100% FDI to be allowed for pharmaceutical research
Rate war to break out in 2-wheeler finance
Stage set for revamp of excise structure
Tea not ready for futures
Rediffmail in 11 languages
Caveat emptor: Health is haute
Foreign Exchange, Bullion, Stock Indices

 
 
100% FDI TO BE ALLOWED FOR PHARMACEUTICAL RESEARCH 
 
 
FROM JAYANTA ROY CHOWDHURY
 
New Delhi, Feb 19: 
President K.R. Narayanan today announced his government intended to raise the foreign direct investment limit for research and development in pharmaceuticals to 100 per cent through the automatic route.

The president told members of parliament here today: “To encourage R&D and investment in this sector, it is proposed to raise the FDI limit through the automatic route from the present 74 per cent to 100 per cent.”

Making the announcement as part of his inaugural address to the budget session of Parliament, Narayanan also said the government was drafting a new drug policy to help propel the pharmaceutical sector “to become a world leader.” However, he did not divulge any details of the planned policy.

Industry analysts said today’s announcement could be accompanied by tax reliefs for domestic pharmaceutical research. Industry has long been lobbying for full tax exemption on investments in R&D out of international patent royalty revenue earned here. At present, only 50 per cent of the foreign exchange earned by pharmaceutical majors from international companies is tax free.

Pharmaceutical research in concentrated in the developed nations with the US alone accounting for about 35 per cent of total global research expenses.

Research in Indian industry is mainly process based, with focus on the anti-infective segment. However, of late, some Indian companies have initiated basic research.

MNCs have also started using India as a base for conducting certain stages of basic research, including clinical trials as its cheaper to conduct them here.

But expenses on R&D remain abysmally low compared with global standards. R&D expenditure in India at Rs 280 crore is about 2 per cent of sales as against global average of 15 per cent.

Said Ranbaxy’s vice president B.K. Raizada “This will encourage investments and increase the size of the industry as well as hasten growth. Its a positive step.”

Government officials said the latest changes are being considered as the government is keen to make India a key destination for pharmaceutical sector investments. “Pharmaceuticals has been selected as one of the sunrise areas where we wish to attract investments,” officials said.

The government has been trying to open up the drug sector as a whole to greater competition from both domestic and foreign investors over the last decade. In 1995, the government reduced the number of drugs under Drug Pricing Control Order from 146 to 74. The government is now considering pruning this list further.

In 1995, the government also signed the GATT pact and has recently introduced a bill in parliament which provides legal protections to patented drug products. Currently, Indian laws only protect drug process patents and not the end-products from copying by rival companies.

All this resulted in a significant restructuring of the domestic industry with a large number of mergers and acquisitions taking place.

   

 
 
RATE WAR TO BREAK OUT IN 2-WHEELER FINANCE 
 
 
FROM VIVEK NAIR
 
Mumbai, Feb 19: 
Competition in the two-wheeler finance industry, which has so far been dominated by the likes of Bajaj Auto Finance (BAFL), is set to intensify with the entry of various banks and financial institutions apart from commercial vehicle manufacturers into the arena.

Industry sources said Bajaj Auto Finance, which has so far been the industry leader in this segment, is now finding its pre-eminent position undermined by competition.

In fact, top officials of Centurion Bank claim that the bank has already dislodged the Rahul Bajaj group company and now has the largest market share in this segment.

Some of the aggressive players who are likely to figure prominently in two-wheeler financing ICICI Ltd, Citibank Cholamandalam Finance and even Ashok Leyland Finance, the commercial vehicle and utility heavy weight from the South.

Apart from these players, there are others like GE Capital and Associates First Capital Corporation Ltd, which is a diversified finance company providing consumer and commercial finance, leasing, insurance and related services worldwide.

Sources said that in the realm of tough competition, finance companies are not only planning to expand their infrastructure, but are also offering attractive incentives to dealers to grab a larger slice of the pie apart from setting up shops in dealerships itself.

“Some of the aggressive financiers are offering incentives as high as even 3 per cent to the dealers to have a larger market share,” a banking official said.

