Saturday, October 26, 2013





Tejinder Narang
“Charity begins at home”. This implies enabling the “soul or self” for merger with its Origin or Supreme Self. So long as the “soul” struggles to survive in sheltered bodies of life and death; keeps on settling karmic rentals on daily basis; creates additional karmic liabilities, how can such a distressed “being” be a Charitable? When mind is polluted with fire of five perversions, sentiments of self-less service with humility and devotion cannot emerge.   
 Mother Threasa, an evolved soul, practised charity of compassion as a medium of Divine Mercy as attitudinal dedication and not for any public demonstration.  Says Jesus “let not thy left hand know what thy right hand doeth and thy Father which seeth in secret himself shall reward thee openly”. Mystic concept of Charity is the emancipation of soul rather than temporal comforts riddled with pain and pleasures.
Commercial kindness to “Rob Peter to pay Paul” carries karmic retribution.  Guru Nanak’s concept of service to mankind embodies three conditions— one’s earnings must be honest, offered with remembrance and gratitude to the Lord and those beneficiaries must utilise amenities for honest living too. Donating indiscriminately to institutions of questionable integrity or exploiters or tortures of living entities is forbidden due to severest Karmic reprisal to all participants in the string. Economising on five elements of Nature—water, earth, air, fire, ether (sky) including environmental cleanliness, frugal lifestyles are also akin to Charity.
Unfortunately visible charity of display of wealth is generally prioritized over righteousness of self.   That is why such services prove to be of a limited utility. How can those who are uncharitable to their own Self prove to be charitable to others?

Friday, October 25, 2013





  1. Undermining the US /UN sanctions; 
  2. Dealing with Iranian counter-parties whose antecedents cannot be verified, except by  referals made by Indian privates; 
  3. Extending trade finance; issues relating to deferred or non performance; 
  4. Delays and disputes in payments due to quality or market volatility; 
  5. Lack of clarity of law or applicability of Iranian law--explicit to none; 100% risk on PSUs.
  6. It is not STC/MMTC cup of tea.

Indian Government is considering “fronting” Public Sector Undertakings (PSUs) like STC, MMTC on behalf of private players for accelerating non- commodity exports to Iran under “rupee payment arrangement” managed by UCO bank.   Private firms dealing with Iran for pharmaceutical, automobile, engineering products, chemicals or projects are under surveillance of US and other countries who are endorsing UN sanctions. Any “non-Iranian” business by Indian privates is also tracked by US. Their dollar receivables remain threatened because they are routed via banks in USA.
For mitigation of this perceived risk, Indian authorities have suggested that local firms/industry can “mask” their shipments to Iran under the “cover” of trading PSUs, STC/MMTC. Exports made directly by PSUs will be deemed “Government” shipments and (perhaps) stand insulated from UN sanctions. They certainly cannot be qualified as “dual use purpose”, that is, as a proxy for nuclear proliferation. It remains unclear whether “Office of Foreign Assets Control (OFAC)” of the US that administers/ enforces economic and trade sanctions permits such a masking. If not, then Indian side may need special dispensation from OFAC.
In 2012-13 Iran enjoyed a rupee trade surplus of about $8.3 billion. This cash pile may have further gone up during last seven months. Excessive credit balance needs to be liquidated by Indian exports, which can be positive for both sides. Indian position is perfectly logical but other international players/stake holders will believe it as “circumvention” of sanctions by contrived diversion.
Big businesses may also be pushing the Government for expeditious exploitation of emerging opportunities in Iran with minimal risk. Let PSUs endure Iranian exposure upfront rather than the privates!!
Business model of PSUs
Business model of trading PSUs comprises import/export activity on the government account or private account. Risk of business is fully assigned on back to back basis to any one of these entities. Reward or PSUs commission or service charges are nominal --about 1-1.5% of fob value. 
Under “fronting and masking” formula, PSUs will have to take 100% risk with Iranian counterparties who may be nominated or advised by an Indian private firm as an Iranian buyer. This gives 180 degree shift to risk/reward profile. Higher commission band of 7-10% or more may be required by PSUs. That inflates cost to the Iranian side.  
PSUs cannot deal with a buyer unless its credentials are verified by them with due diligence. Due to numerous debarred entities listed under documented sanctions, new corporate formations of worthiness need to be screened.   Lack of appraisals can be very critical, challenging and controversial for PSUs. 

