Biz highlights of 2002

Insurance: From tax-saver to savings, risk-cover
The insurance industry in the country has undergone a sea change in 2002, as competition forced insurers to offer more benefits, build awareness among masses and prompted the Centre to consider hiking FDI ceiling to 49 per cent. The insurance industry in the country has undergone a sea change in 2002, as competition forced insurers to offer more benefits, build awareness among masses and prompted the Centre to consider hiking FDI ceiling to 49 per cent.
What came as a boon for the industry was a paradigm shift in consumer perception and preference due to a rainbow of benefits for exigencies like critical illness, disability and accidental death, which were hitherto unthinkable.
The cityscape is now a colourful canvas of private insurers, who project insurance products not as tax-saving instruments but as long-term savings and risk cover.
Moreover, unit-linked and single premium policies have caught the fancy of a wide section of investors, who now find returns on insurance policies more attractive than that offered by bonds, mutual funds and even equities.
Adding to this, making agents more professional through mandatory training as drawn up by Irda provides consumers the much-needed awareness about insurance needs.
Gripped by insecurity at a time when interest rates on savings are coming down, assured return schemes are vanishing, equity markets remain volatile and there is a threat of losing tax rebates, the Indian masses also seem to have found some sense of security in insurance policies.
Viewing the macro gains, the Centre was forced to toy with the demand of hiking foreign investment cap in insurance to 49 per cent from 26 per cent.
Insurance Regulatory and Development Authority chief N Rangachary, had shot down such a move as it might sideline Indian promoters to a minority.

Retail inflation hits public hard as govt harps on low WPI

Inflation being one form of tax, the general price movement proved fatal for the common man this year with prices at retail level continuously moving up, though the government claimed success in reining in the wholesale prices to around three per cent.
High prices of foodgrains and kerosene ate into the pockets of commoners even as government claimed inflation (Wholesale Price Index) was well under control owing to comfortable supply of foodgrains despite drought.
Consumer price index for industrial workers, which shows the magnitude of the impact on the people, was down marginally to 4.3 per cent in September as compared to 4.9 per cent in January this year and remains above WPI.
However, finance minister Jaswant Singh countered his opposition critics by pointing to the rise in retail inflation in the developed economies of US and Europe.
Though policy planners including finance secretary S Narayan and RBI governor Bimal Jalan have harped on "benign" WPI inflation, there is general perception that the poor and the wage earners have been hit had by retail inflation.
The data of ministry of commerce and industry itself will vouch for the "belt-tightening" that became necessary, since index of kerosene, which is the major fuel for rural and urban poor, skyrocketed by 160 points while the index of aviation turbine fuel rose by a mere two points and energy prices for the industry dipped.

Controversies, thy name is urban development ministry

Controversies dogged the urban development ministry during the year over alleged allotment of prime land in the capital at cheap rates to Sangh Parivar sympathisers and a tug-of-war with the city government over granting of statehood to Delhi.
The ministry, which saw a change of guard with Jagmohan handing over the baton to Ananth Kumar during the last cabinet reshuffle, is, however, closing the year on a happy note throwing open to the public the first phase of `metro rail`, a dream project of Delhiites.
A major controversy erupted in the ministry when allegations were made that during the tenure of Jagmohan some registered societies having membership of RSS sympathisers and workers were allotted land in the heart of the city for setting up charitable, educational, social and cultural institutions.
However, reacting strongly to the charges, Jagmohan clarified that during the time he held charge of the ministry no allotment was made to any institution "which was not in accordance with well-established principles, procedures and norms laid-down by the union cabinet years ago".
He pointed out that during his tenure allotments were made to several other socieities but only a handful of them were picked out to malign him.
Shipping in muddy water again

