The admission of the new chairman of the Central Board of Excise and Customs, R Gopalnathan, that first quarter 1997-98 indirect tax collections are less than the corresponding period last fiscal is a damning indictment of the state of the economy.

Gopalnathan's reported clarification that collections are traditionally low in the first quarter is of no consequence, as the comparison being made is year-on-year. Customs and excise collection are a direct reflection of production and imports, ie the level of economic activity, and lower collections compared to the first quarter of 1996-97 would mean that economic activity during April- June 1997 was lower than in April-June 1996.

Banking on the baht

The Thai central bank's sudden devaluation of the baht could prove to be a bonus for the Indian stock markets. Fund managers with investments in Southeast Asia are acutely conscious that the spillover effects of the baht devaluation could occur elsewhere in the region. Most economies in the region have high current account deficits and large foreign liabilities, although they are not in as bad a shape as the Thai economy.

As a matter of fact, one of the reasons for the spate of foreign money pouring into the Indian stock markets is the view that the rupee will not depreciate. Forex reserves have risen by over $2 billion in a month, and it is all the RBI can do to hold down the value of the rupee. With no devaluation, FIIs will have earned a rate of return of around 13 per cent in the last one month in Indian stocks; making the Indian stock market very attractive.

With devaluation jitters in southeast Asia, and with the kind of returns India offers, we could see funds earlier marked for southeast Asia making their way into the Indian markets.

Politics and MUL

Maruti Udyog Limited (MUL) is once again in the spotlight for all the wrong reasons. The politics this time revolves around the choice of a nominee in place of the outgoing managing director. Why on earth a car manufacturer should have a bureaucrat as a managing director is unclear - surely the challenges ahead call for a man with experience in the industry. The goings-on somehow managed to sidetrack the main issue of the Rs 1,500 crore expansion, which is a must if MUL wants to hold-on to its dominant status in the Indian auto industry.

The government insistence on viewing Maruti as a political investment has not yet hurt the company, simply because there hasn't been any competition in the small car segment. Despite Maruti Alto (which is the export model of the Zen) sharing the top honours for the number one car in UK's value for money top 40 model survey, Maruti going it alone would be suicidal.

Technology and a high degree of indigenisation which helped price the vehicle cheap, coupled with governmental support were perhaps the clinchers for MUL's virtually unchallenged progress. But with poor in-house R&D, what is to ensure the continued success of MUL? This is where Suzuki and its international stable of vehicles is expected to help MUL ward off the competition.

Maruti can also take solace from its well-depreciated plant, and the fact that high volumes are essential to ensure viable margins. This is also probably the reason for the recent approval of the Rs 1,500 crore expansion programme. Large internal accruals and low debt gearing reflects the scope of funding the expansion through the debt route.

While MUL has been on easy street thus far, now comes the real challenge in the form of Telco's proposed "Indica" and Daewoo's "M-100. If Telco does manage to achieve the 85 per cent level of indigenisation, it could overcome its biggest challenge of pricing the Indica close to the Maruti. Furthermore increasing competition in the mid-size car segment, which has already taken its toll on the Esteem, ensures that MUL would at last have a fight on its hands. That is when one can judge whether the government should have agreed to the Rs 5000 crore offer of investment by Maruti and sold 24 per cent of its stake. The main question, of course, is whether the government should be in the business of car manufacturing at all?

Shareholder-friendly Bajaj

BAJAJ Auto's annual report reflects the fact that Rahul Bajaj was the member of the corporate governance committee of CII. The director's report is a reader's delight. It admits that the company has not been able to achieve the production target due to a poor second half. It states that the company has initiated legal proceedings to recover a default of Rs 9.7 crore (excluding interest) in inter-corporate deposits given by the company. This information is normally buried in the notes to accounts. The fact that the market share of the company in two and three wheelers has declined by 1.5 per cent to 44.5 per cent has also been mentioned, as has been the fact that the delay in launching scooter up-grades and scooterette has resulted in lower growth. Segment-wise production and sales have been shown.The director's report also says that the market outlook has still not improved. The impact of a slow down in the second half and the high level of inventory is very visible in the cash flow statement. Cash generation from operations has declined from Rs 355.16 crore in 1995-96 to Rs 254.50 crore in 1996-97.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.