Published by the Press, Information & Culture Wing, Embassy of India

(May 1999)

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EXPORTERS CAN AVAIL $ 200 MN ECB

The government has allowed upto $200 mn external commercial borrowing (ECB) for exporters under the new guidelines aimed at promoting infrastructure development and exports in the current financial year. Under the long term ECB scheme, borrowings upto $200 mn would be allowed with average maturity of eight years and upto $400 mn with average maturity of 16 years.

Bonds, debentures and other instruments would have additional validity period of three months for all the ECB approvals across the board, an official statement said. As per the new guidelines prepayment could be undertaken within the permitted period for all ECBs with residual maturity upto one year. Besides, prepayment upto ten per cent of outstanding ECB would be permitted during the life of loan but those companies which have already availed prepayment facility of 20 per cent earlier will not be eligible.

The government also announced new guidelines for rupee denominated structured obligations credit enhanced by international, financial institutions and joint venture partners. As per the guidelines, foreign banks giving guarantee will make payment of defaulted amount of principal and interest after bringing in the equivalent amount of foreign exchange into the country.

The government has made it mandatory for companies going in for ECB to get FERA (Foreign Exchange Regulation Act) clearance from Reserve Bank of India (RBI) in advance besides prior clearance for rupee bonds and debenture issue from RBI and SEBI (Securities and Exchange Board of India). The liability of the Indian company will always be rupee denominated and the debt servicing may be done in equivalent foreign exchange funds. The guarantee fee, commission and other incidental expenses to the Indian company has to be in rupee terms only. All cost on this account should not exceed three per cent per annum in rupee terms. In the event of default, foreign exchange equivalent amount equal to the principal and interest outstanding will have to be calculated in rupee terms.

POLICY
CCEA CLEARS GAIL PROJECT, TO SET UP VENTURE CAP FUND FOR IT

The government has cleared Rs 3.61 bn Gandhar Gas Processing Complex of public sector Gas Authority of India (GAIL) to meet the growing demand for liquified petroleum gas (LPG) in the country. The cabinet committee on economic affairs (CCEA) also decided to set up a Rs one bn venture capital fund for the software industry besides approving a turnaround package for Praga Tools. Information and Broadcasting Minister Pramod Mahajan said the decision to clear the gas processing complex by CCEA would help in producing 14 mn additional cylinders of LPG in the country. The project in Gujarat would have a foreign exchange component of Rs 277.2 mn. The project, expected to be completed in three years, would enable the country to save Rs 1.2 bn annually in foreign exchange, he said. CCEA also approved Rs 610 mn modernisation of 345 mw Salal hydel power project stage one in Jammu and Kashmir, he said adding the project envisages modernisation of power house of three 115 mw generating units. The modernisation once completed would enable supply of 2038 mega units of power with 98 per cent dependence in the year. The reason behind the venture capital fund is to facilitate software professionals to set up information technology units in small scale sector by providing venture capital, Mr. Mahajan said. Small Industry Development Bank of India (SIDBI) will promote a trustee company for this purpose which will be a fully owned subsidiary of SIDBI. The government would provide Rs 104.7 mn as equity share for reimbursal of cash losses of the ailing Praga Tools, the minister said. The company has a total bank exposure of Rs 364.7 mn and the government would stand gaurantor for it for the next two years besides providing Rs 99.5 mn for payment of statutory dues, he said. The company would also be provided Rs 85.5 mn from the National Renewal Fund for manpower rehabilitation, Mr. Mahajan added.

