Battered black and blue
Sensex loses 143 on Sinha sting
Run-up to oil decontrol
Dividend tax comeback raises spectre of retail rout
Spread of sops laid out for core sector
Slew of tax breaks for infotech firms
Textile firms delivered a sharp spin
Telecom is a winner
FMCG firms frown
Foreign Exchange, Stock Indices

New Delhi, Feb. 28: 

Cheaper loans to push housing

Finance minister Yashwant Sinha today announced a series of measures to strengthen the housing sector.

The National Housing Bank (NHB) will launch a mortgage credit guarantee scheme to be offered to all housing loans that will fully protect lenders against default. As a result, housing credit will be affordable. The move will also increase housing credit access to rural areas.

In order to give further impetus to investment in the housing sector, the finance minister has extended the capital gains exemption provided under Section 54EC of the Income-Tax Act to bonds issued by the NHB. Further, as a result of the amendment to the NHB Act, the bank has begun securitisation of housing loans and is operationalising foreclosure of mortgages.

The government has also decided to finance 2.25 lakh units during 2002-03 under the Golden Jubilee rural housing finance scheme. During 2001-02, the rural housing finance scheme had helped in construction of 1.7 lakh units. About 1 lakh units had been financed up to December 2001.

Announcing the Union budget for 2002-03, Sinha increased the allocation for the Indira Awas Yojana by 13 per cent to Rs 1,725 crore. In addition Rs 480 crore have been given under the same scheme for the states where the houses have been hit by natural calamities. An insurance cover, too, will be provided through a master policy for the houses constructed by the poor under the scheme.

Presenting his indirect tax proposals, Sinha proposed to allow the deduction for interest payable on housing loans for self-occupied houses even where such houses are acquired or constructed after March 31, 2003, as long as the acquisition or construction is completed within three years from the end of the financial year in which the loan was taken.

Total disbursement from housing finance institutions in 2000-01 was Rs 26,300 crore, a growth of about 28 per cent in the year. This amount financed the construction of about 28 lakh houses, much higher than the annual target of 20 lakh houses. In the current year, the growth rate is expected to be around 35 per cent.

In addition, a major housing construction scheme is expected to be unveiled for defence personnel. Sinha also proposed to set up a Rs 500-crore Urban Reform Incentive Fund to provide reform-linked assistance to state governments.

The fund seeks to give incentives for reform of rent control laws, repeal of the urban land ceiling Acts, rationalisation of high stamp duty regimes, revision of bye-laws to streamline the approval process for construction of buildings and development of sites.


Mumbai, Feb. 28: 
Dalal Street was quailing even before the finance minister ended his two-hour oration. By the time it wound up for the day, it was poorer by an eye-popping Rs 27,000 crore.

No one expected Yashwant Sinha to play a Santa Claus, but few on the trading floor knew he could wring tax-payers dry, and still not offer the capital market the impetus it needed.

It was a free-fall that started a little before noon. By 1 pm, everyone in the business of shares was convinced that they had woken up to a disaster: the BSE sensex shed 3.87 per cent or 143.35 points over its previous close, retreating to 3,562.31 points. Sample the evidence: 949 shares ended losers on the BSE; only 235 advanced.

Barring a few FMCG scrips that came out unscathed in the selling avalanche, most surrendered their gains. Lever, which gained Rs 3.30 at Rs 249.80, ITC by Rs 16.15 at Rs 746.60 and Tata Tea by Rs 2.65 at 178.60, were among those that escaped.

“The decision to make shareholders pay dividend tax is a major dampener on sentiment,” said Ramesh Damani, a prominent BSE broker. The removal of dividend tax from companies and shifting the burden to investors was a wrong step”, he added.

“The decision to tax dividends at the investors’ end is retrograde,” said a senior official with a well-known mutual fund. What has raised the hackles of investors is the flip-flop by the government thrice on dividend tax in just as many years.

Rakesh Jhunjhunwala, a prominent investor, was among the few who thought the budget was good. Market behaviour, he said, is generally fickle during these times. He recalled the previous budget that saw the sensex gaining appreciably only to fall after the budget. The broad-based BSE-100 index tumbled 72.51 points to 1707.72 from previous close of 1780.23. However, the volume of business rose to Rs 1924.82 crore from Rs 1668.07 crore on Wednesday.

Infosys Technologies dropped 7.9 per cent. Mahanagar Telephone Nigam plunged 8.3 percent and State Bank of India, the biggest commercial bank, tumbled 10 per cent.

In the debt market, the scene was similar. Reacting to the lower-than-expected cut of 50 basis point in administered interest rates on small savings, instead of the one percentage point reduction that many had looked forward to, government security prices crashed by Rs 2 — and yields jumped in tandem.

