Indian government will sales its stake in Steel Authority of India Ltd. and Power Finance Corp.

A senior government official said that the government is looking forward to sell its stakes in Steel Authority of India Ltd. (SAIL) and Power Finance Corp. before June 2011.

Government will sell 5 percent stake in SAIL and the company will also sell new shares worth 5 percent. Together they would be worth about $1.4 billion.

Sumit Bose, disinvestment secretary in the ministry of finance, said that the company is on the fast track and after share sales of ONGC, SAIL shares will be sold followed by Power Finance Corp. shares.

The government in the upcoming fiscal year will sell stakes worth Rs.400 billion ($8.9 billion). In the current fiscal year, government sold stakes in six state-run companies.

Mr. Bose said that government is going to sell 5 percent stake in Oil and Natural Gas Corp. (ONGC) which would be worth $2.56 billion. The sales would take place later this month.

Government will also sell a 5 percent stake in Power Finance Corp. and the company will sell another 15 percent stake in IPO worth $1.26 billion.

Mr. Bose also said that the government is planning to sell stakes in Rashtriya Ispat Nigam Ltd (RINL), MMTC and National Buildings Construction Corp (NBCC) in the next fiscal year.

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Domestic Indian carriers will have to pay Rs.2.772 million compensation to passengers for flight delay

Six domestic Indian carriers will have to pay a total of Rs. 2.772 million in compensation to passengers for denying boarding or flight delay or cancellation of flight without prior notice.

In January, more than 67,500 passengers had been affected due to flight delays of more than two hours. India Times reports:

In a new Civil Aviation Requirement (CAR) issued today that will be effective from August 15, the Directorate General of Civil Aviation (DGCA) has made it mandatory for airlines to pay a compensation for delay and cancellation of flights or in case the passengers were denied boarding despite having a confirmed ticket.

However, the airlines will not be fined for canceling or delaying flights for situations beyond their control.

Among all the carriers, passengers of the SpiceJet had the worst. Due to flight delays 17,480 passengers had been affected and the carrier will have to pay Rs.2.011 million in compensation.

Around 16, 300 passengers of Jet Airways had been affected followed by 12,056 of GoAir, 11,042 of Kingfisher and 10,673 of IndiGo.

The carriers will pay Rs.8.48 lakh to 12,859 passengers for canceling flights without prior notice.

This is a good initiative for the Indian government. This would force the carriers to improve their standard of service.

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National Highway between Manali and Leh has been partially opened

NH-21, the strategic national highway that connects Manali with Leh in Jammu and Kashmir, has been reopened partially after it was shut down due to landslides at various points caused by flashfloods last week in Leh. The NH-21 is one of the two roads that link Leh to the rest of the country. Due to the shutdown, necessary relief operations to flood hit areas in Leh are being hampered.

SK Doon of the General Reserve Engineering Force said, "The traffic on the entire 475-km stretch between Manali and Leh couldn't be restored as work is still on to clear the debris." He further said that the 222-km stretch between Manali and Sarchu has been made motorable and now people are working to reopen the remaining portion between Sarchu and Leh.

On August 9, 2010, Omar Abdullah, Chief Minister, Jammu and Kashmir, deployed the Border Roads Organization to clear the highway connecting Manali and Leh within three days.

On August 6, 2010, the Choglamsar village in Leh was hit by cloubburst that caused flash floods and mudslides damaging government offices, military camps and people’s residence in the region.

The next day, another cloudburst in Kargil area cut off villages and triggered flash floods in Wado village by flooding the Brok Lungba stream.

At present, death toll from flash floods rose to 165. Indian Air Force rescued 81 foreign tourists from Zanskar Valley in Ladakh. It also dropped tents, clothings and other necessary items from planes as the roads are shut down.

Coast Guards failed to contain oil spills: MbPT hired Dutch Co. and experts from Singapore

To stop the spread of oil around Mumbai coastline, the Mumbai Port Trust hired a Netherland-based company, SMIT Salvage. Currently, the company is working with eleven vessels to control the spill. In addition, the Ministry of Shipping flew a team of experts from Singapore.

An MbPT official said, "We’ve appointed SMIT Salvage... The company is working there with 11 off-shore vessels out of which six vessels were received from Mumbai-based Great Offshore Ltd."