AI, IA AND ITDC DISINVESTMENT TO TAKE OFF SOON

The disinvestment of nationalised international air-carrier Air India (AI), domestic airline Indian Airlines (IA) and India Tourism Development Corporation (ITDC) will commence soon, Civil Aviation and Tourism Minister Ananth Kumar has said. Stating this, Mr. Kumar said policy decisions regarding divestment had been taken earlier and "all disinvestment programmes will continue" as the government was functioning with normal powers. Disinvestment plan of AI, which was approved by its board on the basis of recommendations of the disinvestment commission, has been sent to the cabinet committee on economic Affairs (CCEA) for its consideration, Mr. Kumar said. Similarly, divestment plans of Pawan Hans Helicopters Limited (PHHL) had been approved by the ministry and forwarded to the cabinet, he said.
The process of privatisation of the Hotel Corporation of India, a AI subsidiary, had been initiated with advertisements put out for appointment of consultants, while divestment of ITDC was "on the anvil and a note has been sent to the cabinet." On IA, Mr. Kumar said the exact details of divestment proposal would be finalised shortly. While 11 per cent stock option is likely to be given to the employees, 40 per cent would be offered to the financial institutions. On corporatisation of airports in Delhi, Mumbai, Calcutta and Chennai, the minister said as many as 54 respondents had applied to the tenders for finalising legal and financial consultants for this purpose and a decision to appoint them would be taken "shortly". Mr. Kumar said Airports Authority of India (AAI) and Karnataka State Industrial Development Corporation (KSIDC) had recently signed a mou for 13 per cent stake each for the Bangalore international airport, while 74 per cent stake had been offered to foreign partners for which global tenders would be issued shortly.

COMMERCE MINISTRY HOLDING TALKS WITH EPBs ON EXPORT TARGET

The government has begun holding talks with Export Promotion Boards (EPBs) and commodity boards to fix the export growth target for the current financial year, amid the current political flux. Official sources said the commerce ministry was half way through the process of ascertaining the EPBs and commodity board's views on the export growth they were confident of achieving in their respective areas. While announcing the amended Export-Import (EXIM) policy for the current financial year on March 31 last, commerce Minister Ramakrishna Hegde said the talks with EPBs and commodity boards would be completed by middle of this month. During the announcement of the policy, he, however, refrained from fixing a target in view of the dismal performance during the first half of the previous fiscal, which forced the government to revise its 20 per cent target to 45 per cent. As per provisional figures for 1998-99, exports increased by 3.70 per cent with shipments in March touching a year-high of 10.07 per cent.

OVERSEAS INVESTMENT CEILING RAISED

The government has doubled the ceiling on Indian overseas investment under fast track route in South Asia and Myanmar in an effort to encourage Indian entrepreneurs to invest in the region. The earlier limit of $ 15 mn had been raised to $ 30 mn, while Indian rupee investment limit in case of Nepal and Bhutan had been increased to Rs 1.20 bn from the present Rs 600 mn. All other terms and conditions of the notification applicable to overseas investment in joint ventures and wholly-owned subsidiaries abroad would continue to apply to investment in SAARC countries and Myanmar.

NELP BID SUBMISSION EXTENDED BY THREE MONTHS

The government has extended the bid closing date for the 48 oil blocks offered under the new exploration licensing policy (NELP) by three months to August 18. The extension has been given to accommodate request from interested companies for extending the bid closing date to
enable them carry out more comprehensive study of data, obtain internal approvals and also secure tie-ups. "It may be noted that this is a one-time extension being given to accommodate the genuine concerns of companies and no further extension will be given," an official statement said. The government had issued the notice inviting offers for submission of bids for the exploration of oil blocks by Indian and foreign companies under NELP for which the bids were to be closed on May 18. Road shows for the oil blocks held at New Delhi, London, Houston, Calgary, Singapore and Perth were attended by a total of over 500 participants and 300 companies. Stating that all other terms and conditions would remain the same as announced earlier, the release said the terms of NELP and the blocks currently on offer have evoked positive response from companies despite low price regime that prevailed since the announcement of the bids.

COMMERCE MINISTRY TO NOTIFY WHEAT EXPORTS SOON

Commerce ministry has decided to allow wheat exports from the country following the food ministry's clearance for the commodity's exports, official sources have said. A notification on allowing exports would be issued soon, they said. "Since the food ministry had itself recommended exports Of wheat, we have no problem in allowing it," the sources said.
When contacted, commerce secretary P P Prabhu said government had already allowed exports of 25,000 tonnes of wheat by private traders to Bangladesh. He said if wheat exports were profitable then commerce ministry had no problem in allowing it. Asked about State Trading Corporation (STC) and MMTC asking government permission to export wheat, he said they could ship the foodgrain to Bangladesh. Though commerce ministry has no reservations in allowing wheat exports, officials wonder if it could be of any use as global prices were far below the government procurment price. "Imported wheat is available at $120, while price of our wheat when it reaches the port will be around $190," they said.

