Companies & Sectors
CRISIL expects milk prices to remain stable over next 12 months

The ratings agency believes that while milk prices should remain stable over the next one year, in the medium term prices could go up due to an increase in demand and higher input costs

Ratings agency CRISIL has said it expects milk prices to rise in the medium term, due to sustained demand-supply mismatch and increasing input costs, this despite the Indian government's recent order banning export of milk powder and casein. The Indian government's order to allow duty-free import of milk powder and butter would help enhance domestic supply over the near term and keep milk prices stable over the next 12 months, the ratings agency said in a report.

"With exports forming less than 5% of the total milk production, and imports comprising a small portion of overall demand, the Indian government's measures will, at best, plug the demand-supply gap over the next 12 months," said Gurpreet Chhatwal, director, CRISIL Ratings.

In February 2011, the government prohibited the export of milk powder and casein, with an aim to contain further price increases and shore up supplies. This constituted 70% of India's dairy product exports, estimated at $144 million in 2009-10. Furthermore, the Indian government has allowed the National Dairy Development Board (NDDB) to import 30,000 tonnes of milk powder and 15,000 tonnes of butter and butter oil at zero duty, which will boost milk supply by up to 0.35 million tonnes.

However, the ratings agency, said, with milk product exports forming around 5% of India's total milk production, and domestic demand for dairy products remaining strong, the demand-supply gap is expected to continue to widen over the medium term. This, along with increasing input (fodder and transportation) costs, will push milk prices up, over the next three to five years, the CRISIL report said.

Manish Kumar Gupta, head, CRISIL Ratings, said, "Milk prices are expected to continue their upward trend over the next three to five years as domestic demand for milk and dairy products is expected to outpace supply."

CRISIL Ratings, a unit of Standard & Poor's, said the impact of the ban on export of milk powder and casein is expected to be minimal on the credit risk profiles of 55 CRISIL-rated dairy players, including co-operative milk federations. This is because a buoyant demand scenario will enable these players to increase their sales in the domestic market, and pass on increases in prices of raw milk.

In addition, flexibility in the production process will enable players in the dairy industry to shift production to milk and milk powder, for which there is a strong demand in the domestic market, rather than also produce casein, which has low demand in the country.

The demand for milk and value-added dairy products in the domestic market has been growing at over 6% to 8% per annum supported by increasing incomes, rising aspirations, and consequent growth in per capita milk consumption. CRISIL, however, said it believes that the growth in milk production will continue to lag at around 4% to 5% per annum over the next five years, despite the government's plan to double India's milk production by 2020, through initiatives such as enhancing milk productivity through genetic improvement of milk animals, increasing availability of fodder, and incentivising farmers. This is mainly because the benefits of India's plans are expected to materialise after three to four years, CRISIL said.

Speaking about the global milk prices, Mr Gupta said, "The global milk prices will remain high because of increasing demand from India and China. Import of milk and milk products will, therefore, not suffice to contain domestic milk prices."

China has become a large importer of milk and milk products, since 2008, because of its growing affluence, increasing per capita milk consumption, and structural issues in milk supply, such as low animal productivity and outbreak of melamine contamination, which has all resulted in lower domestic production. In 2010, global trade in milk and milk products was thin, at 40 million tonnes, that is only 6% of global milk production, and may not be strong enough to absorb increasing import demand from India and China, without putting pressure on international milk prices, the ratings agency said.

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Sesa Goa bags Bellary Steel for Rs220 crore

The sell-off process was full of drama and a legal battle was also fought by Sesa Goa against the process adopted by IFCI in December, in which JSW Steel was declared winner for its bid of Rs210 crore for acquiring the asset of BSAL. In the rebidding process, the Goa-based company put a successful bid of Rs220 crore

New Delhi: Vedanta Group firm Sesa Goa today said it has acquired the assets of the upcoming steel plant of Bellary Steel & Alloys (BSAL), put on the block by a consortium of lenders led by IFCI, for Rs220 crore, reports PTI.

"We have been looking at setting up value addition facilities, as desired by the state government (Karnataka) and this acquisition provides us with an excellent opportunity to leapfrog in that direction," Sesa Goa managing director PK Mukherjee said in a statement.

The assets of the acquired company have been transferred on "as is where is" basis to Sesa Goa effective today, the statement said, adding Sesa Goa is conducting a detailed assessment to determine the best way forward for commissioning the steel plant at the earliest.

BSAL, a Karnataka-based company, had embarked on to set up an integrated 0.5 million tonnes per annum (MTPA) capacity steel plant with provision of taking it to 2 MTPA, at Bellary on 700 acres of freehold land.

However, BSAL could not complete the project and ran into debt, following which the lenders consortium led by IFCI put it on the block for sale.

