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When the Reserve Bank of India discontinued 25 paise coins in April 2011, it left the product marketing division of Parle Products, India’s leading confectioner and biscuit maker, in a quandary.Parle’s top-selling Kismi Toffee, wrapped in red and white paper, was immensely popular in small cities and villages. Priced at a quarter of a rupee, it was a sweet steal for customers. The size of the cardamom-flavoured toffee complimented its price. But that brand-product-price synergy changed when RBI withdrew 25 paise coins from circulation.“We had to upgrade Kismi Toffee to 50 paise per piece, which was a crowded price point. Almost all Indian toffees and candies are priced at 50 paise and Re 1 per piece,” says Bhavin Panchamia, senior product manager, Parle Products.“Our concern then was how to sell Kismi Toffee at double the cost; also, we did not want to discontinue the toffee as it was a great brand. We decided to increase the size of the toffee to justify the hike in price,” adds Panchamia.While Parle acted in the interest of its customers by re-sizing Kismi Toffee, lesser-known confectioners and small-scale industrial (SSI) units that made products such as pickles in small packets, sweetened tamarind and gooseberries-in-brine, never really bothered to add value. They just changed the price tag to 50 paise. The discontinuation of 25 paise coins, in a way, ‘burdened’ 50 paise and Re 1 coins as countless articles priced at 25 paise got upgraded to these price points. Rising inflation worsened the situation, resulting in a severe shortage of both ‘small coins’ (up to 50 paise) and ‘rupee coins’ (Re 1 and higher denominations). “Higher raw material costs and a shortage of coins at apt price points are causing a lot of problems for chocolate manufacturers. If we increase the price, we face stiff resistance from dealers and retailers; but if we do not, we’ll suffer losses. It’s a very difficult decision,” says Narain Jagwani, CEO of Pune-based Atlas Confectioners. According to confectionery manufacturers, 98 per cent of toffees, candies and eclairs are sold in the Re 0.50-1 price range. But confectioners are now contemplating raising product prices to the next level.“We have a Re 1 product (a lollipop), but it doesn’t make sense to focus on that price point. We’ll start promoting our Rs 5 product now,” adds Jagwani.Inadequate supply of small coins can wreak havoc on the economy. It can jack up prices of small commodities and services, creating a kind of indirect inflation. Take the case of tollways: the Bandra-Worli Sea Link has increased the base toll to Rs 55 from Rs 50. Likewise, toll rates on the DND Flyway, between Delhi and Noida, have been marked up from Rs 11 to Rs 12 for two-wheelers and from Rs 22 to Rs 25 for cars. 9 billion coins were ordered by RBI in 2012-13 (Shutterstock)“We raised toll rate for cars to Rs 25 as it was getting increasingly difficult for us to return Rs 3 (to users) due to the shortage of Re 1 and Rs 2 coins. We cannot keep people waiting for change,” says Anwar Abbasi, senior manager at Noida Toll Bridge Company, which manages the DND Flyway.FMCG companies have also been impacted by the shortage of small coins and the consequent devaluation of the Re 1 coin. Shampoo manufacturers who revolutionised the Re 1 sachet, are among the worst hit. Re 1 and 50 paise sachets account for over 69 per cent of shampoo sold in India. “Devaluation and shortage of Re 1 coins are prompting shampoo manufacturers to reduce ‘net quantity’ in sachets. Most shampoo makers have reduced their sachet quantities from 10 ml to 8 and 6 ml,” says C.K. Ranganathan, CMD of the Rs 1,100-crore consumer staples company CavinKare. “The value of Re 1 has depreciated significantly over the past few years; 50 paise as a price point may soon cease to exist,” adds Ranganathan.Unavailability of coins could also encourage black-marketers to hoard them, only to release them at a premium later. While it is not clear if shortage of coins is causing problems at the macro level, it sure is causing a lot of hardship to people on the street. “There’s a shortage of Re 1, Rs 2 and Rs 5 coins. We mostly get Rs 10 for a ticket that is worth Rs 6. The onus falls on us to pay back the remaining Rs 4; many a time, we request passengers to forsake small change,” says Ashok Kutekar, a BEST bus conductor on the Worli-Elphinstone Ring Road route in Mumbai.Kutekar’s problem is endorsed by Kishore Sonurlekar, who manages the ‘ticket and cash department’ at BEST’s depot in Colaba. “We don’t get enough change for the sum of money (including coins) we release from our coffers