It is largely felt that the tough competition may also stoke an interest rate war among the existing financiers, thus benefiting the consumer. Interest rates in this field ranges between 11 and 15 per cent with some players offering a lower interest rate in the event of a tieup with a two-wheeler manufacturer.

“If a finance company has an exclusive tieup with a two-wheeler manufacturer, a lower interest rate will be offered if a customer picks up that vehicle,” said a financier.

Speaking to The Telegraph, Ashok Khanna, executive director (retail assets), Centurion Bank, said while the bank has a tieup with Hero Honda, customers picking up products manufactured by the company and opting for finance from Centurion are being offered a lower rate of interest.

Pointing out that the bank is now a market leader in the two wheeler finance segment with a share of 21 per cent, Khanna added that it was planning to improve its presence by expanding to over 100 locations from 60 at present. “We are selling more than 10,000 vehicles a month through the finance route and plan to rope in more distributors,” he added.

Industry analysts say that despite the tough competition evident in this area and possible setback in recent times, BAFL’s strong position coupled with the possibility of launching aggressive financing schemes would continue to make it a force to reckon with.

A major reason being cited for the company losing its pole position in the two-wheeler finance area has been attributed to the fact that its parent has witnessed sluggish vehicle sales in recent times.

   

 
 
STAGE SET FOR REVAMP OF EXCISE STRUCTURE 
 
 
FROM R.SASANKAN
 
New Delhi, Feb. 19: 
The budget for 2001-02 may widen the definition of manufacturing to include the chain of value addition, on which the government can impose duties.

This will be among the series of initiatives expected to be announced by the finance minister to streamline and rationalise the excise duty structure. The value addition could be either by, or on behalf, of the manufacturer before the product is marketed.

There are indications that capital goods and raw material used in the factory of the manufacturer may be made eligible for Cenvat credit. Input tax credit on capital goods may also be restored by giving it in the year of purchase itself. The budget will also address the issue of multiplicity of levies. The finance minister may not be able to compress the entire exercise in a budget, but he will make a beginning.

The levies which are now complicating the excise structure are:

Additional excise duty (goo-ds of special importance) in lieu of sales tax on sugar, fabrics and tobacco

Additional duty on motor spirits (petrol and diesel)

Additional duty on textiles and textile articles ( fibres, yarn and fabric) under a subsidy scheme for controlled cloth

Cess levied under miscellaneous enactment

The process of rationalising the Union excise duties was started a few years ago. The number and level of rates had been reduced, with the current central rate at 16 per cent.

Cenvat credit is, in the normal course, given for input tax. Nevertheless, there are still many lacunae in the overall structure.

Apart from the 16 per cent slab, there are a few ancillary rates. The immediate credit for tax on capital goods has been staggered over two years, starting the current year.

Exemptions continue to be offered on a large scale, many of which appear to exist on grounds of populism. These lead to avoidable disputes and adverse tax administration.

   

 
 
TEA NOT READY FOR FUTURES 
 
 
BY SUTANUKA GHOSAL
 
Calcutta, Feb. 19: 
Tea Board of India, drawing up plans to launch futures trading in the commodity, has not received a feedback from the ministry of consumer affairs on the issue.

The board is in talks with Indian Institute of Plantation Management (IIPM) to compile a report, which will be based on the feedback to awareness campaigns. The board has sent the observations of Indian Institute Plantation Management to the ministry — the nodal body for futures trading.

“We are organising awareness programmes in the tea-growing regions. Three of them are already under way. Two more are coming up,” Tea Board chairman N. K. Das said.

IIPM, asked by the board to prepare a report on futures trading, has been asked to submit a fresh document, which takes into account the views of all sections within the industry.

“We are identifying major stumbling blocks to futures. The main problem is that there is no uniformity in tea quality. It varies across gardens, seasons and grades. We have to single out a variety suitable for futures trading,” Das said.

Talking about internet auctions, the Tea Board chief said the Guwahati centre is finding out ways in which it can be done soon.

“However, the traditional way is a proven method. It is transparent and payments are assured. The quality of tea is also guaranteed. However, the auctioneers should gradually move away from the manual system of tea sales and opt for the electronic system,” the chairman said.

The board has joined hands with Satyam Computers, which is collecting data on tea auctions at Cochin, Conoor and Siliguri.