The sell-off process was full of drama and a legal battle was also fought by Sesa Goa against the process adopted by IFCI in December, in which JSW Steel was declared winner for its bid of Rs210 crore for acquiring the asset of BSAL.

However, Sesa Goa contended, in its plea before the Delhi High Court in January this year, that IFCI initially announced the Vedanta Group firm as only qualified bidder and declared it winner verbally for its bid of Rs206 crore.

Following this, the Delhi High Court allowed the Anil Agarwal-owned mining firm to rebid in an inter se bidding process, where the Goa-based company put a successful bid of Rs220 crore.

Inter se bidding process means the shortlisted companies will have to rebid with their fresh offer.

The acquisition will also pave the way for Sesa Goa to expand its business into the steel sector and would be a strategic fit for the company as the BASL's steel plant is located in the iron ore rich belt of Karnataka.

The Sesa Goa stock was trading at Rs262.30, up 1.31% over its previous close on the Bombay Stock Exchange in the late afternoon trade.

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FM withdraws proposal for service tax on healthcare

Finance minister Pranab Mukherjee today announced withdrawal of the proposed 5% service tax on air-conditioned hospitals with more than 25 beds and on diagnostic services. He also provided some relief to readymade garment manufacturers by raising the abatement available for levy of taxes on retail price of some branded garments

New Delhi: Bowing to demands from all quarters, finance minister Pranab Mukherjee today announced withdrawal of the proposed 5% service tax on air-conditioned hospitals with more than 25 beds and on diagnostic services, reports PTI.

He also provided some relief to readymade garment manufacturers by raising the abatement available for levy of taxes on retail price of some branded garments and textile made-ups.

"The purpose of the new levy (healthcare) was not merely to mobilise revenue, but to pave the way for introduction of the GST.

"However, I have decided to exempt the new levy in its entirety both in respect of services provided by hospitals as well as by way of diagnostic tests until GST comes into force," Mr Mukherjee said while moving the Finance Bill in the Lok Sabha for consideration and passage.

The announcement was greeted with loud thumping of desks by members as the minister hoped that it will no more be called "misery tax".

Both these proposals, mooted by the minister as part of the Budget for 2011-12 on 28th February, had evoked sharp reaction from the interest groups.

During the general discussion on the Budget last week, almost all political parties wanted the finance minister to withdraw the healthcare service tax proposal, which was dubbed as "misery tax".

Meanwhile, garment traders had criticised the proposed 10% excise duty on readymade garments saying it would hurt the small business.

"To address this concern, I propose to enhance the abatement of 40% to 55% on the retail sale price. With this relief a unit will continue to be eligible for SSI exemption in 2011-12 even if it had a turnover based on retail sale price of Rs8.9 crore in the current year," the minister said.

Under the revised norms, 10% excise would be levied on 45% of the tariff value of retail price on branded readymade garments as against 60% proposed in the original budget proposal.

Mr Mukherjee, however, retained his proposal to extend 18.5% Minimum Alternate Tax (MAT) on SEZ developers and units.

With regard to the proposal to reduce basic customs duty on raw silk from 35% to 5%, the minister said it was aimed at augmenting the supply to weavers in both handloom and the powerloom sector.

Pointing out that he had received divergent opinions on the tax initiatives for the sector, he said, "I would like to assure the House... and respond, if required, to mitigate any adverse impact on the domestic sericulture sector."

Referring to the financial sector reforms, he said, the government proposes to pursue three more financial sector legislations-PFRDA Bill, the Bill on Factoring and Assignment and the State Bank of India Subsidiary Bank Law Amendment Bill-in the coming days.

Mr Mukherjee had earlier in the day tabled the Banking Law Amendment Bill 2011 and the Constitutional Amendment Bill for introduction of Goods and Services tax (GST).

On the crisis emanating from political uncertainties in Middle East and Libya, Mr Mukherjee said the country can withstand the impact of such crisis.

"We hope for an early and peaceful resolution of the disturbing developments in the Middle East and in Libya. I am prepared for uncertainties in the globalised world," he added.

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COMMENTS

Shadi Katyal

6 years ago

Is the nation not much taxed yet. we had gift tax when Indians sent money to parents so thay can live. we have tax on speed mail as it is not part of Post Office
Why any sane man will think of tax on hospitals with Ac or not. Does teh Govt not tax enough to Doctors and other technical staff.
I presume we mighyt have tax for getting sick as we do have death tax on the wealth of deceased.
When is the aam admi going to be taxed for sleeping on the footpath or even walking around and thus wearing the roads adn foot paths?
Maybe Govt should charge tax for evening or morning walkers .
Shame Shame on FM for even thinking of such tax but with 64 ministers and thousands of Babus doing nothing, Govt does need money. Could we not have saved Crores on CWG if thee was accountability and not had to ask for this shameless tax

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