every day. If we give Rs 100 worth of coins and notes to our conductors every morning, we get back only Rs 20 worth of small change at the end of the day,” he says.That said, Sonurlekar’s job is made easier by ICICI Bank, from where he sources coins. Earlier, transport corporations, tollways, hotels and others sourced coins from RBI offices directly. A few years ago, RBI scrapped direct coin purchase and instructed public sector and private banks to undertake the task of distributing coins in the country. break-page-breakThe Missing PiecesLack of minting infrastructure and poor demand estimation are said to be the reasons behind the shortage of coins in the country. RBI and its mint, Security Printing and Minting Corporation of India (SPMCIL), have failed to release adequate new coins into the economy. In fact, SPMCIL has been falling short of targets consistently over the past few years due to inadequate infrastructure. As per RBI data, there are 84.72 billion coins in circulation (adding up to Rs 15,300 crore) as on 31 March 2013, up from 78 billion pieces in 2012. Of this, 14.78 billion are small coins (50 paise coins), 35.88 billion are Re 1 coins, 22.11 billion Rs 2 coins, 10.67 billion Rs 5 coins and just over 1 billion Rs 10 coins. There are also around 37 billion notes in Rs 2, 5 and 10 denominations. Despite the increase, the demand for coins continued to outstrip supply.“I agree there’s a shortage of coins. RBI is working out ways to bridge the demand-supply gap. We’re also streamlining the distribution system; commercial banks have been directed to handle coins more efficiently,” says B.P. Vijayendra, principal chief general manager, RBI. “Our main problem is that SPMCIL has not been able to mint as many coins as we want in the system,” he adds.It is usually RBI that decides the volume and value of banknotes and coins to be printed/minted each year. The decision is taken on the basis of inflation, gross domestic product (GDP) growth, replacement of soiled notes/defaced coins, metal prices and reserve stock requirements. In times of high inflation, the central bank is forced to print/mint more currency. This, perhaps, was the reason why RBI placed a request with SPMCIL to mint 9 billion coins last year — a sharp departure from its regular (annual) order of 6 billion pieces. But SPMCIL was not equipped to handle the sudden spurt in demand. The mint could only supply 6.8 billion pieces against RBI’s order of 9 billion. The latest indent put forth by RBI (for 2013-14) requires SPMCIL to mint over 12 billion coins. Mint officials, however, see this as an unachievable target. SHRINKING TENDERToday, the number of sub-Re 1 coins in circulation is less than a third of what it was in 2011“RBI projections have been quite erratic. They just doubled the minting order from 6 billion coins in 2011-12 to 12 billion in 2013-14. We’ll never be able to achieve it. At best, we’ll be able to log 7.6 billion pieces this year,” says a senior SPMCIL official on condition of anonymity.SPMCIL is fighting its own battle against inadequate infrastructure and outdated processes. The organisation needs at least Rs 800– 1,000 crore to modernise its mints. “Some 20 old machines will have to be scrapped. We’ll need at least 40 new coin processing machines (priced between Rs 8 and 10 crore a machine) to meet the RBI-projected coin demand. New polishing machines and dyes will have to be installed as well. There’s also need for more space for minting and storing coins,” adds the SPMCIL official.While there’s a sense of urgency among RBI and SPMCIL officials, the finance ministry seems unperturbed by the roadblocks. It is yet to take a decision with regard to modernisation of mints.Past Comes CallingIndia faced a similar situation in the 1980s, when it sought external help to tide over currency shortage. RBI had then outsourced the minting of 50 paise and Re 1 coins to the UK’s Royal Mint, the South Korean mint and the Royal Canadian Mint to meet demand.RBI’s decision to place an important sovereign function in the hands of foreign players came in for flak from nationalists. Irrespective of how nationalists feel, it appears that the ongoing crisis may soon have RBI reaching out to overseas mints to meet the coin shortfall.