Tug of war over cut in urea subsidy
Campaign for MAT removal
Private holding in Air-India may rise above 40%
Bilt to recast board, seek US listing
Telco board clears rights issue
SBI dilemma over VRS age
VSNL to invest Rs 4,000 cr in expansion
Lower taxes on hardware sought
Foreign Exchange, Bullion, Stock Indices

New Delhi, Feb. 8: 
The budget may be three weeks away. But the first of the great battles over unpopular decisions has already begun.

Finance minister Yashwant Sinha wants to slash the ballooning urea subsidy bill by raising the urea price by about five per cent and slashing the money he pays out to fertiliser companies.

But the Akalis, who are allies of the ruling Bharatiya Janata Party are dead against the move. The Akali representative in the Cabinet, Sukhdev Singh Dhindsa who is the minster for chemicals and fertilisers, is adamant and refuses to see any logic in the move. Dhindsa has made it clear that Sinha will not have his way easily.

There had been attempts to explain to the Akalis that pruning urea subsidy was necessary as the government needed to save funds for Gujarat rehabilitation and for defence purposes. However, it cut little ice with the BJP ally.

Sinha is counting on the support of the Prime Minister�s office which has tacitly approved a policy of raising urea prices through another bout of partial decontrol while simultaneously reducing the subsidy paid out to fertiliser companies.

Besides the Akalis, the controversial decision is likely to be attacked by the opposition Congress party which has now become a great champion of the farmers. BJP�s two other taciturn allies�Trinamool and Chandrababu Naidu�s TDP�too can be counted upon to oppose it and call for a rollback as they had done last year.

Finance ministry officials say the government�s long-term goal is to gradually free urea from all price controls. Last year, the government had raised urea prices and reduced subsidy payouts to industry, amid a huge outcry from the Opposition.

Phosphatic and potassic fertiliser prices have already been decontrolled and with urea being gradually freed, the entire fertiliser industry will be left to market forces, say officials. That is of course if politicans let them.

Sinha�s decision has been prompted partly by the ballooning fertiliser subsidy which today stands at about Rs 12,650 crore and partly because the government wants to ready itself to meet WTO guidelines. India has promised to remove all quantitative restrictions on import of urea by March-end and consequently has to phase out price controls on this account. Finance and commerce secretaries have been asked to work out sufficiently high levels of tariff for imported urea to ensure that domestic companies do not get wiped out by low cost global fertiliser producers even as subsidies are cut.

The government has already announced that it wants all naphtha-based fertiliser plants to use liquefied natural gas (LNG) as raw material to reduce the cost of production. However, it has yet to be decided how LNG would be supplied to urea producers.

Plans to buy gas from Bangladesh and Iran and bringing them through pipelines have still remained pipedreams.


New Delhi, Feb. 8: 
The corporate sector has been agitating against the minimum alternate tax (MAT) ever since it was introduced. This year too, firms are lobbying for its abolition. Finance minister Sinha cannot oblige them for obvious reasons. However, he will modify it to remove the inequity in its application. The tax policy committee headed by Partho Shome has suggested ways to rework MAT, and there are indications are Sinha is going to act almost on the same lines.

The existing MAT is 7.5 per cent of the book profit, which means it is a flow item. The finance ministry�s assessment is that book profit is an unstable revenue base, amenable to manipulations. The present thinking is that the base for MAT should be a combination of stock and flow.

Official circles maintain that Sinha may reconstitute MAT as a tax equal to 0.75 per cent of adjusted net worth (same as capital employed under erstwhile section 80-J) plus 10 per cent of dividend distributed. Set off will be allowed against future tax liability as provided under section 115 J AA.

Domestic companies are being taxed at the rate of 38.5 per cent. It is likely that the finance minister will reduce it. The ideal rate is 30 per cent, which could be achieved only in a phased manner. To begin with, the finance minister may reduce the tax rate for domestic companies by 3 or 4 per cent.

Foreign companies pay tax at the rate of 48 per cent. If the finance minister is keen to attract more foreign direct investment, he should reduce the rate significantly and bring it on par with that of domestic companies. He is also under pressure to ensure that the corporate income tax rate is on par with top personal income tax rate of 34.5 per cent.

The ministry is also considering a proposal to abolish the dividend distribution tax. The demand has not come from the corporate sector alone. Tax experts including the official committee headed by Partho Shome has recommended it. The justification for abolition is that the scheme is biased against smaller investors. There is not tax credit to foreign investors in their home country. It is difficult to predict that the finance minister will accept this recommendation. After all, he introduced it only in the last budget.

The finance minister is swamped with demands from the industry, which always had a power lobby. Sinha himself realises that some of the demands are quite sensible. But he cannot forgo so much revenue so suddenly. Sinha will be hailed by the industry if he at least reduces the tax rates for the corporate sector and apply the revised rate uniformly for the domestic and foreign companies.