ECONOMY
INDIA DRAGS S AFRICA TO WTO ON ANTI-DUMPING DUTY

India has moved the World Trade Organisation (WTO) against South Africa for imposing anti-dumping duties on pharmaceutical imports like ampicillin and amoxyillin. As per a WTO report, India asked for consultations with South Africa under the dispute settlement mechanism last month. Both the nations would have to come to an agreement within 60 days of consultations, failing which India could ask for setting up a dispute settlement panel of the WTO. India complained that South Africa had imposed definitive anti-dumping duties on imports of ampicillin and amoxyillin of 250 mg capsules exported by Ranbaxy Laboratories. New Delhi alleged that the anti-dumping duties imposed by South African board on tariffs and trade were inconsistent with the latter's WTO obligations, particularly in relation to calculation and definition of normal value of the products under scrutiny.

India also contended that determination of injury to South African pharma industry was not based on positive evidence and did not include all relevant economic factors. Establishment of facts was not proper and their evaluation was not unbiased or objective, it said. South Africa also had not taken into account New Delhi's special situation as a developing country, India contended.

With this case, the number of cases in which New Delhi is trying to protect its interests has risen to 21 and India is all set to face another spat at the WTO with the United States deciding to take India to the multi-lateral trading body against New Delhi's automobile policy. Though it was a third party to an appeal made by the European Commission (EC) on the same policy at WTO, the U S as decided to take up the case directly as there was no palpable signs of the EC pressing for forming a dispute settlement panel (DSP). EC tops the list of disputes with India, with eight cases, followed by the US, which has five. Four cases, involving India, have been settled under the WTO mechanism so far, with two in India's favour and the rest going against.

INDIA NOT TO PRESS FOR DSP AFTER EU DROPS CRS FOR RICE

India has decided not to press for setting up of a Dispute Settlement Panel (DSP) at the World Trade Organisation (WTO) on rice exports issue since the European Commission (EC) has withdrawn the controversial cumulative recovery system (CRS) from December. After withdrawal of CRS, Indian rice exporters have had no problems in recovering duty rebate from EC importers and rice trade continued to progress smoothly, commerce ministry sources said.
The CRS is a regulation system, which determines import duty on rice and any duty rebate is made only on a cumulative basis after verification. Exporters contended that the reimbursement took over six months, resulting in their money being held up by EC authorities. " The CRS was introduced in July 1997 for a period of six months. It was then extended for a year. The CRS led to problems for Indian rice exporters. But since the system has been withdrawn, we decided not to press ahead for DSP," a commerce ministry official, who did not wish to be identified, said.

India had moved the WTO dispute settlement mechanism in May 1998 contending that the CRS restricted the number of rice exporters from India and thus limited rice exports from the country. It also said that CRS nullified and impaired benefits accruing to its exporters under various bilateral agreements.

STEEL, AUTO RECORD NEGATIVE GROWTH: CII

Steel, aluminium, automobile, cigarettes and tobacco sectors have ended 1998-99 with a negative growth, while consumer durables like colour televisions, personal computers and air conditioners have performed extremely well, according to an industry survey. The survey by Associations Council of Confederation of Indian Industry (ASCON) has also projected an over 20 per cent growth for construction, leasing and hire purchase, CTVs and PCs during 1999-2000 but apprehended that most of basic, intermediate and capital goods segments would continue to suffer low or negative growth.

