Plans afoot to lighten debt burden
Economic zones based on China model planned
HDFC, Mahindras set up real estate portal
NBFC holding company rules relaxed
Customs wall to protect local units
Move to spur downstream units of HPL
Packer sews up $ 250 m fund
Foreign Exchange, Bullion, Stock Indices

New Delhi, March 27 
Worried about the government’s ever-increasing debt portfolio, an internal appraisal group within the finance ministry is working out ways to either pre-pay some of its debt or replace older high-cost loans with cheaper finance.

As part of the exercise, the government has started negotiating with the World Bank for prepayment of part of its dues. Talks are still on and final decisions on amounts and interest concessions have still to be worked out.

“Consequently we have budgeted Rs 5,500 crore multilateral debt repayment this fiscal compared with last year’s budget estimates of about Rs 4,500 crore. This is an increase of about 20 per cent,” finance ministry officials said.

The major chunk of 60 per cent of the multilateral repayment will go to the International Bank for Reconstruction and Development and another 33 per cent to International Development Association, both of which are lending arms of the World Bank.

In fact, finance ministry officials say they want the government’s external debt position to improve from the present Rs 57,603 crore to Rs 56,800 crore by the end of the next financial year. However, internal debt is set to shoot up from Rs 9,72,840 crore as on March 31 this year to Rs 11,22,595 crore as on March 31, 2001, an increase of Rs 50,000 crore in one single year.

In the past few years, both internal and external debts have been going up. Aggregate internal liabilities for the central government are budgeted to increase to Rs 9,25,036 crore in 1999-2000 or 48 per cent of the GDP from Rs 8,19,966 crore (46.5 per cent of the GDP) in 1998-99.

External liabilities at book value (at exchange rates when loans were taken) increased from Rs 55,960 crore in 1998-99 to Rs 56,134 crore in 1999-2000. But when the foreign debt burden is revalued at current exchange rates then the total debt burden for 1998-99 itself goes up to a whopping Rs 1,77,934 crore.

Taken together, the total outstanding liabilities of the government exceeds half of the country’s GDP.

The central government’s fiscal profligacy and poor tax mopup are being largely blamed for the country’s current predicament where it is borrowing far beyond its capacity.

Analysts feel the current level of public debt is unsustainable as interest payouts on it far surpasses the growth rate of the economy.

While the government pays out 4.6 per cent of the GDP as interest, the GDP growth rate itself is a mere 5.9 per cent.

In absolute terms the government is paying out about Rs 88,000 crore as interest while the GDP grew by just Rs 64,000 crore (at 1993-94 prices).

The rising level of fiscal deficit coupled with increased market borrowings has led to higher interest payout which alone will absorb 48 per cent of the government’s revenue earnings.

Public debt itself grew at an alarming pace by nearly Rs 1,05,844 crore in the current year to Rs 9,81,170 crore, a growth of 12 per cent.    

New Delhi, March 27 
The minister for commerce and industry, Murasoli Maran, is expected to announce special economic zones in the new export-import policy.

According to official circles, finance minister Yashwant Sinha has endorsed the proposal in principle. The special economic zones are expected to be similar to those in China. Though details are not available, it is learnt that units in these economic zones will be entitled to tax concessions available to export processing zones/export oriented units, software and hardware export processing zones.

At present, EOU/EPZs units enjoy a 50 per cent concession on the aggregate customs and excise duties on finished goods sold locally.

They are allowed to sell 50 per cent of their exports in terms of value at this concessional duty. Higher sales in the local area will attract 100 per cent duties levied in the normal course.

The finance ministry has been critical of these concessions for a long time; the European Union and the US have also been insisting that they amount to a subsidies.

The government differs, pointing out that customs duties were being paid on the value-additions inside the EOU, which neutralised the apparent gains.

Former commerce minister Ramakrishna Hegde tried to address this issue by trying to model the EPZ units on the lines of Dubai export processing zones. He wanted existing EPZ units to migrate to the new export zones and agree to pay full customs duty on the local sales of finished goods. However, his scheme did not take off.

