New Delhi, June 7: The State Trading Corporation (STC) is all set to open a wholly-owned subsidiary in Russia by converting its representative office in Moscow into a vibrant trading entity through local incorporation. The wholly-owned subsidiary will be an independent company with its board of directors with sufficient representation from the STC.

The issue has been thrashed at the ministry level after vetting the pros and cons of the proposal and now only a formal approval of the Union Cabinet is awaited. The Cabinet has already received a detailed note on the subject.

STC's share of India's exports to Russia at the moment was an insignificant 0.12 per cent against the background of surging export volume to Russia in general. Considerable growth prospects are, therefore, open for the STC by strengthening its presence there, according to senior Commerce Ministry officials.

The wholly owned subsidiary , locally incorporated in Russia, is expected to operate as a profit centre from the beginning instead of a representative office which is usually regarded as a cost centre.

The representative office is essentially functioning as an agency to tap commercial intelligence for decision making at the Indian end without undertaking any trading responsibility on its own.

The subsidiary would be expected to spot both local as well as third country trading opportunities. While the Russian trade volume has been rising sharply, there is also a spurt in trade in the CIS countries. The new company can spot emerging opportunities more closely, the Commerce Ministry has argued.

The Ministry is generally credited with the view that the presence of a local subsidiary would help to operate with far less bureaucracy than the parent set up.

The company can hire local manpower at the market determined rates, develop trading roles suited to the local environment and enter into local banking and other financial arrangements over a period without being a strain on the parent company's resources.

As for the thrust areas and thrust markets, the company has identified items including tea, coffee, leather goods and other consumer products.

The Cabinet note prepared for the proposal makes it clear that the relationship between the STC and the subsidiary will be purely on commercial lines. Being a wholly owned subsidiary, however, it can always give preferential treatment to its holding company. The Cabinet note specifically mentions that the wholly owned subsidiary will be an independent company with its board of directors. The board will, however, have sufficient directors from STC to have full control over operations of the company.There will be appropriate delegation of powers given by the board of directors to the executive vice-president and the managing directors and also to the GMs of each product line.

There would also be a system of checks and balance , as is existing in any trading organisation, but would be flexible enough for trade to take place, it has been averred.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.