Off to Doha with face-savers
Banks weigh rate cut on NRI deposits
Slump spoils FII joy ride on Mauritius gravy train
Assam Tea Corporation put on the block
Daewoo arm to pump in Rs 100 cr for brand job

New Delhi, Nov. 4: 
After taking a hardline stance of not accepting a new comprehensive round of trade talks at Doha, the government is formulating a fall-back option that will allow them to accept fresh talks on investment, intellectual property rights and equal treatment in trade matters, but not on labour standards or human rights, which they will continue to insist was within the purview of different UN bodies.

As a prelude to this, Indian officials have already listed various measures related to freeing investments, creating a level playing field for domestic and global players and protecting intellectual property rights.

Likely to be offered as benchmarks for the new round, these include the new competition Bill and the government’s policy of global tenders for high-value equipment.

India will, however, insist that the remaining issues from previous rounds, like freeing textiles trade from quotas and multiple layers of duties, being imposed by western nations as well as a consensus policy on anti-dumping duties, be settled promptly. It may even insist on shortening the time-table for opening up textile trade.

Officials said they were not averse to fresh talks on intellectual property rights as most western nations now seemed willing to address concerns of price monopoly by drug giants, after facing the brunt of paying high prices for necessary drugs like ciprofloxacin.

Besides, it will give them a better chance to handle issues of bio-piracy and hijacking of indigenous knowledge. India is also likely to give limited support to the US on farm sector trade negotiations.

It is in favour of bringing down agricultural subsidies and ending quota regimes in imports as long as there are safeguards to its own plans for creating a food security net.

The Indian plans call for continuation of reasonably high tariff on basic foodgrain imports and a support programme which will see farmers producing enough grain to take care of domestic needs. Officials feel they could smuggle in approval for this agenda in some garb or other.

The US attack on subsidies and farm tariffs is primarily targeted against Europe, and India hopes to reap benefits from any concessions that the European Union makes.

However, the US has also been calling upon India to change its policies, which may be a cause for bitter backroom negotiations.

The US has already targeted India over its canalisation of mass consumption goods and its policy of threatening to use tariff and non-tariff barriers against 300 others which it monitors strictly.

The US has made it clear it will take up its agenda of curbing use of export restrictions such as canalisation. It also plans to take action in favour of curbing the monopoly of state run trading enterprises in importing certain products.

India’s canalisation policy imposes restrictions on import of mass consumption foodgrains such as rice and wheat, most petro-products and bullion — both gold and silver.

The policy allows only the State Trading Corporation to imports these products. Western nations such as Australia, the US and Canada, which are large wheat exporters, would likely the market for this vital farm product to be opened up further.

India has no desire to allow this as it could hit wheat farmers in the northern region, something which could hurt the BJP government politically. India has also set up a “war room” to monitor the import of some sensitive 300 price-sensitive products with the threat that it would impose tariff and non-tariff barriers if the import of any of these products threatened local producers.


Mumbai, Nov. 4: 
The Great Indian Diaspora could soon find that many at home are not ready to pamper them.

The end of exemptions in complying with cash reserve ratio (CRR) requirements has forced banks into a situation where they cannot continue to offer a higher rate of return on non-resident Indian (NRI) deposits.

Banks, which offer 50-100 basis points more on NRI savings, are believed to be planning a cut of at least half a percentage point. As a result, yields on non-resident non-repatriable (NRNR), non-resident external (NRE) and local deposits could be similar to those on other accounts.

The realignment of interest rates will put an end to the practice of offering higher interest rates to NRIs. Yields on these deposits have fallen recently, but they have always been higher than what investors at home receive.

The October 22 decision by the Reserve Bank of India (RBI) to withdraw CRR exemptions will bring about a parity at a time when only a handful of banks have been offering uniform interest rates on local and NRI deposits.

“Gone are the days when Indians living abroad could get an interest rate of 16 per cent on their deposits. Now the distinction between these deposits and local ones, at least in terms of interest rates, will fade away,” a senior official with a public sector bank said.

For instance, interest rates on NRNR deposits, which used to hover around 16-17 per cent at one point, have now dropped to around 6.75-7 per cent in some banks.

The effect of the rate adjustments will also be felt on FCNR deposits, where interest rates are aligned with the London Inter-bank Offered Rate (Libor).

According to sources in the industry, the dollar FCNR deposits now command interest rates in the range of 2.40 per cent to 3.50 per cent. The figure is expected to come down because Libor has dipped to around 2.27 per cent.

It is a hard decision for large nationalised banks — including State Bank of India, Bank of Baroda (BoB) and Bank of In dia (BoI) — sitting on a pile of NRI money.

Of the three deposits open to the Indians abroad, only dollar funds are allowed in NRNR and NRE accounts; FCNR deposits can be held in the greenback, yen and euro.

While both principal and interest can be repatriated in the case of FCNR and NRE accounts, only interest is allowed to be sent abroad in NRNR deposits.


