Two-slab Cenvat planned
Govt not to ask PSUs to bid for Dabhol
Sinha fails to contest IMF growth forecast
Cellphones may cost less as govt mulls duty cut
India on HSBC priority list
Daewoo H1 net loss at Rs 213 cr
Panel to suggest ways to strengthen bank boards
Broker choice of FIs raises eyebrows
Decision on LNG policy put off
Foreign Exchange, Bullion, Stock Indices

New Delhi, Nov 27: 
The government will be tightening its excise policy further by reducing the number of central value added tax (Cenvat) slabs to two from three at present and bringing the services sector within its ambit.

A meeting of the committee of secretaries has already given the go-ahead for the plan which will see two Cenvat slabs of 16 per cent and 24-28 per cent, eliminating an 8 per cent slab currently available. The last budget theoretically reduced the number of slabs to one but added two others — creating a three-slab regime of 8, 16, and 24 per cent.

However, food products, drugs and pharmaceutical products and medical equipment will be exempted from Cenvat. No other end-use exemption or other product exemption from the basic Cenvat will be allowed.

The government also plans to bring in the services sector within the ambit of the Cenvat regime in the next budget. This will allow all producers to take advantage of any service tax paid for a service used in the manufacture of their good. For example, if service tax has been paid on banking services, this would be “vatable” in the Cenvat on their final produce. Similarly, a computer service company could claim service tax Vat credit on the Cenvat they paid for various computer components they purchased.

In addition to Cenvat, special excise duties (SEDs) on a carefully selected list de-merit goods such as pan masala and other tobacco products, luxury vehicles, air conditioners, motor spirit and high speed diesel would be levied.

Cenvat and SEDs would be applicable to imports too, whereas exports would be zero rated and entitled to refund on Cenvat paid. Large purchases by foreigners on trips to India would also be eligible for Cenvat refunds, when they leave the country.

The distinction made between capital goods and raw materials for purposes of calculating VAT will be also removed. Capital goods will also be treated as raw materials but duty on it will be charged in two instalments.

At the same time, almost all exemptions will be removed. Currently, there are some 75 exemptions and the government wants to delete the vast majority of these. However, some SSI exemptions will be retained for a few more years though they too will be rationalised. Their duty exemption till a benchmark of Rs 1 crore, will remain. Once they cross this barrier, they will enter the full duty regime arena, instead of continuing to get excise concessions credits as is the case at present.

The committee of secretaries is clear that Cenvat exemptions for small producers and suppliers have to be based on administrative convenience as is the case globally and not on the basis of SSI notifications.

Certain goods such as textiles and sugar were treated as goods on which an additional excise could be levied as they were exempt from state sales tax. However, these will no longer be exempt from the new vatable national sales tax. hence, the Centre will also bring them under one single vatable excise.


New Delhi, Nov. 27: 
Economic affairs secretary C. M. Vasudev today took up the Dabhol selloff issue with Indian lenders, including IDBI, at a meeting which also discussed the roadmap for the sale and the institutions’ strategy in running the power firm.

Further, the government has decided not to ask any state-owned power utility to bid for Dabhol, as it feels such a decision would be counter-productive. AV Birla Group firm Grasim, which was also supposed to bid for the beleaguered power utility, is no longer in the running.

A six to eight weeks’ time is being given to the contenders — Tata Power and BSES — to carry out a due diligence exercise for the 65 per cent stake owned by Enron, at the end of which the lenders expect the two to place financial bids.

Sources said the FIs are keen that all parties concerned keep to the sell-off time table so that their loans are not jeopardised. BSES wants to gain control of the 2,184 megawatt power project as this will give it access to a captive supplier of electricity which will enable it to meet the growing demands of its consumers.

The Tatas are also keen to add the Dabhol project to their stable as the acquisition will propel them to the position of the predominant power producer in western India.

Sources expect Dabhol to be sold at over Rs 3,000 crore and feel the two companies will need substantial help from Indian financial institutions to pull it off.


New Delhi, Nov. 27: 
Finance minister Yashwant Sinha today tacitly admitted that the economy may not be able to turn in a growth rate of more than 4.5 per cent this year.

After having heroically claimed for a long time that the economy would be able to turn in a 6 per cent GDP growth rate, Sinha today told Parliament that the International Monetary Fund had projected a growth rate of 4.5 per cent for India, which would make it the second fastest growing economy in the world.

Though Sinha did not say this also formed part of the central government’s revised projections, the very fact that he did not contest the IMF forecast is being seen as a sign that the government is now accepting the stark reality of an economic slowdown.

According to sources, the finance ministry is already referring to the possibility of a 5.1 per cent GDP growth rate in internal documents.

Trying to strike a positive note, Sinha said, “By the middle of next year, things will start improving.” The finance minister, who was replying to supplementaries during the Question Hour, seemed to believe that better farm growth would see the economy recover. However, the farm sector grew by just 0.7 per cent in 1999-2000, and was still lower at 0.2 per cent in 2000-01, he admitted.

