Ever since the delicensing of the automobile sector, pundits have been warning all and sundry of an era of "car wars". But despite the entry of global players and the continual scuffle for market share, one company has continued to dominate the largest and the most lucrative small-car segment, reflected in the near monopolistic 83 per cent market share garnered by Maruti Udyog, largely owing to the popularity of its 800cc offering.

Adding fuel to the pundits' prophecies was some of the unveilings at the Auto Expo in January 1998, which heralded the shape of things to come, especially in the small-car segment. However, nine months and lot of wasted reams of newsprint later, the slugfest dubbed the "small-car wars", is yet to get off the ground. Why? Largely because two of the three pretenders to the crown have failed to match MUL on one front - pricing.

With Hyundai 999cc Santro opting for a price-tag ranging between Rs 2.99 lakh and Rs 3.69 lakh, its positioning is targeted at MUL's Zenmarket.

Prospective car-buyers were, however, hoping for an alternative to the Maruti 800. With the Matiz also opting for an on-road price-tag of Rs 3.55 lakh, it has opted out of the price-war with Maruti's small car, thus leaving customers with only the Tata's Indica, to be unveiled in December.

All this brings us back to a fundamental question--why have both the foreign car-makers failed to meet MUL's price for the 800? Especially since both had started out eying the lucrative small-car segment, where MUL has minimum competition.

The answer to this question could well lie in the indigenisation levels achieved by both the producers before starting commercial production. While Hyundai claims to have achieved a 70 per cent indigenisation level, analysts say this figure has a lot to do with the grey area that still remains regarding the treatment of local vendor imports while calculating car- makers' "indigenised content". The case for the Matiz is also quite similar, with analysts estimating thelocalised content for Daewoo's offering to be lower at 50 per cent.

Furthermore, Matiz's pricing once again raises doubts about Daewoo falling into the same trap it did with the Cielo. Analysts focus attention on the hara-kiri committed by Daewoo earlier with the "price correction", which had resulted in the company loosing out on valuable market share in the long term, owing to quality doubts about the product. Similarly, with only one variant of the Matiz priced in the premium segment, analysts say Daewoo may have to look at a lower priced no-frills option at a later date to sure up its order books.

All this has now left the ball squarely in Telco's court to ensure that it manages to price the Indica in line with MUL's 800cc. Given the Tata firm's indigenous development of the vehicle, analysts say Telco can achieve this objective. Till then, however, MUL need not break into a sweat worrying who the next pretender to its crown might be.

Reserve Bank of India

The Reserve Bank of India alongwith various market players and experts has been asking the government to restrict its fiscal deficit, and not without reason. Any overshooting will create problems. Interest rates are likely to head upwards, which will hurt any nascent upturn in the economy.

If the government does manage to avoid any fiscal slippage, the rest of the year will see projected net inflows worth Rs 14,000 crore into the banking system, which will undoubtedly help interest rates go soft.

With the government privately placing Rs 5,000 crore with the Reserve Bank of India on November 2, the net borrowing programme has been completed to the extent of Rs 49,918 crore, of a budgeted programme of Rs 48,326 crore. The gross borrowing, however, is yet to be collected, with Rs 72,421 crore being raised so far out of a budgeted borrowing programme of Rs 79,376 crore, which means that only Rs 6,955 crore is left to raised. Add to this a State Development Loan (SDL) issue for Rs 1,000 crore, the outflow for the year is estimated at Rs7,955 crore.

Of the projected inflows for the rest of the year, redemptions of dated securities are expected to be worth Rs 6,000 crore, coupon on dated securities account for Rs 11,053 crore, redemption of 364-day T-bills will witness an inflow of Rs 2,547, and coupons on SDLs are expected at Rs 2,329 crore. All this adds up to an inflow of Rs 21,929 crore into the banking system. Although agressive open-market operations from the RBI are expected to keep a leash on interest rates and sterilise the inflows, credit demand from the commercial sector should pick up now, and prove to be a critical factor in determining interest rates.

The RBI, for its part, has done the right thing by not tinkering with the cash reserve ratio in its recent credit policy as it would have meant further liquidity, a move which could have created havoc in the forex market. But the government has to interpret the message in the sense that interest rates will not stay where they are in case of fiscal slippage, and the RBI, whichhas so far done a commendable job as the government's merchant banker, will have to remain a mute spectator.

With contributions from Percy Dubash & Anirban Nag