Maran’s economic zone concept appears to recognise the ground realities and the concerns of exporters.

He is reportedly of the view that local sales should attract normal excise duties. The inputs — imported or indigenous — should be subject to appropriate duties at the input stage, if used for local sales. The input-output norms under advance licence scheme can form the basis of levying these imposts.

The WTO has been critical of the duty exemption pass book (DEPB) scheme. Unlike the quantity-based advanced licence scheme, the DEPB does not ensure input-output linkage. As a result, even exporters who do not use or import inputs claim duty-free benefits. The finance ministry has been quietly building up a data-base to justify its abolition.

The commerce ministry has been considering a proposal under which the erstwhile duty-free replenishment licence can be renewed so that manufacturer-exporters can use the licence to import their regular inputs in a flexible manner.

However, this will be allowed after completing export obligations, using duty-paid imported inputs or identical local inputs. Such a flexible arrangement, officials say, will help genuine manufacturer-exporters, who will not have to furnish bonds or bank guarantees. In addition, the licence can also be made non-transferable.

The zero-duty export promotion capital goods scheme is likely to be merged with the 10 per cent scheme into a single scheme with 5 per cent duty and CVD.

This has been a long-standing demand of the CII and the capital goods sector, who insist that EPCG licence holders should pay some duties.    

Mumbai, March 27 
The Housing Development Finance Corporation Ltd (HDFC) and the Mahindra group have jointly formed, a portal that will provide the entire range of real estate services through the Internet. While HDFC will have 65 per cent stake in the Rs 10-crore venture, e-Mahindra will hold 29 per cent equity and employees six per cent. e-Mahindra is a wholly owned subsidiary of Mahindra Information Technology Services Ltd (MITS).

HDFC chairman Deepak Parekh said the website will adopt a “click and mortar” strategy in conducting transactions, utilising the network of HDFC branches which will be supplemented by an array of vendors and service providers. The website will offer more services than its rivals. In addition to information on location, price and architects, the website will sport a novelty in the form of ‘personalised relationship manager’.

Customers registering with the site will be assigned a ‘relationship’ manager who will guide the customer through various aspects of the transaction like choosing the right property and tying up for funds.

The ‘relationship’ manager — who will normally operate from an HDFC office closest to the customer— will also help the customer on legal and taxation issues, apart from offering advice on interior decoration and other home-related accessories.

The website will initially deal with properties in Chennai and Mumbai, with plans to expand to Pune, Ahmedabad, Delhi, Calcutta and Cochin.

MITS chairman Anand Mahindra said information technology has been identified as a “thrust” area within the M&M group. The group flagship in infotech is Mahindra British Telecom. The other companies include Mahindra Consulting, Logisoft, Mahindra Institute of Software Engineering and e-Mahindra.

Dividend payouts

In a board meeting held today, the board of directors of HDFC Ltd recommended an interim dividend of 90 per cent and cleared a proposal to hike the FII limit in the company to 40 per cent from 30 per cent.

Meanwhile, M&M has declared a 55 pc interim dividend. The record date for payment of the interim dividend is April 19.    

New Delhi, March 27 
The government today revised guidelines of non banking finance companies (NBFCs), allowing a holding company with a minimum capital of $ 50 million to set up a 100 per cent subsidiary with a minimum capital of $ 5 million.

The subsidiary will have to disinvest at least 25 per cent of its equity to the public within three years, the guidelines stated.

The changes have been made after reviewing the workings of these subsidiaries.

The existing guidelines for foreign equity investment in NBFC allows 100 per cent foreign equity. This revision has been undertaken particularly in view of the difficulties in setting up operations of these companies.    

