ANALYSIS AND DISCUSSION OF NOMINATED AGENCIES AND PUBLIC SECTOR ENTERPRISES

Transcription

1 CHAPTER VI ANALYSIS AND DISCUSSION OF NOMINATED AGENCIES AND PUBLIC SECTOR ENTERPRISES INTRODUCTION Prior to the introduction of the OGL Scheme in August 1997, nominated PSU s had been allowed to import gold for specified purposes. HHEC has imported gold since 1982, MMTC (1989), STC (1997) and PEC (1998). Initially, HHEC and MMTC (alongside the State Bank of India) were permitted to import gold bars, but only for reexport as jewellery. In 1994, however, the role of MMTC was expanded. In April, when the Special Import Licence (SIL) scheme enabled authorized exporters to import part of their earnings in gold, MMTC was allowed to trade SIL s and import bars to meet requirements. In November, when an amendment to the NRI scheme allowed NRI s to purchase upto 5 KG of gold (subsequently raised to 10 kg in Jan 1997) within 15 days of their return to India, MMTC (and the State Bank of India) established bonded warehouses in Mumbai and New Delhi to service requirements. The warehouses were subsequently closed down in 1998 when NRI imports declined. In 1997, when authorized banks were allowed to import gold for sale in the domestic market, PSU s were also permitted to do so. Public Sector Undertakings (CPSEs) are authorized to import gold bullion. They are: - MMTC Limited - PEC Ltd 178

2 - The HHEC of India Ltd. - The State Trading Corporation of India Ltd.(STC) The gold-related activities of CPSEs are supervised by the Ministry of Commerce and Industry (not the Reserve Bank of India.) Like banks, they import and wholesale bullion to large domestic dealers. Unlike banks, they can loan imported gold to domestic fabricators and retailers. They can also sell unfixed gold for a longer period, normally 11 calendar days. Broad services of Trading Central Public Sector Enterprises (CPSEs) in respect of import of bullion and sales to bullion traders / buyers/ importers / jewelers: Generally, the following services being rendered by all the four trading PSE: - Broadways foreign supply source to provide choices to the customers - Arranges bulk quantity of imports, thereby availing competitive premium which is being passed on to the customer. - Negotiating better terms and conditions to suit the different segment of customers in the market conditions. - Providing bank limits - Wherever necessary, financing the imports - Value added services, viz., negotiation with banks and booking forward contracts at competitive rates. Facilitating fixing the price round the clock with foreign suppliers. - Arranging competitive rates and charges from banks 179

3 Import of Gold through LBMA Members by trading CPSEs It may be relevant to mention here that in so far as nominated Banks are concerned whether Indian Banks and or Foreign Banks operating in India, there is no restriction to import Gold through the Members of LBMA They can import from any foreign sources. Whereas, these Four nominated trading CPSEs have to necessarily to import only from those Members of LBMA. ((Presumably, to ensure / regulate the quality/purity/fineness of the gold imported is in conformity with required qualitystandards.) This has put these nominated agencies into a great disadvantageous position vis-à-vis Banks which lead to unequal competition & facing considerable difficulties in our bullion marketing, which has eventually restricted in our turnover growth. The CPSEs operate through 38 gold Cell branches in 18 cities in 13 states. In 2001, they imported more than 100 tonnes. Services of PSU s These services enable them to compete with banks that have the advantage of inhouse access to favourable exchange rates, interest rates and bank charges. Imported gold can be loaned in the domestic market For the domestic market, banks can only loan gold accumulated through the Gold Deposit Scheme. CPSEs, however, mainly to dealers for short periods (typically 30 days), against a bank guarantee of 100% of the value of gold loan. Annualised interest is around 6%. Currently, the annual cumulative total of loans exceeds 70 tonnes. 180

4 Gold can be sold to domestic dealers on an unfixed price basis for a longer period While banks are restricted to offering their customers a maximum unfixed period of 5 calendar days, PSU s are able to offer an unfixed period of 11 calendar days, and sometimes more. USANCE Letters of Credit are available Unlike banks, PSU s are able to offer domestic dealers an opportunity to purchase gold on an unfixed price basis for upto 180 days through a deferred letter of credit. HHEC, PEC and STC offer this service. BRANCHES The 4 PSU s combined offer gold-related services through 38 branches in 18 cities. MMTC has 17 Gold Cells. STC, HHEC and PEC have 7 each. 40% of the branches are located in the South region. In southern region, there are 15 gold cells covering 7 cities. In Western region, there are 10 gold cells covering 3 cities. In eastern region, there are 5 gold cells covering 3 cities. In northern region, there are 8 gold cells covering 5 cities. Official import of bullion were being undertaken to three different channel viz., Non-Resident Indians (NRI), Special Import License (SIL) and Open-General-License (OGL). Currently, the import of Bullion takes place under OGL. 181

5 Different Schemes of Bullion imports PSE s are carrying out the imports of bullion in the following different schemes: Loan basis Outright Purchase Basis Consignment basis Usance LC basis SUMMARY OF GOLD CELL SERVICES Some PSU s are more active than others. MMTC is the only PSU to loan gold to domestic market entities and jewellery exporters. Shift in import of Bullion in the current scenario From October 2003 until June 2004, the four nominated agencies of PSE s have been importing under usance LC arrangement in terms of Foreign Suppliers credit. As a result of RBI guidelines in July 2004 restricting the usance period upto 90 days, the import of bullion has shifted to consignment basis, as there has been no benefit of arbitrage. In addition, the imports are also being undertaken on domestic loan basis. Important Strategy and Broad Marketing Services of these four nominated Trading CPSEs Change is a catalyst agent for growth of any Organization. Those Enterprise(s) / Companies have adapted themselves to accept the change in line with market conditions prevailing internally as well as internationally and re-invent 182

