25 Business Capsules

Date: 28th May, 2008

1. Ban on non-Basmati rice export from India has forced the rice exporters to knock the doors of the court.

2. Ban on export of non-Basmati rice came into effect from 31st March 2008.

3. According to the study done by HSBC, India’s GDP growth for the year 2008-09 will be 7%.

4. Last year India’s GDP growth was 8.5%.

5. ABN Amro to be re-branded as RBS in India.

6. ABN was acquired last year by a consortium led by Royal Bank of Scotland (RBS) along with Santander (Spain) and Fortis (Belgium).

7. ABN was bought for Euro 70 billion.

8. Arun Sarin who will complete his 5 years term in Vodafone has decided to step down as Vodafone’s CEO in July 29, 2008.

9. Vittorio Colao who at present is the deputy chief executive of Vodafone will become the company’s chief executive.

10. During his tenure Arun Sarin focused on emerging market like India.

11.He helped the company to acquire controlling stake in Hutchison Essar in India.

12. Satyam Computers and GE Healthcare have decided to join hands to provide Healthcare IT solutions.

13. Indian Government is planning to levy cess on income tax and corporate tax to bail out oil companies which are reeling under pressure due to steep increase in global oil prices.

14. If petrol, diesel, kerosene and LPG are sold at current rate then the state run oil companies in India will suffer a loss of Rs 2,00,000 crore in this fiscal year.

15. The state run oil companies are suffering from liquidity crisis.

16. Although Indian Oil has cash to import oil till September but HPCL and BPCL can finance import only till July.

17. Petroleum ministry wanted the custom duty to be brought to zero from the current rate of 5%.

18. It wanted the customs duty on petrol and diesel to be lowered to 2.5 % from the current rate of 7.5%.

19. Apart from customs duty the petroleum ministry also wanted a cut in the excise duty.

20. However P Chidambaram, India’s finance minister, refused any cut in excise or customs duty.

21. Oil companies in India are daily losing Rs. 580 crore.

22. Getting LPG connection in India has become costlier; now for new connection a customer will have to pay Rs 1250 per cylinder.

23. The previous rate was Rs 850 per cylinder; increase in the price of steel has been attributed as the reason for increase in price of the cylinder.

24. In the northeast region of India one will have to pay Rs 900 per cylinder as against Rs 500 which they paid earlier.

25. 10 million kitchens use cooking gas cylinder in India.

Controlling Inflation

Inflation has political ramification. If corrective measures are not taken at right time to rein inflation then it has the potential to bring down the government.

The government along with the central bank takes several steps to control inflation. Controlling inflation is Herculean task because sometimes there is very little which a government can actually do. Moreover inflation has spiraling effect i.e. it has overall impact on the economic growth of the country.

There are three types of inflation:

Cost-push inflation: It is due to supply side constraint.

Demand-pull inflation: Demand for product increases due to excess liquidity in the system.

Built in inflation: It occurs due to hike in wages which results into price increase.

Steps taken to control inflation:

Cost-push inflation: In case of cost-push inflation the government can do very little. It is not easy to increase the supply of the commodity overnight. However government takes certain measures to ensure that the essential commodities are available to its people. Ban is imposed on the export of certain items which is essential for the people and which are in shortages. Certain administrative measures are taken to see that the hoarders have not accumulated essential items.

Built in inflation: It carries the legacy of the past. It results into price/wage spiral. To curtail it certain price and wage control mechanisms needs to be adopted.

Demand pull inflation: If there is excess liquidity in the market then it also results into inflation which is termed as demand pull inflation. When people have excess cash they are ready to pay extra to buy products. This leads to overall increase in the price of the product. Both the government and the central bank intervene to control price rise. Central bank takes certain monetary measures to suck out excess liquidity from the market. It is done either by increasing the CRR (Cash Reserve Ratio) or by increasing the repo and reverse repo rate. It ensures that the excess liquidity from the market is sucked out which helps in controlling inflation.

Repo rate is the rate at which the central bank borrows money to flush out excess liquidity from the market. Reverse repo rate is the rate at which the central bank lends money. CRR is the statutory amount which any bank has to keep with the central bank.