“Evidently, there has been a mismatch in demand and supply of coins that was not anticipated by RBI. There is less emphasis on minting coins of Re 1 and Rs 2 denominations as, with progressive inflation, there is little value in these coins,” says Madan Sabnavis, chief economist at CARE Ratings, a credit rating agency. “Further, with erosion in the value of lower denominations, the demand for higher denomination coins has increased. Such a situation has generated a black market for coins where the premium can vary between 5-10 per cent,” adds Sabnavis. break-page-breakAt Mercy Of MetalsIn Rs 5 and 10 denominations, RBI prefers to mint coins as these notes have a lifespan of just about 8-12 months, as opposed to coins that can remain in circulation for 10-12 years. However, both RBI and SPMCIL lack a correct estimate of coins to be minted, in the absence of clear data on the number of ‘defaced’ coins withdrawn from circulation.While coins last longer, minting them has its own issues as prices of metals keep fluctuating. The new 50 paise, Re 1, 2 and 5 coins are minted using ferratic stainless steel (FSS). A few Rs 2 and 5 coins have also been minted using cupro-nickel as base, while the new Rs 10 coins are bi-metallic, with an aluminium-bronze outer ring and cupro-nickel centrepiece. When minting bi-metallic and cupro-nickel coins, RBI and SPMCIL have to take into consideration the price of metals and signorage (the difference between the value of the bullion used and the face value of the coin). If metal prices are too high, it is not advisable to mint low-denomination coins. “Mints are conscious of higher metal prices. This, perhaps, is the reason why new coins are smaller and lighter (in weight). Almost all coins have been resized a point lower,” says Ravi Shankar Sharma, secretary, Numismatic Society of Calcutta.FSS is a good option for coins, but SPMCIL doesn’t have hot furnaces to recycle the tough metal. It uses the furnaces at the Salem Steel Plant to melt defaced FSS coins. A larger number of FSS coins would, therefore, require SPMCIL to install its own furnaces to recycle and re-use scrap.Being an independent government body, SPMCIL has to think about its margins. As per the government’s procurement structure, it derives higher margins for minting Rs 5 and 10 coins compared to 50 paise and Re 1 coins. An email query sent to SPMCIL failed to elicit any response till the time of going to press.DOGGED BY DEFICITSupply of coins from the mint is way short of requirements stated by RBI. The only exception was in FY12Hoarders’ DelightA couple of years ago, Indian intelligence officials swooped down upon organised gangs that helped smuggle coins to Bangladesh, where the coins (mostly Re 1, Rs 5 and 10) were melted down and turned into razor blades, chains and ornaments. According to media reports, the coins were retrieved from ground-level collectors, including beggars, at a premium of 10-15 per cent. The practice coincided with periods of high metal prices. Such illegal practices were also prevalent in the 1980s when nickel and copper coins were melted down to make ornaments and other knick-knacks. “We haven’t come across instances of coin melting in the recent past. We are quite vigilant; such malpractices will not escape us,” affirms P.K. Dash, additional director general, Directorate of Revenue Intelligence, Mumbai. While finance ministry mandarins and RBI policy-makers rack their brains to bridge the coin deficit, beggars and stall owners are having a swell time sponging out coins and selling them at a premium. Coins worth Rs 90 can easily fetch them a hundred rupee note in these times. There are just two ways to resolve the coin crisis. Either the government fast-tracks mint modernisation or RBI approaches overseas mints to turn out rupee coins. If it’s still unable to arrive at a decision, policymakers can always flip a coin to decide. alertsmenon@gmail.comtwitter@alerts menon(This story was published in BW | Businessworld Issue Dated 10-02-2014)
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The Kerala government has no plans to make Aadhaar mandatory for availing benefits under various schemes, State Industries and IT Minister P K Kunhalikutty said in Thiruvananthapuram on Wednesday (21 January, 2014).However, Kuhnalikutty said the decision to link Aadhaar with government benefits has to be taken at political and policy level and only after taking people into confidence, such decisions would be implemented."We have to convince the people that it is good," he said while addressing a press conference in connection with the 17th National Conference on e-governance to be held in Kochi from January 30.In Kerala, nearly 97 per cent of the population has been enrolled under Aadhaar and 2.75 crore people have been given UID number. But the issue of linking Aadhaar with various benefits is a question of policy and political one, he said.All the 14 districts have been covered under the national programme of Direct Benefit Transfer Scheme.On initiatives of e-governance, he said e-office project has been started in a section of the Finance Department in government secretariat. "The objective is to make Kerala the first e-office secretariat in the country," he said, adding, Kerala is now billed as the most e-ready state in the country.(PTI)
