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Sunday, October 25, 1998
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PM unveils package to boost economy
Tribune News Service

NEW DELHI, Oct 24 — The Prime Minister, Mr Atal Behari Vajpayee, unveiled a morale-boosting economic package today expected to buoy the capital market, generate employment and put the derailed telecom and insurance sectors back on the path of reforms.

Pointing out that the Indian economy was in urgent need of deeper, broader, and faster reforms, the Prime Minister told the 71st annual meeting of the Federation of Indian Chambers of Commerce and Industry here that his government was fully committed to this objective and "the commitment was not in words, but action".

The immediate action plan begins with an eight-point strategy to restore vibrancy in the capital markets, including meeting the long-standing demand of industry to allow companies to buy back shares.

On the infrastructure side, the government would start, within this year and from 20 different places across the country, work on a 7,000-km road project, which has a potential to create as many as three crore man-years of employment.

A new telecom policy is to be formulated within the next three months to provide a state-of-the-art nationwide telecommunication network, speed up rural telephone services and to meet the new challenges of the convergence of telecom, information technology and consumer electronics.

"We propose to permit companies to buy back shares within the prudential guidelines set by the SEBI in order to enhance the value to investors", Mr Vajpayee said amid applause by captains of industry and other representatives at the Vigyan Bhavan hall. Having got the proposal cleared by the group of ministers, the proposal is expected to get the Union Cabinet’s nod next week, industry sources said.

The other measures proposed for rejuvenating the capital markets include:

— Abolition of the existing provision requiring government’s prior approval for inter-corporate investments by one Indian company in another Indian company.

— Companies will be permitted to enhance acquisition limits in accordance with the recommendations of the Justice Bhagwati committee on take-over regulations.

— Structural improvements will be undertaken for accelerating demat trading and settlements. This would bring about greater efficiency and transparency at a lower cost and thus serve the interest of small investors.

— Restructuring of PSUs and a credible disinvestment programme for improving the productivity of economy. Keeping with the unsuccessful results of the past in the disinvestment process, it is now proposed to revise the process and set up a more transparent mechanism so that the pace of restructuring and disinvestment is commensurate with the urgency of the problem. The action to achieve these objectives will be in place within 30 days.

— The government has initiated measures to open the insurance business to the Indian private sector, which is a major step in mobilising long-term resources for funding long-gestation infrastructure projects. The government is at present examining a proposal to permit an appropriate level of minority foreign equity in the insurance sector.

— Steps will be taken to speed up the passage of a new Companies Act and Foreign Exchange Management Act. Views of trade and industry will be invited before finalising the Money Laundering Act.

— The government will support the Unit Trust of India fully in honouring its obligations, especially under the US-64 scheme.

Mr Vajpayee said the government realised the need to further strengthen the financial sector with a view to making it more resilient. Steps to improve the portfolio of financial institutions, to deal with the problem of non-performing assets, and improve the efficiency of FIs for making finance available at affordable costs was a high priority for the government, the Prime Minister said.

The Prime Minister pointed out that government spending in infrastructure sectors had come down significantly after the start of the economic reforms and he would remove this damaging imbalance.

He said recognising the importance of infrastructure in the development process, the allocation of such projects had been substantially augmented by over 35 per cent— from Rs 45,252 crore to Rs 61,146 crore. In the project sanctions of the All-India FIs, the share of infrastructure projects had gone up by 217 per cent in the current year and infrastructure projects accounted for one-third of the sanctions of Rs 75,000 crore.

Infrastructure development would get a further boost with the government’s plan to start work on a 7000-km road project criss-crossing the country. It envisages a six-lane North-South corridor connecting Kashmir to Kanyakumari and a similar East-West corridor connecting Silchar to Saurashtra.

The project, which is expected to cost Rs 28,000 crore, would have the scope for maximum private sector and foreign participation. The project also has the potential to create three crore man-years of employment, which would be a major contribution to the realisation of the national goal of "berozgari hatao".

Mr Vajpayee said cement concrete pavement would be the preferred technology in the project as well as other ongoing projects for four-laning of national highways. He said the move would give a big boost to the cement and construction industries.

Referring to the telecommunication sector, Mr Vajpayee acknowledged that there were a number of knotty problems – a difficult legacy inherited by the government. To untie the knots, the Prime Minister said a new Telecom policy would be formulated within the next three months.

In addition, within the next 15 days, the following measures would be taken:

— All outstanding issues between the Department of Telecommunications and the Telecom Regulatory Authority of India (TRAI) would be resolved to strengthen the latter’s role. A suitable out-of-court settlement would be found for pending legal dispute. Hereafter, the government would ensure that two wings of the executive did not go to court, for this amounted to abdication of political responsibility.

