Markets hope to breathe easy
MAT abolition high on Ficci’s budget wishlist
Scanner on rural phone lapses
Private players eye PSU oil dealers
Back-office Eldorado beckons

Mumbai, Dec. 23: 
The bond market has got back to its feet after it almost fell off the ledge in a Friday fright, but there are few ready to believe that it won’t wobble again. Not when the India-Pakistan showdown turns ominous by the hour in a testy exchange that has unnerved investors, rattled stock markets and shaken the rupee.

Government securities — referred to as gilts because they carry a sovereign guarantee and are as good as gold — were clobbered minutes after the news of the envoy’s recall from Pakistan exploded on TV screens.

As market watchers keep their eyes glued to the news channels for information of more verbal duels and border skirmishes, they are hoping for a mellow Monday that would bring stability to the turbulent market, where the prices of some government bonds had crashed by as much as Rs 2 before Saturday’s rally.

The rebound was engineered by operators who put the government’s decision to recall its envoy from Pakistan behind them, and returned to make purchases. The benchmark 2011 11.50 per cent security, for instance, was traded at Rs 122, up from Friday’s Rs 121.

On Friday, bonds were savaged as prices crashed in a knee-jerk manner to the recall. Some securities were beaten down by more than Rs 2, while most others suffered significant reverses.

The 9.85 per cent 2015 security slipped to Rs 111.20 against its Rs 112.65 on Thursday. Yields went up in tandem with the price plunge.

Saturday’s claw-back did lift the mood, but observers apprehensive about the turn the Indo-Pak spat would take, said they were watching for developments over the weekend. However, with nothing more than stray border skirmishes being reported, hopes grew that things will look up on Monday.

“It has been a nerve-tingling weekend,” said a dealer working for a leading new-generation private sector bank.

N. Balasubramanian, general manager of ICICI, said much would depend on how the two estranged neighbours word their responses and calibrated troop movements.

“Notwithstanding Saturday’s correction, there are worries. All of us are now waiting and watching the situation, looking forward to whether there are more sharp reactions from the two countries.”

Rupee under pressure

Forex market observers were also on their toes, looking out for any signs of a flare-up in tension. However, most agree the rupee could under some amount of pressure in Monday’s trading as skittish importers spark a scramble for dollars; it had weakened to 47.81/82 on Friday from Thursday’s 47.79/80.

Dealers say any negative news drives up the demand for dollars as companies, banks and individuals rush into safe-haven avenues, one of which is the greenback. “If tensions build up further, the issue of dollar inflows into the country will return to the spotlight. This could act against the rupee and the equity markets,” said an analyst with a domestic forex firm.

Stocks on the edge

The equity markets are hoping that the showdown with Islamabad abates. Since matters have not come to a head, shares are expected to open stronger on Monday.

“We are hoping that Friday’s decision by the government is limited to sending a strong message,” a broker said.

There is a small section of observers, which feels the markets are likely to remain leery for some time, and that the buying will be concentrated in a handful of stocks. “The uncertainty may force bourses to move in a narrow range over the next few days,” an analyst said.


New Delhi, Dec. 23: 
The pressure is mounting on the government to scrap the minimum alternate tax (MAT) and to lower the 35 per cent corporate tax, which puts India among a handful of nations with a fairly high tax rate.

The Federation of Indian Chambers of Commerce and Industry (Ficci) wants the tax rate rolled back to 30 per cent in the next budget and is pushing for a rate of 25 per cent in the next two to three years, which would place India almost at par with most south east Asian countries.

The chamber has also demanded that MAT—introduced by P. Chidambaram to pre-empt a growing band of zero-tax companies who were taking advantage of a slew of tax setoffs—be withdrawn because it has proved to be counter-productive and a disincentive to the promotion and growth of industrial activity.