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The rupee is higher with activity both on the bid and offer sides, with mainly foreign banks on the sell side and a large state-run bank being a buyer.The pair has traded in a 61.45-61.54 range, last 61.51/52 versus Monday (20 January) close of 61.62/63.Foreign banks have been buyers of $2.8 billion of rupee debt in January.The euro holding steady against USD, staying above a two-month low of $1.3508.(Reuters)
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The Congress party-ruled state of Maharashtra will cut electricity tariffs by 15 to 20 per cent, television channels reported on Monday, 20th January.The state cabinet had accepted the recommendation of a panel of ministers to cut tariff, the TV channels said. Further details were not immediately available.The move follows the decision by the Aam Aadmi Party (AAP) government in Delhi, earlier this month to subsidise power tariffs for lower usage customers. This had led lawmakers from several other states demanding similar cut in power tariffs ahead of national elections that need to be completed by May.India suffers peak hour power shortages of around 4 per cent as higher demand from cities and industries outpaces growth in power generation capacity.(Reuters)
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Google took its biggest step — to go deeper into consumers’ homes — with a $3.2 billion deal to buy smart thermostat and smoke alarm maker Nest Labs, scooping up a promising line of products and a prized design team led by the godfather of the iPod, Tony Fadell. Nest will continue to operate its own brand after the all-cash deal closes. The deal is the second largest in Google’s history after the $12.5 billion acquisition of Motorola in 2012, which marked Google’s first major entry into hardware. The Nest deal gives Google a stepping stone into an important new market at a time when consumer appliances and Internet services are increasingly merging. “Home automation is one of the bigger opportunities when you talk about connecting everything. This deal furthers their strategy around that,” says an analyst.On TargetFirms that help Target Corp. process payments could face millions of dollars in fines and costs resulting from the unprecedented data breach that struck the retailer over the holiday shopping season. Investigators are still sorting through just how thieves compromised about 40 million payment cards and the information of about 70 million Target customers. It is believed Target’s partners could face consumer lawsuits and fines that payment networks such as Visa and MasterCard often levy after cyber security incidents. As a precautionary measure, Citigroup will replace all customer debit cards involved in the data breach at Target.Stepping On The GasVolkswagen (VW) recently announced that it plans to make a sport utility vehicle tailored for the US market and will invest $7 billion over five years in the region in order to increase sales. Europe’s largest automaker reiterated its goal of selling 1 million Volkswagen and upscale Audi vehicles annually in the US by 2018 as it launches more locally made cars, in a sign of renewed commitment to the market after a sales decline of its core VW brand. In 2013, the VW Group, which also owns the Porsche, Bugatti and Lamborghini marques, sold 600,000 cars in the US.Double WhammyApple will refund consumers at least $32.5 million to settle a longstanding complaint that the technology firm billed US consumers for charges incurred by children through mobile apps without their parents’ consent. Under the terms of the settlement, announced by the US Federal Trade Commission (FTC), Apple will also need to change its billing practices to ensure it obtains consent from parents before charging for such in-app spending. “You can’t charge consumers for purchases they didn’t authorise,” said FTC, estimating that children spent millions of dollars without their parents’ knowledge. In an internal memo, Apple CEO Tim Cook referred to a class action settlement reached in June 2013 that required the firm to pay around $100 million to parents whose children made unauthorised purchases, saying the FTC’s settlement “smacked of double jeopardy”.Back In BlackEuro zone industrial production in November rose much more than expected, signalling stronger momentum behind the bloc’s economic recovery