Much ado about the rupee's fall against dollar
Mumbai: Despite all the brouhaha over the rupee's fall to 46.40/41 levels on Tuesday, the fact remains that rupee's fall is nothing in comparison to dips that pound sterling, Euro, or the Thai Baht have had against the dollar. But that does not mean that the rupee will not ease in the days ahead.

The pound sterling dipped 3.65 per cent to 1.4092 on Wednesday from 1.4606 to the dollar on September 1. The Euro by 5.9 per cent to 0.8460 from 0.8997 and the Thai Baht by 3.96 per cent to 42.5850 from 40.8950.

The rupee, by comparison, during the period is down by 1.25 per cent to 46.29 from 46.70 or thereabouts. Moreover during the period under reference, the rupee has gained against many currencies. Thus it is up by 2.3 per cent against the pound sterling to 65.50 from 66.74, by 3.9 per cent against the Euro to 39.14 from 40.72 and by 1.12 per cent against the Baht to 1.09 from 1.12.

Says ABN Amro Bank's country-head (India) Romesh Sobti: "One has to see the larger picture to understand the rupee's fall. Other international currencies have fallen against the dollar, and oil prices are at decade-high levels at $37 a barrel. A correction here was inevitable, but a 40-paise fall in a single day is not justified".

Others like e-Mecklai's forex consultant N Subramananian feel that "the rupee's fall on Tuesday is clearly a one-off event given the southward movement in other currencies vis-a-vis the dollar. It is a technical correction".

ICRA's economic advisor Saumitra Chaudhuri is of the view that short-term exchange rate movements are driven by stock market perceptions. Says Mr Mitra: "The depreciation of rupee due to dollar buying by importers is not a serious problem for the currency but when the foreign institutional investors and non-resident Indians start off-loading shares and buy dollars, it can lead to a serious mis match. The rupee movement has been significantly driven by international oil prices".

Other economists also seem to concur. The Federation of Indian Chambers of Commerce and Industry (Ficci) secretary-general Amit Mitra feels that panic-stoking and speculative elements should be restrained.

``There is no worry as far as the Indian economy's fundamentals are concerned. The steep rise in oil prices is a serious issue but does not warrant a panic. We have to take these things in stride and move on and avoid exaggeration,'' observes Mr Mitra.

A similar viewpoint is also held by Indian Council for Research on International Economic Relations (Icrier) senior economist Renu Kohli: "The country has a comfortable foreign exchange reserve position. Despite this, the Reserve Bank is not directly intervening to shore up the rupee. This indicates that it may not be bothered too much as long as the the rupee's fall is a gradual one".

Observes HSBC's country-treasurer Tarun Mahrotri: "There has been a bout of asset-selling in Asia, and India cannot be an exception. Then, oil inventories are at their lowest levels. Figures by the American Petroleum Institute put inventories at decade-low levels at around 286 million barrels. And if oil prices were to fall, they will use that chance to replenish stocks, further affecting prices. I think the rupee's fall is in reaction to all these factors".

A dip in international gold prices by nearly $20 in the recent past to around $271 per troy ounce as of now, is cited in some quarters as boosting demand for gold ahead of the domestic festive season, but many senior bankers like Mr Sobti at ABN Amro Bank do not see this as a factor affecting the spot-rupee market.

Most experts feel the rupee is clearly headed southwards in the coming days. Senior treasury officials say they expect the rupee to remain in the Rs 46 to Rs 46.50 range. Most concur that ``a lot depends on the movement of the Euro and pound sterling against the dollar in addition to the stock market behaviour and oil prices''.

"If you are to say that the other currencies have fallen steeper against the dollar, then it is clear that the rupee will slide further, but I do not think that you are going to have 35-40 paise falls every day. It will dip in a more controlled manner,'' says e-Mekclai's Mr Subramanian.

So what about the fact that the rupee never seems to gain when other currencies do so against the dollar? The answer, dealers say on condition of anonymity, is that the Reserve Bank seldom allows the rupee to fall by the same margin that other currencies slip up against the dollar!
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Petro prices may go up by weekend
New Delhi: The Union government, according to informed sources, is gearing up to announce an increase in prices of petroleum products by the weekend or latest by early next week, when petroleum minister, Ram Naik returns from Indonesia.