After a brief period of buoyancy in 2001, Indian shipping industry`s fortunes have come crashing. The year 2002 has seen sharp fall in earnings reflecting renewed pressure on the freight market.
For the first time almost every sector of shipping -tanker, bulk carrier, or container - is on a slide. The only redeeming feature is that the downslide which began early this year, has stopped and things are not getting any worse.
The delays in privatisation of national flag carrier Shipping Corporation of India (SCI) made the scenario more bleak. Unlike other PSUs up for divestment, there was no opposition from neither the administrative ministry or SCI employees. One possible reason was the reversal in fortune of the shipping scrip on the bourses.
Government also flipped-flopped with privatisation of Cochin shipyard and Hindustan Shipyard Ltd, Viskhapatnam and ultimately decided that the time was not right for their privatisation.
Corporatisation of major ports too took a backseat with employees opposing separation of landowner and utility functions. Private participation for infrastructure development and maintenance was also bitterly opposed.
India`s thrust with big-time LNG transportation business fell flat when Greenfield Shipping - a joint venture company of SCI and Mitsui Osk of Japan - had to put its first LNG carrier in spot market after Enron shut down its Dabhol power plant for which the company was to ferry feedstock from Middle-East.
Banks get the ammo to pin defaulters; dizzy with M&A, IPOS
What was unthinkable in the past five decades, government carried out in a major reform by arming banks with "Brahmashtra" to deal with defaulters and control their non-performing assets, estimated at Rs 66,000 crore as the sector looked for avenues including IPOS and mergers in search of consolidation.
Finance Minister Jaswant Singh, addressing Parliament, termed the Rs 1,10,000 crore NPAs, which are inclusive of FIS and other non-banking institutions, as "loot" and refused to bow before industry`s pressure to water down securitisation and reconstruction of financial assets and enforcement of security interest ordinance.
Though corporate viewed the new NPA law as "draconian", apprehending that it might be misused, bank chiefs held that it was imperative for them to improve bottomlines and reduce the interest costs.
Banks for the first time unleashed fear psychosis to discipline India Inc in repaying loans promptly and reduce the overall NPAs to 5.0 per cent through which it is expected to increase the profit by another Rs 6,000 crore in this fiscal.

Much before securitisation bill was cleared by Parliament this month, banks took a strong position in September itself and started slapping notices on companies irrespective of their size and stature.
The arm-twisting tactics showed results immediately as corporates rushed to banks to settle their dues, in contrast to the earlier trend when bankers used to run after defaulters for recovering the loans.

Fertiliser industry left high and dry

Hit hard by one of the century`s severest droughts in 2002 and government`s failure to announce a lasting pricing policy, the Rs 35,000 crore fertiliser industry cried for relief including duty protection against cheap imports even as it kept taking the flak for mounting subsidies.
Burdened with burgeoning fertiliser subsidy of over Rs 14,000 crore, a worried government continued to grope fervently for a mechanism to contain the outgo, while an anxious industry pleaded for seven per cent urea price hike annually for the next 4-5 years to phase out subsidy saying the industry was real beneficiary of the mechanism.
For the distressed farmers, it was yet another year of helplessness as they confronted a truant south-west monsoon.
With Kharif crop hopes evaporating in the driest July of 127 years, fertiliser sales dried up sharply.
The year saw preparations to dismantle the Retention Pricing Scheme (RPS) for subsidy to urea units under a new policy regime. As fertiliser minister S S Dhindsa puts it, "several aberrations have crept into the scheme".
While readying itself to survive outside the protected RPS environment, the domestic industry also apprehends dumping in the wake of removal of quantitative restrictions on import of fertilisers and wants "reasonable" safeguards.
Apex manufacturers` body, Fertiliser Association of India wants upto 35 per cent import duty on urea under free price mechanism saying it was in tune with WTO regime. It says though DAP has a bound rate of 5 per cent, urea has none.
The much trumpeted long term fertiliser policy to deal with pricing and subsidy failed to see the light of the day despite three years of deliberations. 2002: News, current affairs print media opened to 26 % FDI

In the history of Indian print media, 2002 will go down as a turning point which changed nearly five decades of government policy barring any foreign participation in the sector but the coming year may see more regulation for the media if the information and broadcasting ministry has its way.
After years of debate and stiff resistance from opposition parties and a section of the media, the sensitive news and current affairs print media was opened to 26 per cent FDI though with safeguards" while 74 per cent foreign equity was allowed in other publications.
The union cabinet gave its nod to the proposal in May this year, reversing the 1955 cabinet resolution that barred entry of foreign equity in the print media.
The government came out with guidelines for news and non-news print media recently and assured it had incorporated enough "safeguards" to protect the country`s interests.
Forseeing a revolution in the print media sector, information and broadcasting minister Sushma Swaraj now hopes India will become the hub of printing Asian editions of technical and speciality magazines.
The year, which began with government concern over "indecent" images on FTV, ended with Swaraj coming down heavily on the print media for "negative and vulgar portrayal" of women and assuring the press council "more teeth", a long pending demand of the autonomous body.
Empowerment, mergers, alliances mark 2002 for banking sector