Mumbai, Feb. 8: 
Private partners may be able to push their stake in Air-India (A-I) above the 40 per cent threshold under �trigger clauses� in the draft shareholder�s agreement that allows strategic partners to fund expansions in return for fresh equity shares.

The government will, however, be in a position to retain control through a �golden share� with veto rights despite a lower stake. �If the fund infusion by private investors is not matched by the government, private investors will see their equity stake increasing over time,� sources familiar with the developments said.

According to an ambitious business plan submitted along with the draft shareholders� agreement to prospective bidders, the airline envisages doubling its fleet by 10 years to 46-50 aircraft. The government will divest a 40 per cent stake, of which 26 per cent can be held by a strategic foreign partner and 14 per cent by a Indian company.

�When the government has taken a decision to divest A-I�s equity, it is logical to believe that it may not be keen to invest in the airline�s future expansion plans,� the source said.

Further, with debt-equity ratio of the airline�s being heavily leveraged towards debt, any future funding can only be through the equity route, say industry circles. �Air-India�s debt-equity ratio of 8:1 is heavily skewed in favour of debt.�

However, the draft shareholder�s agreement protects the government in certain ways. �The government, for instance, has the right to veto any decision which is seemingly against the nation�s interest,� the source said.

The clause is similar to the shareholder agreement finalised by British Airways, during its privatisation process. The UK government, even though it has a minority stake, can exercise veto rights over the majority shareholders through the �golden share. �The veto is exercised with discretion during national emergencies such as wars,� he said.

Even if the government holds less than 10 per cent, it can still exercise the powers it wielded when it held a majority stake in the airline.

The bidders were given a copy of the draft shareholders� agreement along with a strategic business plan drafted by the airline.

They are also welcome to submit their own plans. However, according to the vision plan submitted by Air-India, the partner should at least double the fleet and thus increase the number of flights to Europe and America.

The government has given more time till February 23 for consortia to finalise their partners.

The bidders were earlier asked to submit their technical bids and details of the final composition of their consortium by February 9.

Apart from Tata-SIA combine, other combines in the fray are the UK-based business baron L N Mittal, the billionaire Hinduja Brothers and Dubai�s Emirates Airline.


New Delhi, Feb 8: 
Paper major Ballarpur Industries Limited (BILT) plans to restructure its board of directors once the four-way Thapar family settlement is finalised.

A company spokesperson said the number of family members on the board could be reduced when the board is restructured.

�The re-organisation is aimed at making the group more professional,� he added.

The company is also weighing the possibility of listing on one of the stock exchanges in the US.

At present, the board has four family members. Three executive directors represent the financial institutions and there are five positions on the board for independent members. Two of the independent members have retired and these vacancies could be filled before the board is overhauled.

Before it seeks listing on a US stock exchanges, the company will adopt GAAP (generally accepted accounting practices) standards from the year 2001-2 fiscal which begins in July.

The company aims to double its profit after tax this year from Rs 62 crore earlier.

BILT has also claimed that city-based jute baron Arun Bajoria held a mere 1.2-1.4 per cent equity in the company against 32 per cent held by the Thapar family directly. The group was never under threat of a hostile takeover bid .

The group�s Saudi business associates � the Al-Mujra group � holds 14 per cent and the financial institutions hold another 32 per cent.


Mumbai, Feb. 8: 
Tata Engineering and Locomotive Company (Telco) today decided to raise between Rs 1,228 crore and Rs 1,382 crore through a rights issue of debentures.

The issue, which has to secure regulatory approvals, is slated to open in the first quarter of the new financial year (2001-02).�Convertible debentures (CD) and non-convertible debentures (NCD) with detachable warrants will be issued on a rights basis in the ratio of one CD and one NCD for every five shares,� the company said in a statement after its board of directors approved the move.

Money raised from the rights issue will finance capital expenditure, programmes to develop new products and help repay or prepay expensive borrowings. �The infusion of long-term funds through the rights issue will improve the cash flow and raise the debt-equity ratio,� the company said.

The convertible debenture will have a face-value between Rs 80 and Rs 100 each. The precise figure will be determined at the time of the issue. The CD will have to be swapped for an ordinary share of Rs 10 each on March 31, 2002 at a premium which could be in the range of Rs 70-90. It would carry a coupon (interest) of 7.5 per cent per annum on the face value.

The non-convertible debentures will have a face value of Rs 100 and will carry a annual coupon of 11 per cent. They will be redeemed in three installments of Rs 30, Rs 35 and Rs 35 each at the end of fourth, fifth and sixth years from the date of allotment.

Every batch of two NCDs will have a detachable and tradeable equity warrant which can be converted into one ordinary share of Rs 10 each at a price of Rs 120-Rs 140. This can be done after 18 months of the date of allotment, till March 31, 2004.

Plans to go ahead with a rights issue come at a time when the firm�s third-quarter losses doubled at Rs 121.44 crore compared with Rs 60.36 crore in the same period last year.

