Tax axe to fall on service sector
Move to enforce car MoUs set to run foul of WTO
Sinha hints at reduction in prices of petro goods
Heady forecast for infotech majors
Mobile radio trunk ervice rules eased
Mitsubishi to expand in Haldia
Creative Eye debut on BSE
Purnendu lists poverty busters
GP Goenka group firm to spin off division
Foreign Exchange, Bullion, Stock Indices

New Delhi, Dec 18: 
The budget for 2000-2001 is expected to slap a significant tax on the service sector in order to raise the tax-GDP ratio which has been steadily declining.

The Tax Policy Group headed by Partho Shome is finalising an interim report to enable the finance minister to implement some of its recommendations in the next budget. The finance ministry has asked for such a report, sources in the Group said.

According to these sources, the Group has come to the conclusion that the only short term option to raise the tax- GDP ratio is to tax the service sector. The government made a modest beginning in this direction three or four of years ago by taxing areas like telecom services. The move to slap a tax on the transport sector met with stiff resistance and had to be abandoned.

These steps were taken on the basis of the recommendations of the Chelliah Committee report on fiscal reforms.

The finance ministry is concerned over the declining tax-GDP ratio. In the case of the Centre, it has dropped from 11 per cent to below 9 per cent and for the states it is hovering below 6 per cent. In view of the growing revenue deficit, both the Centre and states are shying away from investment with the revenue just sufficient to meet the salary of government employees. The trend has to be reversed if the economy is to pick up growth and the Tax Policy Group has been given the taks to come up with appropriate suggestions. Sources say the Group is going about the task in a far more professional way than any of its predecessors. Excise accounts for the single largest source of revenue. At present, excise is applicable only to the manufacturing sector which is not expanding as expected. If the service sector is taxed now, it could later be brought under Value Added Tax (VAT) which may call for a constitutional amendment.

The Group, as part of its interactions with various interest groups, visited Calcutta last week and met members of the chambers of commerce who could not make a single useful suggestion to raise the tax-GDP ratio. Instead, they submitted a long list concessions expected from the finance minister even as they blamed the government for not making adequate investment in the economy. Tax experts believe that the service sector has registered impressive growth in recent years and is expected to continue to grow. However, its contribution to budgetary resources has not been commensurate with its share in the GDP.

The Planning Commission, in its Approach Paper to the Ninth Plan had recommended that the Modvat, which is under operation in the excisable sector of the Centre, should be extended mutatis mutandis to the service sector as well.It remains to be seen to what extent the finance minister will be able to raise the level of tax. What is economically feasible need not be politically advisable. Yashwant Sinha would not like a rollback in the face of protests from partners of the ruling coalition.


New Delhi, Dec 18: 
The Indian government will free import of completely knocked down automobile kits from April but insist that carmakers stick to the commitments they made in agreements with the government in which they promised to raise the local content in the cars and balance the outgo on imports with export earnings in exchange for a lower duty on imported kits.

The union cabinet is likely to clear this policy stance, which is being adopted in view of a US complaint before the World Trade Organisation�s dispute settlement body, at a meeting to be held this week.

However, many wonder whether WTO will cry foul which will lead to the risk of huge foreign exchange payouts for the latest car kits without any commensurate rise in export earnings.

Diplomats from the US and European Union are already making submissions this month in which they will argue that India�s memorandum of understanding (MoU) system with automobile manufacturers who import ready-to-assemble car kits is not only an unfair trade practice but also runs foul of the investment norms cleared by the World Trade Organisation.

India has to answer before the WTO body within three weeks of these submissions, which is why the government is in a hurry to take a cabinet decision on the issue. Until now, India had taken refuge under a Gatt-mandated article that allowed countries facing a balance of payments problem to use tariff protectionist barriers and import balancing measures. But under WTO, countries like South Korea and India have been under pressure to allow greater market accesss.

The government supported by the law ministry seems to feel that the policy prescription it is taking is perfectly legal. But many in government who were involved in drafting this prescription fear WTO�s dispute settlement body will not agree.

Their contention stems from two points. Firstly, India will not be now able to justify why it wants companies to continue following the indigenisation programme or abide by the import balancing norms in the years after import restrictions on car kits are lifted.

Secondly, if it insists that companies like Honda, Fiat, Indian Auto, Daewoo, Maruti, Toyota and Skoda which have signed such MoUs stick to the letter of the pact, then it could be accused of discriminating in favour of those carmakers who now wish to come in and would not be bound by the MoU system.