Central bank has to be very cautious while taking these steps. Increase in interest rate will make money costlier and may control inflation but it may derail growth in the long run. Similarly increase in CRR will suck out liquidity from the market and in turn will decrease consumer demand. So, whatever monetary measures the central bank takes to rein inflation it has to ensure that it does not have catastrophic effect on the economy of the country in the long run.

Increasing the tax or reducing the government spending is certain fiscal measures which the finance ministry takes to control inflation.

Inflation cannot be controlled overnight. Whatever steps the government or the central bank takes will show results only after a month or two.

Measuring Inflation in India

Amongst the major economies of the world India is the only country which still uses WPI (Wholesale Price Index) to measure inflation. This method of measuring inflation has been criticized by many economists. Recently the government of India has decided to take certain corrective steps in measuring inflation.

WPI was first used in 1902. However by 1970 many developed countries like China, United States, Japan, Singapore, France, United Kingdom and Canada replaced WPI by CPI (Consumer Price index). But India preferred to stick to WPI.

In WPI the price changes in those goods and services are considered which are traded in the wholesale market for measuring inflation. In CPI only those goods and services are taken into account which is purchased by the people. The CPI lists are modified after every 4-5 years to keep it more relevant but such flexibility has not be shown in case of WPI.

There are about 435 commodities in WPI in India at present. The base year for calculating WPI in India is 1993-94. Economists assert that WPI is used to measure the impact of prices on business but in India it is used to measure the impact on consumers and moreover there are certain commodities in WPI which people do not even consume.

There are about 100 commodities which at present have become irrelevant to the people but are still there in WPI. An example is given of coarse grain which is used to feed the livestock but is still a part of WPI.

Shifting from WPI to CPI is not an easy task in India. First in India there are four types of CPI: CPI Industrial Workers, CPI Agricultural laborers, CPI Rural labor and CPI Urban Non-Manual Employees. Secondly there is lag in reporting the CPI figures. WPI is reported on a weekly basis whereas CPI is reported on a monthly basis.

Recent Initiative:

The need for change is being felt in the government circle. Government of India has decided to take corrective measures to make WPI more realistic. As part of the initiative the government has decided to release the actual price of the commodities on a monthly basis for the common people from May 2008.

The service sector tariffs such as hospital fees, railways and airlines fares which at present are a part of CPI will now also be included in WPI.

WPI will now comprise of 980 items instead of 435 and the base year for calculating WPI will be changed from 1993-94 to 2004-05. Items which have become irrelevant will be removed from WPI and new items will be added.

Later on WPI will be phased out and will be replaced by PPI (Producer Price index). PPI will comprise of the cost which the producers pay to procure raw materials and the output price which they receive on produced items. Taxes and exports won’t be a part of PPI but imports will be taken into account.

Such realistic approach will be highly effective in measuring inflation. Realistic and more relevant figures will help the common man. The government and the central bank will also be more pragmatic in devising policies.

Inflation

Inflation or price rise affects the common man directly and has devastating effect on any country’s economy. Inflation has spiraling effect and if not checked at the right time it would slow down the economic growth of any country.

Inflation is measured by monitoring the price index; the price index consists of thousands of products and services. Some of the key components of price index are:

Cereals, vegetables, pulses, meals, milk, milk products, oil, housing, fuel and light, education, transport and communications, medical care, personal care, recreation and amusement etc.

In every country the government keeps a close watch on inflation along with the central bank. Measures are taken to bring down the inflation to a certain tolerant limit so that the common man does not suffer.

Inflation is determined by calculating the rate of change in the price index. There are different ways to measure inflation. CPI (Consumer Price index) and WPI (Wholesale price index) are the two methods widely used to measure inflation. WPI was used previously but was later replaced by CPI by many developed nations to measure inflation. However there are few countries like India which still uses WPI to measure inflation.

Retail Price Index (used in UK), Cost of living indices, Producer price indices (similar to WPI), commodity price indices, GDP deflator, Capital goods price indices are few different ways by which inflation can be measured.

