Import/export norms for cars

While, the cabinet committee's recent attempt at trying to solve the auto import (import of CKD/SKDs) imbroglio needs to be lauded, there still exists some grey areas which need clarifications. Under the amended proposal, car kits even if brought into India as CKD/SKDs would now be treated as "components", instead of "complete vehicles". This proposal already has foreign car makers heaving a sigh of relief. Why?

Well, for starters, under the current policy, imported CKD/SKD kits attracted a customs cum countervailing duty of a staggering 98 per cent. If the amended proposal is finally cleared, the imported kits which would now be treated as "components" would attract a customs duty of 30 per cent, plus a countervailing duty of 20 per cent, thus attracting a total duty of 50 per cent.

Besides reducing the overall cost of the vehicle, this could very well clear the air for the likes of ventures such as Mahindra-Ford and Pal-Peugeot, which had either cut back or suspended production due to the severe lack of kits. However, some grey areas still persist regarding the import of certain components and the duty treatments of the same. For example, what would be the duty payable for the import of components such as catalytic converters and fuel pumps, which currently do not form part of a CKD/SKD. Another problem area in the future could be the fact that "component" imports are freely allowed under the open general licence, what then happens to the corresponding export obligation?

The notification says that equity investment in such ventures should be in excess of $100 million, which is on the higher side considering the fact that ventures like Pal-Peugeot have a total net worth of Rs 261 crore.The relaxation of the indigenisation norms and the introduction of flexibility in the matter of offsetting the company's export obligation, are some other dollops of goodwill for the car ventures. Earlier, the sight of a lucrative market had resulted in a melee of foreign car makers signing the export obligations without realising the dire consequences. But a glut in domestic demand and minuscule capacities which are yet to stabilise have rendered the Indian operations of these outfits economically unviable. Thus this ploy by the government should ensure continued FDI commitments from all the foreign players and also entice the fringe players which were on the verge of a decision on India to do in the affirmative.

Fertiliser boom, economic slump?

The fertiliser industry is upbeat over the recently announced fertiliser policy. The industry is anticipating a seven per cent growth for the nitrogenous sector, while the phosphatic sector is expected to grow at 12 per cent - the highest after liberalisation of the sector in 1992.

The reason for optimism is because provision for subsidy payable to controlled fertilisers has been increased. Apart from this, special concessional schemes have been made for phosphatic and potassic fertilisers. The icing on the cake is that these ad hoc policies have been announced well in advance, which has helped the industry to position their products at farmgate points. The rates of adhoc subsidy have been increased substantially from 25 per cent to 50 per cent, which has enabled farmers to access cheap fertilisers. In a major move to improve liquidity of the industry, 80 per cent of the subsidy amount will released immediately as `on account' payment.

All these measures are likely to augur well for the industry, but at a cost to the rest of the economy. Increasing fertiliser subsidy even after nine successive good monsoons makes scant economic sense. One would have expected that by this time farmers would have generated enough cash to afford higher prices for fertilisers. Instead, zero power costs, lower fertiliser prices, concessions on tractors and increased procurement prices all add up to the price to be paid.

Increased subsidy for the nitrogenous sector has resulted in deterioration of the soil (caused due to extensive usage of one kind of fertiliser). Industry experts say that it will take 10 years to bring back the minerals contents of soil to normal.

Trying to serve the interests of the farmers and the fertiliser industry has resulted in harming the economy. An example is the current situation in urea. Though international prices of urea are ruling at around $110 per tonne as against local cost of production of around $170 per tonne, the government is providing subsidy to local manufacturers. Considerable money could have been saved had imports been allowed.

Market lots

Sebi's new formula linking market lots to market price is supposed to be investor-friendly, and should help small investors buy the PSU shares being disinvested. The new Sebi norms says the minimum market lot for shares priced up to Rs 100 would be 100 shares. For shares priced above Rs 100 but less than Rs 400, the minimum market lot would be 50 shares and for shares priced at Rs 400 and above, the market lot would be 10 shares.

The proposed decision will however, result in more paperwork, as investors holding the old market lots ask to split their share certificates into the new marketable lots. More paper will result in further delay in transfer of shares - a problem about which SEBI has not been able to do anything.

There is no reason why deciding on a marketable lot should not be the company's prerogative. In any case, marketable lots will cease to exist when shares are dematerilaised. Perhaps the most investor-friendly move by PSEs divesting equity would be to offer dematerialised shares.

EMCEE(with contributions from Percy Dubash, Shishir Asthana and Urmik Chhaya)

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.