The banking industry will remember 2002 for not only bestowing it with more powers to recover assets from defaulters but also for increase in mergers and alliances with allied financial sectors.
The year will go down as a watershed one due to the passage of much-awaited securitisation and reconstruction of financial assets and enforcement of security interest bill that equipped the sector with powers to raid and seize assets of willful corporate defaulters.
Alongside, a significant improvement in profitability of Indian commercial banks, curtailment of incremental Non-Performing Assets (NPAs) combined with product innovation through technology were the other highlights of the banking sector this year. Masses pay the price as govt tries to come out of debt trap

Unable to swallow the bitter pill of mounting interest liabilities due to excessive borrowing by the Centre, banks were forced to cut interest rates on deposits, hitting the common people, as an offshoot of bringing down the rates on lending this year.
Though finance minister Jaswant Singh assured relief to pensioners and senior citizens, entirely relying on the small savings ploughed by them during entire life, the situation seems to be grim as 74 per cent of government`s borrowing went for meeting interest payments, leaving a small portion for productive purposes.
Government, which overshot its market borrowing target virtually every year, and aims to mop up over Rs 1,42,000 crore this fiscal, had hinted on lowering rates further.
With progressive rate cuts by RBI, interest rates for the short duration deposits had touched rock-bottom. Despite this, Planning Commission is hopeful of over 28 per cent saving rate in the country. At present, the savings rate is little over 23 per cent.
Already with debt burden of over Rs 12,00,000 crore, why did the government have to excessively mop up from the domestic market?
The answer lies in the Centre`s account books as its fiscal deficit continues to be at over 5.0 per cent of GDP. With tax collections faltering and expenditure continuing its ride high, what else can the government do?
Interestingly, with falling accruals from public sector and lesser reliance on external debt, it is no wonder that the Centre had to tap the domestic markets in 2002. SSI continues to battle with high credit cost, inspector Raj

Survival and future of the Small Scale Industry, one of the largest employment providers in the economy, remained uncertain during 2002 as government continued to deserve industries from its fold while the sector battled adverse conditions of high cost loans and vagaries of the inspector Raj.
The sector, which contributes significantly to both GDP and exports, could not have however found a better sympthasier than Prime Minister Atal Bihari Vajpayee when he sought speedier liberalisation of SSIs from plethora of rules and regulations and made a case for bringing it at par with other segments of the industry for availing bank loans.
"All enterprises -especially small and medium enterprises must be speedily liberated from the heavy burden of untenable constraints and hurdles they face," vajpayee said addressing a global seminar on recently.
Building a case for reducing the interest burden of the sector, Vajpayee said there was a need to change legal and administrative framework where ever necessary to bail out the SSI sector whose contribution to the economy was "truly big".
Despite these problems, the tenth five year plan period has set an ambitious 12 per cent growth target for the ssi sector and estimated that the sector would generate 4.5 million jobs over the period.
Though the sector has outperformed the industrial growth rate, government policy initiatives particularly the move towards a comprehensive single legislation for the SSI, has not shown much progress. Similarly, much delayed legislations such as the limited partnership act and the factoring services act have not yet got the finance ministry`s nod.