in the last quarter of 2013. Industrial production in 17 countries sharing the euro jumped 1.8 per cent month on month in November, after an upwardly revised 0.8 per cent drop in October, the EU’s statistics office Eurostat said. The monthly rise, euro zone’s strongest since May 2010, was fuelled by a 3-point jump in the output of capital goods and a 2.2 per cent rise in the production of consumer durable goods such as electronics and cars. Production in EU’s largest economy, Germany, grew 2.4 per cent, showing its strongest rise since July 2011, while output in the second largest, France, rose 1.4 per cent.Clean-Up ActChina plans to establish a nationwide trading system for pollution permits as part of efforts to use market mechanisms to help clean up its environment, said the environmental protection ministry. Minister Zhou Shengxian said China was working on new regulations for pollution permits and would also publish proposals for new pilot trading projects as soon as possible. Five cities and regions set up new pilot carbon trading platforms last year to encourage local enterprises to address soaring greenhouse gas emissions and two more will be launched in 2014.Health ChecksThe International Monetary Fund (IMF) recently added Denmark, Finland, Norway and Poland to its list of countries that must have regular check-ups of their financial sectors, under an effort to prevent a repeat of the global financial crisis. The IMF in 2010 had identified 25 other countries where financial sector evaluations will be mandatory. These reviews had been voluntary prior to the 2008-09 financial crisis, which showed how quickly financial problems in one country could spread to its neighbours and the rest of the world. More than half of the 29 financial sectors the IMF deems “systemically important” are located in Europe. “The financial sectors of these jurisdictions are highly interconnected, not just with each other, but also with other major financial centres,” the IMF said about the focus on European financial centres.High SpiritsSuntory Holdings said it would buy US spirits company Beam for $13.6 billion, in a deal that would make the Japanese company the world’s third largest spirits maker. Including the assumption of Beam’s net debt, the deal is valued at $16 billion. It brings together Beam’s Jim Beam and Maker’s Mark bourbons, Courvoisier cognac and Sauza tequila with Suntory’s Yamazaki, Hakushu, Hibiki and Kakubin Japanese whiskies, Bowmore Scotch whisky and Midori liqueur. The deal is the latest example of how Japanese liquor companies are seeking to quench their thirst for overseas growth as the population in their home market shrinks.(This story was published in BW | Businessworld Issue Dated 10-02-2014)
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Compiled by MoynaGraphic by Prashant Chaudhary (This story was published in BW | Businessworld Issue Dated 10-02-2014)
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We had heard of income, sales, and excise taxes but, for the first time, we heard about a Jayanthi tax in Delhi. Till the time that was not paid, files could not be moved”— Narendra Modi, chief minister of Gujarat, referring to former environment minister Jayanthi Natarajan“It was like doing an open heart surgery on a runner during a marathon”— Sanjay Reddy, vice-chairman of GVK Group, on building the new terminal at the Mumbai International Airport“We want the big guys to spend the money and figure out what works and what doesn’t, and then we want to copy it”— Bill Crawford, CEO, Rockville Bank, on the bank’s technology strategy“He seems to have convinced himself that history will treat him kindly. He is being over-optimistic”— K. Natwar Singh, former foreign minister, referring to Prime Minister Manmohan Singh Anand Sharma“If we are to be the third-largest economy, then we need to start behaving like one”— Sashi Mukundan, head, BP India, on delays in securing regulatory approvals“It’s very tough to sell the message that you are growing and you are cutting. Which is it?”— Fritz Nauck, director at McKinsey & Co, on banks emphasising on both cost cuts and growth“It is simply populism heading towards anarchy... arbitrary and regressive”— Anand Sharma, commerce minister, on the AAP-led Delhi government’s decision to disallow FDI in multi-brand retail(This story was published in BW | Businessworld Issue Dated 10-02-2014)