6 themselves, have grown up significantly. So also, these four trading CPSEs have evolved / formulated their marketing strategies in tune with changing scenario, the evidence of which can be seen from their results of the last fiscal year. These four Nominated Agencies of CPSEs have not only learnt Darwin s Theory of SURVIVAL OF FITTEST but also have demonstrated through their progress and performances. Sum & substance, the Nominated Agencies have adapted themselves to adjust the changes that are taking places which can be better illustrated as under: from canalization regime to de-canalization era and concentrate on noncanalized trade. from regulation to de-regulation from control to de-control from seller s market to buyer s market more and more customer-oriented. CPSEs - New Vision To face the challenges in the new millennium, the CPSEs have, as it were, to further re-invent themselves with a new vision. A new vision: Each PSE has to have a vision for itself. The vision shall be of a selfreliant with world-class globally competitive dynamic entity. A new Ambience: To implement, perform, progress within the framework of broad social & economic policies & programmes of the Government, with total professionalism. 183

7 A new Mandate: Has to implicitly follow the best practices with global benchmarks, consistent with a Code of Business Ethics and Standard Values. A new Commitment: Need to unleash continuous improvement through value addition throughout. A new Direction: CPSEs have committed to all stake-holders shareholders, customers, employees and the society and not to be obsessed with only by the shareholder value, to-day s Mantra of private enterprise & financial analyst. A new model of Corporate Governance: Given the dictates of global competition and the need for professional Corporate Governance, both sectors are slowly but steadily inching towards convergence. Indeed, there is an urgent need to be innovative in discovering new models of Corporate Governance. Background information on the Four Trading CPSEs follows. The headquarters of the 4 CPSEs are in New Delhi. Detailed discussion is as MINERALS & METALS TRADING CORPORATION OF INDIA LTD (MMTC) Established in 1963, MMTC is India s largest general trading company covering minerals, metals, agricultural products, precious metals, gems and jewellery. It falls under the administrative control of the Ministry of Commerce and Industry. It was known formerly as The Minerals and Metals Trading Corporation of India Ltd. Employees : Apart from importing gold bullion since 1989, MMTC has opened 4 retail jewellery outlets: at Mumbai s international airport (1996), in metropolitan Mumbai and Chennai (2001), and in Trivandrum (2002). A minting unit has manufactured MMTC 184

8 minted bars and medallions since 1995, as well as customized medallions for government and corporate entities. MMTC has offered assaying and hallmarking services since 1987, registered by the Bureau of India Standards as an authorized Hallmarking Centre in June MMTC places an important role in the promotion of jewellery through exhibitions and attendance of jewellery fairs worldwide. MMTC has following rewards and recognition in its credit MMTC has been awarded Gold Trophy for top Exporter for the year in Merchant Exporter category by EEPC. MMTC is rated Top Indian Company in the Trading Sector by Dun & Bradstreet American Express Corporate Awards Ranked 9 th amongst India s Most Valuable Public Sector Companies by Business Today in their publication released in January Niryat Shree Bronze Tropy for the year in the highest foreign earner category by FIEO. Amity Award for continuous Innovation by Amity International Business School, Noida (UP). Ranked 10 th among top ten Government-owned Companies based on the turnover in for the year 2007 by Economic Times in their publication ET 500 released in October th Rank by Economic Times in their publication ET 500 released in October, Wholly owned subsidiary MMTC Transnational Pvt. Ltd (MTPL) ranked 10 th amongst top Corporations in Singapore in General Trade Segment by DP 185

9 Information Group in association with Ernst & Young based on the performance during As on 1 st April 2007, MMTC has a sum of Rs.8321 million as reserves and surplus. HIGHLIGHTS OF MMTC Largest International Trading Company of India Single largest importer / supplier of Bullion and Non-ferrous metals in the country Present 76 locations in India through Offices, warehouses, port offices and retail outlets. Highest ever trade turnover over Rs Crores and highest ever imports of Crores for the year Already set up Wind-Energy Farm Project in Karnataka and entered into exploration of coal block. Exploring the possibilities of developing port-jetty in Paradip. Setting up of Commodity Exchange jointly with India-Bulls Company. Opening a London Metal Exchange Warehouse in India and setting up gold/silver medallion manufacturing unit under Joint-Venture with International Partners. Setting up of Chain of Retail Stores in different cities of India for sales of medallions, Jewellery and SANCHI ( it is a brand name of MMTC precious metal products) Setting up of free-trade and warehousing zones along with Joint Venture partner and exploring possibilities of developing SEZ for Jewellery along with Joint Venture partner being explored. 186

10 TABLE 6.1 Bullion Turnover of MMTC (Includes Import of Gold Coins) Year Rs. In Cr-ores , , , , , , , (Provisional) PROJECT & EQUIPMENTS CORPORATION OF INDIA LTD (PEC) PEC Ltd was established in April 1971, PEC operates as a trading house under the administrative control of the Ministry of Commerce and Industry, Government of India. The Company s primary business thrusts are in exports, imports, deemed exports, third country trading, arranging financial credit facilities to the Business Associates, logists, projects and Management. PEC Ltd over the last three decades, has expanded the role to become an international business organizer and a provider of integrated trade facilitating services. PEC as a trading company, is both indicator and intermediary, developer as well as facilitator for global trade. Apart from exporting engineering, electrical, textile and mechanical equipment and tools, it also trades a diverse range of other products from telecommunication and computer hardware to coal, timber, building materials, agricultural products, cotton fabrics and processed goods. It was known formerly as The 187