New Delhi, Nov. 4: 
The gravy train seems to have come to a grinding halt for those foreign institutional investors who were making a killing on tax-free earnings out of Indian bourses by just registering themselves in Mauritius.

Retribution in the form of a market collapse has caught up with market-savvy funds and their high-profile fund managers. US-owned ‘The India Fund,’ managed by Punita Kumar-Sinha, finance minister Yashwant Sinha’s daughter-in-law, till date one of the key beneficiaries of an interpretation by her father-in-law’s ministry of the tax treaty between India and Mauritius, is among those who have reported huge losses.

For the nine months ended September 30, India Fund’s net realised and unrealized losses were upwards of $ 201.7 million or equal to $ 6.53 per share. The $ 500-million India Fund, which is managed by Advantage Advisors, a subsidiary of CIBC World Markets, also shed some $ 247 million from its total net assets.

From a base of $ 550.48 million as on September 30, last year, its total net assets have shrunk to just $ 302.73 million. In terms of net asset value per share, this represented a fall of $ 8.60 to just $ 9.79 from last year’s $ 17.39.

On the New York Stock Exchange where this fund is registered, even though it claims to be a resident of Mauritius, its stock price fell to $ 7.93 from $ 12.13 in September last year, a fall of approximately 30 per cent.

The very same fund had reported a 73 per cent appreciation in 1999 and a minor loss of just ten cents to a share.

The fund, which has been banking heavily on blue-chips like Hindustan Lever, Reliance Industries, Infosys and state-owned telephone companies’ shares had gained immensely over the years from a tax treaty with Mauritius.

In a report by Kumar-Sinha to shareholders dated August 1 this year, India Fund admits it “conducts its investment activities in India as a tax resident of Mauritius” as it “expects to obtain benefits under the double taxation treaty between Mauritius and India.”

Under the treaty it “ is exempt from Indian taxes” from June 1, 1997, and will “not be subject to 15 per cent withholding tax on dividends declared, distributed or paid by an Indian company.”

The only challenge to the tax-free status of entities like Kumar-Sinha’s India Fund was made last year when the Indian tax authorities challenged their income tax returns for the fiscal year March 1997, denying them the benefits of the treaty. After investigating 37 such FIIs, the Mumbai income tax department issued notices to two dozen such funds.

The tax authorities had argued these funds were merely registered in Mauritius to gain tax advantages and transacted virtually no business there.

After a storm on the notices, the finance ministry quickly stepped in to issue a circular which said a mere certificate from Mauritius authorities stating a firm was a resident of the island was enough.

Implicitly, the order meant no Indian official or agency could challenge such a statement and the rights which a normal tax treaty confers on tax authorities to question a company’s bonafides or claims ceased to exist.

Analysts estimate the finance ministry’s decision to treat any FII with an office of sorts in Mauritius, as a resident of that island under the tax treaty, will lead to a loss of about Rs 3,000 crore a year to the national exchequer.

Out of some 520 FIIs registered with the Securities and Exchanges Board of India, only one is actually shown as operating out of Mauritius. Some 132 of them have instead registered a branch office on the island as a Mauritius-based “overseas company.”


Calcutta, Nov. 4: 
The Assam government has decided to offload a majority stake, and, along with it, management control of Assam Tea Corporation (ATC). It has already invited expression of interest for the move.

The divestment of ATC could be either through outright sale of a 74 per cent stake in the company, or through long-term lease of individual gardens.

The state government, however, is believed to prefer the option of leasing out its gardens on a long-term basis, to selling off a controlling stake in the company.

The corporation, created by taking over sick tea gardens in the ‘70s, has, by now acquired a total of 14 tea gardens scattered over the six districts of the Brahmaputra and Barrak valleys.

All the gardens are located in prime tea-producing areas and are well-connected by good roads and have been provided adequate power supply facility.

The combined capacity of the 14 gardens is around 8 million kgs. The corporation also has about 10 factories to process tea leaves to produce black tea.

According to the ATC annual report, average production over the past five years was between 6 to 6.5 million kgs.


New Delhi, Nov. 4: 
Daewoo Anchor Electronics (DAEL), the Korean consumer durables section of Daewoo Corp, will invest around Rs 80-100 crore in an image-building campaign to strengthen its presence in the country.

The company plans to concentrate on a massive publicity campaign and brand-building exercise rather than on expanding capacity, as it feels its production facilities are adequate at present.

DAEL manufactures frost-free refrigerators, semi-automatic and automatic washing machines and colour TVs here, while microwave ovens are imported from Korea.

As part of the restructuring, DAEL will concentrate on fully utilising its present capacity. It, however, has not been able to escape the controversy plaguing its parent for the last two years.

“In August 1999, Daewoo Electronics became a separate company. But after our launch in India in 1996, the Korean economy went into a recession, forcing us to cut down on investments and the brand took a beating. The GM-Daewoo controversy has also tarnished our image. Next year, however, will be the turning point for the brand,” said C. S. Gourinadh, marketing manager, DAEL.


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