Bengal locks up tax getaways
BNP acquires depository unit of Dalmia Sec
Generic drug makers charm investors
Changes in Securities Act on way
Electrosteel prowls for growth
Watch on participatory notes
IFC eyes stake in micro-finance outfit
Gold binge defies slowdown

Calcutta, Aug. 19: 
Asim Dasgupta is making sure that no one is going to go scot-free. After slapping a 20 per cent luxury tax in his recent budget to stem the tide of imported products, especially cheap Chinese goods, Bengal’s finance minister has just plugged another potential revenue leak: he has imposed a 15 per cent sales tax on consumer goods that out-of-towners bring in to the state.

The tax will deter consumers from flitting across the state’s border to look for cheap bargains in neighbouring states.

The impost will cover a slew of products from white goods like washing machines and airconditioners to cement and computers, from moulded luggage and sanitaryware to satellite communication cables to paper and vanaspati.

People planning to bring in used cars and two-wheelers — the Union government permitted second-hand car imports in April only through Mumbai port — will find that they will have to factor in an additional cost because of the 15 per cent impost.

The interesting aspect of the new 15 per cent sales tax is that it will not be levied on registered dealers who get their goods from outside the state. It will be levied only on individuals who bring their stuff into Bengal.

The tax will cover 23 items — cooking range, electronic goods, microwave ovens, knitting machines, plastic goods, moulded luggage, sanitaryware and fittings, furniture, airconditioners and cooling equipment, antenna for satellite communication, cables including optical fibre, computers, accessories including printers, EPABX and other telecommunication equipment, marble and decorative stones, medical instruments, multimedia projectors, paper, photocopying machine, scientific instruments, uninterrupted power supply equipment, vanaspati and cement.

Dasgupta’s double tax whammy — the luxury tax and now the 15 per cent sales tax on imported goods — is designed to protect local industry and ensure that consumers in Bengal buy their products locally.

The luxury tax was imposed on a wide range of goods like garments, cosmetics, chocolates and confectionery, glassware and crockery, liquor, cars, cycles, motorcyles, electrical and electronic goods, toys and footwear, umbrella, soaps and silk yarn.

The state finance minister’s novel tax-raising methods have attracted the attention of other states — Maharashtra and Delhi have already imposed a luxury tax on a slew of consumer goods in their budgets.

One has to wait and watch to see if they will latch on to the 15 per cent sales tax on out-of-towners as well.

The ‘concept’ impost, introduced for the first time by a state government, is aimed at checking ‘evasion’ and ‘safeguarding the interest of revenue’.

Detractors of the levy say that it amounts to double taxation — the first when the goods are bought in the state of origin, and the second when it is brought into Bengal.

This undermines the principle of equity in taxation and could scupper the plans to introduce a uniform value added tax (VAT) regime — which the Centre and all state governments including Bengal are committed to.

Defending the levy, a spokesman for the commercial taxes department said the concept of impost was designed to ensure that a consumer pays the state exchequer for goods he brings into the state.

After examining the details of the new impost, tax experts said the “concept’’would affect domestic manufacturing sector as well as common men and women.

For example, they said that state-based domestic industry such as cement and vanaspati could be threatened. Cement brought at cheaper rates from outside the state by a big builder or contractor would not attract the levy while an individual homebuilder using the same route would have to pay the 15 per cent additional impost.

Big vanaspati consumers like Britannia and Haldiram Bhujiawala would be able to evade the levy which would spell disaster for the state-based vanaspati industry, already reeling under pressure from the Nepalese competitors.

The experts said the worst fallout of the tax would be the harassment that common people coming into the state with household articles and electronic items would face at the checkpoints.


Calcutta, Aug. 19: 
French bank BNP Paribas has acquired the depository business of Dalmia Securities — one of the best-known broking outfits and depository participants (DP) here. Shyam Sunder Dalmia, the owner of the broking firm, confirmed the deal.

BNP Paribas, the fourth largest banking group in the world, is looking at more take-over possibilities. Most brokers here are in a bad shape since the market scam, and many are even willing to quit the DP business.

BNP Paribas, on the other hand, is keen to make the best of the situation to expand its own business. So far, it has focused mainly on corporate banking, but now it is actively looking at the retail segment.

BNP Paribas had unveiled its retail banking products in a soft launch at Calcutta some time back. The deal is expected to give it a stronghold in the market.

The acquisition of Dalmia Securities’ DP wing gives the bank access to a client base of about 1,500 high net-worth individuals and corporate houses, including most of the leading industrialists from the city.

The bank will leverage this client base to promote other products and services from its stable. It distributes mutual fund products, and offers investment advisory services to high net worth clients.

Even though Dalmia Securities had fewer clients, it had bagged the most affluent people in the city.

Explaining the deal, sources in Dalmia Securities said: “A depository business cannot be sold off as a going concern. We have entered into an agreement with BNP Paribas that will offer our clients the option to transfer their depository accounts to the bank, while we close down our depository business for outsides. (The house accounts of Dalmia will be retained by Dalmia Securities.) Besides taking over their depository accounts, BNP Paribas will offer our clients various other facilities.”

