Petroleum Subsidy, Cause is wrong Priority

The 61^st budget presented by the Finance Minister Pranab Mukharjee and later communication by the prime minister on national television same day has given clear indication of steep hike in prices of petroleum products this year.

Is this Our Priority ?

The government has budgeted a petroleum subsidy of only Rs 43,580 crore for the next fiscal against  Rs 68,481 crore provided in the revised estimates. With crude already hovering well above the $115 a barrel average last year, the subsidy provision looks inadequate. The crude price already touched  $125 a barrel in the March.

There is  a great contradiction in the policy making and the analysts dealing with petroleum products. There is a lot of hue and  cry for the subsidy being extended to kerosene and LPG two main fuels used in Indian kitchens.  As per the government data oil marketing companies ( OMC's)  incur a loss of Rs 13.55 per litre of diesel, Rs 439 per LPG cylinder, Rs 29.97 per litre of kerosene and Rs 6 per litre of petrol. All of this totals up to a daily loss of Rs 465 crore for the OMCs.

We except these numbers as they are without dissecting the duty and tax structure on these commodities. It looks foolish to levy heavy burden of taxes and then subsidise the same.  Why can not the union and state governments be rational on the amount of taxes and get rid of subsidies automatically.Oil companies and the governments never tell us the break up of gross subsidy given product wise. This number is important as the total amount of diesel subsidy is many times higher than the subsidy on LPG.

There is no doubt that our petroleum import bill has increased considerably in last one decade.  This is not because of the prosperity but because of false priorities. If the  amount paid on subsidy to OMC was properly spent in developing the public transport system, middle and lower class of India would have been benefited most.  That would also have led to cleaner environment and less load on the parking lots.

Crude oil basket has steadily risen since January 1999 from $20 to $125 a barrel or by 6.25 times. During the same period we have gradually increased its consumption as is evident by increase in oil import bill from Rs. 27,000 crore  in FY 99 to about Rs. 600,000 crore. It’s a  massive 22 times hike eating away 7.61 % of GDP.

The question arises whether should we allow the high paced growth of luxury automobile segment? Specially the diesel cars  which takes away the diesel subsidy’s  bigger chunk. The government has never shown willingness to put a break on this segment. In 2012 year budget also, even when Automobile Industry was anticipating some deteriorating step announcements for luxury diesel cars, no such threat from FM gave them high relief.

The prices of petrol were deregulated in the year 2010, but the diesel prices are still under government control.  The price difference between Diesel and Petrol is in the range of Rs 30 to 35 per litre.  This has increased the demand of diesel vehicles many folds. With no negative measures announced by the government Hyundai and  M&M  will go ahead for expansion in this segment.

The government later will put all blame on LPG and kerosene subsidy  to levy more burden on the underprivileged sector of the society because today’s politicians remember them only once in five year. They are not bothered about their kitchen but are more concerned to have a few more powerful diesel cars in the parking lot of the farm house.

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Budget 2012 : failed to infuse Growth sentiments

Finance Minister Pranab Mukherjee presented Union Budget 2012, the 81st Budget in India's history. Individually, this was Mukherjee's seventh annual Budget, second-highest by any Finance Minister. But still he missed the basic ingredients required for the growth.  Instead of  development path he has opted for the inflationary tools to get higher GDP numbers. The economy has been battling double digit inflation for two years.

Seven Budget Experience

Increase in  indirect taxes  and reduction in provision of subsidy for petroleum products would infuse price escalation.  His efforts to tap Rs 60,000 crore through tax free bonds will only lead to problems of the future FMs.

GDP growth in 2011-12 is  estimated at 6.9 per cent; : GDP growth rate pegged at 7.6% in 2012-13. According to FM economy is now turning around and recovery in core sectors is visible.