11 Projects and Equipment Corporation, Employees : 210, Gold Cell branches :7 (plus 1 in planning). PEC Ltd undertakes comprehensive, global commercial services; and brings buyers and sellers from India with countries around the globe together on the common ground of mutually profitable trade. PEC has been an active gold bullion importer since February It was the first PSU to offer the USANCE Letter of Credit facility to import gold. TABLE 6.2 Turnover of Bullion Import Achieved by PEC FINANCIAL YEAR VALUE- CIF (RS.IN CRORE) , , , , HANDICRAFTS & HANDLOOM CORPORATION OF INDIA LTD (HHEC) Established in 1962, The Handicrafts and Handlooms Exports Corporation of India Ltd.(HHEC) focuses on the export promotion and trade development of handicrafts, handlooms and village industry products, ranging from woodcraft, furniture and glassware to garments, rugs, carpets and jewellery. It falls under the administrative control of the Ministry of Textiles. Employees : 240. Gold Cell branches :

12 HHEC is also a Member of the Multi-Commodity Exchange of India Ltd (MCX) and undertakes trading. HHEC is also one of the nominated agencies for import of precious metals (Gold and Silver) and has been importing it from 1997 and onwards. The Corporation has the following Scheme for import of Precious Metal Outright purchase of bullion against 100% payment on delivery. Consignment basis Loan basis in terms of RBI guidelines Import under Supplier s Credit / Buyer s Credit. Private-Public Partnership for Precious Metal Trading in MCX through physical delivery. TABLE 6.3 Turnover of Bullion Import Achieved by HHEC Year (Rs. Crore) ,

13 STATE TRADING CORPORATION OF INDIA LTD (STC) The Mission statement: The State Trading Corporation of India Ltd (STC) seeks to emerge as a global trading company constantly staying ahead of change, thereby enhancing the value to all stake-holders and adopting high standards of Corporate Governance. STC was set up in 1956 primarily with a view to undertake trade with East European countries and to supplement the efforts of private sectors and industry in promoting exports from the country STC s trading activities range from the export of agricultural products, engineering materials, pharmaceuticals, processed foods and tobacco to the import of acids, fertilizers, sugar and precious metals. It falls under the administrative control of the Ministry of Commerce and Industry. As of now, the total employees are about 995. Gold Cell branches : 7. The Corporation had started its business operations with an equity of Rs.1.00 crores. STC has entered into 50 th splendid year of existence in international trading. It has been a long sail for STC since its incorporation on 18 th May 1956, as an autonomous Company of the Government of India under Indian Companies Act STC today has, to its credit, an extraordinary track record of five decades of service to the nation. The State Trading Corporation of India Ltd. (STC) is a premier international trading house owned by the Government of India. Having been set up in 1956, the Corporation has developed vast expertise in handling bulk international trade. Though, dealing largely with the East European countries during the early years of its formation, today it trades with almost all the countries of the world. By virtue of infrastructure and experience possessed by the Corporation, it plays an important role in arranging import of essential items into India and developing exports 190

14 of a large number of items from India. It exports a large number of items ranging from agricultural commodities to manufactured products from India to all parts of the world. Because of Corporation's in depth knowledge about the Indian market, STC is able to supply quality products at most competitive prices and ensure that the goods reach the foreign buyer within the prescribed delivery schedule. It also imports bulk commodities for Indian consumer as per demand in the domestic market. The eventful track record of more than 51 years has helped STC to gear itself to face the fierce competitive challenges, seize business initiatives and build on its core competencies. With a global vision in effective management, result oriented approach, strong belief in productivity and accountability, STC is future ready to take advantage of the opportunities in the 21st century and help propel India towards the new frontiers in world trade. Contribution to the Indian Economy by STC The Corporation has played a key role in the Indian economy. It has acted as an arm of the Government of India not only to regular foreign trade but also for intervention in the domestic market. The Corporation has made significant contribution particularly in the following areas: Trade with East European Countries Handling canalized exports and imports of items varying from chemicals and pharmaceuticals to bulk commodities such as edible oils, cement, sugar, newsprint, wheat, urea etc., Assistance to exporters by providing technical, marketing and financial support, arranging import of machinery and raw material for export 191

15 production, setting up design centers, providing testing laboratories, taking products of small manufacturers to overseas markets by organizing their consortia, participation in exhibitions and trade fairs, etc., Import of bulk quantities of essential consumer items like wheat and sugar, sometimes at very short notice. Price support operations to ensure remunerative prices to growers for their crops such as raw-jute, shellac, tobacco, rubber and vanilla. During mid 1970s along, the Corporation had handled as many as 118 canalized items. Key role of catalyst in promoting exports from the small-scale sectors and SMEs by providing a package of services to them. MAJOR PERFORMANCE HIGHLIGHTS OF STC FOR THE YEAR o All time high turnover Rs.14, crores contributed by best ever performances, exports, imports and domestic trade. o Consistently increasing net profit Rs crores, up 126% over o Signed MOUs with BEML, MSTC, Philippines International Trading Company (PITC) and PISEC. o Successfully undertook 5.5 million MTs of what on behalf of the Government of India. o Signed contract with NTPC for supply of 5 million MT of non-coking steam coal valuing about Rs.2200 crores for the year , whereas, for the year , STC will be contracting for a quantity over 8.00 million MTs of non-coking steam coal valuing about Rs.8000 crores 192