Das said there is a need for the board to set up more offices in Assam and other tea-producing regions in the north-east. “However, most of our people are not ready to work there. The current staff-strength of the board is 750,” he said.

He made it clear that there is no move to shift the board from Calcutta to Delhi. Former commerce secretary P. Prabhu, reviewing the functioning of the commodity boards, visited the Tea Board recently to hold discussions on its functioning.

   

 
 
REDIFFMAIL IN 11 LANGUAGES 
 
 
FROM OUR CORRESPONDENT
 
New Delhi Feb. 19: 
Rediff.com India Ltd today announced access of Rediffmail in 11 Indian languages. The users will now be able to write e-mails in Assamese, Bengali, Gujarati, Hindi, Kannada, Malayalam, Marathi, Oriya, Punjabi, Tamil and Telugu.

In order to send language e-mails, the user will type the message in phonetics and Rediffmail will automatically convert the message into the language selected. Language e-mails can be sent to any e-mail account irrespective of the recipient’s e-mail address.

Rediff.com is one of the first Indian portals to offer this service to its e-mail users. This will enable a large number of non-English speaking Indians to communicate via e-mail. Recently, the company had launched news and messenger service — Rediff Bol, in four Indian languages.

Ajit Balakrishnan, chairman and chief executive officer, said, “We are constantly striving to offer our users increased benefits of the internet through innovative and user-friendly services. The multiple e-mail language option will enable Rediffmail users to personalise and enrich their e-mail messages in the language of their choice.”

   

 
 
CAVEAT EMPTOR: HEALTH IS HAUTE 
 
 
FROM OUR CORRESPONDENT
 
New Delhi, Feb. 19: 
For retailers, wealth lies in health. Heathcare and medical insurance are the best bets. And yes, they might be better off offering pre-packaged paranthas or idlis, rather than the ubiquitous pizzas and burgers.

According to KSA’s Consumer Outlook Survey 2001, released here today, 12 per cent of the annual income of households is spent on healthcare. It has grim tidings for those who crow about the impact of the television and software: e-commerce and TV-shopping missed opportunities here.

From the 12 per cent spent on healthcare, 82 per cent is self sponsored. While employers pay for 9 per cent of the expenses, a paltry 5 per cent of the amount comes from insurance.

“Our study on health care shows that there are ample opportunities for retailing and marketing in pension funds, preventive care and health insurance. There is room for many players, not just first movers,” says Rajan Chibba, principal, KSA Technopack.

The survey was unveiled at the third KSA (Kurt Salmon Associates) retail summit, which started here today and will continue for the next two days.

It is organised by KSA Technopack, the Indian arm of the Atlanta-based consulting firm which specialises in retailing and consumer goods.

Dwelling on the efficacy of TV shopping and e-commerce, the survey says that though awareness of such non-store retail methods is high and has actually increased over the last two years, actual buying has remained sluggish.

Speaking about the survey’s findings in the food and grocery segments, Chibba said: “There are opportunities for pre-packaged or convenience Indian food items, areas which no one seems to have exploited so far. The tendency has been to offer Western-style pre-cooked food but our study concludes that foreign cuisine such as burgers, pizzas and beverages have remained an out-of-home phenomenon.”

The annual consumer outlook survey, a study on consumer habits, spending and behaviour, was conducted in late 2000, and has polled 10,000 respondents spread across 20 cities.

The survey reaffirms the truism that consumers do not mind spending an extra rupee if he gets the three things he is looking for — variety, new products and proximity to home. These changing consumer expectations drive the growth in the organised retail industry in its second phase, the survey says.

It states that the first phase of organised retailing in India, the phase between the years 1995 and 2000, was largely retailer driven. This was the time when large, deep-pocketed real estate companies were breaking into the retail business, and consumer expectations were limited to value for money.

   

 
 
FOREIGN EXCHANGE, BULLION, STOCK INDICES 
 
 
 
 

Foreign Exchange

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Yen 100	NA	Aus $1	Rs. 24.30*
*SBI TC buying rates; others are forex market closing rates

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Silver portion	Rs. 7575	Silver portion	Closed

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