If indeed the WTO strikes down the system of MoUs, India would face a flood of car kits of the latest model, imported without any corresponding exports. Indians buy about 6 lakh cars a year and, if even a quarter of this is imported in the form of kits, it would mean a minimum import bill of about Rs 3,000 crore against there would be no matching exports! Or, in other words, India�s trade deficit would swell by that amount.


New Delhi, Dec 18: 
The consultative committee attached to the finance ministry today asked the government create a barrier to staunch the flood of cheap Chinese imports while finance minister Yashwant Sinha said petroleum prices could be cut if crude prices ease in the international markets.

�We wanted to plug the gaps that allow Chinese goods to flood our market and undercut domestic producers,� Vijay Kumar Khandelwal, BJP MP and member of the committee, said.

The panel also demanded that cheap imports of sugar and jute should be curtailed, and more funds be allocated to the agriculture, education and health. To help the middle class, it said the threshold for personal income tax assessment should be raised from Rs 50,000 at present to Rs 60,000.

�We also pointed out that schemes such as the India Millennium Deposit scheme were bringing back black money which had been sent abroad through hawala deals. The funds are not genuine NRI deposits,� the MPs said, adding the kind of �undercover amnesty deals� should be shunned.

Appearing before the committee, the finance minister said the government was facing a shortfall in customs revenues but asserted fiscal deficit would remain close to the targeted 5.1 per cent of GDP during the current fiscal year.

�This year, despite some slowdown in manufacturing, we would be on target for direct taxes and close to the target for excise duty collection. There may be shortfall on the customs front. At the same time, we are keeping a strict watch on expenditure,� he said.

In a significant announcement, Sinha said the government would be ready to cut petroleum prices if the global crude prices eased to an extent where it would wipe out the deficit in the oil pool account.

He told committee members the global rise in prices of crude would mean a net oil pool account deficit of about Rs 12,000 crore. The actual deficit would be about Rs 24,000 crore but domestic price increases would reduce this by Rs 7,000-8,000 crore while a duty cut on oil imports would cut it further Rs by 4,000 crore.


Mumbai, Dec 18: 
As corporate India gets ready to unwrap its third quarter numbers, top-rung infotech companies are expected to roar ahead with 80 to 100 per cent growth in profits.

The projections come despite recent concerns expressed by foreign clients, analysts and industry experts over the slowdown in global infotech spending. They fear middle and low-rung firms will face turbulent times next year as competition intensifies.

For the current year though, the high growth rates that marked the performance of local software majors is expected to continue.

�We will grow at rates higher than the industry average,� says an senior executive from Infosys Technologies.

In the previous year, the domestic market witnessed a 45 per cent growth, mainly due to government�s thrust on computerisation, increased Y2K spending and the abolition of import duty on software.

Rejecting the notion that sluggish infotech spending by overseas businesses, particularly among those based in the United States, will impair the performance of domestic firms, the Infosys official pointed out that outsourcing of services is likely to gather momentum as a result of the trend.

�We feel that lower spending by these companies could be a blessing in disguise because they will resort to out-sourcing in an effort to cut costs,� he added. The company, which gets a major chunk of its revenue from overseas operations, has around half of this amount coming from offsite operations.

Infosys posted a net profit of Rs. 275.32 crore for the half-year ended September 30. For the nine-month period, analysts expect the company�s profit to be in the region of Rs 410-430 crore.

The company is expected to report profits exceeding Rs 560 crore for the financial year ending March 31, 2001.

�Infosys and many other frontline companies will continue to sustain their present growth rates and show good performance because of their realistic business model and shifts towards providing high-end software services.

Companies like these may even be in a position to charge high billing rates and, in the process, improve their margins,� says an optimistic Dhiraj Sachdev, senior analyst at HDFC Bank.

However, industry circles fear medium and low rung software firms are headed for tough times as contract bagging opportunity becomes difficult in the face of tough competition, more particularly from the higher-end infotech majors.

�Many companies will show good growth rates in the ensuing quarter and the one after that.

But things should become difficult for them from the next financial year because they could find their contract-bagging opportunities shrinking like never before,� warns an analyst with a foreign brokerage.

Sources said in such circumstances, the valuation of smaller companies will take a string beating .