— The new internet policy would be announced and the licences issued to private Internet Service Providers.

— The Irridium project for global satellite telephone service would be launched, as scheduled, on November 1. The necessary approval for grant of license for this project was given by the DoT yesterday.

— The Prime Minister has mandated the National Task Force on Information Technology under the chairmanship of Mr Jaswant Singh to prepare a report suggesting a resolution of the outstanding issues in the telecommunications sector, including the licence fee structure for basic and cellular telephone operators. The Task Force will submit its recommendations before November 30 and the government will take appropriate action before the end of the year.

The other initiatives spelt out by the Prime Minister to give a boost to the economy includes the oil exploration sector, where the government will offer deep acreages with high potential for bidding. Bids would be invited within the next two months.

The government will identify five cities for the construction of world-class international airports with a maximum of 100 per cent foreign equity investment.

Housing was another sector on which the government would focus. The National Agenda for Governance has set the ambitious target of constructing of 20 lakh additional housing units each year. Besides giving a fillip to many industries, this would also generate large-scale employment.

Mr Vajpayee said the Environment Ministry would prepare a list of all industrial and developmental projects above Rs 25 crore, in which environmental clearance was pending for over six months. Consistent with the government’s commitment to harmony between development and environmental protection, these would be duly examined and all deserving projects would be cleared by the Ministry within the next three to six months.

The Prime Minister while resolving to put the Indian economy onto a higher growth path also asked industrialists and businessmen to look within and introspect to realise whether they had lived up to the expectations of the people and the government.

The present downtrend in the global economy was only a part of the reason for the difficulties faced by Indian business and industry. An equally crucial reason had arisen from internal factors — and these were not confined merely to the policies and performance of successive governments, the Prime Minister said.

"What is the main cause of the depressed state of the stock market? Is it not, at least partially, created by a large number of public offerings by unscrupulous promoters who exploited the market in its boom phase and later betrayed their commitment to the investors, mostly small investors?"

Mr Vajpayee said he had instructed the agencies concerned in the Finance Ministry to punish such predatory promoters. Suitable punitive action would be taken within the next three months, he said.

The Prime Minister also pulled up Indian companies for failing to incorporate good corporate governance. He said the time had come when this matter could not be left to the promoters alone. The government would like the financial institutions, on the strength of the significant stakes they hold in the companies, to demand better performance and adherence to sound corporate practices, he said.

He was critical about some companies basing their investment decisions on short-term sentiments and not on the long-term opportunity offered by the country.

In this regard he cited the example of the foreign direct investment proposals approved by the successive governments since 1991. The approvals amounted to 52.67 billion dollars. As against this, the total FDI inflow had been only 13.41 billion dollars, which was only 25 per cent of the approvals.

"The big Indian opportunity can be realised only if business, industry, and the government work with one mind and for one purpose—strengthen the economy at the earliest", Mr Vajpayee said.

On the global front, the Prime Minister said a massive churning process was taking place in the world economy and the name of this "samudra manthan" in the modern era was globalisation.

Mr Vajpayee said globalisation was a historical reality and forging mutually beneficial and cooperative relations was necessary for growth and prosperity.

The Prime Minister, however, said there could be no single model or solution to the problems of economic development and each nation had to pave its own path, based on its own concrete national realities and priorities. "This is what Swadesh means", he said adding globalisation and "Swadeshi" were complementary and not contradictory to each other.

Saying that the World Bank and the International Monetary Fund were set up in the pre-globalisation era and at a time when most countries in the world were either not free or had just won their independence, Mr Vajpayee advocated an innovative restructuring of the Bretton Woods twins, to reflect the need of today’s interdependent world.

India also wanted a radical change in the approach and functioning of other institutions such as rating agencies and global commercial banks he said.

Referring to the United Nation’s proposed international conference two years from now to suggest a new policy framework for the global financial system, Mr Vajpayee said the government was formulating a six-point conceptual framework for the innovative design of a new global financial architecture.

The six pillars of the new architecture would reflect the need for:

— Managing large capital flows without excessive volatility.

— Speedy decision-making and timely corrective action in the face of instantaneous electronic fund transfers across the globe.

— Transparency among all players – public and private, government and quasi-government, in developed and developing countries.

— Achievement of equity in an inherently unequal world economic order.

— Timely preventive steps against the "contagion effect".

— An ability to introduce adaptation and innovation in a fast-changing financial system.

Mr Vajpayee said the proposed points would be presented for a national debate in which the views of Opposition parties and all sections of business, industry and labour would be invited.

