"India stands to gain the maximum from the carbon-budget approach because we are creditors and we have not used carbon space, the Union environment minister said
India will take up a leadership role on the issues of global carbon budget and seek support from various countries in equitable access to atmospheric space in the run up to the Cancun climate change meet, according to Union environment minister Jairam Ramesh, reports PTI.
India cannot and will not accept any agreement which does not have its fundamental principle of "equity and equitable access to global atmospheric space," he said at the two-day conference on 'Global Carbon Budgets and Equity in Climate Change,' at the Tata Institute of Social Sciences (TISS) in Mumbai.
"In the next six months in the run-up to Cancun, India will take the leadership role on the issue of a global carbon budget," Mr Ramesh said.
Our strategy must also be based on both per capita emission principle along with per capita income, which are "constituent elements of equity strategy," he stressed.
"We have strong support from China, Brazil, South Africa and when I reach Rome today, I will be talking to German and French leaders too to gain more support on equity and equitable access to global atmospheric space," he said.
"This is a matter of survival for us and when we talk about equity, we talk about development," he said adding, "We are arguing for international equity and at the same time, personally I believe that it is the responsibility of the government of India to ensure domestic equity also."
Mr Ramesh said India will be a great beneficiary if the global carbon budget principle is accepted as the country is a late comer in high growth plane.
"India stands to gain maximum from the carbon budget approach because we are creditors and we have not used carbon space, which has been quantified by a German think-tank publication," he said.
In his key-note address, executive director of South Centre from Geneva Martin Khor agreed with the Indian stand on equitable access to atmospheric space in carbon budgeting at the forthcoming negotiating tables in Brazil and Cancun.
Mr Khor, however, said India has to stress on the operationalisation, based strongly on scientific inputs in terms of technology and finance.
T Jayaraman of the TISS presented his paper on 'Global Carbon Budgets and Burden Sharing Regimes,' which will be taken for debate for the next two days.
Meanwhile, the environment ministry is collaborating with TISS on this project, called for more such academic centres to participate on bringing about new ideas which may be different from conventional thinking.
"Opportunities must be provided for the government with new ideas by the academic and research analysts, and the government will support such efforts," he added.
Investors have an option to donate half or full dividend from this fund to the Indian Cancer Society, a non-profit organisation which provides financial support to needy cancer patients
Want to mix some charity with growing your wealth? Look at HDFC Cancer Fund. HDFC Mutual Fund filed its draft offer document with the regulator for its three year close-ended income fund called 'HDFC Cancer Fund' (HCCF), a first of its kind initiative by a fund house, on 23 June 2010. The scheme will be launched in association with the Indian Cancer Society.
The scheme aims to protect capital and seeks to generate income by investing in debt and money market instruments and government securities. The scheme will invest 60% in debt and 40% in government securities. The units of the scheme will be listed on the National Stock Exchange (NSE).
The dividend proceeds will be donated to the Indian Cancer Society (ICS). Investors have an option to either donate 50% or the entire dividend (100%) to ICS subject to any tax at source. The investors are eligible for tax deduction under Section 80 G of the Income-Tax Act, 1961. The scheme comes with only dividend option. The dividends will be declared on a half-yearly basis. The fund does not carry an exit load.
The proceeds will be utilised by ICS to fund treatment of underprivileged cancer patients and to provide food and nutritional support. HDFC and ICS have jointly set up a governing advisory council (GAC), which will be entrusted with overseeing and directing the proceeds towards this cause. The members will consist of experts from the medical fraternity like Nihal Kaviratne, Keki Dadiseth, Homi Khusrokhan, Ajit Nimbalkar, MK Sharma, Dr Rustom Soonawala, Dr Rajendra Badwe, Dr Anita Borges, and Milind Barve. Besides, Dr Arun Kurkure and Smita Agarwal will also be permanent invitees to this group. This committee will approve utilisation and distribution of funds and appoint auditors for auditing and supervision of funds.
Rating agency CRISIL has assigned 'AAA' rating to this fund which is benchmarked against the CRISIL Short-term Bond Fund Index.
HDFC Mutual Fund has a corpus of Rs1,01,863 crore of average assets under management (AUM) as on May 2010.
ICS was set up in 1951 by Dr DJ Jussawala and Naval Tata, and is the national anti-cancer association of India. ICS is a member of the World Health Organisation's International Expert Committee on cancer and represents India in the general assembly of the International Cancer Union. ICS helps needy cancer patients by offering food, medicine, transport, prostheses, colostomy bags, counselling, social welfare and job-placement services.
ICS presently has an all-India expense budget of Rs4.5 crore annually, of which Rs2 crore is funded through donations. Medical relief for the poor accounts for only Rs15 lakh due to budget constraints.
Higher fuel prices will lead to rise in freight costs that will be passed on to nearly every other category, thus spiralling inflation. This, coupled with the subdued monsoon, may force the RBI to go in for monetary tightening sooner, say experts.
Last week, the empowered group of ministers (EGoM) came up with a number of sweeping changes on fuel deregulation that has increased prices of petrol, diesel, LPG and kerosene between 5% to 33%. However, the increase in fuel prices will lead to higher inflation that would force the Reserve Bank of India (RBI) to go for monetary tightening sooner, said analysts.
Similarly, persistent high inflation would result in faster rate hikes and could impact interest rate sensitive sectors like banks, real estate and automobiles.
"Rise in fuel (prices) will have a spiralling effect and we expect inflation to surpass 12% sooner than later. It is expected that the recent fuel price hike will increase inflation by about 100 basis points (bps). The pace and the quantum of rate hike by the central bank will depend much on how the monsoon pans out. Till 24th June, rainfall was 11% below normal, largely because of the delayed monsoon in the North East and central India," said Kisan Ratilal Choksey Shares and Securities Pvt Ltd, in a note.