Agriculture 2002 - spinster aunt of Indian Economy

Like a spinster "aunt" in the family, Indian agriculture seldom draws anyone`s attention except when sick, as in 2002 when the century`s worst drought had a cascading effect on the entire economy.
The farm sector dominated national politics and parliament proceedings all through the year, but for wrong reasons - starvation deaths, suicide by farmers and overflowing granaries with rotting grains.
Stung by the driest July in 127 years, the farm sector finds unachievable the target of 220 million tonnes foodgrain output with Kharif production declining by over 19 per cent to 91 million tonnes from 111.5 million tonnes last year.
Initially projected to be normal for 15th year in a row, south-west monsoon played truant in 14 states resulting in over 20 per cent deficient rainfall.
Under its impact, rabi production too is unlikely to surpass last year`s 99.8 million tonnes but for the first time it may be higher than kharif output of 91 million tonnes.
As farmers` plight was sought to be politicised over Minimum Support Price (MSP) and drought relief, reports of suicide by peasants caught in debt trap poured even from rich states like Punjab, Andhra Pradesh, Karnataka and Tamil Nadu.
Though the government ruled out hunger due to drought and kept basking in the glory of huge foodgrain stocks weighing over 550 lakh tonnes, a large chunk of it was found unfit for human consumption and disbursed as cattle feed.
As the year drew to a close, Prime Minister Atal Bihari Vajpayee announced waiving of a year`s interest on kharif loans amounting to Rs 2,000 crore after a prolonged row between agriculture and finance ministries over drought relief involving a Rs 3560 crore package.