16 o Undertook high turnover of bullion imports of Rs crores. o Diversified into exports of gold-jewellery with a turnover of Rs crores. o Excellent Rating in terms of MOU for the year for the fourth year in succession. Organization Chart The state trading corporation of India limited Chairman-cum-managing director (cmd) Director Director Director Director Marketing Finance Personnel vig. Officer Chief General Manager General Managers Dy. General Managers Chief Managers Managers Dy. Managers Assistant Managers Line Staff (Total Strength of Employees about : 995) STC has been expanding its gold-related services since establishing its first Gold Cell office in March A premier trading arm of the Government of India. STC gradually took center-stage of India s trade. STC has 15 branches across India. Major branches being at Mumbai, Kolkata, Chennai, Hyderabad, Ahmedabad and Bangalore. 193

17 Now, STC has become the green channel for trade in India in every respect. Financial Soundness: The financial soundness of STC, India, is exemplary and with the complete backing of the Government. it has proved to be rock steady and highlights its intrinsic stability. Exports: The Corporation exports a diverse range of products to overseas markets around the world. The items exported by STC include wheat, rice, tea, coffee, castor oil, castor seeds, sugar, chemicals, drugs, pharmaceuticals, leather, textiles, light Engineering goods, construction materials, consumer goods, sports goods, processed foods, marine products, spices, jute goods, gems and jewellery etc. Imports: Major items of import by STC including edible oil, sugar and pulses, fertilizers, gold/silver, electronic items. STC also monitors the counter trade commitments under Govt. of India purchase. Decanalization: The economic reforms and trade liberalization policy since 1991 resulted in de-canalization of all the items which were earlier canalized through a Corporation. As a result, there have been decrease in the turnover. Indeed, with the onset of economic liberalization and reforms and when India having already entered into the era of LPG Liberalization-Privatization- Globalization STC won the confidence and credibility of trading partners worldwide. No Budgetary Support: Virtually, there has been no Government support business with the Corporation since and onwards. Almost, the entire 194

18 business currently being undertaken by STC by facing direct competition from the Private / Corporate Sectors and Industry. The Corporation has been laying emphasis to promote non-canalized trade both in exports and from imports. The STC has a widespread network and presence in every corner of the globe for instant access particularly in specialized areas. STC has the capability of organizing buyer-seller consortia in very quick time. Whichever way you look at it, STC is your most dependable trading partner in Asia STC - The Flag bearer of International Trade with India. State Trading Corporation. Business Beyond Boundaries. TABLE 6.4 Performance Indicators of STC Annual Turnover: 14335($.3168 mn) Rs Crores (US$ mn) Net Profit: ($.19 mn) Rs Crores (US$ 19 mn) Equity 30 ($.6.6 mn) Rs Crores (US$ 6.6 mn) Net Worth 434($.96 mn) Rs.524 Crores (US$ mn) Broad Areas of Operation Exports from India Imports into India Domestic Trading Market support operation Buffer stock operation Offshore Trading Counter Trade Joint Venture Overseas export operations Infrastructure Projects 195

19 REWARDS AND RECOGNITION TO STC 73 rd Rank by Dun & Bradstreet Information Services Pvt Ltd 17 th Rank in terms of sales by Financial Express 19 th Rank in terms of sales and 12 th Rank in terms of growth in sales during 2004 (over 2003) by Economic Times. 24 th Rank in terms of sales among India s top 500 Companies and 16 th Rank among top 50 BSE listed PSUs by Charterered Financial Analyst. STC has the distinction of being rated as #Excellent continuously for the last four years that is , , and , in terms of MOUs signed with the Government of India. TABLE 6.5 Performance Indicator of STC for the Past Seven Years TURNOVER (IN CRORE) , , , , , , , STC - GREEN CHANNEL FOR TRADE India has come a long way since independence when even a needle had to be imported. Temples of industry the dream of Jawahar Lal Nehru soon came into existence. 196

20 The State Trading Corporation gradually took centre stage of India s trade. With economic liberalization and economic reforms introduced by the Government and won the confidence and credibility of trading partners worldwide. Now, STC has become the green channel for trade in India in every respect. Turnaround time for response of enquiries at STC is quick, streamlined and methodical. Ready access to avoid range of products enables us to identify markets for our trading partners with a high degree of accuracy. The STC has a widespread network and presence in every corner of the globe for instant access particularly in specialized areas. Our data bank of available products, their quality, pricing, delivery schedules etc. are available at the click of a mouse. Contacting suppliers / buyers, interacting with them and striking a deal comes naturally to us. STC has the capability of organizing buyer-seller consortia in very quick time. This has been a cutting edge in the world of trade with us. Facilities and know-how for third country trading has seen STC open large and viable trade prospects. The financial soundness of STC, India, is exemplary and with the complete backing of the Government. it has proved to be rock steady and highlights its intrinsic stability. STC takes special precautions for the safety of products in their packaging and warehousing to minimise risks in handling. 197