It may be recalled that the software boom saw many NBFCs rechristening themselves by adding a prefix indicating their new exposure into the infotech business.


New Delhi, Dec 18: 
The Telecom Regulatory Authority of India (TRAI) today recommended major concessions to provide a fillip to public mobile radio trunk service that includes a waiver on payment of an entry fee, reduction in licence fee, and connectivity with normal telephone lines.

TRAI has also suggested flexibility in the operations of the service by allowing companies to expand their area of operation and enabling the usage of spectrum-efficient digital technology with open protocol.

Taxi services, truck and bus operators, hotels, manufacturing units are key markets for PMRTS. It is expected to play a major role in places where there are large closed user groups consisting of people and vehicles on-the-move requiring to be contacted for operational efficiency.

The telecom regulator has also recommended that inter-site connectivity should be permitted to PMRT service providers between their own sites within the licensed area.

TRAI has recommended entry without a fee. But to keep away the non-serious player, the promise of the rolling out service will have to be backed by a bank guarantee of Rs 10 lakh for licences covering metros and Rs 5 lakh covering other areas.

The guarantees will be released on due fulfilment of the rollout obligations. In the event of failure, penalties extending up to Rs. 25,000 at a rate Rs. 1,000 per week and beyond that cancellation of the licence, have been recommended.

The licence fee may include a per handset yearly fee plus an amount by way of royalty for the spectrum used. Together, the two amounts will not to exceed 5 per cent of the total revenue from the service offered by PMRT operator.

TRAI has recommended that interconnectivity with PSTN may be permitted but limited to 15 per cent of the total airtime usage of the network in the previous month.

If the government accepts the suggestion, the recommendation�s are expected to enhance utility of the service.

NE circle bifurcated

Communications minister Ram Vilas Paswan today announced the bifurcation of the existing North Eastern Telecom Circles The new telecom circle, with its headquarter in Dimapur, will have jurisdiction over Nagaland, Manipur and Arunachal Pradesh while the existing telecom circle will cover the states of Meghalaya, Tripura and Mizoram.

The decision was taken after a team of MPs from the North East met Paswan today.


Calcutta, Dec. 18: 
The chairman of Mitsubishi Chemical Corporation (MCC) Akira Miura today met Bengal chief minister Buddhadeb Bhattacharjee and discussed expansion plans for its purified terephthalic acid (PTA) project at Haldia.

The Mitsubishi chief refused to offer comments on the outcome of the meeting, though Bhattacharjee described it as �fruitful�. Chief secretary Manish Gupta and the state commerce and industry minister Bansagopal Chowdhury were also present.

The chief minister said a clearer picture on Mitsubishi�s future investments will emerge after Miura comes back from Haldia on Tuesday.

The Mitsubishi chairman will visit the company�s PTA plant, where he will review the infrastructure facilities available in the port-town. The Japanese chemical major has written to the state several times in the past, asking for improvements in basic amenities.

According to sources, the last of the letters had reached the government a week back. �At today�s meeting, the chief secretary, who heads the task force on Haldia infrastructure, assured Miura that all matters related to infrastructure were being sorted. Roads, for instance, are being improved,� sources said.

Mitsubishi Chemicals, which has already acquired land in Haldia for its expansion project, had earlier applied to the West Bengal Directorate of Industries for permission to double the capacity of its existing Rs 1,600-crore PTA plant. The present capacity of the unit is 350,000 tonne per annum.

Sources say the company had filed its application to raise its capacity by December last year so that it could avail of the benefits of a state government-announced incentive scheme, which was withdrawn from January 1 this year.

However, Mitsubishi Chemicals says it will double its capacity only if it earns a profits in its first year of operations. Though its board cleared the proposal for further investments, it has not finalised the time when it will inject fresh funds.

Mitsubishi Chemicals holds 95 per cent in the PTA project while West Bengal Industrial Development Corporation (WBIDC) controls the balance. Work on the plant, which was built by Mitsubishi Heavy Industries, started in September 1997. The project started commercial production in March this year.

PTA is an intermediate used in the production of polyester staple fibres, filament yarns, bottle and industrial pet resins. The world consumption of PTA this year is estimated at more than 27 million tonnes; India accounts for 1.5 million tonnes.

South Asian Petrochemicals, the project promoted by C. K. Dhanuka of the Dhunseri group, will buy a sizeable chunk of the PTA produced by Mitsubishi�s plant at Haldia.


