Diversification at HMT Reviewed work(s): Source: Economic and Political Weekly, Vol. 3, No. 3 (Jan. 20, 1968), pp.

184-185 Published by: Economic and Political Weekly Stable URL: http://www.jstor.org/stable/4358144 . Accessed: 25/01/2013 17:33
Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at . http://www.jstor.org/page/info/about/policies/terms.jsp

.
JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org.

Economic and Political Weekly is collaborating with JSTOR to digitize, preserve and extend access to Economic and Political Weekly.

http://www.jstor.org

This content downloaded on Fri, 25 Jan 2013 17:33:12 PM All use subject to JSTOR Terms and Conditions

January 20, 1968 ruling Samyukta Vidhayak Dal. In the reshuffle the Jan Sangh ministers have been deprived of important portfolios like co-operation and local self-government. The Jan Sangh had exploited its control of these departments to pack co-operatives and local government bodies with partymen. The sharpness of the party's initial reaction to the loss of the portfolios was, therefore, underthere was angry talk standable of the SVD electing a new leader in place of Charan Singh. But the shrewd calculations on which Charan Singh had based his moves are now becoming clear. The SSP and Communist ministers resigned from Government over specific issues like abolition of land tax and release of those detained in connection with the State Government employees' strike, but thQ discomfiture of the two parties particularly of the SSP, since it is the second largest party in the SVD arose from the fear that the Jan Sangh by exploiting the portfolios in its control was worsting them in the struggle for political influence at the district and lower levels. By taking away some important departments from Jan Sangh Ministers, Charan Singh has mollified the SSP and the Communists who, though no longer in his Government, may be expected to continue to support it. The move may also bring back the Swatantra party which had left the SVD in July last year. The General Secretary of the party, N Dandekar, has expressed 'satisfaction' over the reallocation of portfolios. The party has only 12 seats in the Assembly, but in the precarious balance between the SVD and the Congress and betwcen the different units of the SVD, even these matter. For the moment, then, Charan Singh seems to have survived by skilfully exploiting differences between the parties constituting the SVD. The Jan Sangh has clearly backed down; it has withdrawn the demand for replacing Charan Singh, and the Jan Sargih leader, Ram Prakash, who is also Deputy Chief Minister, has expressed confidence that the crisis will blow over. The reason for the Jan Sangli's retreat is that the fall of the present Ministry may well lead to a mid-teim election in the State, since because of the differences within the Congress it is improbable that a Congress Ministry
184

ECONOMIC AND POLITICAL WEEKLY for-med by C B Gupta will survive for any length of time. The Jan Sangh is clearly not anxious for an election at this stage and this strengtherns Charan Singh's hands in dealing with the party. If these various considerations continue to carry weight with the different parties, resignation of SSP and Communist Ministers and cutting down to size of the Jan Sangh may have left the Chief Minister actually stronger than before. In any case there is no chance of the SVD pulling together under anyone else.

BUSINESS

Export Policy for Tea

IN 1967 tea exports recovered to 205 million kgs from 175 million kgs in 1966 and 199 million kgs in 1965. The unit value realisation rose from Rs 5.77 per kg in 1965 to Rs 7.67 in 1966 anld to Rs 8.78 in 1967, a, rise of about 50 per cent ovei 1965. Only part (about one half) of this benefit, which accrued largely from devaluation, was absorbed by export duties. India has again become the world's largest exporter of tea, relegating Ceylon to the seeond place. Retrospectively, Governm,ent's policy of sustaining the price of tea by imposition of export duties appears to have served its purpose. Devaluation of sterling last Novcnber and the consequential devaluation of the Ceylonese rupee by 20 per cent have now brought some new factors into the situation. The austerity measures adopted by UK are likely to reduce the sterling price of tea, while Ceylon's devaluation has restored the competitive edge of its tea. Predictably, the tea export interests have stepped up their demanrdfor export duty abolition no doubt with an eye on the impending
budget.

In recent weeks much progress seems to have been made towards evolving some kind of joint action on these lines. There is a move to set up a joint Indo-Ceylon marketing organisation. So long as these delicate negotiations are going on, it would be worthv-hile to exercise a degree of restraint in meeting competition from Ceylon. Since tea is of predominant importance in Ceyon's exports as well as in its internal economy, a premature move on India's part to improve its competitive strengtl would invite retaliation and harm the intercsts of both. While tea interests have been contcnt over the years to look to Government repeatedly for concessions and incentives, they have done little to diversify the direction or product pattern of exports. Exports have been unduly concentrated on UK (55 per cent) while many neighbouring regions which are large con sumers of tea have been ignored. The appreciable increase in tea exports to East European countries in recent years has demonstrated how new market areas can be exploited by adopting favourable trade policies.

India and Ceylon between them account for three quarters of world tea exports; competition in the world market is, thus, mainly duopolistie. At the same time, the demand for tea has tended to be highly inelastie to price changes. The declining trend in world tea prices over the last many years has been mainly the result of increase in competition between the sellers rather than of greater buyer resistance at prevailing prices. Logieally, the longterm interests of the two main exporters would be best protected by joint aetion towards maintaining the export priee of tea rather than dissipation of poten-tial foreign exchange earnings by mutual competition. This could take the form, among other things, of regulating the quantum of offerings on the London market.

Diversification at HMT
EXTENSION of IDB re-discount facilities to machine tools has not improved the sales of Hindustan Machine Tools. In the year to March 1967, HMT received 150 enquiries for deferred payment but sales materialised for only 10 machines. The principal difficulty in utilising this facility lies in the inability of buyers to furnish bank guarantees. This is one more example of how well-intentioned schemes get bogged down because of procedural
tangies.

