Deficit devours income tax hopes
Tetley acquisition puts Tata Tea in top league
Tax reliefs for venture capitalists on anvil
CBEC for quick allocation of PAN
White goods units look for incentives
States may get funds support to spur exports
SBI Caps to tie up funds for DVC Maithon project
Good times are back at Happy Valley

New Delhi, Feb 27 
Faced with the challenge of containing the fiscal deficit and mopping up additional resources on an unprecedented scale, finance minister Yashwant Sinha may not be in a position to offer meaty concessions to the salaried class in the budget.

On the contrary, he may end some benefits by plugging the loopholes and shortening the long list of exemptions, both in direct and indirect taxes, when he presents the budget tomorrow. In more specific terms, the rates of personal income tax are expected to be retained. So is the 10 per cent surcharge.

That the proposed hike in the prices of petroleum products had to be deferred under pressure from allies indicates the narrow political support he has to press ahead with hard-ball measures like cuts in food and fertiliser subsidies. To play safe, he may have already watered down some tough proposals to avoid the embarrassment of rolling them back later.

However, there are strong signals he will cast a bigger tax net over the service sector, bringing more areas within the reach of the exchequer. His strategy will be to deepen the tax base and not to widen it. In tune with this approach, tax deduction at source (TDS) may be extended to new segments.

Whether the finance minister will tax the booming software sector remains a subject of speculation. At one stage, he had said he was not in favour of taxing and, therefore, reducing the buoyancy in an industry that holds out the promise of emerging as India’s driving force in a digital world.

The revenue from customs can be pushed up by taxing products which will enter the market following the removal of quantitative restrictions (QRs).

In the case of excise duties, the finance minister is expected to reduce the slabs to three — two plus one ad hoc — from five at present. The objective is to pave the way for a unified rate in 2001, which is proposed to be introduced along with a single value-added tax (VAT). The slabs will be reworked in such a way that the weighted average duty will increase by 15 per cent — an ingenious move aimed at garnering around Rs 8,000 crore every year.

The other salient features of the budget could be a resource transfer of nearly Rs 20,000 crore to states, as recommended by the 11th Finance Commission, a larger allocation for power sector reforms and a road fund to finance new National Highways.

On the expenditure side, a few things can be gauged. For instance, the allocation for defence will go up significantly. The Rs 20,000-crore transfer to states will create a big hole in the central kitty. Sinha will not be in a position to rein in spending. Therefore, he has to bet on massive disinvestment in the next financial year to maintain a balance.

Domestic industry may be allowed to manufacture items now meant only for the small scale sector. However, for products reserved for SSIs, there will be special excise tariffs. If imported, there will higher countervailing duties. Sinha is also expected to expand the list of items that come under the purview of the maximum retail price (MRP) system.    

Mumbai, Feb 27 
The Tatas announced the signing of corporate India’s biggest-ever deal to acquire the UK-based Tetley’s global operations for a staggering Rs 1,870 crore (£ 271 million).

The buyout, which will pitchfork group company Tata Tea to a position where it can rub shoulders with global giants like Unilever and Nestle, will be financed through a mix of equity and debt.

“In a world where brand strength is the key to success, the acquisition of the Tetley brand will provide Tata Tea a valuable global opportunity,” Tata group chairman Ratan Tata told reporters at a press conference called to announce the deal .

He appreciated the role played by the government and the Reserve Bank in the largest cross-border transaction by an Indian company.

“It’s the largest acquisition by an Indian company abroad. As the country is opening up, it is significant that Tata Tea is going international, acquiring companies and reputed brands abroad.” Tata Tea vice-chairman R K Krishna Kumar, who fielded questions in the absence of MD S M Kidwai who is abroad for the GDR roadshows, said the deal was delayed because the Tatas managed to convince Tetley to divest its coffee business only on February 3.

Asked if the takeover would lead to a change in guard, Kumar said the Tatas had full confidence in the Tetley management. “Tata Tea will intervene as and when required.”

The acquisition will be financed with £70 pound of equity, of which £ 60 million will come from Tata Tea. The balance £ 10 million will be raised from Tata Tea Inc USA, a 100 per cent subsidiary of Tata Tea. Tata Tea’s GDR issue will finance £ 45 million of the equity component. Of the debt component, £ 20 million will be raised by issuing subordinate vendor loan notes and the balance will be raised through debt offerings arranged by Rabo Bank — the advisor and lead manager to the transaction.

The Tetley acquisition will spur the Tatas to set up a new plant for instant tea, which will improve margins significantly. They already have a joint venture with Tetley for instant tea.