Persistent high inflation has been the main worry for the RBI and has heightened the risk of faster rate hikes by the central bank. Macquarie Research said, "We expect an additional 75 bps to 100 bps rise by March-end FY11, but the risk of that coming through earlier is now higher. Adding to this, monsoons are now 11% below normal till date, up from 8% last week."
The RBI is slated to announce its first quarterly monetary policy review on 27th July.
While petrol prices have been completely deregulated, the EGoM announced a more significant reformist move to gradually move towards complete deregulation in diesel prices with an immediate hike of Rs2 per litre. On the other hand, the EGoM also announced hikes in cooking fuel prices like LPG and kerosene by Rs35 per cylinder and Rs3 per litre, respectively, with immediate effect.
Assuming the current oil price of $75 per barrel, the impact of the EGoM decision would lead to reduction of under-recoveries to Rs53,000 crore from Rs77,000 crore. In a research report, Saurabh Handa, oil & gas analyst, Citi India, said he believes that while under-recoveries on petrol, which comprise about 10% of total losses, would now be wiped out, oil-marketing companies would continue to bear losses on diesel, LPG and kerosene. "The impact on public finances would thus depend on how the under-recoveries would be financed. Moreover, while the Kirit Parikh Committee report has sought to address the subsidy formula, as of now there is no clarity on subsidy sharing," he added.
These steps are likely to reduce Indian Oil Corp Ltd's (IOC's) gross under-recoveries by about Rs13,000 crore and those of Bharat Petroleum Corp Ltd (BPCL) and Hindustan Petroleum Corp Ltd (HPCL) by about Rs6,500 crore and Rs5,500 crore, respectively. Upstream companies, which share the burden of under-recoveries, will also benefit because the extent of support they are required to provide will now come down. In addition, the price competitiveness of city gas distribution players, which had been constrained by the earlier increase in the administered pricing mechanism (APM) price for gas, will now be partly restored.
Pawan Agrawal, director, CRISIL Ratings, said, "The government's decision will improve the cash flow position of public sector oil companies (PSOCs), and reduce their dependence on borrowings, though only marginally. However, since under-recoveries will remain high even after these steps are initiated, there is a need for creating an institutionalised mechanism to share the burden in a timely manner."
According to comments from oil secretary S Sundareshan, analysts believe that oil-marketing companies would be fully compensated for losses by the government. Against the existing formula of the upstream companies completely sharing losses on auto fuels, marginal to nil losses in auto-fuel sales going forward would mean the new formula would have to accommodate sharing of cooking fuel under-recoveries.
"We expect complete compensation of cooking fuel losses to the OMCs by the government and upstream (companies). While a concrete subsidy-sharing formula is difficult in our view given various moving parts, we understand that the oil and finance ministries would be working together to devise a subsidy-sharing formula, going forward," said Ambit Capital Pvt Ltd.
Over the past few years, under-recoveries have been shared among upstream companies, the government, and PSOCs. While the government has provided cash or oil bonds, the absence of an institutionalised mechanism for meeting PSOCs' under-recoveries has often resulted in delays in support. Due to such delays, the PSOCs have faced volatility in cash flows, necessitating large short-term borrowings.
CRISIL said it believes that either full decontrol, allowing the PSOCs to decide pricing, or an institutional mechanism that compensates the PSOCs for under-recoveries in a timely manner, is critical to restore the financial health and credit quality of the oil-marketing companies.
While saying that commenting on the sharing ratio would be speculative, Ambit Capital said it believes that implementation of subsidy-sharing on the lines of the one proposed by the Parikh committee report is a high possibility. However, given the fact that cooking fuel prices were not increased in the same proportion as proposed by the committee report, Ambit said that changes will have to be made to crude price ranges and rate of tax.
Given that India would continue to remain an oversupplied market, at least for transportation fuels, independent refiners would find the price negotiation difficult to handle. ICICI Securities Ltd, in a research note said, given that motor spirit (MS) and high-speed diesel (HSD) prices have been deregulated or would be deregulated soon, independent refiners would have to negotiate with OMCs for off-take of MS and HSD. Earlier they were able to sell at trade parity prices. This would imply that the independent refiners would be hard pushed by OMCs and there might be a few mergers of these refiners with parent companies in order to benefit from the latter's marketing network, the ICICI Securities report said.
Post deregulation, many analysts believe that private players would be able to challenge the near-monopoly of PSOCs. Market-driven pricing of auto fuel would also mean entry of private players such as Reliance Industries Ltd (RIL), Essar Oil and Shell, thereby intensifying competition in an otherwise State-run monopoly. "Even if history doesn't repeat itself but merely rhymes, State-run auto-fuel market share erosion by 5% to 10% seems likely," said Ambit Capital.
Given that RIL, Essar Oil and other private players would be able to expand their retail coverage post deregulation, OMCs' market share will be affected. The ICICI Securities report said, "HPCL and IOC, which have maximum coverage on highways will be affected the most, while BPCL will be impacted the least as most of its outlets are within cities. Moreover, BPCL's impressive E&P portfolio would offer further upside and we believe long-term investors are better off investing in BPCL at present."
Talking about the negative impact of fuel price deregulation on sectors, Macquarie Research said that for the cement sector, freight accounts for 15% of the costs and given the oversupply in the cement market, chances of this cost being passed on to customers are bleak. "We maintain our 'underweight' call on the sector with key underperforms being India Cement and UltraTech," it added.