Mukesh Ambani meets PM, decries demands for windfall tax

With UPA government’s new found ally Samajwadi Party gunning for Reliance Industries, the company head Mukesh Ambani on Monday met Prime Minister Manmohan Singh and a host of other senior government functionaries to explain how demands for levy of windfall tax was bad economics.

Ambani first met Singh and there were unsubstantiated reports that he followed this with a meeting with Congress President and UPA Chairperson Sonia Gandhi.

Flying in from Mumbai this morning, Mukesh started a series of meeting with top bureaucrats, including a call to Cabinet Secretary K M Chandrasekhar.

Ambani’s visit assumes importance in the wake of Amar Singh raising a number of issues, including a demand for withdrawal of EOU status for RIL’s Jamnagar refinery along with a suggestion that Prime Minister should intervene to bring peace between Mukesh and younger brother Anil.

Sources said Ambani pleaded that the demand for levy of so-called windfall profit tax on private firms was no more than a populist slogan based on the misleading logic that with rising prices of oil across the globe, these companies are making profits far in excess of what they legitimately deserve.

While Government shares production from oil and gas fields and is a beneficiary of high oil prices, the refinery business is highly cyclical and with new capacities coming on stream world over margins will decline precipitously.

Ambani is believed to have told policy makers that fiscal revenue gain from a WPT would be short-term in nature, but the economic costs of introducing an unstable fiscal regime could be long lasting.

Ambani is believed to have told policy makers that during boom periods of business cycles diverse sectors enjoy high returns like the IT boom in the late 1990s, but a WPT was not even contemplated for them.

Presently, many domestic natural resource-extracting entities in non-oil sectors have also benefited financially from the unprecedented global commodity boom. Will it be justified to impose WPT on them, he asked.

The US imposed a WPT in 1980 but repealed it in 1988 as it led to increased dependence on imported oil and gross revenue gains were significantly less than anticipated.

Ambani is believed to have stated that the current high crude oil price has led to an unprecedented increase in supply and service costs raising both exploration and development of oil and gas by a factor of 3 times over the last 3-4 years.

In economic terms, taxes such as WPT increase marginal production costs, and profit maximising firms respond to it by reducing output and raising prices.

Imposing WPT could have several adverse economic affects. If imposed as an excise tax, the WPT would increase marginal production costs, reduce domestic oil production and increase the level of oil imports.

Windfall profit tax is a tax on actual profit or profit margins. If levied on actual profit then it would need to take into account the capital invested, asset base and similar parameters while if levied on profit margins it was necessary to look at margins of other businesses especially during boom periods.

Refining business, Ambani is believed to have argued, is cyclical in nature. Product deficits catalyses expansion plans. But as new capacities come on stream, refining margins decline precipitously. Also, refining needs large and continuous investments just to meet stringent clean fuel specifications and stay in business.

Usha Mittal, Tina Ambani in Forbes list

They are married to the wealthiest individuals in the world but a few of them have etched out their own identity, with two Indians-Usha Mittal and Tina Ambani making a cut in the latest ’Wives of Billionaires’ list compiled by US business magazine Forbes.

Usha Mittal is the wife of world’s fourth richest person and steel tycoon Lakshmi Mittal while Tina Ambani is married to sixth wealthiest person Anil Ambani, whose flagship firm Reliance Communications. In an article on its website, Forbes said that "gaining membership to the billionaire wives’ club is no easy feat... so what does it take to marry one... For starters, looks are great-but brains are even better."

Prior to marrying Anil Ambani, Tina Munim was a famed Bollywood actress, it noted. Usha Mittal also has worked in the steel business for 15 years, one time running a plant in Indonesia Forbes said.

Inflation to touch 17% by September: Barclays

Global investment banker Barclays Capital has projected that inflation may surge to 17 per cent by September on back of another round of hike in fuel prices in the same month.

"We believe WPI inflation will remain in double-digit territory until May 2009. We expect WPI inflation of 17 per cent by September 2008," the report said.

For the week-ended June 28, wholesale prices-based inflation touched a new 13-year high of 11.89 per cent much higher than the Reserve Bank’s tolerance limit of 5.5 per cent for the current fiscal.

According to the report, the government is likely to hike fuel prices between 10 and 20 per cent again as early as September to limit fiscal risks.

Rise in the price of the Indian crude oil basket to $145-150 per barrel from the current $132 per barrel could be the trigger for another round of increase in fuel prices, it said.
The government last revised retail petroleum prices with effect from June 5, when petrol prices was increased by Rs 5 a litre, diesel by Rs 3 per litre and cooking gas by Rs 50 per cylinder.