The Tetley brand is one of the leading global tea brands and a market leader in the UK and Canada. Tetley has also a distinguished history of innovations, including the original tea bag and the draw-string bag. Its product portfolio is a wide one, covering tea bags, instant tea, flavoured tea, green tea, decaffeinated tea and even herbal tea.

With the alliance, the Tatas hope to combine the strengths of Tata Tea with the Tetley group’s strong market position in the UK, US, Canada, Australia and Europe. Blending and marketing will offer both companies synergies and a recipe for aggressive growth and expansion worldwide.

The acquisition will also raise Tetley’s current tea offtake of 8 million tonnes from India. Much of it is expected to come from Tata Tea’s gardens in south India. Since the bulk of its purchase is used to make instant tea, the Tatas hope their output will fetch better prices and higher enjoy margins.    

New Delhi, Feb 27 
The information technology sector will benefit from a move by the finance ministry to give tax concessions to venture capital funds.

Ministry sources said foreign institutional investors (FIIs), too, are likely to be permitted to invest up to 40 per cent of the equity of a software company, an increase in their investment limit by a third.

The government is also planning to bring down import duty on many components and capital goods used by the the hardware industry down to zero.

It may also relax rules governing employees stock option schemes to avoid double taxation.

But the sector may also be in for a big surprise as the finance ministry is considering to impose a form of minimum alternative tax on software firms.

The government is also thinking of a service tax on internet service providers.

To counter these, the government may free e-commerce service providers from licensing requirements.

Foreign investment in the sector, too, will probably be accorded greater priority by taking the FDI proposals out of the purview of the Foreign Investment Promotion Board (FIPB).

Also on the anvil in the Union budget is a move to keep customs duty on intermediate products and finished goods at last year’s levels. This will give the hardware industry sufficient time to adjust to the coming zero duty regime.

At the same time, as the entire IT hardware industry is import-intensive with prices and technology changing at a fast pace, commerce ministry has been asked to simplify procedures for import licensing and inspection.

Meanwhile, Delhi-based software firm, Binary Semantics Ltd (BSL) will come out with a Rs 25-crore initial public offering (IPO) next month to raise funds to finance their expansion plans, a top company official said.

“We plan to raise about Rs 25 crore through the IPO offering 16 lakh shares to fund our expansion plans in India as well as abroad,” Akhil Choudhary, managing director of BSL said.    

Calcutta, Feb 27 
The Central Board of Excise and Customs (CBEC) has asked the income tax department to speed up the process of allocating permanent account numbers (PAN).

This follows delay in allotting excise control code (ECC) number to those excise assesses who are yet to receive permanent account numbers.

The introduction of the new ECC came into effect from January 1, 2000.

This had to be mentioned along with old ECC number.

However, from April 1, 2000, only the new ECC number has to be used for payment of excise duties.

CBEC sources said many central excise assessees and registered dealers did not have the 10-character alpha-numeric PAN issued by the Income Tax (IT) department.

This created problems leading to delay in the allotment of ECC numbers which are based on PAN.

As per CBEC notification issued in November, the ECC number will be based on the 10-character PAN issued by the Income Tax department.

The next five characters are meant for Central Excise purposes.

Every Central Excise assessee and registered dealer should acquire the new excise control code number.

However, several persons quoted the old PAN/General Index Register number of eight or 12-characters, whereas the new ECC number should necessarily be based on the 10-character alpha-numeric PAN.

It was also brought to the notice of CBEC that many people who had applied for PAN have not been allotted the number.

The CBEC in a recent circular has stated that it had taken up the matter with the income tax department which then issued a communication to all chief commissioners of IT to speed up PAN allotment.

The circular said the income tax department should ensure that PAN was allotted on priority basis to central excise assessees and registered dealers so that they can be allotted new ECC numbers.    

New Delhi, Feb 27 
The consumer goods industry has a small wishlist lined up for finance minister Yashwant Sinha—more sops.

The industry is hopeful that Sinha, rising to present the first budget of the new millennium, plays genie and does what it has been demanding for a long time now — link the excise duty on white goods to the maximum retail price, as is the case with colour televisions.

The white goods industry is passing through an uneven patch, with boom in some sectors and gloom in others. While the colour television industry has been growing at over 20 per cent, refrigerators have seen a dismal 13 per cent growth rate. In order to give a fillip to the refrigerator sector, industry has been demanding that excise duty on refrigerator parts be brought down to 16 per cent.