The benchmark 10-year yield shot up to 7.61 per cent from 7.31 per cent just ahead of the budget. The yield now stands well above a lifetime low of 7.18 per cent hit on February 14. The market had already priced in at least a full-point cut.

Infosys surrendered 303.55 to Rs 3530.25, SBI by 25.30 to Rs 227.80, Reliance by 17.30 to Rs 307.45, ACC by 10.15 to Rs 163.50 and Bajaj Auto by 19.50 to 457.65, Cipla by 45.85 to Rs 1005.45 and Ranbaxy by 26.60 to Rs 819.45.

Futures go limp

The derivative segment of the National Stock Exchange registered a record high turnover even as index and stock futures fell sharply. Today’s trading volume of Rs 2,156.14 crore on the NSE’s derivative segment surpassed the high so far of Rs 1,530.33 crore on Wednesday..

The nifty future recorded a trading volume of Rs 381.45 crore today. The Nifty future expiring March 28 closed at 1133.80 — a discount of 0.7 per cent to the Nifty’s current close of 1142.05 points.

The sensex future expiring March-end closed at 3555 today, as against the Sensex’s current close of 3562.31 points. The March future of the benchmark index declined by 3.5 per cent today, while the April future – which closed at 3591 today – was down 4.25 per cent from its previous close.


Feb. 28: 

Petrol falls, cooking gas to cost more

The fat is finally in the fire. The government has taken the first step towards deregulation of the petroleum sector by bringing down the prices of petrol and diesel and ratcheting up those of cooking gas and kerosene.

A fallout of an altered duty structure, the move is a prelude to the dismantling of the administered pricing mechanism for the petroleum sector from April 1.

The price of petrol is expected to come down by Re 1 per litre and that of diesel by 50 paise per litre from tomorrow. LPG prices have been raised by Rs 40 per cylinder and kerosene is costlier by about Rs 1.50 per litre.

A major portion of the revenue is accounted for by doubling the cess on the 33 million tonnes of crude produced domestically every year — from Rs 900 per tonne to Rs 1,800 per tonne.

Finance minister Yashwant Sinha reiterated the government’s resolve to dismantle the administered price mechanism from April 1, leading to pricing of petroleum products being market-determined.

The oil pool account will be dismantled and outstanding balances will be liquidated by issuing oil bonds to the oil companies concerned. Private companies will be given distribution rights subject to specified guidelines.

A petroleum regulatory board will also be set up to oversee the sector, the minister said.

Freight subsidies will continue to be provided for cooking gas and kerosene. Subsidies on cooking gas and kerosene, which will be on a specified flat rate from April 1, 2002, will be phased out in the next three to five years.

Sinha, however, clarified that subsidies to refineries in the Northeast will continue on a rationalised basis.

In revising the duty structure for the petroleum sector, Sinha has reduced the ad valorem rate of excise duty applicable on petrol from 90 per cent to 32 per cent, but imposed a surcharge of Rs 6 per litre. However, the surcharge on ethanol-doped motor spirit will be Rs 5.25 per litre.

But Sinha’s move has come as a blow to the Oil and Natural Gas Corporation.

Chairman Subir Raha said the proposal to double the cess on crude oil will adversely affect the company’s cash flow.

The cess will have to be borne largely by ONGC and — to some extent — by Oil India, as, under the New Exploration and Licensing Policy, crude from new blocks will not attract the levy. “So, some companies in the private sector and a few foreign firms will not be affected by the proposal,” Raha said.

On a rough estimate, ONGC will have to cough up an additional Rs 200 crore on this account in March alone. Raha said the net impact will be worse, especially as the oil sector is being opened up, leading to fierce competition.

“Free market means there will be risk and gain. But in our case, it appears the risk will be ours while the gains will be the government’s,” he said.

However, the director (finance) of Indian Oil, M.P. Sugabanam, spotted “opportunities and the independence to increase revenues”.

“In the market-driven pricing system, we have the independence to fix the price and get it from the market without any delay,” he said. The 50 per cent reduction in excise duty on products coming out from refineries in the Northeast will also benefit Indian Oil as it has three major refineries in the region.

A top Essar Oil official said the decision to maintain subsidies on LPG and kerosene on a specified flat-rate basis would ensure the deficit was contained within estimates and the volatility in international prices would not affect budget estimates.


Mumbai, Feb. 28: 
Retail investors will be hit the hardest by Yashwant Sinha’s budget as they will have to fork out more money in taxes.