Recession notwithstanding, the absolute volume of orders booked, pro-

This content downloaded on Fri, 25 Jan 2013 17:33:12 PM All use subject to JSTOR Terms and Conditions

ECONOMIC AND POLITICAL WEEKLY duction, sales and despatches of HMT have gone up. It now produces a range of over 17 families of standard machine tools and a steadily widening range of special purpose machine tools. That the range of diversification is still limited is, however, clearly indicated by the continuing large volume of imports. The impact of the recession has been felt not by sales but by profits. Profitability in 1966-67 has been halved as compared with 1964-65, though it is fractionally higher than in 1965-66. The proportion of cost of sales to salles has increased steadily and the turnover of capital has been declining. Stock of finished goods and work-in-progress have also increased as a proportion of sales. At the beginning of the Third Plati, HMT had a scheme to set up one new machine tool plant every year. Starting with only one plant at Bangalore during the period 1953 to 1960, it went on to add the second Bangalore plant in 1961, Pinjore in 1963, Kalamassery in 1964 and Hyderabad in 1966. It also set up a watch factory at Bangalore in 1962. The recession has dampened this straight line expansion; plans for diupli. cating Pinjore and Kalamassery lhave been deferred. Instead, the accent now is on diversification. Foundries are expected to be commissioned in Kalamassery and Hyderabad shortly. The watch factory is being expanded and a new company is being form'ed in collaboration with Verson of US for the manufacture of medium and heavy presses for automoble and other engineering industries. Another company with the participation of Albert of West Germany will mamnfacturecylinder letterpresses and offset presses for single and multi-colour printing. This will represent the country's first venture in large scale manufacture of printing machinery, which has made very little progress so far. in the corresponding period of the previous year. Thrice during the year, the company had to lay off abotit 1,000 workers for a total period of 10 weeks. To make its trucks more popular, the company has introduced a new high-powered engine and also intends to make certain changes in sheet metal components. Part of the idle capacity of the plant has been utilised for the manufacture of Fiat cars whose production during 1966-67 rose to 8,661 against 5,739 in the previous year and in the four months ended October last to 3,724 against 2,471 in the same period of the previous year. Car production is expected to rise still fuirther but the price is still fixed at an "unreasonably low" level. PAL hopes that its Fiat 600 may find acceptance in the elusive search for a "small car". It is a four-seater, rearengine car with a maximum speed of 70 miles an hour and fuel consumptioii of 45-50 miles per gallon. Commcnting on its price, chairman Lalchand Hirachand says that a car of this type

January 20, 1968 costs Rs 7,700 to 8,100 in foreign countries and that in India it would cost more owing to the low volume of production and the high cost of imported materials and equipment. Since the price limit for the "small car" (which was originally fixed at Rs 6,000) is Rs 7,000, PAL, has little chance of getting Fiat 600 accepted by Government. PAL's results for 1966-67 are disappointing. No surplus is available for depreciation and development rebate; arrears on these accounts come to Rs 1.67 crores and Rs 89 lakhs, respectively. The 6 per cent dividend declared for 1965-66 was challenged by a member in the Court and the mnatter is sub judice. US AID has informned the company that the divid nd distribution of Rs 45 lakhs would violate the conditions of the loan granted by it and that the company should not pay a dividend in excess of Rs 19 lakhs. For payment of this amount, too, it has first to obtain the written consent of the Indian guarantor bank.

LETTERS TO EDITOR

Copper in Search of Ashlands

WE should be grateful to K V Subrahmanyam for drawing attention to the copper muddlq that the National Mineral Development Corporation has landed itself in ("Copper in Search of Ashlands", November 11). The NMDC's Khetri-Kolihan project which is expected to supply 31,000 tonnes of copper per annum, is likely to end up as a white elephant. The original estimate of capital cost of Rs 24.44 crores has now soared to Rs. 78.52 crores. This is a serious matter and Members of Parliament would do well to look into the affairs of this project closely. Along with the rise in total cost, the foreign exchange compo. nent must also have gone up substantially. The Annual Report for 1965-66 on the Working of Commercial and Industrial Undertakings of the Union Government is, however, silent on the actual amount of foreign exchange required for the project. The foreign exchange component was estimated at Rs 13 crores in the Report for 1964-65, but then the total cost was expected to be only about Rs 38 crores. Production is now scheduled to commence in 1969-70, but the date has been pushed forward every year. The NMDC's credentials for undertaking the project are far from satisfactory, if one is to judge by its performance so far. It has two rich iron ore mines at Bailadila and Kiribluru. Bailadila is being developed on the basis of a contract for supplying 4 million tonnes of ore annually to Japan for 15 years from 1966. Kiriburu also has an assured offtake of 2 million tonnes of ore for 10 years from 1964, again by way of exports to Japan. But, in spite of the assured market, the performance of Bailadila and Kiriburu mines has been dismal. With total capital employed of Rs 9 crores, the
185

Dodge into Fiat

REMOVAL of control on the distribution and prices of commercial vehicles is little consolation to Premier Automobiles, which has been finding it increasingly difficult to sell Dodge trucks. Its production in the year to June last dropped to 3,765 trucks from 6,726 in the preceding year and in the subsequent four months to 817 from 1,583

This content downloaded on Fri, 25 Jan 2013 17:33:12 PM All use subject to JSTOR Terms and Conditions