On the other hand, it has also demanded sops for the frost-free refrigerator segment which has been growing at a healthy 30 per cent rate. Manufacturing of CFC-free compressors is not commercially viable in the country and most of the players have been importing them, said industry sources. In order to bring down the prices, industry associations have suggested that the basic customs duty on CFC-free compressors be reduced to 25 per cent and they be fully exempted from countervailing duties. Also on its agenda is a reduction in import duties on components of washing machines, air-conditioners and microwave ovens.

“Presently these are in the 40 per cent band and should be brought down to about 25 per cent,” said Ajay Kapila, vice president, sales and marketing, LG Electronics. In the air conditioner segment, the excise duty should be reduced from 30 per cent to 16 per cent, he added.

According to the CII, the air-conditioning and compressor industry is currently recovering from sluggish demand, primarily due to an industrial slowdown

“This sector till recently, has been clocking a negative growth rate with a build-up of inventory and unutilised capacity,” said CII. Hence, it argued, packaged air-conditioners need tax relief by atleast abolishing the special excise duty of 6 per cent.    

New Delhi, Feb 27 
The commerce ministry has suggested that the Centre should set up a Rs 500-crore annual corpus which can be used to finance the development of export infrastructure facilities in states.

The proposal, now under the consideration of the finance ministry, will be announced in the Exim Policy on March 31 if it is cleared by the Cabinet.

Sources in the ministry say half of this amount could be disbursed to states in the form of grants on the basis of export performance of the previous year. However, a minimum performance level will be required to qualify for the grants. States which fail to attain that level will get funds on the basis of export growth in the previous year.

The move is expected to alleviate the problems of states that have been crippled by poor infrastructure facilities.

According to the plans, states will use the money to build roads to link production centres with the ports, promote research and development in state-specific export items, set up cold chains for agro-exports and improve minor ports.

Such a fund, the ministry hopes, will help motivate states to tap their potential in exports which range from highly sophisticated and value-added items to traditional goods.

At present, states see exports as a drain on their resources, largely because they are exempted from sales tax. Some of them, cash-strapped as they are, often impose a number of other taxes/duties on inputs which make exports expensive. Others levy duties on their electricity consumption and get municipalities to slap Octroi.

Once the corpus is floated, officials hope states will rationalise, and eventually reduce their levies in export-related industries. The need to spur states has come at a time when the government is trying to rev up the export performance to a level where it can match those of neighbouring countries.

Tamil Nadu and Kerala, for instance, have been unable to promote their exports like Sri Lanka — a country which has an equal, if not, more potential than these states.

This is also true of West Bengal, which has witnessed stiff competition to its garment exports from Bangladesh.

Punjab, which exports highly sophisticated engineering goods, can do well in hosiery and sport goods. The export potential of Kanjivaram sarees of Tamil Nadu, the Pochampalli variety of Andhra Pradesh, Kolhapur footwear and Paithani saree from Maharashtra have not been fully exploited.    

Calcutta, Feb 27 
BSES Ltd has selected leading merchant banker SBI Caps to tieup funding and identify prospective institutional shareholders for the Rs 4500 crore Maithon Rightbank mega power project, being implemented as a joint venture with Damodar Valley Corporation (DVC).

The project with a 70:30 debt equity ratio requires the two promoters, who hold a 45 per cent stake each, to pump in an equity of Rs 1200 crore, while a 10 per cent stake in the project will be held by financial institutions.

According to official sources the 1000 MW (250 X4) project has projected a tariff structure of Rs 2.30 paise per unit, which is expected to come down to as low as Rs 2.05 paise in the long-term.

Designated as an export-oriented unit, the necessary arrangements of the transmission network for the evacuation of power will be handled by the Power Trading Corporation, doing away with the need for a formal power purchase agreement.

The target date for the formation of Maithon Power Company, which is how the joint venture will now be known as, is March 31. The structure of the board of directors too will be finalised shortly.

Sources said that the scope of work for SBI Caps will be finalised shortly but insisted that a formal agreement has not yet been signed. The merchant banker is also a consultant to the Union government and is currently completing a study on power reforms.

DVC’s currently exports 1200-1300 MW during the peak evening hours at a frequency of 49, as the southern region is drawing power on a regular basis.

DVC is hoping to almost double its exports from the current 27 million units per day, once the Maithon Rightbank project is through, with exports to the northern region.

The promoters have urged the government that Power Grid should complete the pending transmission network sanctioned under the Seventh Plan. The network currently has an export capacity of 1250 MW which is more or less fully utilised.