India would engage constructively with other countries in an effort to promote an international consensus for restructuring of the financial system, he added.

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Highlights

— Eight-point strategy to boost capital markets

— Buying back of shares by companies to be allowed

— Restructuring of PSUs and credible disinvestment programme to be implemented

— Minority foreign equity in insurance companies to be allowed

— Government to support UTI — Government to start work within this year on a 7,000 km North-South, East-West six-lane highway corridor. The Rs 28,000 crore project is expected to generate three crore man years of employment

— A new integrated telecom policy to be announced in the next three months

— A 15-day agenda to remove knotty problems in the telecom sector proposed

— The IT Task Force to prepare report on outstanding issues in the telecommunication sector. It will take up licence fee structure for basic and cellular operators

— The Environment Ministry to clear outstanding cases within three to six months

— Punitive action against fly-by-night operators in capital markets proposed

— India to seek restructuring of IMF and the World Bank

— A six-point agenda for new global financial system proposed.
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Industry, market hail PM’s package

NEW DELHI, Oct 24 (PTI) — Captains of industry and capital markets today welcomed the package of measures announced by Prime Minister Atal Behari Vajpayee to reinvigorate depressed stock markets and the sagging economy.

"We were expecting announcement on buyback of shares for so long. It will improve the market sentiments," a cheerful FICCI President K.K. Modi told PTI immediately after Prime Minister inaugurated the 71st annual convention of the Apex Chamber.

President of Delhi Stock Exchange Deepak Chowdhury exuded confidence that the announcement relating to revival of stock markets would have positive impact, provided these materialise in short time.

The Government should also take measures to revive the economy and further boost infrastructure spending," he said. Former member of the SEBI L C Gupta said buyback of shares had been announced under pressure from businessmen and was not in interest of small investors.

Assocham described PM’s announcement of buyback as a positive step and said all chambers had been asking for it for long. "The assurance by Prime Minister must result in positive action," Secretary General of the Chamber E.N. Murthy said. DSE broker Bharat Bhushan Sahny said introduction of buyback will help corporates to stop bear hammering on the scrips.

"Cash rich companies can buy shares from the market if the price goes below the intrinsic value. Buyback will allow corporates to come to the rescue of small shareholders," Sahny said. However, Assistant Director at Anz Investment Bank Pramod Kumar said buyback was a sensitive issue and proper safeguards should be in place to prevent manipulation by promoters.

"Buyback should not be used by promoters to hike their holding in companies. Further, corporates should be asked to justify the rate at which companies buy their shares," he said. An official in ING Barings said there should be enough provisions in buyback guidelines so that all shareholders have an opportunity to participate in the process.

"Buyback should not be allowed in off-market deals as it would allow companies to manipulate prices," he said. According to him, currently companies having a good cash flow would be able to go for buyback.

Companies in software, consumer durables and pharmaceuticals industry will only be able to go for buyback currently, he said.
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Lopsided, says Chidambaram
Tribune News Service and agencies

NEW DELHI, Oct 24 — The economic policy package announced by the Prime Minister is lopsided as it fails to lay emphasis on globalisation of trade and technology, former Union Finance Minister Mr P. Chidambaram said here today.

The government has ignored trade and industry while giving undue importance to the financial sector, especially stock markets, Mr Chidambram said.

Addressing a luncheon session of the 71st annual session of the FICCI here today, Mr Chidambaram said it was a matter of regret that the Prime Minister had failed to lay emphasis on globalisation of trade and technology.

Calling upon the industry not to fear competition and globalisation, Mr Chidambaram said new frontiers had to be conquered by laying emphasis on competition.

In any dispensation, however harrowing, there could be few winners. "There may be few remarkable winners in this industrial landscape characterised by severe slowdown. They are the people who are going to dictate the future," he said.

The Foreign Investment Promotion Board (FIPB) must be done away with as the country should move towards delicensing. "In a year or two, the FIPB would have served its purpose," the former minister said.

Mr Chidambaram expressed the need for internal liberalisation by creating a single market in the country. There should be regulations but these should not interfere with the market forces, he said.

Despite the government's stress on the financial sector, "the rhetoric is against the opening up of the sector. Inflation today is at 9 per cent."

The outgoing president of FICCI, Mr K.K. Modi, said business government partnership should result in significant development work in various sectors in order to achieve a 7 to 8 per cent growth of GDP per annum.

Welcoming foreign investment in the country, Mr Modi said India should give a commanding role to foreign entrepreneurs in the field of infrastructure and select industries.

Mr Modi said producers were grossly handicapped by their inability to "right size" the labour force and restructure their businesses to meet global competition.back

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