21 Quick and efficient cargo ships with all transit facilities are taken care of by STC s specialized field staff. Whichever way you look at it, STC is your most dependable trading partner in Asia The Flag bearer of International Trade with India. State Trading Corporation. Business beyond boundaries. STC S PERFORMANCE / HIGHLIGHTS FOR THE YEAR TURN AROUND : In a major turnaround, the Corporation successfully earned a profit before tax (PBT) of Rs.26 Crore as against a loss of Rs.83 crore suffered during the previous year. This became possible as a result of higher trading income, better management of treasury operations, optimum utilization of resources and effective cost control measures. HIGHEST EVER TURNOVER: During , the Corporation recorded a turnover of Rs.8349 crore, surpassing all previous records. The turnover achieved was over three times the turnover in the previous year. The voluminous growth was as a result of a number of new trade initiatives undertaken during the year besides continued thrust on identified items of exports and imports. RECORD EXPORTS: During the year, the exports by the Corporation aggregated to Rs.1192 crore the highest export turnover in the history of the Corporation. Compared to the previous year, the exports were higher by 73%. The Corporation focused on developing exports in its core strength of business, namely, agricultural commodities. 198

22 HIGHEST IMPORT TURNOVER: The import turnover of the Corporation also showed an unprecedented growth and reached an all time high of Rs.6978 crore almost four times the import turnover in the previous year. Bullion was the largest single item in the import basket, with import sales of Rs.5544 crore. DIVIDENED: STC declared and paid dividend at the rate of 20% in 2005, 25% in 2006 and MOU RATING: In view of overall improvement in the performance of the Corporation, for the first time ever since STC started signing MOUs with the Government in the year STC has been rated as Excellent in terms of MOU continuously during the last four years The performance of the Corporation during the year is also likely to be rated as Excellent RECOGNITIONS EARNED: The Corporation ranked 86 th among India s Top 500 companies by Dun & Bradstreet. According to a study carried out by M/.s Motilal Oswal Securities Ltd., a leading research broker, the Corporation has ranked 42 nd in terms of wealth creation. OPPORTUNITIES & THREATS: With the Indian economy already on a high growth path, the National Foreign Trade Policy recently announced by the Govt. promises a push in exports and holds a lot of opportunity for STC to expand its business. RESTRICTIONS IN GOLD IMPORTS: Gold Import of STC suffered further set back and came to a virtual stand still because of the restrictions imposed by the Ministry of Commerce vide its letter dtd As per these instructions, STC, MMTC, PEC were required to import gold only from LBMA Members. 199

23 BULLION IMPORT TURNOVER ACHIEVED TABLE 6.6- The Bullion Import turnover achieved for the past seven years by STC FINANCIAL YEAR VALUE : CIF (RS. IN CRORE) BUSINESS STRATEGIC INITIATIVES OF STC Broad-base foreign supply source to provide choices to the customers Arranges bulk quantity of imports, thereby contracting competitive premium which eventually facilitate volume of gold business. Negotiating better terms and conditions to suit the different segment of customers in the market conditions. Introducing various Schemes to cater to the requirement of Small/Medium/Large segment of Customers and have succeeded in bringing some of the domestic traders back to its fold. Providing bank limits Wherever necessary, financing the imports Value added services, viz., negotiation with banks and booking forward contracts at competitive rates. Facilitating fixing the price round the clock with foreign suppliers. STC, as a policy, to increase its customer fold have introduced a graded 200

24 quantity discount and as such are charging trading margin at very competitive rates. STC, as a policy, to increase its customer fold have introduced a graded quantity discount and as such are charging trading margin at very competitive rates. Organizing Foreign Suppliers Credit and use the channels of ECB for usance LCs which enabled both foreign supplier and local bullion buyers / traders to enhance their business volume. Arranging competitive rates and charges from commercial banks STC has been constantly expanding its gold-related marketing services since1997. As is known bullion is traded on very negligible margin, STC reviews its costing and trading margin from time to time, keeping in view the inter-se competition among the trading CPSEs, besides Banks In-House Facility of Vault at Delhi. In order to undertake stock and sale of gold from Off-the-Shelf basis to the bullion traders, STC has built its own vault in our JVP. This arrangement will offer greater opportunities for STC on par with other Agencies to sell substantial quantity of gold on stock and sale basis STC proposes similar arrangement with other STC Branches viz., Ahmedabad, Mumbai, Hyderabad, Chennai, Bangalore and Kolkata which will enable STC to compete with other agencies in the respective regions and meet the requirement of bullion traders all over India. Hedging : The Government has allowed hedging on international exchange. In line with other Agencies, STC shall also make efforts to undertake hedging in 201

25 gold trade. Since it is extremely a specialized function, STC may tie-up with some banks. STC s FOREIGN BULLION SUPPLIERS Though STC has entered into Supply Arrangements with several leading bullion bankers/suppliers, presently the imports being undertaken from following Foreign Bullion Suppliers. - Standard Bank of London, London, UK - AGR Matthey, Australia - Commerzbank, Luxemburg - MKS Finance SA, Geneva, Swiss - ARY Traders, Dubai - Bin Sabt Jewellery LLC, Dubai - M/s Natex Metals Ltd - M/s Finorafa SA - M/s Mitsui & Co Bullion Imports are being arranged by STC at the following Centres in India Delhi Agra, Hyderabad, Ahmedabad, Jaipur, Bangalore, Kolkata, Chennai, Mumbai and 202