The minister also said the government was aware of the impending slowdown in the economy while presenting the general budget this year and has taken a number of steps in advance.

Sinha said as part of the broad strategy for promoting economic growth, various tax reform measures were taken to promote greater investment and consumption demand.

Emphasis was laid on faster implementation of central plan outlays and completion of projects for key infrastructure sectors.


Calcutta, Nov. 27: 
The government is considering a proposal to abolish the 16 per cent countervailing duty on cellular handset imports. The move is expected to provide some relief to an industry that is already witnessing tough competition with the entry of third and fourth operators.

Sources said the telecom ministry is already in the process of making a formal note to the finance ministry which will be incorporated in the budget proposals.

While facilitating the growth of the cellular industry, the move is aimed at destroying the grey market, which accounts for over 75 per cent of handset sales in the country.

Countervailing duties are generally imposed to provide a level playing field to local manufacturers vis-à-vis imported products. Since excise duties are levied on local manufacturers, importers of the product have to pay countervailing duties to neutralise the tax impact.

“But this logic does not stand in cellular handset industry since handsets are not made locally in the country. Every handset is now either being imported or smuggled into the country,” sources said.

Official handset prices are at least 30 per cent higher than the grey market. The Nokia 5110i, for instance, is available in the grey market for about Rs 4500 while it is priced at Rs 6500 in the official outlets. “So long as a handset serves its purpose, it does not matter whether it has official papers or not. For a consumer, what matters most is the price,” a city-based cellphone dealer said.

Most cell phone dealers admitted that there is hardly any demand for handsets with papers. “Moreover, handsets are properly serviced in case of any problem,” another dealer said.

Handset prices have already come down drastically over the past couple of years which has provided some momentum to the cellphone industry.


Mumbai, Nov. 27: 
The Hong Kong-based HSBC Group will expand its operations in a big way in India by setting up a processing and software centre in the country, even as it plans to open four more bank branches.

In fact, the HSBC board met here today, a first on the Indian shores, signifying its interests in the country.

HSBC chairman David Eldon said despite the fact that the short-term outlook in Asia is not encouraging, he was optimistic about HSBC’s Indian operations, which is reflected in the bank’s plan to open a second global processing centre in Bangalore (in addition to one in Hyderabad) and a software unit in Pune. He said the bank’s Indian operations would continue to grow, adding the emphasis will be on its profitable retail operations.

“We have two similar units in China and will like to tap the human capital available here,” group chairman of HSBC Holdings Plc, John Bond told newsmen here today.

Zarir Cama, chief executive of HSBC India said the software centre in Pune will primarily develop software for the in-house needs of the HSBC group outfits. Further, Cama said work force at the Hyderabad centre will go up to 1,800 from 1,200 by the middle of next year, while the Bangalore centre will employ 600 people.

Further, he said the bank was “looking at experienced hands” from the two securities firms, BNP Paribas and WI Carr, which recently closed down their operations here.

Cama said the bank had licences to open four more branches, which would start functioning from Coimbatore, Noida, Ludhiana and Jalandhar by the middle of next year.

Asked if the group would look at Indian public sector banks as and when the government brings down its holdings, Bond said “acquisitions remain an open subject.”

“We don’t have a shopping list but we do keep our eyes and ears open and as long as there is a synergy with our operations we will fill the gaps,” he added.


New Delhi, Nov. 27: 
Daewoo Motors India Ltd (DMIL) has suffered a net loss of Rs 212.80 crore in the first half of the current fiscal (April-September).

The loss comes on top of the Rs 390 crore loss that the beleaguered auto maker reported for the year ended March this year. Taken together, the loss mounts to Rs 602.80 crore, which reflects a 76.2 per cent capital erosion. The company has a net worth of Rs 792 crore.

Daewoo India, which was cut out of a $ 660 million deal recently under which General Motors, the world’s largest automaker, agreed to take over four plants of parent Daewoo Motors of South Korea, could be hauled off to the sick bay of the Board for Industrial and Financial Reconstruction (BIFR) if it is not able to carry out a financial restructuring plan.

A company has to report to the Board for Industrial and Financial Reconstruction if 50 per cent of its net worth erodes.

Company sources said, “We slashed costs to bring down our other expenditure to as low as Rs 67.35 crore against Rs 88.88 crore last year. But the staff maintenance cost even after cutting down on numbers has increased to Rs 28.66 crore as compared with Rs 15.55 crore in the first half of last year.”

The car maker has a paid up capital base of Rs 792 crore had run up accumulated losses of Rs 390 crore as of March-end, this year. With the addition of another Rs 212.80 crore, it shows a 76.2 per cent capital erosion for the company.