The three different types of inflation were described by Robert J. Gordon in his triangle model:

Cost-push inflation: Occurs when there is supply side constraint. Supply side constraint may occur due to several reasons like low production, increase in input costs, international conflicts etc. Generally there is little a government can do to increase the supply.

Demand-pull inflation: Occurs when the demand increases significantly. The increase in demand is attributed to the fact that there is excess liquidity in the market and people have high purchasing power.

Built in inflation: Most of the time employees force the employers to increase their wages. Due to increase in the wages the cost of production increases. In order to minimize loss the manufacturer passes on the cost to the consumers resulting in increase in the prices. This further leads to demand for more wage hike. Thus the increase in wage is linked to increase in price and vice versa. It results in vicious cycle and the government faces lots of difficulty in getting out of it.

In India WPI is used to measure inflation and not the CPI. Four different types of CPI which are applicable in India are:

· CPI-UNME: Consumer price index for urban non-manual employees.
· CPI-IW: Consumer price index for industrial workers.
· CPI-AL: Consumer price index for agricultural laborers.
· CPI-RL: Consumer price index for rural laborers.

Inflation is not just an economic phenomenon but it is also political in nature. Inflation has the potential to bring down governments. This is why the government proactively takes measures to cool down the prices.

25 Business Capsules

Date: 27th May, 2008

1. Iran may increase the production of oil to 4.3 million barrels per day by next year March.

2. Currently Iran produces 4.2 million barrels per day.

3. Among the Organization of Petroleum Exporting countries (OPEC), Iran is the second largest producer.

4. At present Iran’s reserve oil is 136 billion barrels.

5. India’s Videocon in talks with Motorola, a US based company, to acquire its mobile handset business.

6. Motorola’s handset business has about 15 % market share worldwide.

7. Motorola’s handset business is considered to be worth $ 3.8 billion.

8. Videocon is planning to launch its telecom services in India in a big way; it has already got license to operate in 22 circles in India.

9. Videocon will launch its service through its subsidiary Datacom.

10. The company wants to have over 10 % market share in India in the next five years.

11. India’s Communication minister A Raja has said that the foreign players will be allowed in the 3G auction.

12. Trai had previously opposed the move to allow the foreign players in 3G auction.

13. Moser Baer has suffered a net loss of Rs 78.90 crore in the fiscal year 2007-08 which ended on March 31st.

14. Moser Baer, an optical storage device manufacturing company, had posted a net profit of Rs 109.78 crore last year.

15. As per the survey done by Assocham and PricewaterhouseCoopers India’s telecom services will have revenue worth $ 35 billion by the year 2010.

16. The Indian telecom sector had revenue worth $22 billion in 2007.

17. India is the 2nd biggest wireless market of the world.

18. Spice Communications is planning to invest around $200-$300 million in India.

19. At present Spice Communications operate in two circles-Punjab and Karnataka- and expects to start its operation soon in Andhra Pradesh.

20. Spice has got license to operate in six circles but due to unavailability of spectrum the company is facing difficulty in starting operations.

21. Spice’s subscriber base on March 31st 2008 was 4.2 million.

22. Telekom Malaysia has 39.2% stake in Spice Communications.

23. Koita Manufacturing Co is in talks with Tata Motors to get contract for manufacturing the headlight of Nano, Tata’s 1 lakh rupee car.

24. Koita is the biggest manufacturer of headlamps in the world.

25. According to a report published by HSBC, rupee’s fall down against the dollar is due to increasing trade deficit which have occurred because of steep rise in the crude oil prices.