In short, counterparties in Iran nominated by the associates/private parties cannot  be  ipso-facto deemed as buyers by STC/MMTC. Rice exports on G to G account in 2008 was directed by DGFT for being undertaken “ through” PSUs but got into messy controversary later on.
Private party may seek funding/financial assistance from STC/MMTC after contractual liability is taken upon (fronted) by the PSU.  PSUs will be in a bind for refusing the loan amount. Once a PSU signs an agreement with an Iranian buyer, it has to perform. Any pre-agreement promise by the private firm not to seek loan assistance from PSU is redundant because the burden of performance has devolved upon the PSU. Its ability to say “no” to financing to protect its interests gets marginalised.  In Indo-Iranian deals “delays” exist as a matter of routine. Iran or Indian PSUs/its associate may renege from the contract due to such  deferments/quality variations or any other reasons, leaving PSU in lurch with goods that may not be saleable elsewhere or may be disposed of as a distress sale. PSUs will take the first hit.
Contracts of engineering items/chemicals/customised supplies do require third country imports. PSUs may also be compelled to provide funding or letter of credits for such imports—which may then have to be shipped with at least 15% value addition (as permitted by DGFT). RBI stipulations that imported goods require certification of Indian origin, after value addition, is yet to be sorted out.
Opening of letter of credits (LC) and their payments through UCO bank suffer occasional and inordinate delays. This is despite huge credit balance available with UCO bank. Private parties follow up authorization of “debit advice” through personal visits to Tehran and via other unofficial channels for getting consignment accepted. That may be difficult for PSUs. This is another domain of extended risk.
Will applicability of “Iranian law” to these transactions be acceptable? Or will Iran agree to Indian law or arbitration in India or any third country legalities? How enforcement of award can be ensured? So far private business has been done on the presumptions of Iranian law—that is explicit to none. Disputes can arise from both sides. This is the grey area of gravest concern which has not been effectively tackled so far at the Government or diplomatic level. Agreement on legal protocol by intermediation of Law Ministry is a condition precedent for any further discussions on the subject. 
Not PSUs cup of tea
Any evolution or devolution or movement in Iran-US relationship/pulls and pressures of UN sanctions will always remain a matter of concern. Even if that be set aside for a moment, the position of Indian PSUs remains extremely vulnerable. Under “masking and fronting format” they will be sandwiched between antics of Iranian buyers, banks, customs/litigation etc on one side and the Indian associate /supplier on the other. PSUs work culture and trading environment is incompatible with the system that leaves them to fend for themselves.    It is certainly not their cup of tea. Let them not be sacrificial goats and let the trade be conducted openly without circumvention of sanctions.  


 Article  from Business Line-- appeared on 25th October, 2013

Please click on the following link to read :


1.      No business can survive with negative returns in absolute terms for last three years. It remains unclear whether industry is actually in loss or merely books are reflecting red numbers.
2.      With irrational SAP in Uttar Pradesh and commercially unsustainable model for last three years, mills should shut down. But none of that is happening or foreseen.
3.      It is business as usual with 25 million tons production in 2013-14 and carry in is about 8 million tons by conservative estimates.
4.      Since almost 50% of the allied production of a mill has better profitability than sugar, production can be shifted to collateral items.  This may require certain adjustments in data and records.
5.      It is the Indian concept of Yukti and not Juggad that is working.