Below are the key highlights of Union Budget 2012:

• Exemption limit for the general category of individual taxpayers enhanced to Rs 2,00,000. This results into
1.  A relief of Rs.2,000 for all assesses;
2. The slab of 20 per cent tax on income is changed from Rs 5 Lakh to 8 lakh bracket to Rs 5 Lakh  to 10 Lakh, This will bring down the tax burden by another 10% on the income above Rs 8 lakh with maximum upto Rs 20,000.
3. For over Rs 10 Lakh income 30% Tax slab would be applicable.
• Another relief has come via deduction of up to Rs.10,000 from interest from savings bank accounts.
• A new feature added is Rajiv Gandhi Equity Saving Scheme to allow income tax deduction to retail investors in stocks upto Rs 50,000 for individuals having income below Rs 10 Lakh per annum.
• Securities Transaction Tax on cash delivery reduced by 25% to 0.1%.  
• Standard rate of excise duty and Service Tax is  to be raised from 10% to 12%
• Excise duty on large cars also proposed to be enhanced. Large cars, imported bicycles, cigarettes, bidis and some imported jewellery to cost more.
• Branded silver jewellery may get cheaper.
• No change is proposed in the peak rate of customs duty of 10 per cent on non-agricultural goods.   No change in corporate tax rate.
• Indirect taxes estimated to result in net revenue gain of `45,940 crore. Service tax rate raised from 10 per cent to 12 per cent to bring in Rs.18,660 crore.  Farming for growth:
• Target for agricultural credit raised to Rs5,75,000 crore; Interest subvention for short-term crop loans to farmers at 7% interest continues; additional 3% for prompt paying farmers. 
• Fiscal deficit targetted at 5.1% of GDP in 2012-13, down from 5.9% in 2011-12
• Central Government debt at 45.5% of GDP.

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Gujarat Board Exam Result dates for 2012

After board exams the wait and curiosity for the result starts for both who do well at the exams, they are keen to know their percentage and those who could not write papers well, they are curious to know if they could get through or not.

Various examinations of  Gujarat education board have completed on 17^th March.  This year, 1,14,134 students appeared for class 12 science examination while 4,35,430 students appeared in the general stream in the state. As many as 9,26,483 students appeared for Class 10 examination.

 The Gujarat Secondary and Higher Secondary Education Board (GSHSEB) have announced dates of Std X, XII results.  This year  the GSHSEB will first upload results on its website ,  www.gseb.org.in and mark-sheets will be available after a few days at the school. 

The GUJ-CET results will be uploaded on the website on May 3 while mark-sheets and certificates will be given from school on May 14. GUJ-CET forms the basis of admission to the engineering and pharmacy colleges of the state.

The  results of Std XII Science stream  will be declared on May 10 followed by Std XII general stream on May 24. The results for Std X will be uploaded on the board website on June 3 this year.

Std XII science students will be able to take mark-sheet from their schools on May 14, while Std XII general stream vocational courses students will get their on May 29 and Std X on June 7.

The passing level for all these exams is 33% marks. From this year as per the directives of the board even at the school level exams of class VIII and IX will be 33% henceforth. The board has taken the decision after inspecting the level of passing marks in the other classes. Secretary of the board MI Joshi said that the move has been taken to bring uniformity in passing marks in all the secondary and higher secondary classes.

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Foreign Currency Convertible Bonds redemption fear still hangs

The tension of  redemption of foreign currency convertible bonds (FCCBs) seems to have been getting diluted on the investor community.  This year about $7 billion of FCCBs are due for repayment. This factor  had caused panic amongst the investors and market browser had clear reflection of this with all the shares pegged with FCCB  were heavily discounted in very first month of the year.

Some of the companies responded to challenge with entrepreneurial skill and the issue  got subsided, though the fear of default has not all evaporated. The main strategies adopted by the companies are : by raising new debts, selling assets, deferring their capex plans or restructuring .

Kotak Institutional Equities had estimated FCCB  with market value of USD $12.7 bn. Typically, companies issue FCCBs in order to raise capital at a relatively lower cost for the medium term. Until 2008 FCCB were favoured by hedge funds. But in 2006 to 2008 many Indian companies looked towards them as a major funding instruments. With booming share market, it looked to be a win-win situation for both investors as well  as companies.