The project, which was to be undertaken by Russian firm Technoprom Export at one stage and later by the OECF, it fizzled out in the wake of the Japanese sanctions after Pokhran.

It will now be implemented as a joint venture between DVC and BSES. An MoU was signed on February 8. A draft of the promoters’ agreement has been formulated and will be finalised to be shortly ratified by the DVC, BSES and the ministry of power.

The project has also received the statutory clearances for the 1200 acres of land in Dhanbad, Bihar.    

Calcutta, Feb 27 
The Banerjee family has regained control of the Happy Valley Tea Garden in Darjeeling after almost a decade.

The prime garden had fallen on hard times when the cash-strapped Banerjees were forced to turn to a couple of Marwari financiers who managed to take control of the garden even though they were long on promises and short on funds.

The erstwhile owners — the Banerjee family — were able to take charge of the garden because of the help from Happy Valley workers and the local people.

Located on the outskirts of Darjeeling, Happy Valley, which employs 335 people, has a gross area of 431 acres.

Of this, 274 acres are under tea, yielding an average annual crop of around 60,000 kg.

However, the resurrection of the Banerjees is not without a hitch.

They have managed to wrest control with the help of the D.K. Ghosh family, which runs A Tosh and Company, one of Calcutta’s leading tea trading firms.

Ghosh had bailed out the Banerjees in the past and now holds the entire shares of Happy Valley and its title deed as well.

The Banerjees now have management control of the garden because the Ghosh family has no experience or desire to run gardens.

The two groups are now trying to work out an amicable arrangement under which the Banerjees will reclaim their shares and title deed.

The Ghosh family, which had been in tea exports for nearly 100 years, had never been in the cultivation business. “Even now, we are not very keen on owning a garden,” D.K. Ghosh told The Telegraph.

With Tridev Banerjee firmly settled in the garden, his brother Falguni Banerjee is in Calcutta negotiating with Ghosh and other agencies.

Happy Valley Ran into trouble in the mid-eighties when the Gorkha National Liberation Front (GNLF) launched its agitation for statehood in Darjeeling.

The garden was a hub for GNLF activists and often there were prolonged stoppages in work.

In 1986-87, when the GNLF agitation was at its peak, the United Bank of India started legal proceedings to recover a sum of Rs 43 lakh.

The provident fund authorities, too, moved court to collect dues worth Rs 10 lakh.

The court allowed the Banerjees to pay UBI in instalments while permitting them to organise private funds to run the garden. The Banerjees were also permitted to pay the PF dues in instalments.

Subsequently, Happy Valley was funded against crop invoices by G. Momin, the former managing director of Carrit Moran.

But after Momin retired, Carrit stopped funding the garden. By this time Happy Valley’s dues to Carrit swelled to Rs 22 lakh.

The company was then bailed out by the Ghosh who, in February 1992, cleared Moran’s dues and funded the Banerjees for about four months. The Banerjees had pledged their entire 44,000 shares in Happy Valley (out of a total of 52,000 shares issued) to Ghosh.

In June 1992, Ghosh roped in S.P. Agarwal of Kamla Tea Estate, which owns 11 gardens in Dooars and Darjeeling, to run Happy Valley in a 50:50 partnership with the Banerjee.

Under the terms of the agreement, the Agarwals pledged to pay up the dues of the Banerjees to Ghosh.

Agarwal then took control of Happy Valley by appointing his own manager to run the garden.

However, trouble erupted during the Pujas when Agarwal refused to pay bonus to workers, subsequently announcing a lockout to qwell labour strife. Agarwal also failed to pay up the dues owed to Ghosh.

The Banerjees then stepped in and lifted the lockout. However, they soon ran into problems with the Agarwals clamouring for a sum of Rs 17 lakh.

In April 1993, Happy Valley found another helping hand in Shiv Shankar Pasari who entered into an out-of-court settlement with Agarwal to pay off the latter’s dues.

Pasari also promised to pay off the PF dues of the workers in instalments.

Pasari, however, failed to pay up the first instalment of PF dues and the Banerjees had to flee Darjeeling in September when the PF authorities decided to arrest them as they were the true owners of the garden.

But Pasari continued to call the shots at the garden without paying the dues of UBI or PF and even regular bonus to workers.

The depressed state of affairs continued for the past six years until some people from the garden approached the Banerjees in Calcutta to come back and reclaim what was rightfully theirs.

Falguni Banerjee said the additional land available with the garden could now be be used to develop a hotel and make the garden as a tea tourism centre.    


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