If the rejig attempted by the Telecom Regulatory Authority (TRAI) to align international and domestic long distance call rates to global standards is approved, there could be far reaching implications for both the state owned monopolies, MTNL and VSNL. Currently, basic telephony rentals account for 17 per cent of MTNL's revenues. To that extent, analysts estimate that the increase in rentals for both urban and rural users should rake in an additional Rs 300 crore. Additionally, the reduction in free calls and the change in the pulse rate from 5 minutes per call to 3 minutes per call, are all beneficial for MTNL.

However, the tariff rationalisation exercise into a dual slab structure, could offset the gains from the rentals as a huge chunk of MTNL's users (the corporates) falls in the over 3000 call category, the tariff for which has been reduced to a flat Rs 1.20 per call. Moreover the staggered decline in long distance telephony (domestic and international) rates, over the three yeartime frame should have a negative impact on MTNL's revenue accruals, starting only from 2001 onwards. But if TRAI's action plan to align long distance telephony rates to international standards does result in a considerable increase in outgoing traffic, this would compensate the drop in revenues at least in the short term. As far as VSNL, is concerned the only benefit of TRAI's proposals would come from the increase in outgoing volume traffic, given the cut in long distance telephony rates.

Foreign Oil

The government has recently approved a marketing policy for the oil sector, where investors putting in more than Rs 2,000 crore either as debt or equity will be allowed marketing rights for petroleum products of that refinery. By allowing marketing rights the government appears to be making an attempt to woo the foreign partners of public sector companies who had earlier backed out. Enthused by the positive outlook of the government, foreign investors in the oil refining sector have turned greedyand are now asking for the control of a majority of the retail outlets belonging to their public sector joint venture as a pre-condition.

If the foreign partners commit their funds, it will take around three to four years before the refineries are commissioned. By that time the oil sector in any case would have been dismantled if the government sticks to the dismantling schedule. However, a refiner would like to keep its marketing network in place before its plant is commissioned. Thus the demand of the foreign companies for some sort of entry in marketing is partly justified.

Yet, asking for control of the retail outlets belonging to their public sector partner, before commissioning the refinery is asking for too much as by conceding the retail outlets the public sector partners will be losing out on an existing business. In a scenario where the refinery output is likely to overshoot demand, such a move will only make matters worse not only for the company concerned but also for the whole sector. As forthe contribution of the public sector company in the same venture, the company has nothing to gain from the investment, in fact it will be losing a substantial portion of its existing marketing network.

Tata Mutual Fund

News reports indicate that the Tata Mutual Fund has decided to substitute the proposed bonus issue with an equivalent dividend in case of the Tata Tax Saving Scheme. The reason for this move is clear as the finance minister has made a budget proposal to make dividends by open ended mutual fund schemes non taxable both at the hands of the unit holders as well as the fund. The Tata Tax Saving Scheme will be going open ended on April 01. By declaring dividends, the fund will ensure tax-free income for its unit-holders. At the same time, the corpus of the scheme would take a hit only to the extent of the dividend outgo as the scheme would also not have to pay dividend tax. However, the fund has decided to go ahead with its bonus issue for the Tata Young Citizens Fund.

Besides thestated reason that "young citizens" do not have bank accounts, there could be two others for not declaring dividends on the scheme. First, the fund is not in the strict sense an open ended one. Unlike a strictly open ended fund which has no "maturity date", units of the TYCF "mature" when the "young citizen" who holds them becomes an adult. Hence, if a dividend is declared the scheme will be liable to a 10 per cent tax on the outgo. The second reason can be found in the purpose of the scheme which is to generate sufficient capital appreciation so that when the unit holders become adults they have with them a bulk sum of money. Also, the scheme is basically designed as a gift from parents to a minor child who would receive the proceeds only on gaining adulthood. Declaring dividends, therefore, goes against the very purpose of the scheme.

Debt trap

That the government is in a debt trap is well known, borrowing to carry out essential activities. What is not so well known is that its debt servicingexceeds its revenues. In 1998-99, the amount paid by the government as interest together with the amount due on account of loan repayments was higher than the government's revenue receipts. Which means that the government has to borrow more just to repay its loans. In addition to the revenue receipts for the year, capital receipts amounted to Rs 20510, including recoveries of loans and receipts from disinvestment. It will be noticed that even these receipts amount to less than the gap between debt servicing and revenue receipts. While these projected capital receipts for 1999-2000 cover this gap, it remains to be seen whether these projections are realisable.

(with contributions from Percy Dubash, Shishir Asthana & Sarad Saraf)