Scandals, family feuds keep India Inc on its toes in 2002

India Inc was kept on its toes this year, with accounting and bribery scandals rocking its very foundation, mega deals like Grasim`s acquisition of L&T facing unforeseen hurdles and government finally arming itself with more teeth to raise corporate governance standards.
It was an year when India lost perhaps its single largest wealth creator, reliance chairman Dhirubhai Ambani. As if this was not enough, corporate ethics of one of India`s biggest corporate icons - Birlas - have been questioned in the L&T deal even as another iconic name of Bajaj has been dragged in a bitter family feud involving Bajaj auto.
Close on the heels of a spate of scandals hitting the US market, when Xerox corporation confessed that its officials in India had paid bribes to secure government contracts in July this year, India Inc was shocked out of its wits.
And even as these facts came to light and investigations are yet to be completed, Xerox has quietly effected a change of guard at the Indian office while its joint venture partner - B K Modi group - has denied any involvement in the deal.
Again, when the Tata finance imbroglio hit headlines when accounting firm a F Ferguson criticised the house of Tatas for lax corporate governance systems in place in the finance arm, corporate world and the accounting community took opposing stands on who was right.
And even as investors are still coming to terms with such instances of alleged corporate frauds, Kumaramangalam Birla is battling for control of L&T with Sebi suspecting the mode of acquisition and L&T management pushing a proposal to hive off its cement division. Labour Panel report, houses for EPF members: 2002 highlights
Review of labour laws as recommended by the Second National Labour Commission in an attempt to build consensus on labour reforms, housing benefits for subscribers of Employees Provident Fund and retaining the rate of interest on EPF at 9.5 per cent despite pressure from Finance Ministry marked the performance of Labour Ministry during 2002.
The Second Labour Commission headed by Ravindra Verma submitted its report to the Prime Minister in June suggesting a comprehensive review of labour laws to end multiplicity of legislations.
However, some of its recommendations particularly hire and fire in units employing upto 300 workers against 100 at present without Government`s permission, curtailment of holidays and encourgement to contract labour triggered sharp criticism from Central Trade Unions, so much so that the Government had to face embarrassing moments with Sangh Parivar affiliated BMS expressing strong reservations. The voluminous recommendations are at present under consideration of the Government and according to Labour Minister Sahib Singh Verma the report would be disscussed at the levels of employees, employers and the Government as well before taking a final view.
"No step will be taken which will be detrimental to the workers` interest," Verma has assured the trade unions.
Environment hots up! Environment became one of the hottest issues this year with government grappling with the pressures from the developed world on climate change even as on the domestic front it faced criticism from judiciary on pollution levels and remained undecided on auto fuel policy and commercial cultivation of GM mustard.
Rising pollution levels in the capital and most of the other metros and government`s inaction prompted the Supreme Court to intervene, which was instrumental in converting the entire public transportation in the capital to CNG-run.
The brouhaha on Mashelkar Committee report kept the government undecided on whether to stick to its earlier plan of going for Euro-III norms only by 2005 or leapfrog to Euro-IV.
The growing awareness about the adverse effects of climate change and high economic stakes made the West dictate terms on Green House Gas emissions but the Third World, led by India, refused to buckle under pressure.
However, the UN Conference on Climate Change (COP-8) held in the capital in October brought into sharp focus the North-South divide on numerous issues, at the same time bringing to the fore the enormous business opportunities it could offer.
COP-8 also brought into focus the investment potential Clean Development Mechanism (CDM) or carbon trading provided. Going by the response of the third world countries, the future will bring stiff competition to bag these projects. SEBS` defaults, cash crunch cloud power sector
High levels of unpaid dues to generators, cash-strapped SEBS, lack of private sector participation and a streak of populism coming in the way of tariff realisation during the year gone by marred the power sector, which is in crying need of development for high economic growth.
Stung by controversies, the crucial infrastructure sector received a setback on the reforms front with the unceremonious removal of Suresh Prabhu as power minister due to NDA ally Shiv Sena`s informal pressures, and a solution continuing to elude the controversial Dabhol Power Project in Maharashtra, closed for nearly 20 months.
The sector, requiring an astronomical Rs 800,000 crore investment in the next ten years for attaining the goal of electricity for all by 2012, even failed to attract investors, forcing policy planners to depend more on central PSUs like NTPC, which unfortunately are struggling for what they called "fair tariff structure" for generation of investible funds.
The intervention by Prime Minister Atal Bihari Vajpayee for clearance of a staggering rs 40,000 crore dues owed to power and coal PSUs by SEBS, almost a year back, is yet to produce results despite decisions at relevant fora and passage of a bill in parliament.
Deputy Chairman of the Planning Commission K C Pant warned that lack of financial discipline and absence of appropriate user charges in power sector could shortcircuit the ambitious annual 8 per cent growth target for the tenth plan while decrying instances of reversal of tariff hike by some state governments.
Chambers caught between cross-fire; business takes backseat
It was more politics than business for the apex Chambers of Commerce during the year 2002 as they were caught in the cross-fire between leader of opposition Sonia Gandhi and Prime Minister Atal Bihari Vajpayee as a result of which some of the crucial issues for industry fell by the wayside.
Falling prey to tendency of one-upmanship, Confederation of Indian Industry (CII) had to face the brunt of political battle between BJP and Congress and it paid the price for it in terms of having its annual India Economic Summit without the presence of any leading lights among the policy planners.
Instances of infighting like that in federation of Indian Export Organisations for Control of the apex body which involved dethroning of its president and even legal battle forced the government to take a tough position with commerce ministry initiating steps to put a financial squeeze by way of tightening aids to them as a disciplinary measure.
Fighting for their place in the fast liberalising economy, the chambers continued taking up issues like monopoly, mergers, threats of cheap imports and corporate defaults in the wake of government giving more powers to banks and FIS for recovery of their debts.
There was a lukewarm response to new competition policy under which a super regulator Competition Commission of India (CCI) would be set up to regulate the market players to check abuse of dominance in tandem with removal of any restriction of growth in terms of size and investment. The competition bill 2001 was passed by parliament recently which among other things sought an end to MRTP act.
Resilent Asian economies set for better showing in 2003
Asia displayed remarkable resilience in the face of sluggish consumer spending this year in the United States, its biggest export destination, and economists say it is set to reap the rewards in 2003.
The mix of a US turnaround and a rapidly accommodating China are seen as the right ingredients to bolster regional economies, although Japan shows little sign of emerging from its decade long slumber.
Asia`s ability to absorb the fallout from an anaemic US economy and lay the groundwork for a significantly improved 2003 is credited largely to reforms forced upon Asia by the 1997 financial crisis.
"What we have is a lean Asia which does not have a lot to trim off," said Joseph Tan, an economist with Standard Chartered Bank.
With the United States poised to turn on a stronger performance next year, export-oriented Asian countries stand to gain from a spurt in orders. Consumer spending accounts for about two-thirds of US economic activity.
"The foundations that most Asian countries have built after the 1997 crisis... Would have put Asia in good stead to capitalise on any acceleration in the US recovery," said Nizam Idris, a Singapore-based economist with Ideaglobal.
The US economy is projected to grow 2.6 per cent in 2003 from 2.4 per cent this year which means the growth momentum is accelerating and "that will be good news for Asia," Idris said
Add the red-hot Chinese economy to the equation and the horizon for Asia in 2003 looks even brighter, according to economists.