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The US imposed a WPT in 1980 but repealed it in 1988 as it led to increased dependence on imported oil and gross revenue gains were significantly less than anticipated.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

'Scratch' to make net 100 times faster

Scientists have developed what they claim is a small scratch on a piece of glass, which could make the internet nearly 100 times faster and give users unlimited, error-free access anywhere in the world.

"This is a critical building block and a fundamental advance on what is already out there. We are talking about networks that are potentially up to 100 times faster without costing the consumer any more.

"The scratched glass we have developed is actually a Photonic Integrated Circuit. This circuit uses the ’scratch’ as a guide or a switching path for information - kind of like when trains are switched from one track to another - except this switch takes only one picoseconds to change tracks.

"This means that in one second the switch is turning on and off about one million times. We are talking about photonic technology that has terabit per second capacity," lead researcher Ben Eggleton at the University of Sydney said.

Though the initial demonstration has shown that it is possible to achieve speeds 60 times faster than many current networks, with further development, the process is likely to produce even faster results, according to the researchers.

"Currently we use electronics for our switching and that has been OK but as we move toward a more tech-savvy future there’s demand for instant web gratification. Photonic technology delivers what’s needed and, importantly, what is wanted," he said.

The University of Sydney has developed the scratch in collaboration with the Technical University of Denmark and financial support from Australian Research Council.

Researchers had reported some time back that the internet could soon be made obsolete by "the grid". The lightning-fast replacement will be capable of downloading entire feature films within seconds. It will have speeds about 10,000 times faster than a typical broadband connection.

The latest spin-off from Cern, the particle physics centre that created the web, could also provide the kind of power needed to transmit holographic images; allow instant online gaming with hundreds of thousands of players, and offer high-definition video telephony for the price of a local call.

David Britton, professor of physics at Glasgow University and a leading figure in the grid project, believes grid technologies "could revolutionize society".

"With this kind of computing power, future generations can collaborate and communicate in ways older people like me cannot even imagine," he said.

India's diamond traders move house and dream big

The ambitions of Mumbai’s diamond traders are grand, even if their offices are not.They nurse dreams of rivalling Belgium’s Antwerp as the world’s diamond trading capital while sitting in ageing tower blocks that are about as grimy as a cut diamond is sparkly.

Corridors are splattered bloody red with decades’ worth of spat-out chewing tobacco. Lift doors must be yanked shut by hand. Toilets must be entered gingerly. Traders’ offices, though somewhat cleaner than the public spaces, tend to be cramped.

But, barring any last-minute bureaucratic spanners, the bulk of the trade should soon shift across the city to a new home more befitting one of India’s biggest export earners.

India already polishes about nine in every ten diamonds, mostly tiny, cheaper stones less than a carat. Faced with growing global competition, India hopes to cling on to its position in polishing by spreading into an area in which it has lagged: the trade of rough diamonds.

"We’re trying to make India the largest trading centre and manufacturing centre for diamonds," said Sanjay Kothari, the chairman of India’s Gem & Jewellery Export Promotion Council (GJEPC). "Why should we go to Antwerp?"

A bullish confidence is common among Indian businessmen these days. Nonetheless, even if few see Antwerp being eclipsed any time soon, the ambition of Kothari and his colleagues is giving pause to at least some Antwerp traders.

SPREADING OUT

In 2006-2007, India imported $8.8bn of rough diamonds and exported $10.9bn of polished gems, much of which is sent to Hong Kong and the United States to be set in jewellery.

But its dominance is under threat. Consultancy firm KPMG said in a 2006 report that India’s share of diamond polishing by value would drop to 49 percent by 2015, from 57 per cent today, as the global diamond industry spreads into new corners of the globe.

China is investing heavily in polishing mid-sized stones. Angola, Namibia and Botswana are increasingly determined to process locally some of the stones chipped from their mines, which once would have been promptly whisked off to the London clearing house of De Beers, the dominant player in rough trade.