26 Customer Relationship Managing Customer Relationships (CRM) is, indeed a very tough task. One of my major tasks is to get, keep, grow and sustain the Customers. Get-keep-grow-sustain Customers is the goal of my Organization. Needless to emphasize, as to how difficult it is to practice it, in a PSE environment where the procedures over take the performance, implications matters than implementation, bureaucracy, systems, control, accountability and above all the Big-Brother - Vigilance will be watching over every single transactions. Epilogue Lastly about STC but not the least that you can SPOT STC with: Supportive: We work as a team to create winning solution for our customers in India and abroad. Proactive: We go the extra mile to exceed the expectations of our Customers and Colleagues. Open: We value feedback and ideas and maintain open channels of communication. Thorough: We leave no stone unturned in our quest for excellence and qualityservice. SPOT The Supportive, Proactive, Open and Thorough is the driving force of STC that will aid & excel us to achieve our objectives and goals, deliver our promise to help our Customers, grow their wealth, our shareholders grow their returns, and our employees grow their aspirations 203

27 GOLD TRADING AND STC BACKGROUND Government of India in 1996 nominated STC as one of the agencies to import gold / silver besides MMTC and HHEC and SBI. Initially, these imports were allowed against Special Import Licenses (SIL). Later in , these agencies were allowed to make imports without the requirement of surrendering of the SIL. During , STC imported gold/silver worth Rs.628 crore and got a profit of about Rs.8 Crore. Subsequently, Government of India enlarged the list of nominated agencies by including PEC and 10 commercial bank(s). This led to immense inter-se competition amongst the nominated agencies resulting in decrease of service margin from one time high of 4-5% to the present level of 0.03%. Import of gold/silver by STC fell sharply as shown in Table 6.7 TABLE 6.7 Import of Gold ( to ) Year Value (Rs. in crore) Source: Compiled from Annual Reports, , STC, New Delhi. Import of STC suffered further set back and came to a virtual stand still because of the instructions issued by the Ministry of Commerce vide its letter dtd As 204

28 per these instructions, STC, MMTC, PEC were required to import gold only from LBMA Members. This was contested by STC on the following grounds. ACTION PLAN / BUSINESS STRATEGY Terms of the MOU entered into with the Ministry of Commerce, the target has been kept at Rs.400 Crore. During the first quarter (April-June 2001) imports of gold/silver have been of the order of Rs.193 crore. Till date Rs.222 Crore worth of bullion has been imported. The Corporation proposes to increase the turnover of gold / silver imports by extending its operations to the following two new areas : i. Duty free imports of gold in kilo bar denomination against export commitment as permissible under the existing EXIM policy. For the purpose, hiring and bonding of warehouses will be arranged soon, though M/s Brinks Arya or AP Security. ii. The Corporation also plans to launch operations under stock and sale arrangement of gold in TT bar denomination in Delhi / Southern region for effecting off the shelf delivery. iii. In order to broad-base and augment Bullion supply base, STC has entered into Agreements with to following Foreign Bullion suppliers a) MKS France, Zurich b) CISAL, Luxemburg c) M/s ARY Traders, Dubai d) SBL Ltd., London(UK) iv. The Corporation is also pursuing vigorously with the Government of Rajasthan for grant of fresh registration so as to avail the benefit of concessional sales tax under the Composite Levy Scheme as being presently availed by MMTC, Punjab National Bank, Corporation Bank and Dena Bank. STC would request Ministry of Commerce (MOC) to take up with Ministry of Finance (MOF) to issue suitable advice to Finance Ministry, Govt. Of Rajasthan, to allow STC to make use of the corporate Levy Scheme facility. 205

29 v. Efforts are as to broad-base our source of supply essentially LBMA members. STC already has signed an agreement regarding import of bullion with M/s Commerz Bank, Luxemburg as a supplier. vi. As is known bullion is traded on very negligible margin, STC has reviewed its costing and has opened current accounts with IDBI at various centers for the purposes of getting better forex rates and lower cost on remittances viz-a-viz the existing arrangements with STC s lone bankers, SBI. vii. Hitherto, the imports by STC has been on an outright purchase basis. STC scheme of operations being pursued presently also include opening of LCs by the local customers on behalf of STC on usance LC basis ranging from days. Under these arrangements, STC s funds are not involved and no liability devolves on it. Since then the Corporation is looking at volumes, it is actively considering to import gold under the consignment scheme. STC, as a policy, to increase its customer fold have introduced a grades quantity discount and as such are charging a service margin below the level of 0.10%. This is, however, applicable in cases where STC s funds are not involved. For others, a net realization of 0.10% is required to be guaranteed. The Corporation is hopeful of not only achieving the targets but surpassing it substantially in light of the aforementioned operations which it plans to venture into shortly. During the year , STC was permitted as one of the agencies for import of Gold/Silver under Section 88 of the EXIM policy Other agencies such HHEC, PEC, MMTC and SBI were also permitted to undertake import of Gold/Silver. STC imported bullion against SIL as well as under OGL for sale to bullion traders in domestic 206

30 market. Initially, imports were undertaken against firm booking from bullion traders / buyers on a fixed basis, based on LME prices in terms of internationally accepted trade practice. Subsequently, imports were also undertaken against usance Letter of Credit for a period upto180 days on unfixed basis and bullion traders / buyers were allowed to fix the price, any date, during the usance period of LC. In addition, import of gold was undertaken on a consignment-sale basis which enabled both foreign supplier and local bullion buyers / traders to enhance their business volume. STC s FOREIGN BULLION SUPPLIERS STC has entered into Supply Agreements with the following Foreign Bullion Suppliers. Australian Gold Refinery Ltd (AGR), Australia MKS Finance SA, Geneva, Swiss ARY Traders, Dubai Standard Bank of London, London, UK / Dubai / Singapore Natexis Commodities Ltd, UK Finorafa SA, Swiss In the beginning, STC has started bullion import business from the following foreign bullion bankers / suppliers. Swiss Bank Corporation (SBC), Swiss Union Bank of Switzerland(UBS), Swiss Harmony Gold Mining, South Africa / France 207