Sinha today re-imposed tax on dividend. For some years, companies were paying distribution tax, but investors were spared. The dividend tax could create havoc in the stock market in the short term and hamper the fund-raising plans of mutual funds and companies.

“This move could lead to many small investors pulling out their money from the capital markets and may also stall any new flotations in the short run,” an analyst said. Sinha withdrew the distribution tax on companies, only to give a rude shock to the investor by re-imposing the tax on individual earnings from corporate dividends. Experts also highlighted the administrative hassles that were “bound to arise”.

“The government would have a huge administrative problem collecting tax from such dividends from millions of investors,” said Keki Mistry, managing director, Housing Development Finance Corporation (HDFC). Mistry added that the move would also impact retail investors’ interest in mutual funds, which could have repercussions on the capital markets.

“The equity markets will certainly get affected as investments in mutual funds get impacted,” he added. Purushottam Agrawal, managing director, Ajanta Pharma Ltd, said though the move would reduce the outgo of companies, it would make fund-raising difficult for them.

Analysts said retail investors would now look for more lucrative avenues to invest their surplus funds. As a result, they could even turn to bank deposits. “These give a reasonable rate of return and there is no element of risk. Some investors could withdraw money from mutual funds and channel them into bank deposits,” a banker said.

“Just when the capital market was regaining its momentum and needed a boost to its sentiment, comes a measure which investors, whether corporates, mutual funds or individuals will find difficult to regard in a positive light,” the Tata group said in a statement.

However, industry sources said the good news was allowing domestic mutual funds to invest in rated securities of companies abroad. This is a great move in an effort to promote diversification of investment across geographically diverse markets.

Many funds with foreign affiliations and large players in fixed income markets around the world and IDBI-Principal can now effectively leverage their global expertise on this front.

Hindustan Lever Ltd, which recently unveiled a unique scheme of bonus debentures, remained non-committal on the impact of the new tax structure on the new instrument devised by the company to reward shareholders.

Sinha also allowed companies 15 per cent additional depreciation on certain assets. Industry welcomed the concession, with experts pointing out that it would encourage capital formation.

“It would also lead to expansion and diversification in the industrial sector and this will increase the requirement of funds by way of lease, hire purchase or loan,” said Mahesh Thakkar, executive director, Association of Leasing & Financial Services Companies. However, Mistry of HDFC was not too optimistic, though he reacted positively to this proposal.

“This depreciation benefit though positive, will not be enough as it will be beneficial only if companies produce and sell more. Thus the benefit will only flow if more plant and machinery are purchased, which, in turn, will depend on demand in the economy,” he said.


New Delhi, Feb 28: 
Finance minister Yashwant Sinha has announced a series of measures to facilitate faster private investment in the infrastructure sector and make them ready for competition in future.

An infrastructure equity fund of Rs 1,000 crore will be set up for investments in the shares of infrastructure projects. An institutional mechanism would also be set up to co-ordinate debt financing by financial institutions and banks of infrastructure projects larger than Rs 250 crore.

Sinha also announced that the government will encourage public investment in key infrastructure sectors. The finance minister has set a plan outlay of Rs 37,919 crore, both through internal and extra budgetary resources for the infrastructure sector (through public investment). In the power sector, it will go up by 22 per cent, in roads and national highways by 39 per cent and railways by 23 per cent.

Ports and shipping

Sinha is considering corporatisation of eight new ports projects amounting Rs 3,200 crore. Private sector investment have already been allowed in 17 projects amounting to Rs 3,200 crore. Custom duly has been reduced by 10 per cent on import of specified equipment for development of ports. The countervailing duty (CVD) and special additional duty (SAD) will not be levied on ships imported for breaking, however the basic duty has been increased from 5 to 10 per cent for such activity.

The shipping industry will also not by levied the minimum alternate tax (MAT). Finance Minister has kept the shipping industry out of MAT to face the international competition and higher growth.


In order to revive the civil aviation sector, Sinha has exempted import of aircraft, helicopters, gliders, simulators of aircraft and spares from customs duty. Duty on specified equipment for airports has also been slashed by 10 per cent.

The international airports in Delhi, Calcutta, Mumbai and Chennai will be upgraded to world standards by inducting private sector management and investment, made through long-term leasing contracts.

The government also announced private sector participation in greenfield airport projects through a package of concessions, with special emphasis on airports at Hyderabad and Bangalore. The incentives include making land and related infrastructure available from state governments.

As a special measure to boost air travel to north-east, Sinha has exempted travel to and from the seven north-eastern states from inland air travel tax.