Mumbai, Nov. 27: 
The Reserve Bank of India, in consultation with the Indian Banks Association, has constituted a consultative group to strengthen the supervisory role of bank boards to review the impact of recent developments on the financial sector reforms. The terms of reference of the group include recommendations for making the role of directors of banks and financial institutions more effective to minimise risks and over-exposure, the apex bank said in a release here today.

The group is to review the supervisory role of these entities and obtain feedback on their functioning vis-a-vis compliance, transparency, disclosures and audit committees.

They would also study the present system in these entities for monitoring the board and the implementation of the policies laid down by it. The 11-member committee, headed by A.S. Ganguly, director, central board of RBI, is expected to submit its report within three months.

The recent mid-term review of monetary and credit policy for 2001-02 had proposed the setting up of such a committee to suggest measures that need to be taken to strengthen the internal supervisory role of the bank boards.

The other members of the board, drawn from private and public sector banks and other institutions are J.L.Saha, Tarun Das, Janaki Ballabh, D. Satwalekar, S.C. Wadhwa, P.V. Indiresan, Shailendra Swarup, P.R. Khanna, S.K. Munjal, the executive director of RBI (in-charge of department of banking operations and development) and the chief general manager-incharge of DBOD.


Calcutta, Nov. 27: 
Even as the special court notification freezing the assets of city brokers Ajay Kayan and Shyam Sundar Dalmia for their alleged involvement in the 1992 securities scam was issued, Dalmia was acting as the broker for Unit Trust of India (UTI) and Life Insurance Corporation (LIC).

The revelation has raised doubts about the credibility of brokers that the institutions employ for their market operations. Brokers executing trades for large institutions like UTI and LIC possess market-sensitive information that can be exploited for personal benefit. Institutions like LIC and UTI are required to be diligent in choosing intermediaries as they normally trade in large volumes and specific information on institutional activities can be even be used to rig markets. In fact, Dalmia was enlisted with UTI as a registered broker even after he was embroiled in controversy for some trades with a public sector bank’s investment arm in 1992-93. The case was being heard by the special court dealing with the securities scam and was set to come up for hearing on December 11.

When contacted, a UTI executive director said: “We have stringent suitability criteria for enlisting brokers. The volume of transaction that each enlisted broker can execute for us is also decided on his merit. In case of significant developments like this (the special court order), we review the suitability of the brokers involved.”

But he admitted that the review does not take place unless specific charges are substantiated against a broker. Asked how Dalmia was empanelled even after his alleged involvement in the 1992 scam, the UTI official said the matter will be looked into.

Besides UTI and LIC, Dalmia is the house broker of a leading Calcutta-based industrialist family, that has now branched off into a number of streams.

Following the court order, a question mark now hangs over the fate of the trades that were conducted by Dalmia on behalf of UTI and LIC. Executed trades take five working days for completion as securities are delivered and money paid to the exchange five days after the trades take place.

However, the freeze order came at a time when Dalmia had conducted the voluminous transactions for UTI and LIC, but had still not closed the deal by paying money or delivering securities as may have been required. The order bars Dalmia from both delivering securities and paying money on behalf of his clients (in this case UTI and LIC).

Dalmia said he will appeal against the special court’s order and also seek an exemption from the constraint on delivering securities and paying money to meet the commitments made by him for UTI and LIC.

“I have been penalised for no reason. The case pending in the special court did not have any monetary claims attached to it, and hence the action was unwarranted. I will be filing my appeal tomorrow,” Dalmia said.

Meanwhile, the Calcutta Stock Exchange has decided to bar Kayan’s broking firm C. Mackertich Ltd from accessing the bourse. The special court notified C. Mackertich and Co — a defunct firm formerly owned by Kayan. Though C. Mackertich Ltd remains technically unaffected by the order, the exchange feels it should still be barred from accessing the market because it is the reincarnation of an affected entity. However, an associate of Kayan said that the firm’s membership of the National Stock Exchange remains unaffected.


New Delhi, Nov 27: 
The Union Cabinet today put off a decision on the integrated LNG policy after a major spat between the ministries over fiscal incentives and the mode of transporting LNG imports.

“The LNG policy was discussed but deferred. No final decison was taken,” law minister Arun Jaitley said.

It was learnt that the finance ministry dug in its heels and refused to accept the suggestion mooted by the petroleum and shipping ministries that the present tax regime should be replaced with a tonnage tax of zero or one per cent for LNG imports.

The power ministry said LNG importers should have the freedom to decide whether to go in for f.ob. (free on board) or c.i.f (cost, insurance freight) imports as along as it was made using vessels bearing an Indian flag.

Among the decisions taken today, the Cabinet cleared a proposal of the coal department to relax the provisions of coal mining policy of 1979 to allow private sector companies to take up coal mines located in isolated pockets. This relaxation will enable the private sector to take over a large large number of under-developed coal mines in eastern India.

The Cabinet has also approved the acquisition of two oil tankers by the ministry of shipping for crude oil.

It also cleared an amendment in the provision of the Sugar Development Fund Act 1982 to enable the use of funds for other related activities.



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