Mumbai, Dec 18: 
Creative Eye, an entertainment media outfit promoted by Dheeraj Kumar made its debut at the Bombay Stock exchange today.

The maiden scrip, thereafter, went on a rollercoaster ride touching an intra-day low of Rs 59 and a day�s high of Rs 67. The scrip finally closed the at Rs 64.90 with 3,034 trades registered for 5.94 lakh shares. Speculative interest was riding high at the counter.

The entertainment outfit has created a niche in mythologicals.

Meanwhile, the speculative frenzy at the other media counters had quietened down in the initia l hours.

However, by the close of trading hours most of media counters retraced their old levels.

Market has already discounted the news of Bharat Shah�s, a prominent film financier, alleged involvement with the underworld and its effect on the stock markets, especially on media stocks.


Calcutta, Dec 18: 
He�s promoted a project that is widely projected as the symbol of Bengal�s industrial renaissance. Now, as one of the state�s best-known figures to have struck a fortune abroad, he has a recipe for the economic emancipation of India: the government must only regulate, not run businesses, while the private sector can play the sheet-anchor role.

Selling a dream of economic liberation, the eponymous promoter of The Chatterjee Group said everybody in the country could earn enough to provide for a family if the steps he suggested are followed in their true spirit and character.

�To achieve a zero-poverty situation, India should grow at the rate of 10 per cent. That will be possible if the country builds its strengths, reduces real interest rates to 2 to 3 per cent and implements the second-generation reforms, which should include the way the government manages its finances,� he said.

Chatterjee, who is scheduled to meet Bengal chief minister Buddhadeb Bhattacharjee on Tuesday to discuss the future of Haldia Petrochemicals, made it clear that the government will have to restrict itself primarily to regulating and monitoring the economy, and leave the execution to the private sector.

�Facilitate stronger private-public collaboration, even in the social sectors. In commerce and industry, there is a growing awareness that the government must not execute things,� he added.

Chatterjee urged the government to hasten the tardy disinvestment process. The fact that the insurance and telecom regulatory authorities had been set up is evidence that a bureaucratic, risk-averse, hierarchical, slow and resource-starved government cannot execute things in a rapidly-changing world. He attributed the success of India�s agriculture to the fact the government was largely out of it.

We have to move to an open system and discard the �self-reliant� mindset. In a globalised world, we must compete and collaborate, take the best ideas wherever they may be, and implement them. Best ideas are not just those fashioned in the US. The Grameen Bank model of Bangladesh is being rapidly replicated in Latin America, even in parts of the US, but India and Bengal have been slow to adopt it,� he said.

The government, he said, had little resources to create and implement an effective monitoring system, quality control and assurance methods.

�We must put in place an effective regulatory system. Education is another area where India is lagging. The qualitative dimension of the education programme needs a massive overhaul. The education and training should be globally relevant,� Chatterjee adds.

To achieve these goals by 2047 � 100 years from the year India attained freedom � work must start now. Public opinion must, Chatterjee said, must be built otherwise political system and bureaucracy will stall it. The Private University Bill is in the drawing board during the last six years. It may be mentioned that Purnendu along with other Silicon Valley Indian entrepreneurs have decided to set up six Global Institute of Science and Technology.


Mumbai, Dec 18: 
The G P Goenka group company, NRC Ltd is learnt to be considering a restructuring process. The exercise will include the spinning off of the company�s nylon tyre cord division into a separate company.

Sources in the industry added that the company is also planning to spin off the caustic soda and allied chemical business into a separate company.

This exercise is expected to make NRC a focused rayon yarn manufacturing company.

However, NRC officials when contacted, denied any moves towards spinning off both these companies. �We are not considering such a move as of now��, an official told The Telegraph.

At present, NRC has three divisions � rayon, nylon tyre cord and chemicals. In the nylon segment, which is reported to be performing well, its capacity is over 8,000 tonnes and its capacity in rayon yarn is over 20,000 tonnes. NRC�s total capacity of rayon tyre cord is around 10,000 tonnes.

Of late, the company has been witnessing tough times due to a slowdown in the domestic economy that affected the off-take of rayon yarn, caustic soda and allied chemicals.

NRC also had to face the burden of rising imports and local competition, forcing it to keep prices of the end products in parity with the competitors.

In the last fiscal, NRC reported a turnover of Rs 329 crore on a net loss Rs 25.45 crore.



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