The company recently announced that R Gopalakrishnan, Tata group executive director and Telco director, will oversee daily operations. He will report directly to the chairman and the board till the time a managing director is appointed.

Telco Automation

Telco Automation, formed as a subsidiary, in March last year, has taken over the operations of the machine tools and growth divisions of Telco�s Pune unit as a going concern.

Telco Automation, a manufacturing solutions company, is developing its business as a major supplier of machine tools and equipment, besides automation solutions and systems.


Calcutta, Feb. 8: 
State Bank of India (SBI), the largest bank in the country, is in a dilemma over fixing the cut-off age at 55 years for officers who have sought voluntary retirement.

The bank said on February 2 that applications of all eligible officers � those who have completed 55 years of age on or before December 31, 2000 � may be accepted. However, a subsequent circular issued by Y. Radhakrishnan, deputy managing director, to all chief general managers says requests received from officers other than those who are below the prescribed age will be reviewed.

�Though the cut-off age for the VRS has been set at 55 years, a view will be taken on the requests of the remaining applicants and the decision announced by February 20, after taking into account withdrawals and the bank�s financial position,� he said.

�Therefore, the rejection advice for these officers should be sent only after the review is completed,� he added.

The decision will be taken on the basis of the financial position in terms of payment of ex-gratia, leave encashment and gratuity. The bank is yet to decide whether it will charge the expenditure on VRS in this year�s accounts.

The deputy managing director has asked chief general managers to monitor the withdrawal of VRS applications, which is believed to be the highest in the Bengal Circle where 2,100 employees have pulled out. �In all, 100 VRS seekers have withdrawn applications. By February 15, we expect a large number of people to withdraw their applications,� said Ashok Datta, general secretary of SBI Staff Association.

Insurance licence

State Bank of India (SBI) has applied to the Insurance Regulatory and Development Authority (IRDA) for a life insurance licence along with BNP Paribas, subsidiary Cardif SA of France.

The country�s largest PSU bank would hold a 74 per cent stake while the foreign player has been offered the maximum stipulated 26 per cent in SBI Life Insurance Company.

IRDA sources in New Delhi confirmed the development, but refused to divulge details.

SBI and Cardif would start with an initial capital of Rs 250 crore in their venture as against the minimum IRDA stipulated Rs 100 crore, sources said.


Mumbai, Feb. 8: 
Videsh Sanchar Nigam Ltd, the overseas telephony and ISP behemoth, will invest over Rs 4,000 crore in the next couple of years in its expansion plans.

These include plans to offer limited mobility by bidding for basic telecom licences, cellular telephony, direct-to-home services (DTH) and domestic long-distance telephony.

VSNL, whose monopoly in international telephony is set to end in 2004, has received the government�s nod for entering the domestic long-distance communications arena.

Speaking to The Telegraph, Amitabh Kumar, director, operations, VSNL, said in limited mobility, the company was planning to bid for two-three circles, hinting that one such circle could be Delhi.

Following the clearance given to limited mobility, the Centre has been besieged by applications from around 13 companies for 103 licences.

Industry analysts say as competition hots up in the cellular industry and with the Centre permitting entry of a fourth operator, it would make more sense to bid for basic telecom licences and offer limited mobility. In fact, most of the applications for basic services come from cellular companies.

Though VSNL had also proposed a cellular foray earlier, Kumar added it is yet to take a decision on this front. Here, he clarified while VSNL is �evaluating the benefits� of entering the cellular business, the company is unlikely to go in for a tieup in this area and it is most likely to enter as a fourth operator.

Earlier VSNL was rumoured to be planning to bid for around 6 cellular circles where it has a presence with its ISP operations.

As regards the company�s DTH plans, Kumar said VSNL will create a platform where it would invite participation from various channels, including free-to-air ones.

Officials added the company will provide ground facilities and install earth stations to meet requirements of uplinking TV programmes from India for satellite broadcasting.


Mumbai, Feb. 8: 
The ministry of information technology is knocking on the doors of the finance ministry, seeking a rationalisation of the tax structure for the domestic hardware sector.

Delivering the keynote address on government policies at a seminar organised by Nasscom here today, Vinay Kohli, secretary, ministry of information technology, said while the local software industry was making rapid strides, the same could not be said of the hardware industry. While Kohli did not specify the rationalisation being sought by the ministry, he emphasised that the hardware sector needed more investments.

Kohli also said the Centre�s plan to take IT to the masses in the north-eastern states has so far been successful and other states have also sought similar structures. The second phase will cover Jammu & Kashmir and internet-enabled information centres will be set up in within the state.

Later, speaking on the future of the Indian software industry, Jason Pontin, editor, Red Herring, who was among the few to predict the dotcom bust earlier, had a grave prophecy to make for the domestic software services sector. He said in the short run, the growth rates achieved by companies in the field will drop down to 40 per cent from the existing 50 per cent.

This, he said, was due to the decline in capital spending by US companies.



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