The chamber buttressed its demand for the withdrawal of MAT with the argument that a similar provision had been present on the statute books earlier and had to be scrapped due to undue hardship and retardation of economic growth, besides operational problems. Moreover, only four countries in the world — the US, Colombia, Mexico and Argentina — had a concept like MAT. But in the US, the MAT in a particular year is adjusted against the taxes payable on normal taxable profits during the post-MAT period. But here, once MAT is imposed it may be an outgo forever.

Ficci has also suggested that the income-tax surcharge—arising from the need to deal with the costs of the Kargil war and cherry-topped this year with the Gujarat quake levy—should be abolished and small companies should be taxed at a lower rate of 20 per cent. It argued that this would be in line with the system prevalent in the UK, where small companies are taxed at 20 per cent whereas large companies are taxed at 30 per cent.

Ficci has said that in the emerging global scenario, it is necessary to allow tax exemption to Indian companies with respect to the dividend income from foreign companies.

The chamber also revived the argument for an investment allowance—a tax sop that companies enjoyed in the pre-liberalisation days. The chamber said a development rebate/investment allowance should be revived to spur private investment and capital formation.

It suggested that alternatively, a technology upgradation allowance can be introduced whereby a certain percentage, say, 5 per cent of the profits, can be set apart for utilisation in evolving new technologies.

To overcome obsolescence, an accelerated depreciation can be provided by raising the rate from 25 per cent to 33.33 per cent, which can be computed with reference to the current market value of assets.

This would lead to the revaluation of such assets on a continuous basis, instead of depending on historical costs.

Further, it pointed out that world-wide, taxation policies have been used to stimulate investments. This has become all the more important in the Indian context as the overall investments fell by 3.5 percentage points to 23.3 per cent of the GDP in the second half of ‘90s.

Ficci also said that the dividend tax would adversely affect corporate restructuring because the setting up of a subsidiary by the parent would entail dividend tax twice. In the case of subsidiaries that put up their own arms, the tax incidence would multiply.


New Delhi, Dec. 23: 
Union communications minister Pramod Mahajan has decided to pull up the private fixed line operators in West Bengal, Jharkhand, Bihar, Orissa, and Uttar Pradesh (east) for failing to install village public telephones (VPTs) as per the licence conditions.

He has called a meeting of all the private operators this week to discuss this contentious issue and has asked the state-owned Bharat Sanchar Nigam Ltd (BSNL) to prepare a strategy paper to tackle the problems of operating VPTs on the MARR system.

Mahajan will release and review the strategy paper in mid-January and plans to hold a meeting of the chief general manager on village public telephones on March 16 to review and assess the progress on VPTs. Currently, villages have been provided with a VPT by using MARR system, underground cable, overhead lines and Inmarsat mini-m-terminals.

The government also plans to extensively use new technologies like C-DOT PMP systems as well as wireless in local loop (WiLL) systems to meet the target of installing village public telephones.

Speaking at the head of circles conference on VPTs, here, Mahajan said, “The success of connectivity by village public telephones will be determined by the success rate achieved by certain states in the country.”

He has identified the five states mentioned before which need to vigorously pursue action oriented deliverables to achieve the VPT targets set by the government.

The action plan would comprise the technology mix, logistics management and the achievement of targets in a realistic timeframe. Most of the states mentioned above come under circles having target more than 5,000 VPTs.

In order to keep track of the progress and targets in the VPT segment, Mahajan has also directed the chief general managers of the telecom circles under BSNL to send monthly reports during the first week of each month beginning January.

As per the target fixed earlier by the government for both private fixed line operators and BSNL, total number of revenue villages to be covered by village public telephones were 6,07,491 and so far more than 4 lakhs villages have been covered till November.

Earlier this year, BSNL had approached the government for a financial assistance of around Rs 3,000 crore to implement telecom projects in non-viable areas.

The government had agreed, in principle, to give the assistance since the setting up of a social infrastructure would not generate profit, said BSNL officials. The corporation cannot take up projects if there is not government grant.

The public sector telecom major also has plans to invest Rs 17,000 crore this fiscal to widen its network. While majority of the investment would be from internal generation, the company was planning to borrow around Rs 4,000 crore from the financial institutions and banks.


