Good Tidings

Tesco’s entry into Indian market has brought great respite to the government, which has been facing fierce criticism for not stepping on the gas on reforms.

TESCO TO FORM JV WITH TRENT, AS FIRST BIG TICKET ENTRY INTO INDIAN RETAIL 

The much hyped decision of government to allow foreign direct investment (FDI) in multibrand retail finally has some takers. As the first big entry UK retail giant and third biggest retailer in the world, Tesco has applied with Foreign Investment Promotion Board (FIPB) for setting up of stores on pan India basis in association with Tata group. Company will we forming a JV with Trent Hypermarket, a Tata group company. This is really a big respite for the policy maker as government has allowed FDI in multibrand outlet in September last year but no big company has come to open shop in the highly potential and estimated USD 40-45 billion Indian retail market. 

Going forward Tesco will invest USD 110 million in coming three years and will form a 50:50 JV with Trent. During the first year it will use shops of Trent to sell the products but then invest heavily to create new facilities. Focus of company is in Maharashtra and Karnataka. Current Trent has 16 Star Bazaar hypermarket in the country, which will be used by Tesco. Out of this investment 50 per cent will go to back end facility creation. 

Important to note that foreign companies are having concerns regarding the regulations of compulsory 30 per cent sourcing from local suppliers, that too SMEs and government has also categorically said that regulations can also be changed afterwards. Tesco’s entry into Indian market has brought respite to the government, which has been facing fierce criticism for not stepping on the gas on reforms. 

Rs 6600 CRORE INTEREST-FREE SWEETENER FOR SUGAR SECTOR 

Government at last has taken note of pathetic financial condition of sugar mills and will provide interest-free loans to financially crippled sugar mills. In the Cabinet Committee on Economic Affairs’ (CCEA) meeting on December 19, it was decided that Rs 6600 crore interest free loan will be provided to sugar mills to make payments to farmers for their sugar cane produce. In his statement, Food Minister K V Thomas told that interest subvention for this loan will be 12 per cent and it will be borne by the Sugar Development fund. Sugar export without quantitative restrictions has also been extended by CCEA for this crop year, which has started in October 2003. 

It is being estimated that total burden due to interest in next five years will be around Rs 2750 crore. This assistance to the millers will be provided by the banks and it will be given for paying farmers’ dues. Actually this decision came after the recommendations of a group of minister headed by Agriculture Minister Sharad pawar, which was constituted by prime minister to tackle the liquidity problem of industry. As per the decision, millers can take loan equivalent to excise duty paid by them in past 3 years and this loan will be repaid in next 5 years. Sugar producer can also avail of a moratorium on repayment for first 2 years. This decision will be helpful for the industry as around Rs 3000 crore past payments are in arrears towards farmers and current liquidity position of the industry is not very encouraging owing to sober sugar prices and high cost of production.

WINDFALL SIGNALED FOR RELIANCE AS CCEA APPROVES INCREASED GAS PRICE

After months of deliberations and dilly dallying, at last decision regarding allowing increased gas prices to Reliance industries has been taken by the government. CCEA in its meeting on December 19 has taken the decision to allow increased gas price from its KG-D6 blocks from April 2014, though this has come with a rider that company has to provide for bank guarantee to cover its liability regarding hoarding of gas charges. 

In its decision CCEA said that RIL will have to provide a bank guarantee, which will be equivalent to incremental revenue that company derives from increased gas price. This guarantee will be encashed if charges for hoarding of gas and deliberately cutting production from D1 and D3 fields, against RIL will prove correct. Important to note that these charges are under arbitration and is being validated by independent experts. Decision of CCEA has paved the way of notification of CCEA’s June decision of increasing gas prices as per Rangarajan committee’s formula that will increase the natural gas price from the current $4.2 per mmbtu to around $8.4 mmbtu. Soon after CCEA decision RIL stock price spurted by more than 4.5 per cent at the bourses.