This resulted in inflation touching a double digit figure of 11.05 per cent for the week ended June 7.

Last week, even Finance Minister P Chidambaram’s adviser Shubhashis Gangopadhyay predicted that double digit inflation will continue throughout the year 2008 and could impact the economic growth negatively.

Barclays Capital said, "we believe the momentum in core inflation will pick up steam in the next two quarters".

Over the next two quarters, manufacturing sector inflation would add to 200-300 basis points to the headline WPI rate, food and oilseed inflation would add 100-200 basis points, and energy inflation a further 100-150 basis points, it said.

The second-round effects of recent commodity price shocks are already passing through, and this process is expected to accelerate, it added.

RBI is also expected to further tighten monetary policy by hiking short term lending rate (repo rate) and mandatory cash requirements for banks to tame inflation.

The two monetary policy tools the RBI would utilise to rein in inflation would be the CRR and repo rate, it said.

"We forecast repo rate hikes of 200-250 basis points by end-2008, versus our earlier outlook for 150-200 basis points, from the current 8.5 per cent," it said.

In addition, the CRR which is currently at 8.75 per cent would be increased by 125-175 basis points by the year-end, it added.

The investment banker also revised average WPI forecast for the current year to 14 per cent from the earlier estimate of 13 per cent.

Vegetarians prone to strokes: Study

Strokes are the second most common cause of deaths and the commonest cause of severe disability. Now a study has shown that deficiency of Vitamin B12, usually seen in vegetarians, can predispose a person to strokes much more than the usual risk factors — diabetes and hypertension.

"While 20% of Indians suffer from diabetes and high BP," says Dr Arun Garg, consultant neurologist, Max Hospitals, "incidence of homocysteinemia (increased levels of homocysteine, an amino acid) caused by vitamin B12 deficiency, is 70%. This is seen more among vegetarians as this vitamin is mainly found in meat and milk, if it’s neither boiled nor pasteurised." In fact, deficiency of vitamins B12, B6 and folate causes two-thirds of strokes.

This risk is four times higher in vegetarians. As folate is found in vegetables and fruits, its deficiency is rare among Indians, but that of vitamin B12 is common.

Normal levels of homocysteine are 5-15 micromol per litre. Increased levels heighten the chances of blood clotting, which can lead to decrease in blood supply to the brain, causing a stroke. Studies have found high levels of homocysteine in over 80% of stroke patients. Even a rise of five micromol increases the risk of stroke by two times.

The link between strokes and vegetarianism was confirmed in a five-year study by Garg and Dr A K Jain, neurologist, Jain Neuro Centre, in two Max hospitals and this Centre. From 2003, 4,680 OPD patients were screened for vitamin B12 and homocysteine levels. Those with a history of stroke, heart disease, diabetes, chronic renal, liver problems, alcoholics and those on vitamin supplements were excluded. Most had vague complaints — tingling, numbness, chronic headaches and depressive symptoms like sleeplessness and fatigue.

It was found that 60% patients had vitamin B12 levels below 400 pg/ml and 38.9% had less than 200 pg/ml. Homocysteine levels were high (over 15 micromol/l) in 36%. And out of these, over 80% were either strict vegetarians or took non-vegetarian food less than once a week. This showed the co-relation between vegetarians and strokes.

To confirm the study, 418 ischemic stroke patients between 30-85 years admitted during the same period were analysed. It was found that homocysteine levels were high (over 15 micromol/l) in 77.5% of the patients showing vitamin deficiency can result in strokes. The effects of a stroke are serious and sometimes fatal — paralysis, loss of speech and vision, unsteadiness, double vision or even unconsciousness.

Dr Vinay Goyal, associate professor, neurology, AIIMS, says, "It’s true that vegetarians have less vitamin B12 as compared to non-vegetarians. This has been proven in Indian Americans, Germans, and Chinese/Singaporeans."

Prevention would cost less than Rs 10 per day, says Garg. All one has to do is take prescribed doses of vitamin B12 and B6 and folic acid. These are shown to reduce homocysteine level by 38% and the risk of stroke by 20-30%. Goyal says, "Vitamin B12 is also there in soyabean, legumes, dairy products, cottage cheese, etc." Garg and Jain gave vegetarian patients in their study daily vitamin supplements.

Their symptoms disappeared completely after 3-6 months of therapy. Vegetarians with vitamin B12 deficiency need life-long treatment. A dose of 1-1.5 mg/day is required, says Garg. The government too should fortify food with it, much like iodized salt. Also, as India has a high proportion of vegetarians, screening should be done. So get going to quell that stroke of bad luck.