New Delhi, March 27 
Central Board of Excise and Customs (CBEC) chairman S. D. Mohile today held out the hope of protection for domestic industry once quantitative restrictions on some 714 items are lifted next month. Speaking at a national workshop on ‘Cenvat to VAT,’ Mohile said the domestic industry would receive adequate protection by way of a cumulative peak customs duty of around 44 per cent. He added the 35 per cent peak tariff rate, 3.5 per cent surcharge, 4 per cent special additional duty and other special excise duties levied on imports will prevent the market from being flooded with foreign goods.Under multilateral trade negotiations, India has to phase out quantitative restrictions on 714 items by April 2000, which means any amount of those goods can enter Indian markets upon a payment of customs duty.

Mohile said 86 per cent of excise revenue was expected to accrue from the Cenvat rate of 16 per cent introduced in the budget. He said if the government had attempted to introduce a single rate without the present special excise duties, it would have had to subject all commodities to a higher rate of 18.4 per cent.

However, Ashok Lahiri, director of the National Institute of Public Finance and Policy (NIPFP), expressed serious concern over the large number of persisting tax exemptions. The exemptions did not augur well for an eventual transition to VAT. Lahiri said in the absence of a VAT at the state and central levels that blended together it will be difficult to achieve a harmonised VAT regime.    

Calcutta, March 27 
The West Bengal government has adopted a strategy to channelise rural wealth into developing downstream units to make optimum use of the raw material which will be available from Haldia Petrochemicals Ltd (HPL).

Deputy chief minister Buddhadev Bhattacharya today set up a special working group to identify investment in the petrochemical-based manufacturing sector in the districts.

HPL, which began production in February this year, will be formally inaugurated by chief minister Jyoti Basu on April 2.

The multi-crore project has a capacity of producing petrochemicals to the tune of 650,000 tonnes a year.    

Mumbai, March 27 
Media magnate Kerry Packer, telecom titan Vinay Maloo and Dalal Street’s hotshot value investor, Ketan Parekh, today joined forces to float a Rs 1,100-crore venture capital fund.

To be called KVP Ventures, the fund is touted as being the country’s largest repository of risk capital. It will invest in a wide spectrum of high-growth industries like infotech, software, e-commerce, telecom, media, entertainment and bio-technology. Maloo, the chairman of Himachal Futuristic Limited (HFCL), Packer and Mehta will bring equal equity contributions to the $ 250-million fund. “We believe this is the place to be in and we are putting our money here. We think India is a growing economy in Asia, a country transforming quickly,” Packer told reporters at a press conference here today.

The baron, who is the chairman of Australian media powerhouse Consolidated Press Holdings, responded to reports about his interest in Indian media firms by saying he was keen on buying a minority stake in them if the laws permit it. He, however, ruled out any majority equity participation.

Stock-picker Parekh, better known on the trading floor as the Big Bull, said KVP Ventures will help young entrepreneurs achieve their goals by funding ideas, spinning success stories and opening the roads to global recognition for them.

The announcement took industry circles by surprise and provided enough grist to the speculation mill, especially because the three promoters come from diverse backgrounds.

Maloo, however, said it was the chemistry among them that led to the alliance. “There is some chemistry among us, and we firmly believe it will work well for the venture,” said Maloo, whose company HFCL already has a tieup and equity partnership with Packer.

There were many in the industry who were not amazed at the Parekh’s association with a venture fund. They pointed out that the broker — who forked out the largest advance tax — already has a tieup with Maloo for managing the Kothari Pioneer fund.

Packer said he will bring his share of cash — Rs 350 crore — to the KVP Fund only next month to reap the gains of the concessions handed to venture funds in this year’s budget.

KVP Ventures, Packer said, will support the ideas of new and existing entrepreneurs, turning them into reality by giving them the entire range of intellectual and managerial inputs. “The greatest need of the hour for Indian IT industry is easy availability of risk capital.”

Packer said the strength of KVP’s three partners — his investment wisdom and experience, the entrepreneurial skills of Maloo and Parekh’s business acumen and foresight — together the massive corpus of the fund, will make it a leader in the venture capital industry. Asked whether the fund will pick up a stake in Sahara TV, Packer said though nothing had been finalised till now, he was talking to the company.    

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