To keep their foothold, India intends to spread out along the chain between mines and ring fingers. Indians’ success in cutting diamonds has given them advantages elsewhere: about 40 percent of the trade in Antwerp is controlled by Indians, according to the GJEPC’s Kothari, while Indians make up about half of De Beers’ elite customer list (much of the rest are Hasidic Jews).

The new Bharat Diamond Bourse -- Bharat being the Hindi name for India -- will house India’s first international diamond trading hall, and is intended to bring the trade back to the land where diamonds are said to have been first mined a millennia ago.

"Finally!" exclaimed Louise Prior, a spokeswoman for the De Beers’ marketing arm the Diamond Trading Company (DTC), when told by a reporter the bourse’s opening may be imminent. "It’s been under construction for a seriously long time."

In fact it has been about 15 years, a few years less than it took to build the Taj Mahal, and its blue, glassy, cliff-sized facade already looks a little dated.

Disputes with contractors, local authorities and even its own members, who were increasingly reluctant to pay their dues as time dragged on, have all stalled the 9.5bn-rupee project.

Still, every year or so, for the last decade, newspapers have confidently run stories saying the bourse is nearly ready. But this time they really mean it, says Anoop Mehta, the president of the bourse, which will house about 2,400 traders.

An onsite electronic customs office will replace the present need for export forms requiring 35 signatures. There will be around 100 food outlets, none of which will serve meat or eggs, in keeping with the sensibilities of the Hindus and Jains from Gujarat state that have long dominated the trade. Musical fountains are planned for the garden.

Officially, Antwerp is unfazed.

"We’re not really afraid of the ambition of others," said Philip Claes, spokesman for the Antwerp World Diamond Centre, which represents the city’s trade.

"We hear every day the diamond dealers say they like Antwerp, they do not intend to leave Antwerp, it’s nice living in Antwerp."

Prior, the DTC spokeswoman, says India’s trading aspirations will "take some time" to be realised.

But some individual traders admit to feeling worried.

"I don’t see why they wouldn’t be able to take a big place in rough trading," said Christophe de Borrekens, a sales director for the Antwerp-based diamond company IGC Group. "Since India became a very big manufacturing country, it’s a logical move ... It will take some part of the trade from Antwerp."

CHANGE

The planned move comes at a tumultuous time in the diamond trade. For much of the 20th century, De Beers ran a cartel controlling the trade of the bulk of the world’s rough diamonds from its mines in southern Africa.

In the last decade, De Beers has buckled under scrutiny by anti-trust regulators while its mining rivals have found diamond deposits in Russia, Australia and elsewhere, hobbling the giant’s monopoly.

India thinks it can take advantage of this fragmentation, and its government has begun negotiating with mining countries, including Russia, to buy rough stones directly. This became all the more necessary after De Beers reduced the amount of rough diamonds it sells to India in January.

Last year, India reduced the 5 percent levies on the import of polished diamonds to zero to help the trade.

But doubters still feel India is moving too sluggishly. Dubai built its own bourse in a fraction of the time it has taken India, and has offered far more generous tax incentives.

Nor is it a particularly happy time for the Indian industry: polishers are increasingly disgruntled about being among the lowest-paid diamond workers in the world, and have organised sometimes violent demonstrations, while a bitter global economy has dampened jewellery sales in India’s main markets.

"The problem with that bourse is it was planned 15 years ago," said Raj Mehta, a senior vice president at diamond giant Rosy Blue and a contented Antwerp resident. He thinks India lacks Antwerp’s handy geography and better infrastructure.

Even some of the more superstitious members of the bourse have grumbled.

"People were saying it’s marshy there, you’ll sink instead of being on firm ground," said Mehta, the bourse president. "But all of Bombay is on marshy land, and Bombay seems to be doing pretty well."

Pepsi dumped Sachin for overpricing?