25 Business Capsules

Date: 26 th May, 2008

1. Reliance Communications (RCOM) of India may soon open talks with South Africa’s MTN for an alliance.

2. As per the initial reports MTN wants RCOM to transfer its 66 % shareholding to MTN.

3. After the transfer RCOM will become MTN’s largest shareholder by having a stake of 34 % in MTN.

4. However in such an alliance RCOM will become a subsidiary of MTN.

5. Talks between Bharti Airtel and MTN ended when MTN wanted Bharti Airtel to become a subsidiary of MTN.

6. The Indian government is planning to sell petrol at the market prices.

7. If petrol is sold at the market price in India then petrol will become costlier by Rs 16 –Rs 17.

8. RCOM has decided to buy Vanco which is a UK based Mobile Virtual Network Operator (MVNO).

9. The buyout will be 100 %.

10. Vanco has operations in about 200 countries.

11. Reliance industries Ltd may start is expected to start to start drilling in the KG block in the current year.

12. Vedanta Group is planning to set up a 5mt steel plant in Orissa (India).

13. To set up the steel plant Vedanta Group is in talks with 3 partners: Japanese, Indian and a European.

14. Vedanta Group is considering either to buy back all the shares in Madras Aluminum Company Ltd. (MALCO) or to dilute its five percent share.

15. Vedanta Group has 80 % share in MALCO.

16. Singapore is the largest container handling port of the world.

17. The throughput of the Singapore port has risen and at present it is 27.9 million TEUs.

18. Shipping Corp of India Ltd is planning to borrow $1.3 billion in order to purchase 28 vessels.

19. Export from India in the fiscal year 2007-08 which ended on March 31st was $155.5 billion.

20. The export had increased by 23% from the last year.

21. Imports too have increased by 27% in the fiscal year 2007-08. .

22. Import for the fiscal year 2007-08 was $ 236 billion.

23. Andhra Pradesh (AP) aims to increase the production of rice by 30% by 2011-12.

24. At present AP produces 1 lakh tonnes of rice which would be increased to 1.3 lakh tonnes by 2011-12.

25. In the year 2007-08 India produced

· Wheat:76.78 million tonnes.

· Rice: 95.8 million tonnes.

· Sugarcane:27 million tonnes

25 Business Capsules

Date: 23 rd May, 2008

1. Wheat procurement for the year 2008-09 (May 15, 2008) in India was 19.55 million tonnes.

2. During this period wheat procurement from Punjab was highest (9.7 million tonnes) followed by Haryana (5.16 million tonnes).

3. In the year 2007-08 the total wheat procurement in India was 11.13 million tonnes.

4. Vietnam is the world’s second largest exporter of rice.

5. $42 million agreement has been signed by India with United Nations Industrial Development Organisation (UNIDO) for the production of industrial units in an environmentally friendly manner.

6. The state of Kerala (India) has decided to set up hyper market in the state.

7. The cost of setting hyper market will be around Rs. 6.50 crore.

8. Hyper market will be set up at Ernakulam, Thiruvnanthapuram, Thalassery and Kottayam.

9. Telecom Regulatory Authority of India (Trai) is in favour of Mobile Virtual Network Operators (MVNO) services in India.

10. The controversy regarding MVNO started when Tata Teleservices and Virgin group entered into a Joint Venture wherein Tata Teleservices started offering services under the brand name of Virgin.

11. The public sector oil companies in India want to stop all new connections of (Liquefied Petroleum Gas) LPG.

12. Pidilite Industries is looking for acquiring majority stakes in the US and European countries.

13. CavinKare, a Chennai based FMCG company, is looking for acquisition of small food companies.

14. CavinKare had acquired Maa and had entered into the packaged fruit juice market.

15. Rising crude oil prices have forced Indian Oil Corporation (IOC) to reconsider its investment plan.

16. At present IOC is suffering a loss of Rs. 300 crore daily.

17. The loss in prices due to subsidy provided by the Indian government in the prices of diesel, petrol and kerosene.

18. At present there is a borrowing limit of Rs 50,000 crore for the oil companies from bank.

19. IOC has till date borrowed Rs 35,000 crore from banks.

20. Kabul is planning to ask for $50 billion at a conference in Paris for reconstruction in the next 5 years.

21. Japan’s GDP grew by 3.3% this quarter up from 2.6 % in the last quarter.

22. ArcelorMittal reported an increase of 5.4 % in its net income in this first quarter of 2008.

23. Lakshmi Mittal has become the chairman of ArcelorMittal after the retirement of Joseph Kinsch.

24. Lakshmi Mittal has the highest stake of 45 percent in ArcelorMittal.

25. The edible oil import in India has increased by 31% during November-April period.


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