31 Commerzbank, Luxemburg Imports are being arranged by STC for supply of bullion traders / buyers at Ahmedabad, Jaipur, Bangalore, Chennai, Hyderabad, Mumbai, Kolkata and Delhi. BULLION TURNOVER ACHIEVED The import turnover achieved by S.T.C. is shown in Table No 6.8 TABLE Turnover Achieved ( ) Financial Year Value: CIF (Rs. In Crore) Source: Annual Reports, STC, New Delhi ( ) GOLD TRDING STC During the year , STC was permitted a one of the agencies for import of Gold/Silver under Section 88 of the EXIM Policy Other agencies such HHEC, PEC, MMTC and SBI were also permitted to undertake import of Gold/Silver. STC imported bullion against SIL as well as under OGL for sale to bullion traders in domestic market. 208

32 Imports were undertaken against firm booking from buyers on a fixed basis, based on LME prices in terms of internationally accepted trade practice. STC FOREIGN SUPPLIERS STC arranged imports from Swiss Bank Corporation (SBC), Zurich and Union Bank of Switzerland (UBS), Zurich Imports were arranged by STC for supply to bullion traders at Ahmedabad, Bangalore, Hyderabad, Mumbai and Delhi. TURNOVER ACHIEVED The import of turnover achieved by STC is shown in Table 6.9 TABLE 6.9 Turnover Achieved ( ) Financial Year Gold Silver Qty. Value Qty. Value (Qty: MTs, Value: CIF) Source: Annual Report, STC, New Delhi, December In October 1997, the Government of India has done import with the requirement of SIL for import of Gold/Silver. 209

33 ADDITIONAL NOMINATED AGENCIES AND COMPETITION Subsequently, during 1998 for import of bullion the Government of India (GOI) has also authorized several foreign and Indian banks such as :- Nova Scotia Bank, Corporation Bank, Std. Chartered Bank, Canara Bank, ABN Amro Bank, Dena Bank and Indian Overseas Bank. Due to severe inter-se competition and banks offering better package of offers including the delivery of the material on off-the-shelf basis, STC could not arrange imports for a long time. STRATEGIES OF STC With a view to compete with other agencies, STC has now formulate suitable terms keeping in view the change in current market condition and have succeeded in bringing some of the domestic traders back to its fold. As a result of this, STC has been able to import of silver worth R 46 crores upto the month of December In house facility of Vault at Delhi. In order to undertake the stock and ale of gold from Off-the-shelf basis to the bullion traders, STC has built its own vault in our JVB. This arrangement will offer greater opportunities for STC on par with other agencies to sell substantial quantity of gold on stock and sale basis. STC proposes similar arrangement with other STC branches viz., Ahmedabad, Mumbai, Hyderabad, Chennai, Bangalore and Calcutta which will enable STC to compete with other agencies in the respective regions and meet the requirement of bullion traders all over India. 210

34 Hedging: The government has allowed hedging on international exchange. In line with other agencies, STC shall also make efforts to undertake hedging in gold trade. Since it is extremely a specialized function, STC may tie up with some banks. TARGET FOR THE YEAR A target of Rs.500 crore was set for the year We have already silver valued at Rs crore approximately. With the introduction of new strategies like consignment sale, off-the-shelf delivery system and a scheme of L/c payment arrangements, it is expected to generate substantial business and we hope to achieve maximum extend possible in the remaining months of the current financial year of This part of the chapter dwells with the research design accordingly to which study was conducted. In order to understand the reactions of the traders, field survey with questionnaire technique was employed. The responses have been converted into simple percentage for interpretation and discussion.. TABLE 6.10 Status of Organization STATUS OF ORGANIZATION NO. OF RESPONDENT UNITS % Public Ltd Closely held Partnership Proprietorship Source: Field Survey Total

35 It is observed that out of 20 respondents, 55% of them belonged to proprietorship, 20 % each respectively belonged to closely held and partnership, only 5% is related to corporate status. It is further concluded that majority in gold dealer trade is proprietary concern. TABLE 6.11 Type of Trading TYPE OF TRADING Gold Importer-cum-Trader Importer NO. OF RESPONDENT UNITS 3 % 15 Trader-cum-Jewellery manufacturer 4 20 Jewellery Manufacturer 3 15 Exporter 4 20 Retailer 6 30 Total Source: Field Survey From Table 6.11, it is observed that 30% of the respondents are proved with retailing trade, 20% of them each trading, Importer Jewellery manufacturers and wholesale dealers respectively. 15% of them each respectively belong to Importer cum Trader and Jewellery Manufacturer cum Exporter. 212

36 TABLE 6.12 Staff Strength STAFF STRENGTH NO. OF RESPONDENT UNITS % Upto Total Source: Field Survey Staff strength is vary from one unit to another unit according to their business capability. Only one respondent unit is keeping staff for the business. 3 units are maintaining in between , 2 units are growing with staff, 10 units are maintaining with staff and 4 units are just keeping only upto 20 employees. It is observed that human labour is not required more in the gold trade. 213