Unfortunately, India Coast Guards do not have necessary equipments or ships like those in the U.S. to contain oil spill. In 2009, Indian government ordered special ships to be built to contain oil spills and the first batch of ships will be deployed in Mumbai in October 2010. The ships are being constructed by the ABG Shipyard of Surat. Currently, they are undergoing modifications in Goa.

On August 7, 2010, two ships collided off the Mumbai coast. One of the ships, MSC Chitra, was carrying oil which tilted sharply upon impact and spilled oil into the coast. The coast guards are using anti-pollution dispersion spray system to stop the spread but it failed to stop the spread of oil.

The Coast Guard officials said that they would work hard to contain the spill because of the tidal conditions. They are searching for the leakage in MSC Chitra which was carrying over 2,860 tonnes of oil.

After the incident all operations in MbPT had been suspended and all coastal disctricts of Maharashtra have been put on high alert for the oil is spreading to the Alibaug and Uran areas and moving towards Elephanta caves. The Coast Guard and government agencies are worried that the oil will affect the mangrove belt along the coast line.

Indian public companies will not have to maintain 25% public holding to remain listed

On August 9, 2010 Indian government set a new rule that exempts the state-run companies to maintain a minimum of 25 percent public holding to remain listed.

In just two months, the Finance Ministry made the change in order to avoid several problems regarding initial or follow on offers that would affect the disinvestment program of the government.

Under the new system, Central Public Sector Units (CPSUs) will have to maintain at least 10 percent public holding and are required to increase its public stake to 10 percent in the next three years in case they do not meet the new diluted norm.

Firms who are yet to be listed on can dilute 10 percent stake to the share market at one go. The Finance Ministry said, "A public sector company shall offer and allot at least 10 per cent of each class or kind of equity shares or debentures convertible into equity shares to the public in terms of an offer document," the finance ministry said.

After this amendment, only 15 CPSUs against 35 earlier will have to dilute their stakes and fund raising capability will come down to Rs. 20,000 crore in the next three years from Rs.1.25 lakh crore under the previous norm.

For the listed private sector companies the Finance Ministry said that they could increase their public stake to 25 percent in three years.

Indian IT firms slam H-1B and L1 visa fee hike as discriminatory

It looks like the Indian IT Industry is running into another major problem as the U.S. government would hike visa fees under the newly introduced “Border Security Bill.” The government aims to collect $600 million by increasing fees of H-1B and L-1 visas. Indian IT firms are unhappy with this price hike and said that this raise is “discriminatory.”

The U.S. government passed the Border Security Bill on August 5, 2010.

Som Mittal, President, National Association of Software and Services Companies (NASSCOM), said that it would cost the Indian IT firms who have operations in the U.S. about $200-$250 million per year.

At present, Indian IT firms that have operations in the U.S. use approximately 50,000 H-1B and L1 visas per year. They hire Indian IT professionals to work as “on-site techies.”

Under the new rule, IT firms will have to pay $4500 per visa which was $2,500 earlier.

The big problem is that the language of the bill does not clearly specify how the fees will be increased. The visa fees are classified as filing fees and fraud fees. According to NASSCOM, it is not clear whether there is an increase of $2250 in filing fees and fraud fees or it is for both combined. Anyway, this hike will affect the Indian IT firms.

India will not see high economic growth in the next fiscal year

Indian economy has been observing rapid growth for the past six or seven years. In the post four years, the country observed an unprecedented average growth rate of 8.6%, but not anymore. On March 27, 2009, Montek Singh Ahluwalia, Deputy Chairman, Planning Commission, said that Indian economy would grow less than 7% missing the government growth target of 7.1% in fiscal year 2008-09. Mr. Ahluwalia was attending the national conference and annual session of the Confederation of Indian Industry (CII) at the Taj Palace Hotel in New Delhi. The conference started from March 26, 2009. He said that the world economy was facing the worst crisis in the last sixty years and it would not go away in the next two years. Through the conference, Mr. Ahluwalia urged all the top businessmen of the country to remain patient. Here are some of the highlights of the CII conference:

The $1.2 trillion Indian economy, the third largest economy in Asia, is going through a tough time. According to latest estimates, Indian economy would grow only 6.5% in the current fiscal year ending on March 31. This lower level of growth has been caused by a decline in the supply of foreign funds. However, the country would be able to maintain its current growth rate in the upcoming fiscal year. IMF estimated India’s growth to be 6.3% in the current fiscal year and would decline 5.3% in the next fiscal year. Mr. Ahluwalia said that rural economy has been insulated from the global slump.