Calcutta, Dec. 23: 
Marketing networks of the four public sector oil companies are likely to come under threat from private sector players such as Reliance, which are gearing up to lure dealers with better facilities.

Industry sources said Reliance Industries (RIL) is trying to rope in big dealers of PSU oil companies mostly on the highways, to set up its own marketing network across the country.

Sources said Reliance is eyeing the dealer-owned-dealers’ outlets (DODO) which are loosely controlled by oil companies, unlike company-owned-dealers’ outlets (CODO).

While Indian Oil Corp owns only 32 per cent of the 7,252 retail outlets, BPCL and HPCL own over 50 per cent while IBP has a little over 40 per cent.

Hence, a large number of the dealers remain vulnerable to “good offers” from any oil company in the free market regime, sources explained.

Reliance, which has a large refinery at Jamnagar, is yet to enter the retail segment so far as that area is still controlled by the government.

“But after the end of the administered price regime in April, Reliance will face a tough time if it does not have a proper marketing network in place. The existing marketing arrangement may not work in the post-APM era,” sources pointed out.

RIL currently has a marketing arrangement with Indian Oil, Bharat Petroleum and Hindustan Petroleum for the sale of its bulk products in the controlled category.

But the existing arrangement is likely to be jettisoned after deregulation, which will have an adverse impact on RIL’s sales. In fact, Reliance has already put a proposal before Indian Oil to market its products, but the PSU has not taken a decision on the issue so far.

On the other hand, the other two — BPCL and HPCL — have expressed their willingness to scrap the old arrangement with RIL and sign a new agreement instead.

RIL is also in the process of bidding for the 33 per cent government stake in IBP, which is the sole stand-alone oil marketing company in the country.


Mumbai, Dec. 23: 
Forget the IT slowdown, back offices is where the future lies—for now, at least. As foreign banks and multi-nationals realise the benefits of setting up base in India for churning out their low- to medium-end accountancy, administrative and payment functions, back offices are fast sprouting up across the country.

With the trend towards globalisation, the mega corps are looking at ways to make their businesses leaner and meaner, to shave off those billions of dollars in labour costs. This is where they turn to countries like India, outsourcing blue-collar as well as highly skilled JOBS.

Global management consultancy major Gartner projects the Global BPO (business process outsourcing)at $ 611 billion by the year 2005.

“For India, this is a huge opportunity to capitalise, on what can be described as its core strength—a large pool of talented, educated, highly skilled and young English-speaking workforce”, says Sujay Chohan, group vice-president and country director at Gartner.

Following the trend set by call centres, which in itself has a huge potential for generating billions of dollars for the country, setting up back offices for foreign majors would be another potential goldmine for local entrepreneurs.

“Business process outsourcing is beginning to gather momentum, as it allows companies to focus on their core strengths and concentrate on delivering better services and products,” Chohan says.

“The choice of going in for a BPO option is not always based on cost savings, but rather, the ability it gives companies to focus on core competencies and at the same time become leaner, more agile and competitive,” he added.

There are many service areas that India can offer. Administrative functions like claim processing and document management, financial services like billing and accounting transaction management, human resource functions like benefits administration, education, training records management and payment services like credit/debit card services and cheque processing are some of the services outsourced to Third World countries.

Ford Motor Company meets the back office needs of its Australian and Asian operations from its Chennai base. Another example is that of British Airways, which has set up a processing base at Vikhroli in Mumbai.

It was General Electric—which has interests as diverse as finance, power and media on a global scale—which pioneered the concept of back offices in India.

GE is, in fact, expanding on a rapid scale as recent advertisements for vacant slots in Delhi and Hyderabad reveal. Leading banks like Citibank, HSBC and Stanchart have also set up development centres in the country.

However, the opportunities, especially the ones India can capitalise on, “need tremendous amount of support, commitment and actions from the government to put basic infrastructural projects on the fast track, or at least create special and liberal economic zones within the country.”


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