The ASCON industry monitor said CTVs, computer hardware and software, motor cycles and housing finance were among those sectors which recorded over 20 per cent growth during 1998-99. As many as 30 industry segments from basic and capital goods, consumer durables and non-durables and intermediate sectors posted negative growth reflecting the recession in the Indian Industry. Among industries which recorded negative growth during 1998-99 were processed food and vegetable, vanaspati, auto components, refractories, machine tools, sugar machinery, industrial furnance, transformers and textile machinery. About 55 industry and services sectors posted a moderate, less than 10 per cent growth during the year, while only about 35 industry segments recorded high or excellent growth ranging from 10 per cent to 60 per cent. The survey listed in economic slowdown, fluctuating value of rupee, south east asian crisis, high raw material costs, liquidity crunch and project delays due to uncertain economic environment, among the principal reasons for poor performance of most of the industrial sectors during the year. It also revealed the dismal export performance by most of the industries mainly due to inadequate infrastructure, high freight charges, lack of focus in the exim policy and abberations in duty structure.

MPEDA CERTIFIED SHRIMP CONSIGNMENTS CAN BE EXPORTED TO U S

The government today clarified that there was no ban on shrimp exports to the United States and said recent press reports stating that U S had banned import of Indian shrimps was 'totally wrong and factually incorrect." "In fact processed shrimp consignments from India are being regularly exported to the U S. Along with DSP-121 certificates countersigned by officials of Marine Products Export Development Authority (MPEDA) indicating that shrimps being exported have been either harvested by non-mechanised means or have been sourced from acquaculture," a commerce ministry statement said. The statement said the U S embargo on the import of shrimp under section 609 of U S Public law was found to be inconsistent with the World Trade Organisation (WTO) provisions. The U S has already agreed to comply with the WTO ruling by December 6, 1999.

INDUSTRY UPDATE

SOYAMEAL EXPORTS HIT BY DEPRESSED GLOBAL PRICES

Export of soyameal from India has been hit by depressed global prices with the total shipments during 1998-99 declining to 3.1 mn tonnes valued at Rs 1,9 bn as against Rs 2,5 bn during the previous year. The volume of soyameal exports during the year at 3.1 mn tonnes was against a target of 3.5 mn tonnes set by the Indian industry, Soyabean Processors Association of India (SOPA) chairman Harsh Maheshwari said. Mr. Maheshwari said the global prices for soyameal had fallen to $140 per tonne during 1998-99 as against a high of $ 250 during the previous year. The depressed prices of soyameal exports during the year was on account of a bumper soyabean crop recorded in the United States, Argentina and Brazil, he said. India exports mainly non-edible animal soyameal feed to countries in the Far East and Africa. Mr. Maheshwari said the exports prospects during the next year would largely depend on the soyabean crop in major producing countries like the U S, Argentina and other Latin American countries. SOPA chairman also predicted that India would become a net importer of soyameal and added that efforts would be made by SOPA and other agencies associated with the soya industry to promote value-added soya products.

CORPORATE

ONGC TO INVEST RS 10 BN IN VIETNAM VENTURE

State-owned Oil and Natural Gas Corporation (ONGC) will make a foray into oil exploration abroad with an investment of Rs 10 bn in its joint venture (JV) in Vietnam. "ONGC Videsh Ltd (OVL) has already signed a memorandum of understanding (MOU) with Petrovietnam and foreign contractors, BP and Statoil, in the Rs 20 bn upstream venture abroad," chairman and managing director of ONGC B C Bora said. OVL which at present holds 55 per cent stake in project would be funding the project (Rs 10 bn) through equity route or through external borrowing base on ONGC's guarantees, Mr. Bora said. The ONGC board would take a decision soon on raising resources of such a huge magnitude. Funding for the project would be done in stages over the next two years, he said. Mr. Bora said the project would be completed by 2002 and would produce about three bn cubic meters of gas per day resulting in the generation of 12 bn kwh of electricity every year to meet 60 per cent of Vietnam's requirement. While OVL would have the majority stake in the project, the remaining 45 per cent is held by BP-Statoil consortium, he said. However, Mr. Bora said, in the project ONGC and the two
foreign partners would be diluting their stake in favour of Petrovietnam, a government-owned company of Vietnam, to give it 15 per cent stake.