The seniors vs youngsters debate has sparked off once again. And it’s not the cricketing fraternity that’s caught in the middle of it. After news of a cola major Pepsi deciding to end their innings with Sachin Tendulkar, this debate has gained an all new momentum. Seems like ’youngistaan’ is after all the mantra that’s being followed, literally . While the divorce was made public, the junta kept wondering if Brand Tendulkar is actually past his prime to sell products he has been associated with for years.

While T20 seems to be the flavour of the season, industry insiders believe that this decision was waiting to happen. Recurring injuries have kept the Little Master off the field for a long time. This ensured that his younger counterparts were seen playing a lot more. And when the young Team India brought the T20 World Cup home sans the veterans, it created new heroes overnight. Latika Khaneja, director, Collage Sports Management, is of the view that the industry functions according to the flavour of the season. "In this industry, it’s all about topicality. Today, Dhoni is the flavour of the country as he won the T20 World Cup and is also the captain of the ODI team. He looks good and is certainly an option instead of Sachin," says Khaneja.

But the age factor too cannot be ruled out here. Many believe that it’s Sachin’s age that’s going against him. "It’s all about ’brand fit’," says Jeet Banerjee, managing director, Gameplan. "While signing an ambassador, the brand has to keep in mind if the person’s image fits the product they are marketing right now." Hence, it was only a matter of time before Pepsi chose someone younger to fit the anthem, ’yeh hai youngistaan’ . But here is where adman Prahlad Kakar begs to differ. "It depends on how the company portrays its ambassador. Write a good script and I’m sure Sachin will be able to pull off a naughty and mischievous character as well. He has done so in the past in the ad with Shah Rukh Khan," affirms Kakar.
That’s for the future to decide. But one has to admit that it’s also the monetary aspect that plays a huge role in the signing of new brand ambassadors . While Sachin’s star was high up in the sky, his brand equity too skyrocketed. Even today, he commands a higher remuneration than any other sportsperson in India. And when a brand can get two or more stars at the cost of one, it’s a jackpot.

"Pepsi can’t afford to pay Sachin as his price keeps increasing," says Kakar, adding, "They can get other stars who could fit their current marketing strategy at the cost of one." Khaneja too voices the same opinion, saying, "It’s a case of price-performance issue. The brand looks to see how much it’s getting in return of the money invested in the player.

Sachin is very expensive and the priority is on the financials rather than anything else." Adman Ram Ray says that one cannot after all dismiss the investment angle all together. "It’s more about investment than anything else. They believe that Dhoni and the other youngsters are a better investment option today. In the long run, they’ll get better returns from the youngsters." But according to industry insiders, touting Sachin to be the most expensive player right now, cannot be all together accurate. It’s believed that while Sachin charges around Rs 3 to 4 crore per endorsement, Dhoni’s remuneration is anything between Rs 4 and 5 crore. Yudhajit, managing director, Mindscape Maestros, who has recently signed Dhoni, says that MSD right now is the biggest sporting brand in the country. "I always believed in working with the biggest brand and who better than Dhoni?"

Recurring injuries and ’getting old’ will be discussed for sometime now. But all said and done, it’s now left to see how Sachin works on his image management. After TVS, Airtel, Fiat and Pepsi ending their association with the Little Master, Sachin is now working with Canon and AVIVA Life Insurance. Out goes the Master Blaster image, and in comes the family man who cares for his children and their future. "Brand managers need to have a definite career management plan for the star.

The utmost aim is to get maximum returns," says marketing consultant Sunil Kalra. Khaneja who also manages Gautam Gambhir is now thinking of giving the star a completely new makeover. "After the T20 World Cup and IPL, Gambhir has become hot property. He is well-spoken but has his limitations which needs to be delt with. And that’s top priority."

It’s also interesting to notice how Sachin can now be spotted at various other high profile sporting events like Wimbeldon and F1, which has a much niche audience. Sachin and Pepsi may have parted ways. His image as a father and uncle may not appeal to the youth any more. But the more mature brands have now found a great ambassador. While for the youth the fizz may be out of Sachin, for the mature brands, it’s time to bring out the champagne for the older and much wiser Master Blaster.