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The rupee lower on global dollar strength, the pair at 61.58/59 versus its Friday's (17 January) close of 61.54/55. Strong fund inflows continue into debt, with data showing six consecutive session of buying through Thursday (16 January), totalling over $2.5 billion, helping support INR.Local stocks down 0.2 pct, in line with Asian peers.The US dollar started Monday (20 January) near a two-month high, having enjoyed a solid comeback last week after a string of mostly upbeat data convinced markets the Federal Reserve will continue its gradual withdrawal of stimulus. US markets are shut on Monday for a holiday.(Reuters)
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Trust in governments worldwide took a dive last year with Washington's reputation a notable casualty as President Barack Obama grappled with a budget showdown, the Snowden spying crisis and the botched rollout of "Obamacare".Just 37 per cent of college-educated adults told the Edelman Trust Barometer that they trusted the US government - 16 points down on a year earlier and seven points below the global average.The United States was not quite at the bottom of the heap as levels of trust in governments in some Western Europe countries including France, Spain and Italy were even lower, but the scale of the American decline was particularly dramatic.The mood of disillusionment was amplified because it came off a brief phase of enthusiasm for the role of the state in preventing economic Armageddon, said Richard Edelman, head of U.S. public relations firm Edelman, which commissioned the study."In 2008 and 2009, it was a case of government to the rescue and everybody said government saved the day. That raised expectations - but then you get crushed," he told Reuters.In the case of the United States, three big negatives have weighed heavily in the past year: the impasse between Democrats and Republicans over the budget; the crisis over spying revelations by former U.S. contractor Edward Snowden; and the fumbled rollout of the contentious Obamacare healthcare system due to technical problems with a federal website."There is almost despair in some aspects of government. How does a computer system not work for healthcare? That is just a competence question," Edelman said.The results of the annual trust survey were released on Monday (20 January, 2014) before being presented at the Jan. 22-25 World Economic Forum meeting in the Swiss ski resort of Davos.As a result of the loss of faith in the state around the world, the gap in trust between government and business has widened to a record level, with corporations now enjoying a 14-point advantage.That gap was especially large in India, as the country heads into elections amid a wave of corruption scandals, and in Brazil, where alleged corruption, bus fare hikes and high public spending for the 2014 soccer World Cup have fuelled anger.Trust in business overall stabilised at 58 percent. But while confidence in some industry sectors is high - such as technology and autos - there are still widespread demands for more regulation of financial services, energy and food.Family-owned and small businesses are more trusted than big business across the globe, and there are notable regional variations, with companies based in the main emerging markets suffering a big trust deficit compared to Western firms.The survey took the opinions of 6,000 college-educated, relatively affluent people aged 25-64 in 27 countries, from Oct. 16 to Nov. 29. (Reuters)
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President Pranab Mukherjee on Sunday (19 January) expressed confidence that food grain production this year will break all records over the previous years and agriculture growth rate could touch four per cent."It is expected this year our food grain production will break all records over our past record of 259 million tonnes in 2011-12 and 250 million tonnes in the previous year," he said while inaugurating a Krishi Vigyan Kendra building.Lauding agriculture minister Sharad Pawar and his ministry's role over the good performance in the sector, he said that India today has not only emerged as the largest producer of rice but also largest exporter in rice."We have also emerged as the second largest exporter of wheat, sugar and cotton," he said.The President said that while in the first half of this year agriculture growth has touched 3.6 per cent, it will touch four per cent shortly.Mukherjee also expressed confidence that the country will be able to fulfil the obligation of food security to the people after the enactment of National Food Security Act.On the role of science and technology in the agricultural sector, he said that the proposed farm innovation fund will encourage development of new product technologies and methodologies by the farmer.(PTI)
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