In order to push the reform process in the power sector, Sinha has offered enhanced plan allocation of Rs 3,500 crore for the year 2002-03 as against Rs 1,500 crore in 2001-02. The Accelerated Power Development Programme (APDP) has been renamed as The Accelerated Power Development and Reform Programme (APDRP). The programme would be augmented by loans on concessional terms from Power Finance Corporation. The power ministry has been directed to focus its reform process more on transmission and distribution from generation. A high-level monitoring group will oversee the progress of this programme.


New Delhi, Feb. 28: 
Finance minister Yashwant Sinha today announced a raft of tax incentives for information technology. That includes putting off the implementation of zero-duty regime under the IT Agreement to 2005 from 2003.

However, prices of personal computers, peripherals and television are not expected to come down because the excise duty has been not revised.

However, Sinha announced a cut in customs duty for information technology, electronics and telecom industries.

The customs duty on specified inputs for three industries have been reduced to 5 per cent from 25 per cent and 35 per cent; customs duty on specified capital goods has been slashed to 15 per cent from 25 per cent.

“The duty on certain information technology items would also be brought down to 10 per cent or 5 per cent as per the Word Trade Agreement binding,” said Sinha.

“The house may recall that in 1998, I had announced that the zero duty regime on it products would be advanced and implemented by 2003. However, the local manufacturers have urged me strongly that it may be made effective from the year 2005. I have decided to accept their demand.”

Sinha felt this would give the three industries an opportunity to gear up to meet challenges of international competition.

However, Nasscom, the apex organisation of software and services companies, and MAIT, the apex organisation of hardware manufacturers, were not too pleased with the announcements for the industry.

“Union Budget 2002-03 is strong on basics; but disappoints the Indian software and services industry,” Nasscom said.

Vinay Deshpande, president of MAIT, said: “The industry is looking at higher value-added options like export of designs, firm-ware and even technology. Unfortunately, issues like with-holding tax and taxation on royalty from exports of technology have not been addressed.”

Nasscom president Kiran Karnik said: “The withdrawal of tax exemption would reduce their investible surplus and affect marketing efforts during the year 2002-03.”

Nasscom is disappointed with continuation of sub-section (9) under Section 10(A) and Section 10(B). As per this clause, if during the year, more than 51 per cent of shareholding (beneficial interest) changes in a 100 per cent then the company will cease to get Income Tax exemption from that year. This provision adversely affects the ability of companies to raise funds either from capital markets or venture capitalists.

“It hits all companies especially SMEs and start-ups in software and ITES space, where the shareholding pattern may change with the exit of venture capitalists. This may constrain venture capital funding. Moreover, this provision is acting as a deterrent to mergers and acquisitions, which is today seen as an important step for future growth,” Karnik added.

MAIT director Vinnie Mehta said: “A two-year breather owing to the shifting of the Information Technology Agreement will help the domestic hardware manufacturing industry to work towards global scales. But we need to urgently focus on reforms of procedures — both on domestic levies as well as on customs.”


Mumbai, Feb. 28: 
The budget came out with some bold proposals for the textile industry, one of which was to bring segments out of the excise fold into the tax net. Import duties on a few types of machinery will be slashed to 10 per cent from 25 per cent.

The industry, which has seen its fortunes sag, saw the finance minister laying out a road map for reduction of customs duty, wherein import duties on raw materials would be pegged at 10 per cent while it would be 20 per cent for finished items.

Most industry segments, including garments, emerged happy from the budget as Sinha lowered excise duties to 12 per cent from 16 per cent. The imposition of a 16 per cent tax rate on the industry last year had led to considerable heartburn.

Sources said following the reduction in excise duties, companies like Madura Garments now stand to gain. “We will pass on the excise duty changes to the consumer’’, an industry representative who welcomed the reduction said.

However, what was most critical was the move by Sinha to begin the process of removing excise duty exemptions on certain segments. He did this for hank yarn (which is largely used by the handloom sector) by levying excise duties of 8 per cent, while at the same time retaining appropriate subsidy on the

price of hank yarns purchased by the handloom sector and also excise exemptions on handloom fabrics subject to certification by handloom export promotion council.

The step of a 8 per cent excise duty on hank yarn has been taken following the large scale misuse of hank yarn duty exemption that has been prevalent in the past.

Pointing out towards the special package of textile industry made for its revival and growth, Sinha announced a slew of other measures that included a voluntary duty for woven and knitted grey fabrics (which is produced largely in the unorganised powerloom sector). Further, knitwear was also de-reserved from the SSI sector.

Sinha also restricted the use of power-operated machines by duty exempted hand processors to 3 processes as compared to 12 processes for cotton fabrics and 7 processes for man-made fabrics. This means that hand processors who have more than 3 processes through power operated machines will come under the excise net.