It is generally felt that the price rise would be steep as the government has to take care of huge oil pool deficit because of spiraling prices of crude in the international market. The oil pool deficit has already shot up to Rs 9,000 crore and is expected to further rise to Rs 20,000 crore by the end of the current fiscal, unless the prices of petroleum products are increased.

Finance ministry on its part has ruled out the idea of floating oil bonds. The minister of state for revenue, V Dhananjay Kumar, while talking to reporters here on Wednesday questioned, "who will subscribe to the oil bonds? We have not received any proposal from the petroleum ministry and are not even contemplating oil bonds."

Analysts feel that as far as duty cuts to blunt the oil price hike are concerned, the options before the finance ministry are limited. Since the non-POL imports are low, the exchequer will have to forego a large chunk of customs revenue in case the finance ministry agrees to reduce customs duty on crude and products. Moreover the impact of duty reduction, especially on crude, will be felt only after a gap of four months.

Finance ministry, in the last budget, had reduced the basic customs duty on crude from 20 per cent to 15 per cent and on petroleum products from 30 per cent to 25 per cent. Crude and petroleum products are already exempt from the special additional duty or the SAD of 4 per cent.

Petroleum ministry has been lobbying for reduction in customs duty on crude, as revenue from this is much higher than what was anticipated by the finance ministry. This has happened largely because of increase in prices in the international market on the one hand and depreciation of rupee on the other.

As far as reducing excise is concerned, the options are limited. Says Dhananjay Kumar, "options are limited as we have 16 per cent CENVAT".

Among other options the finance ministry can remove special excise duty or SED on certain products. Petrol, it may be mentioned, attracts SED of 16 per cent in addition to 16 per cent CENVAT. The finance ministry can reduce SED on petrol, but it is the last item on the priority list of the government. Sensitive items like kerosene and LPG were not touched when finance ministry increased rates on all items attracting 8 per cent excise to 16 per cent CENVAT in the last budget.
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Paswan calls for report from telecom CGMs as stir continues
New Delhi: Minister of Communications, Ram Vilas Paswan, has asked the officers of the affected telecom circles to ascertain the cause of network failure and submit a report urgently. The instructions came in after the DOT failed to arrive at a settlement with its agitating employees, who have been on a work-to-rule strike since the 12^th. "The nation cannot be held to ransom by a few thousand dissatisfied officials, particularly when their grievances are receiving the highest and full consideration. Most of the major demands of the unions with regard to corporatisation of the Department of Telecom Services have been settled and all pending issues can be discussed across the table and sorted out,'' said Mr Paswan.

Meanwhile breakdown of the national long distance network services continued unabated, with two pockets -- one in West Bengal and the other in south India -- suffering the most. Officials said the whole problem has been created by wrong routing of calls by C and D category of employees. ``We believe it is happening at the behest of the Communist Party of India, which is supporting the C and D category employees in these two pockets,'' said the officials.

While the government and the unions lock horns, it is the common man -- and India Inc -- which continues to suffer the most. Companies across the country have complained about the complete failure of the system. ``My office in Delhi is unable to connect to its counterpart in Calcutta for the last two days, bringing to a halt all communication network. Earlier we were managing via Hyderabad but that link too has been disrupted now,'' complains Atul Kunwar, CEO, Mantra Online.

The government has come in for severe criticism for its failure to resolve such crucial matters which have a direct impact on the country's economy. ``With leased lines across the country not working, most of Internet services have come to a halt and internet service providers are struggling to maintain the connection,'' said Amitabh Singhal, secretary-general of Internet Service Providers Association of India (ISPAI).

The possibility of the agitation had been looming large on the horizon for the past few months. Different telecom associations have been protesting against one or the other steps taken by the DoT in relation with the corporatisation of DTS.

While the employees affiliated to the Indian Telecom Service Association or ITSA have been on a work-to-rule agitation for pressing demand of maintaining pension and status as government employees even after corporatisation, Class B officers of the MTNL have been demanding new salary scales.

In between employees affiliated to the Telecommunication Engineering Services Association or TESA also went on a work-to-rule agitation, pressing for implementing of higher scales and reducing the timeframe for promotion.

While the government has been assuring employees that their interests with regard to salary, pension and job security will be safeguarded, one issue which has become the bone of contention is: How the new corporate entity will face competition when most telecom services have already been privatised?

``What if the corporate fails to generate profits and compete with the private sector?'' asks a telecom union spokesperson, reflecting the main concern among the employees, who have so far enjoyed the security of being government employees.
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