patel followed it up with rapid moves on modifying bilateral agreements to designate private airlines as national carriers. The new open skies agreement with the US was a firm indiation that the government was not backing out on civil aviation reforms.

But then, these were steps for which much of the groundwork had already been laid. The challenge now for Patel is to find imaginative solutions to revamp airport infrastructure. This would require hard decisions like restructuring the Airports Authority of India, enhancing private participation and getting international expertise. On this front, the sector is running out of time.
8212; Pranab Dhal Samanta

Banking Setting The Stage

The sector couldn8217;t have asked for more. The government and the banking regulator Reserve Bank of India RBI initiated a series of measures for consolidation, liberalisation and globalisation of Indian banks. Major changes from the government8217;s side were amendments in the Banking Regulation Act and the RBI Act. The Bills amending these two Acts have already been introduced in the Lok Sabha. The amendment in the RBI Act will give flexibility to RBI in fixing the statutory liquidity ratio and the cash reserve ratio. The amendment in the Banking Regulation Act proposes the removal of 10 per cent cap on voting rights of stakeholders. Banks and promoters are expected to benefit from these moves.

The government also announced more autonomy for nationalised banks in recruitment and fixing wages. RBI also kicked off major steps in streamlining the stakeholding of private banks and entry of foreign banks. It restricted the promoters8217; holding in private banks to 5 per cent and announced a road map for foreign banks to form subsidiaries and listing them on Indian stock exchanges. The impact will be visible in the coming years.

Besides, the government/RBI policy of soft interest rates is reflected in the bottomlines of corporates and banks. It was also reflected on the stock markets where bank shares shot up steeply. Cherian Verghese, Chairman and MD, Union Bank, says further consolidation is required in the banking sector. 8216;8216;Indian banks should become big entities8230;and go global. We also need bigger reforms.8217;8217;
8212; George Mathew