Companies anticipating big windfall from impending Pay Commission payout

With the second instalment under the Sixth Pay Commission due to be released, several companies and banks are waiting with baited breath to take advantage of the potential demand

The big pay day for Central government employees is around the corner and that, along with the ongoing festive season have put banks and durables manufacturers on a high gear. The payment of the second and final instalment of the arrears under the Sixth Pay Commission is expected to set the government coffers back by roughly Rs176 billion. The payout is expected to benefit roughly 5 million government employees and 3.8 million pensioners.
 
Already, the impending cash injection is creating a flurry of activity from corporate entities and banks alike. In anticipation of the potential demand, several banks have revised interest rates downwards. Industry experts are predicting a windfall for sectors like retail, automobiles and realty. Given the huge amount at disposal, most banks see good business in the retail loans sector.
 
KK Sharma, executive director, Bank of Rajasthan, said, “Government employees are a huge section that the banks are waiting to tap. People have got arrears and it is a tremendous amount. This amount will get converted somewhere either to meet the marginal requirement of a home or organising a wedding or buying a car or buying white goods because it is a bonanza. It will also improve the repayment power of employees who plan to take loans or have loans outstanding.”
 
 “The payment of arrears in the Sixth Pay Commission would be beneficial for the banks,” said a spokesperson for ICICI Bank.
 
Not only banks, consumer durable companies are also targeting this huge surplus amount. Hyundai Motors plans to continue with its special discount schemes for State and Central government employees. Last year, in September, when the first instalments of arrears were announced, Hyundai had announced special discounts on specific car models.
 
"With the approaching Diwali and the flow of funds from the government employees, we expect our sales to go up by 8%-10%," said Nilesh Gupta, managing partner, Vijay Sales, a consumer electronics and durables retail chain in Mumbai.
 
As was the case with the first instalment of the arrears, government servants would be permitted to deposit their arrears in their general provident fund (GPF) accounts. However, this is not mandatory this time, which leaves a significant potential for discretionary expenditure on part of the beneficiaries.
 
According to official government estimates, the total arrears are estimated to cost Rs293.70 billion to the government kitty. As per the new pay scales approved by the Union Cabinet under the recommendations of the Sixth Pay Commission, the government employees would receive their dues, applicable from 1 January 2006.
Last year in August, the Union government decided to pay the arrears in two instalments of 40% and 60%. The first instalment of 40% was paid in the last fiscal itself while the remaining arrears would be paid now.
 
However, the downside is that the resulting inflated wage bill of the government will put additional burden on an already stretched fiscal deficit. Besides, it remains to be seen whether the big demand boost that India Inc. is witnessing will taper off.
–Sanket Dhanorkar with Amritha Pillay  [email protected]

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‘Wake Up Sid’ proves lucky for PVR
 
UTV’s latest movie Main Aur Mrs Khanna could only pull 50% of the crowd to the theaters but its previous movie Wake Up Sid, a Ranbir Kapoor starter, which was released in theatres on 2nd October is still able to pull in 85% occupancy.

PVR’s first weekend collection for the movie was about Rs2 crore across India and in the Diwali weekend the numbers crossed Rs25 lakh.
 
“On Diwali weekend, especially on Friday and Sunday, we reported 80%-90% occupancy level across India and this movie is holding good in our theaters,” said Prakhar Joshi, head programming, PVR cinemas.
 
The movie produced with a budget of Rs15 crore by Dharma Productions and distributed worldwide by UTV Motion Pictures, was able to garner Rs2.2 crore over the first weekend. The movie also collected about $165,934 in the UK while for the US the collections were $355,532. In the Gulf region the film’s per print average was $9,575.
 
 
 

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Coal India hikes price by 11%, power and cement take a hit

ANZ Bank, Goldman Sachs, UBS, Citigroup, Merrill Lynch and five other global analysts have forecasted that Asian coal prices will fall by 20% in 2009. However, against the analyst price fall warnings, coal prices in India have increased which is likely to put more pressure on power and cement sectors.  

"Depending on the contribution to the cost of production, the affect of the hike in coal prices will also affect the cost involved accordingly," said Rakesh Dubey from mJunction which is one of the largest online dealers in India. He said that the power industry is going to take a hit of 15% and cement will see around 30% hike in production cost.
 
Coal India Ltd increased coal prices by 11% in September/October, thanks to sharp increase of thermal power projects in India. Asia is the largest consumer of coal and accounts for 4,800 million tonnes (MT) out of world consumption of 7,000MT.
 
Power industry consumes around 300MT of coal every year and accounts for 75% of total coal consumption that produces around 475 billion KWh of electricity. The indicative price increase is around 15% and largely depends on power plant distances from coal mines. "The power utilities will calculate the input cost in production and accordingly they will fix the tariff," added Mr Dubey.
 
The cement industry with capacity of 198.3MT consumes 3% of coal as raw material. Around 12MT of coal is used in this industry and accounts for 30% of the cost of cement production.
 
The coal price rise is substantial as cement prices were still close to Rs 3,670 per tonne during September 2009. Since cement is facing the market resistance, it has to bear the additional cost on coal.
 
The steel industry with an annual capacity of 60MT also uses 3% of total coal. Since coal price hike is not substantial in total cost of steel it will not affect the pricing of steel. Though coal is vital to the power sector, the major casualty of the recent hike in coal prices would be the cement sector.
 
The power utilities would be in a position to pass on the difference in prices to the customers; this is not possible for the cement industry. Given the current low demand in the cement market, the cement units are unlikely to pass the hike in coal prices to their customers.
-Dhruv Rathi with Amritha Pillay [email protected]

 

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