However, the polyester filament yarn sector comprising of majors like Reliance Industries Ltd, Indo Rama Synthetics emerged disappointed from the Budget as their hopes of a lower excise duty did not go through. The finance minister here retained the special excise duty of 16 per cent on eight items that included PFY.

The excise duty on automatic shuttleless looms, specified processing machinery and specified silk reeling, weaving and twisting machinery has been exempted to enable textile industry to modernise itself, Sinha pointed out.


New Delhi, Feb 28: 
The telecom industry has got major sops with the removal of countervailing duty on cellular phones and radio pagers removed. However, the setback for the industry is that customs duty has been increased on these products to 10 per cent from 5 per cent.

“The use of cellular phones is increasing by leaps and bounds but import through unauthorised channels is a matter of concern. I therefore propose to exempt phones and pagers from CVD,” said finance minister Yashwant Sinha.

In addition, the benefit of carryforward and set-off of past losses in case of mergers of companies owning industrial undertakings has been extended to firms providing telecom services and eligible for deduction under section 80-1A.

Sinha said, “There had been a persistent demand that the benefit of carry forward and set off of past losses in cases of mergers a of companies owning industrial undertakings, be extended to more sectors, adding, the move would encourage growth in the telecom sector which was undergoing a phase of rapid consolidation and expansion.”

Sunil Bharti Mittal, chairman and group managing director of Bharti Enterprises, said, “I hope that the FII investment to be allowed beyond the sectoral cap should definitely apply to the telecom sector, which needs large doses of investment to provide deeper penetration of telephony in both mobile and fixed line segment.”

“There is very little Indian investment available for the telecom sector, therefore either the sectoral cap could have been raised or in the absence of that the FII investment beyond the sectoral cap must be allowed,” he added.

Telecom was not covered in the definition of “industrial undertaking” under section 72A. This has now been corrected.

Arun Seth, managing director, BT Worldwide (India) Ltd said, “The government’s move to exempt cellular phones from CVD and the decision to lay a 75,000-km fibre optic network should be applauded, as that will facilitate the availability of cheap bandwidth and give a further boost to India’s growing IT Enabled Services sector.”

Gopal Jiwarajka, Secretary, Indian Cellular Association said: “The initiative to abolish the Counter Veiling Duty (CVD) of 16 per cent on mobile handsets is a step in the right direction.”


New Delhi, Feb. 28: 
The budget has disappointed fast-moving consumer goods (FMCG) companies.

“There was no relief for the Indian FMCG companies,” said Piruz Khambatta, chairman and managing director of Rasna Ltd. “Instead, taxes have been increased while the duties on imported goods have been reduced. The total impact of taxes on food products (including Central and state taxes) works out to roughly 25 per cent of MRP. This is the highest in the world. Taxes on food products have to be at least halved to bring it at par with global levels.”

Sunil K. Alagh, managing director of Britannia Industries Ltd, said the budget has not given any stimulus to the demand in the market place, nor done anything to reduce consumer prices. Biscuit-makers want their Cenvat to be brought down to nil and sugar-boiled confectionery makers have suggested that excise duty for products up to a retail price of Rs 2 should be reduced from 16 to 8 per cent. These demands have not been met and Alagh said that in the sector of biscuit and dairy products where Britannia operates, things remain much the same.

Though special excise duty of 16 per cent has been abolished on a number of items, it continues to remain for aerated soft drinks and soft drink concentrates. The soft drink industry, which got an 8 per cent reduction in special excise duty last year, was asking for more. The Rs 6,000-crore carbonated drinks industry wanted the 16 per cent special excise duty it gives over and above Cenvat of 16, to be scrapped.

Pan masala, chewing tobacco and miscellaneous tobacco preparations also come under the products which will continue to pay special excise duty at 16 per cent. Cigars, cheerots and cigarillos of tobacco or tobacco substitutes, which have been exempt so far, will now attract 16 per cent Cenvat.

Lever offer

Emboldened by the reduction in special excise duty on personal products, Hindustan Lever Ltd has decided to pass on the benefits accrued from the Union budget to the consumer.

“We welcome the reduction in special excise duty on personal hygiene products.… These reductions will facilitate necessary fillip to market demand, given the recessionary situation,” a Lever spokesman said.



Stock Indices

Sensex		3562.31
BSE-100		1707.72
S&P CNX Nifty	1142.05
Calcutta	 122.30
Skindia GDR	 563.30

Foreign Exchange

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UK £1	Rs. 69.06
Euro	Rs. 42.19

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