Source  :  Business Line

Since January 2006, Indian firms have issued FCCBs worth $13.6 billion, out of which $7 billion worth of bonds are maturing by 2013. The plunge in stock prices and fall in rupee have raised concerns over these obligations.  Exposure to FCCB  is no more a desired  proposal on browsers.  Not all companies  had  negative sentiments. Tata Motors, Rajesh Exports and Surana Industries are a few companies who were traded at premium despite the FCCB dagger.

Redemption strategy of  Suzlon
will have major Impact

Reliance Communication  managed repayment of its  $1.12 billion (Rs 5,825 crore) of FCCBs due in the first week of March,  through a refinancing deal with a consortium of Chinese banks. The banks have extended a seven year debt to ADAG group company at an interest rate of about five percent.

The options  to raise external commercial borrowings (ECBs) is planned by the companies like JSW Steel, Gati and Orchid Chemicals. The raising of fund is at Libor rate plus four percent for five years. JSW and Orchid  have  liabilities worth $274.6 million  and $167.64 million respectively.

According to Filtch report  as many as 19 Indian companies still  are in danger of defaulting if no restructuring plan comes forward.  These include GTL Infra, Gayatri Projects, Indowind Energy, 3i Infotech, Gemini Communications, JCT, Shakti Sugars, Wolkhart,  Zenith Infotech and ICSA India. Suzlon  with a repayment of its $654 million (about Rs 3,249 crore)  would  set the sentiments of the investing community.

 Those companies  would be lucky where the holders convert the bonds to equity before maturity date.   But this depends on how the sensex moves, which  has  shown so much fluctuations and  unless pro industry budget is presented by finance minister Pranab Mukharjee, not much hopes can be pinned on this option.

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100 Hour wastage on TV News Channels

As  soon as the seventh round of poll in the largest state of the country UP was over all news channels  started 100 hours  bombardment on pre – result analysis.  All the debates revolve around  the exit polls  carried out by various agencies . 

The credibility of these estimates based on past performance is doubtful.  One of the largest Marketing Research agency A.C. Nielsen was  even charged of unethical working by a publication house in the month of January this year. The three main charges levelled were :  

1. Abuse of Monopoly

2. Conflict of Interest....

3. Unethical Behaviour

4. Misleading Research

The charges levelled were based on the fact that this agency had accepted MR work from two competing firms and gave the  contradicting results, by giving favourable finding to both the companies. The  rival companies were also the media channels – TV Today and Star Network.  The agency involved was ACNielsen-ORG MARG.

After the controversy, a critic  Sudhish Pachauri slammed these polls, “Actually, such surveys are done to hide some facts and highlight some other kind of lies. In India, they do what they want to do, what they have decided already and plan the result accordingly. Such agencies work in a planned manner during elections in India in favour of one particular lobby, so that what they say harms the other lobby.”

This is the fact for the exit poll predictions as well.  The predictions of each channel match their ideology and not the survey outcome.  Star News  (AC Nielsen)  has given almost  a majority to Mulayam Sinh Yadav  and  more than 70 setas to BJP.  India TV also has given a much improved performance of BJP with  83 seats and close fight between SP and BSP. Pro congress channels – IBN7 and News Express  have tried to project  that for 3^rd and 4^th place there is very close fight between BJP and Congress.  BJP may slip to fourth position as well.

 Back in 2004, ACNielsen  did the survey for NDTV and forecasted a comfortable majority for the then ruling NDA.  Every one  knows the outcome. NDTV was controlled by the doyen of Indian psephology Prannoy Roy.

Later in 2007,  NDTV and Indian Market Research Bureau predicted  a hung assembly for UP and Uttarakhand.  Star News, Times Now and India TV all were agreeing on the hung assembly in UP.  No one could sense the clear majority to Mayawati’s BSP and a tally of 22 for Congress.

So this debate for four days is a wasteful exercise as our Market Research agencies are not equipped with manpower who can do the task professionally without getting affected by the like and dislikes of the client.

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