37 TABLE 6.13 Annual Turnover ANNUAL TURNOVER (RS IN CRORE) Upto 10 crore No. of Respondents % No. of Respondents 25 6 % No. of Respondents 30 5 % No. of Respondents 25 4 % Source: Field Survey Annual turnover varies from year to year as well as from respondent to respondent. In the year , 50% of the respondents performed in between Rs.11 and 25 crore, 25% done upto Rs.10 crore, 20% of the carried out in between Rs crore and only 1 respondent achieved Rs.100 crore. In the year , 7 respondent achieved 11 to 25 crore, 6 respondent done upto Rs.10 crore, 4 respondent turnover went upto crore and 3 respondents entered into the turnover of Rs crore. In the year , 8 respondent achieved upto Rs.25 crore, 5 respondents each achieved upto Rs.10 crore and Rs.50 crore respectively in their business. Only 2 respondents performed upto Rs.100 crore. In the year , 7 respondents achieved Rs.10 crore and 3 respondent carried upto Rs.100 crore. In nutshell, the gold trading business is rolling with crore and crore of rupees but it is not possible in other trading. 214

38 TABLE 6.14 Monthly Requirements REQUIREMENT NO. OF RESPONDENT UNITS % Upto 200 TTBs/20 Kg TTBs/40 Kg TTBs/60 Kg TTBs/80 Kg TTBs/100 Kg TTBs/150 Kg TTBs/200 Kg 1 5 Total Source: Field Survey From Table 6.14, it is evident that the business requires minimum 20 kgs and maximum 220 kgs. Majority (50%) of them in between 20 and 40 kgs per month. TABLE 6.15 Sources of Import SOURCES OF IMPORT Nominated Agencies Nationalized Banks Trading CPSEs Foreign Banks NO. OF RESPONDENT UNITS % Total Source: Field Survey 215

39 It is seen that traders fully depending upon organized agencies but source of import has gone to 40% to foreign banks rather than depending on Indian Nationalized Banks. TABLE 6.16 Foreign Supply Sources FOREIGN SUPPLY U.K. SOURCES NO. OF RESPONDENT UNITS 4 % 20 U.S.A. 1 5 Singapore 6 30 Dubai 7 35 Hong Kong 1 5 Australia 1 5 Total Source: Field Survey The sources of supply are made out of foreign countries. Nearly 85% of the respondents are importing from Dubai, Singapore and UK. Remaining countries contribution is insignificant. 216

40 TABLE 6.17 Hall Marking HALL MARKING Yes Not Yet In the process No Plan NO. OF RESPONDENT UNITS % Total Source: Field Survey Hallmarking of gold is a new concept for gold jewellery business. 40% of them doing hallmarking. 50% are in the process and 10% not yet on the job. TABLE 6.18 Opinion of Import of Gold ESTIMATED QUANTITY IN THE ANNUAL/FINANCIAL YEAR 700 Tonnes 750 Tonnes 800 Tonnes 850 Tonnes 900 Tonnes NO. OF RESPONDENT UNITS % Source: Field Survey Total Import of gold has been estimated by the requirements from 700 tonnes to 900 tonnes. It is ever increasing in India, because in India, the consumption is significantly higher than the other countries. 217

41 TABLE 6.19 Opinion on Gold Import Through Various Agencies PERFORMANCE NATIONALIZED BANKS PSU FOREIGN BANKS No. of % No. of % No. of % Respondents Respondents Respondents Fair Good Very Good Excellent Satisfactory Total Source: Field Survey Performance of agencies are related very high in case of foreign banks, reasonable as far as Nationalized Banks and satisfactory in case of Public Sector Undertakings. TABLE 6.20 Opinion of Customs Duty Reduction and Getting up of Bullion Market Exchange OPINION YES NO NOT REQD. NO COMMENT Customs Reduction 20 (100) Setting up of Bullion 5 (25) 4 (20) 8 (40) 3 (15) Market Exchange Source: Field Survey (Parenthesis indicate the percentage) It is proved that all the respondents favor for customs reduction and setting up of Bullion Market Exchange by 25% of the respondents on the model of stock exchanges in corporate security trading. 218

42 TABLE 6.21 Opinion on Vat and Current System OPINION VAT % CURRENT TAX SYSTEM Yes No No comments Total Source: Field Survey From Table 6.21, it is seen that the respondents did not give much response but the current tax system should be modified o as to get some benefit out of taxation. % TABLE 6.22 Import of Gold Procedure Ranking of Opinion PROUCERS Too much confusion Too much procedure NO. OF RESPONDENT UNITS % RANK Time All the above Requirement of Simplification Source: Field Survey It is seen from Table 6.22 that all of them felt the systems, procedures is confusion, time caring and too much procedures. Hence all of them prepared for simplification. 219

43 TABLE 6.23 Customs Duty and Revenue Impact FACTORS AFFECTING THE REVENUE NO. OF RESPONDENTS % Moderately Severely No No Comments Total Source: Field Survey The opinion surveyed about the impact of revenue of the government has assessed 50% severely and 25% moderately but the remaining reserved their comments. Gold Trading is having an impact in governmental revenue earning. TABLE 6.24 Scrapping of Customs Duty FACTORS NO. OF RESPONDENTS % Yes No No totally No Comments Source: Field Survey Total Majority of the dealer respondents favoured scrapping of custom duty because it affects their pricing theory in profit margin. 220