In the new sugar season (SS) of 2013-14, mills, media and analysts have forecast bleak chances of survival of sugar industry, especially in Uttar Pradesh. Arrears of farmers and interest liabilities owed to banks have made headlines. At the same time, production of sugar cane is rising despite unpaid amounts—an incredible situation where farmers continue to grow more even if they are remunerated less than agreed. Can the conclusion be that growers are happy even if they are paid partially (about 70%) of the committed value and still garner profits?
Gur (Jaggery) industry pays much less to farmers for cane than Mills. Any price over and above value settled by Gur/Khandsari/ small scale industry to growers is additional earnings for them. Barring unseen draught conditions, sugarcane is the most profitable crop and requires least effort by virtue of “Ratoon” or “Re-tune” cycle which is extendable up to three crop years.
Uttar Pradesh Sugar Mills Association (UPSMA) has run several newspaper advertisements  with a plea to save the sugar mills on impending hike in State Advisory Price(SAP) of sugarcane which was Rs 2800/mt ($51) last year ($=Rs55)—the highest anywhere in the world. (Gur Industry paid to farmers Rs1800-2100/mt about $32-$38/mt). In SS 2012-13, sugar traded at about Rs 29/kg in domestic market or $528 /mt at recovery rate of about 9.5%. Average cost of sugar production in UP is Rs 35/kg or $636/mt.  Almost $100/mt was loss to the industry in UP. For 7.5million tons of sugar production in this State, straight line loss calculation is about $750 million (Rs 4200 crores) or perhaps more. Part of this loss (about 25%-- as per Crisil report “Prospects of UP sugar industry mills”) may have been recouped by selling ethanol, molasses, press mud, power generated etc. Thus losses are mitigated to Rs 3150 crores (4200*0.75) as an approximation.
When any private industry is driven to the wall by Government’s arbitrary policy prescription, businesses find ways and means to survive. The current scenario represents that paradigm. Sugarcane can be sourced cheaply by managing access to farmers with upfront lump sum payments at a negotiated price. Since almost 50% of the allied output-- particularly molasses-- has better profitability than sugar, more production can be shifted to collaterals items for higher compensation. This may require certain adjustments in data and records.
Recent pronouncements by ISMA and the Government confirm that sugar production in SS2013-14 will be around 25 million tons with added carry in of about 8 million tons. Supply side is 33 million tons versus demand of 23 million tons—leading to a surplus of 10 million tons.  Domestic prices may plunge further even after accounting 2 million tons for export. Apparent direct losses to the industry, predominantly in UP, and outstanding to growers ought to soar. Interest liability to banks will ascend steeply. Recurrence of last two year is likely to be repeated. Logically, the scene and sense is of commercial unsustainability and therefore mills should shut down. But none of that is happening or foreseen. It is business as usual.
As per rational analysis--if the major stake holders, that is farmers (because they are clamouring for higher SAP) and mills are both losing money—how can sugarcane and sugar production a viable business proposition. And for the last three years if the industry is not profitable from the core business of sugar and yet surviving—it implies either raw material is somehow accessed cheap or allied products production/ sale is over emphasised or both strategies may be pursued simultaneously.
UP mills are pleading the State government to reimburse proposed hike in SAP to growers directly. It amounts to direct subsidy to farmers for vote bank politics—where MSP/SAP is shared by industry and the State Government. Any precedent in UP will create similar demand in other States and negate the principle sugar decontrol notified in April 2013.
 Was the persistent noise and pressure to decontrol Indian sugar industry in its existing format a right decision?  Centre also played politically by not implementing 70:30 sugarcane price and profitability sharing formula suggested by the Rangrajan Committee.
It remains unclear whether industry is actually in loss or books are reflecting red numbers for aligning them with SAP. No business can survive with negative returns in absolute terms.  Rational inference can be that commercial viability may be attained by ways and means which are unlikely to be disclosed openly. Audited reports, these days, cannot be fully relied upon. Red numbers perhaps may assist in extra financial support/relief from the States and for restructuring their liabilities to the bank. That will make industry more profitable directly or indirectly.
Amazing it is that when policymakers/associations are working for fixing SAP; banks are pursuing outstanding debt; arrears to farmers is posed as a major liability and industry appears to be crisis ridden, the mills are meeting the challenge  by application of their business acumen for ensuring better returns in absolute terms. It is the Indian concept of Yukti and not Juggad that is working.