Though the commercial aspects of the deal are still being fine-tuned, the first step towards its closure was taken on Saturday, as the two parties signed a formal agreement on the matter.

It is understood that Dalmia Securities will receive a consideration of Rs 2-3 lakh for its client base, and a commission of sorts on businesses derived by the bank from the client base for the next five years.

A Dalmia Securities official told The Telegraph: “A lot of banks approached us, some even with better offers, but we decided to settle for BNP Paribas because we are confident that it will offer our clients the same level of service as we did. But it is still up to our clients to decide whether or not to transfer their depository accounts to the bank.”


Mumbai, Aug. 19: 
The success of Dr Reddy’s Laboratories’ research team in marketing the generic version of Prozac has fired investor interest in domestic pharmaceutical companies with a focus on off-patent products.

The global generic drugs market is expected grow at a rate of 12 per cent annually to $ 30 billion in 2004. With several more products slated to go off-patent over the next few years, some optimists suggest that size of the market could increase to $ 50 billion.

The US market, where generics account for 40 per cent of drug sales in volumes and 10 per cent in dollar terms, has the biggest potential. Dr Reddy’s, Ranbaxy Laboratories, Sun Pharma and Wockhardt are among the domestic pharmaceutical majors which are counting on generic drugs to propel their revenues.

Dr Reddy’s, for instance, is now awaiting approval from the US food and drugs regulatory body for 9 products whose market value at over $ 10 billion. The company has planned around 11 abbreviated new drug applications (ANDAs) worth an estimated $ 9 billion. There are other cases mired in patent suits. Sources said Sun Pharmaceuticals is another firm which intends to take big strides through Caraco Pharmaceutical Laboratories, its overseas arm. The company recently won approvals in the US for flurbiprofen tablets and clonazepam tablets, apart from is now eyeing the bulk actives segment.

Sun Pharma has around 47 per cent stake in Caraco and has so far invested $7.3 million towards equity and $5.3 mill towards debt at Caraco, in addition to three corporate guarantees of $ 5 million each. Sources added that Ranbaxy too has announced ambitious plans covering a broad range of drugs and it has placed a target of filing around 12 ANDAs annually.

Market circles point out that while DRL has witnessed spirited buying by various funds after a good first quarter results and its success regarding the launch of its anti-depressant, fluoxetine capsules in the US markets, many others have now caught fancy with operators. One such company which has witnessed good buying recently, is the Delhi-based Morepan Laboratories. The company won exclusivity for loratidine, its anti-asthma drug.

“The percieved potential in this instance is much wider, which could explain the buying', says C Srihari,” pharmaceutical analyst at Khandwala Securities.


New Delhi, Aug. 19: 
The issue of demutualisation of stock exchanges has now been taken up by the ministry of law, justice and company affairs, following changes suggested by the finance ministry.

The demutualisation of the country’s bourses will be possible only after directly making changes in the Securities Contract and Regulation Act (SCRA) 1956 or through a separate amendment which will also incorporate changes proposed in the Securities and Exchange Board of India (Sebi) Act 1992.

The finance ministry has prepared a draft of the proposed changes and forwarded these to the law ministry for its ratification. Later, it will be discussed by the Union Cabinet before being tabled in Parliament.

Under the concept of demutualisation of exchanges, the ownership of exchanges and trading rights are segregated so that ownership, management and trading rights are different.

Sources said amendments to the SCRA are necessary, mainly because the 1956 Act, which controls the functioning of various exchanges, does not distinguish between members, brokers and shareholders of an exchange.

Delhi Stock Exchange president Sudhir Joshi said the problem has cropped up as it is yet to be defined who can become a stockholder in a corporatised stock exchange.


Calcutta, Aug. 19: 
Electrosteel Castings (ECL), the Rs 557-crore pipe manufacturing company, has acquired Calcutta Steel Company (CSCL) as part of its plans to diversify into pipe fittings and allied equipment.

Electrosteel, sources said, intends to invest close to Rs 15-20 crore in diversification. There was no word on how much it paid to buy Calcutta Steel Company, though there are indications that the investment will be in the form of equity and loans. “CSCL will increase its authorised capital from the existing Rs 1 crore. Electrosteel will subscribe to equity worth Rs 7 crore while another Rs 7 crore will be given as loans,” they said. Earlier, Electrosteel appointed Ernst & Young to carry out due diligence on Calcutta Steel, after which the takeover was pushed through. Sources say state-of-the-art equipment has been ordered for the pipe fittings project.

The company’s new product line is expected to be launched in the current financial year, they added. There are signs that Calcutta Steel Company will be merged with Electrosteel because there is little reason in running it as a separate firm. ECL, expects good business in this fiscal, in large part due to the reconstruction activities in quake-hit Gujarat.

“The new product line will help us strengthen our core competencies, which lie in water supply and irrigation projects,” sources said. This will also help the company carry out turn-key projects which have good prospects and promise higher returns. There is, for instance, a contract to supply complete water solutions to the Bangalore Water Supply Sewerage Board in a Rs 65-crore deal. International bids were invited for the project, funded by Japan’s Bank of International Co-operation.