Indian government has not decreased its spending and introduced tax cuts which would increase the country’s fiscal deficit. According to Arvind Virmani, Economist, Finance Ministry, the higher spending will help India’s growth and government borrowing will not create any problem for private investment. Financial reforms are also necessary.

The latest assessment by the Indian government revealed that the year 2009 will be worse than 2008 due to the growing fiscal deficit. In the previous budget session, government estimated the fiscal deficit to be 2.5% of the GDP which was revised to 6% in the latest interim budget session that took place last month. According to Ahluwalia, the fiscal deficit would be more than 6%.

Economic stimulus is going to further increase the fiscal deficit, yet, the government must continue its stimulus measures. In September, India first felt the tremor of the economic downturn as the country’s credit market froze. Since then, the current government injected about $85 billion into the economy.

The new government that will come to power in May must spend 1% of the GDP as “extra stimulus” to maintain the current economic growth. The effect of the stimulus package declared by the government will be seen in the first quarter of the next fiscal year. The IMF urged all the countries of the world to spend at least 2% of their GDP on stimulus. Countries like Saudi Arabia, Australia, China, Spain and US will spend that much amount as stimulus.

Currently, India is observing its lowest inflation rate in the last thirty years. The downward movement of the inflation which was caused by high base effect continued till the middle of March but high cost of manufactured products like cement and metals stalled the pace of decline. Last week, the inflation rate was 8% and from there it came down to 0.27%. Now, it is very close to zero and many economists are predicting that the rate would turn negative and cause deflation. Deflation happens when prices of goods decline due to lower demand. This encourages consumers to lower their spending which affects the economic growth. Serious deflation might hike the unemployment rate. Both Mr. Ahluwalia and Arvind Virmani ruled out the risk of deflation. Arvind Virmani, top economist of the finance ministry believes that India’s inflation would not go below “zero” in the next fiscal year. He thinks that the wholesale price index on average would be “zero, plus or minus 2 percent.”

According to Mr. Ahluwalia, an existing gap between inflation rates based on the official wholesale price index and different retail price indices is depriving consumers of the benefits of lower inflation.

On the first day of the conference, Duvvuri Subbarao, Governor, The Reserve Bank of India, said that his bank is in touch with other private banks in the country and asked them to lower their interest rates. Since October 2008, RBI lowered its lending rate by 400 basis points. From the same month, RBI slashed the percentage of deposits banks are required to keep as cash and its borrowing rate by 2.5 percentage points to 3.50%.

On February 16, 2009, Pranab Mukherjee, acting finance minister, said that Indian government will have to borrow $71 billion in the next fiscal year. Current debt of the government is equivalent of 80% of the country’s GDP.

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(This entry was originally published in March 2009 and is written on the context of that time.)

India observes lowest inflation in the last 33 years but rising oil and food price worry economists

India is now observing lower than 1% inflation for the twelfth straight week and it would enter the negative zone next week. Inflation dropped to its lowest since 1977-78 to 0.13% in the week ended on May 30^th. This has evoked fear of another sharp increase in inflation which has been fuelled by the rising price of crude oil in the international market and prices of food items inside the country. Yesterday, crude oil price rose to $72 per barrel in New York. In the last seventy five trading days, prices of crude oil in the international market increased to $68 per barrel. In India, price of crude oil also increased to $68.66. Business Standard reports:

In a report called ‘India Macro Stance’, Goldman said that inflationary pressures were sequentially building up. Recent data on both the Wholesale Price Index and the Consumer Price Index showed a sequential bottoming out between February and April. Latest readings of price indices were showing a bottoming out of inflation, it said.

Along with rising crude oil prices, rising price of food might pose a threat the overall economic growth of the country. Prices of wheat, rice and sugar have been constantly rising for the last two months. In August 2008, Indian inflation rose 16 year high to 12.91% which created serious problem for common man as prices of daily necessities rose. However, Indian Prime Minister, Manmohan Singh said that stimulus package offered by the government will not add to inflation but to economic growth.

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