Electrosteel, buoyed by heady rates of growth in the past five years, plans to phase out the manufacture of cast-iron pipes at Kharda, near Calcutta, and replace it with ductile pipes.

The ductile pipes have a significant market overseas as well. The company’s exports in 2000-2001 were pegged at Rs 41 crore.

compared with Rs 25 crore in the previous year — much of it driven by the high-quality pipes.


New Delhi, Aug. 19: 
The Securities and Exchange Board of India (Sebi) has unearthed major discrepancies in the use of participatory notes (PNs) by foreign institutional investors (FIIs) in the Indian market primarily to facilitate “benami” price manipulation.

In its reply to a question posed by the joint parliamentary committee investigating the stock scam, Sebi said investigations have revealed a possible misuse of investment and automatic repatriation facility given to the FIIs through the PN system.

Participatory notes are like promissory notes that are issued to FIIs by stock brokers in place of underlying stocks. Usually, PNs are bought by FIIs either on their account or on behalf of their clients who do not wish to disclose their identities.

PNs can also be bought by FIIs that are otherwise not eligible for registration as FIIs to trade in the Indian markets. They have the option of buying shares and getting them converted into PNs, which can be sold off at a later date by reconverting into shares.

Thus, by using PNs, illegal trading in shares is possible as there is no need to disclose the identity of the buyer. It is suspected that market manipulators used this route when they went on a buying binge.


New Delhi, Aug. 19: 
Washington-based International Finance Corporation (IFC) and some foreign banks have for the first time evinced their interest in taking up an equity stake in a micro-finance institution — Basix — engaged in giving credit and marketing financial services to rural poor.

Basix managing director Vijay Mahajan says the institution is expecting an equity infusion of $1 million from IFC and $ 500,000 each from Shorebank, USA and Tridos Bank of The Netherlands by September. “We have already got a credit of Rs 1 crore from ICICI-Prudential and are acting as their biggest distributors for life insurance products,” Mahajan said.

According to him, Basix has already insured 1,500 lives for the last financial year and has kept a target of insuring 15,000 lives this fiscal which is more than the combined target of all private life insurance companies. To achieve this target, it is in the process of entering into distribution tieups with other life insurance firms.

Mahajan said Basix has already taken up the issue of providing micro-insurance services to rural poor with the Insurance Regulatory and Development Authority (IRDA) through its parent institution Sadhan.

Sadhan is also in talks with various government regulators to set up a self-regulatory organisation for micro-finance institutions to ensure higher growth of the sector.


Mumbai, Aug. 19: 
Nothing takes the sheen off gold, not even a lingering slump that’s made consumers lie low and entrepreneurs lick wounds of investments that went sour.

Fresh figures released by the World Gold Council (WGC) show demand for the yellow metal rose 7 per cent to a record 235.8 tonnes in the second quarter of this year.

With signs of a good monsoon, bumper harvests and rising rural incomes, the demand is expected to increase further the months ahead, says WGC.

The six-month tally (Jan-June) stood at 490.4 tonnes against 417.8 tonnes in the same period last year, a 17 per cent growth.

There are many who believe — quite paradoxically — that it is the slump which has prompted Indians to go on a gold-buying binge. The bearish state of the country’s stock markets, they say, has made them perceive gold as the only safe-haven investment.

Starting the second week of August, says WGC, there are a number of auspicious days for weddings. It added that the effect of stock losses on individuals’ wealth may dampen demand from the urban areas, but the clamour for the yellow metal will still be loud in villages.

Reflecting the buoyancy ahead of the festival season, Delhi prices of the yellow metal closed at Rs 4525 per ten gram in Saturday in a massive gain Rs 65 over the previous day. The sovereign variety, however, remained unchanged at Rs 3700 per piece of 8 gram. Those familiar with the trends of the bullion market have indicated that price of the metal is expected to show further signs of firmness in the days to come.

Pointing out that strong gains have been made in India, WGC said unofficial imports have fallen sharply with more of the metal being channelled through official routes following the reduction in import duties from Rs 400 to Rs 250 per 10 gms announced in the Union Budget.

According to the figures made available by WGC, official imports were 33 per cent higher in the second quarter over the same period a year earlier; unofficial imports fell to around a third of year-earlier levels. For the six months taken together, the official imports are reported to be 34 per cent higher than what they were in the first half of 2000.

Explaining the reasons behind the rise in demand for the yellow metal during the second quarter, WGC said that this period like for the first three months of the year, was initially boosted by a substantial number of marriages and other festivals.

This contrasted with the experience in the previous year when the number of marriages was sharply reduced due to an abnormally low number of auspicious days for weddings in the Hindu calendar. However, for the rest of the quarter, growth in demand was less buoyant due to lack of auspicious days for weddings and other factors such as the effect of the fall in stock market on urban incomes and aftermath of the Gujarat earthquake.


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