VAT could blow a hole in car makers� tax shields
Liquor cos to wait and watch
Sensex hits 3-month high on tech rally
IOC rethink on tie-up with Reliance Petro
Changes in buyback rules draw MPs� flak
Power-packed plan to revamp T&D system
World Bank loan for PowerGrid
Stiff entry norms for FDI in housing
Manu daughters to uncork Chhabria charm
Foreign Exchange, Bullion, Stock Indices

New Delhi, Nov. 26: 
Car makers like Ford Motor India and Honda Siel Cars India Ltd are worried that the proposed value-added tax (VAT) regime that is due to be introduced next April could blow apart the elaborate tax shields that the state governments had granted them in their eagerness to attract large investments into their states several years ago.

Take the case of Ford India which succumbed to the blandishment of a 14-year tax holiday from Tamil Nadu; this proved to be the clincher in deciding where Ford India would locate its plant after Tamil Nadu and Maharashtra were locked in a bruising battle of tax sops to lure the large automaker in the early �90s.

�We are getting an incentive from the Tamil Nadu government in the form of a 14-year sales tax deferral. That means any component we buy from within the state is available at zero duty. We will now insist that the state lives up to the promise it made in the memorandum of understanding (MoU) with the company � but how that will be done isn�t clear yet,� said Saranian, manager (commercial taxation), at Ford India.

As of now, 12 states have unanimously agreed to introduce value-added tax (VAT) with two basic rates of 4 and 12 per cent from April 1, 2002.

The existing sales tax structure unduly increases the tax burden of a commodity by taxing both inputs and output, thereby creating a cascading burden of taxation which creates distortions in the economy. VAT eliminates the tax burden by setting off the tax paid on inputs and supplies.

Saranian said: �The Tamil Nadu government will have to refund everything that they take under the proposed VAT rate. Over an above this, the �set-off system� under VAT regime should be at the same rate at which we are taxed for bringing the components.�

At present, the system provides for only a partial set-off. The amount of component taxation is deducted from the sales tax at a lower level than that at which they are paid.

K.L. Gupta, manager (taxation) at Honda Siel Cars India Ltd said: �The Uttar Pradesh has granted us a 15-year sales tax exemption. The UP government signed the MoU because we were prepared to invest Rs 1,000 crore in the state. If they do not honour their promise in the MoU because of the introduction of VAT, we can even take them to court. We have already submitted requests on these issues to the central revenue authorities and the state government and are waiting for their replies.�

Sources in the Society of Indian Automobile Association (Siam) said, �We are working on these issues which have to be cleared before the VAT regime is introduced next April. No details have yet been addressed by the finance minister. We will soon make presentation on these in front of the revenue department and Asim Dasgupta (who heads an empowered committee of state finance ministers on VAT) to obtain clear guidelines.� The automobile industry wants a flat rate of taxation on all inter-state trade required for manufacturing a vehicle -- be it finished products or components procured from other states.

At present, there is a Cenvat of 32 per cent on passenger cars and 16 per cent on the commercial vehicles and two-wheelers. Sales tax is also levied at a flat rate of 12 per cent by the states. But the problem of cascading taxation arises because of components that are taxed at a variable rate between 4 to 8 four by states.

Siam proposes that the problem of sops given by the states can be overcome if there is only a book-entry account � that is, the states levy the taxes and then again pay back the amount to the manufacturer.

Some auto makers are not too worried about VAT. Premnath, financial head of Hindustan Motors� Lancer manufacturing plant in Tamil Nadu, is pleased that they won�t have to face the piquant situation that Ford India is facing.

�We had a five-year tax waiver scheme. The eligibility is over -- otherwise getting a tax refund from the state government would have involved a very complex process. At present, we enjoy a 3 per cent tax on components produced within the state, which is 1 per cent lower than the normal rate. The concessional rate will go once the VAT regime kicks in,� Premnath said.

He continued, �We are going in for a revenue neutral rate. So, whatever the rate, the revenues of the states will remain at the previous level. Although there will be no fall in car prices, we might get some relief in the form of a flat rate on component imports.�

The CII has also voiced these fears. In a paper on the subject, it said: �With the introduction of VAT from April 2002, the incentives committed to industry by the states need to be modified suitably in the new regime so that the companies who have invested in the states based on the promises made are not at a disadvantage.�

In the case of exempt units, it recommended the remission model of West Bengal or deemed credit model.

Mandatory conversion to deferment would seriously affect industry viability and an image of the states as an investment destination. In many cases, there would be no alternative but to claim refund from the state governments in case of excess credits under VAT. Therefore, there should be some alternative to refunds, it said.


New Delhi, Nov. 26: 
Liquor makers are befuddled � and it�s all to do with Vat 20.

When the empowered committee of state finance ministers headed by Asim Dasgupta clinched an agreement on the value-added tax last week, it set a flat 20 per cent value added tax on liquor.

That was cause for cheer in the liquor industry which is subjected to high sales tax in most states � with some like Andhra and Kerala pegging it at as high as 70 and 90 per cent respectively.

VAT will replace the entire slew of sales taxes freeing industry from the ordeal of paying a sort of double tax on inputs and output.

But a sobering thought has arisen the morning after: liquor makers reckon that the states that levied high sales tax on liquor and stand to lose revenue because of a moderate 20 per cent VAT will now resort to some ingenious methods of taxation to ensure their treasuries don�t dry up.

Significantly, states like Andhra Pradesh and Kerala will not be joining the 12 others who have decided to introduce VAT from next April. They will do so along with the others in 2003.

According to Shekhar Rammurthy, vice president, sales and marketing in United Breweries, �Right now, we have to just wait and watch.�

He said that since alcoholic beverages are a state subject companies will have to wait for the respective taxation policies of the states before they can assess the impact of VAT.


Mumbai, Nov. 26: 
New economy stocks today fuelled a healthy rally on the bourses that enabled the 30-share Bombay Stock Exchange sensitive index to close at a three-month high of 3322.77. The charge by the new economy brigade was led by index heavyweight Infosys Technologies.

Infosys spurted in line with last Friday�s rise of $ 3.16 in the company�s ADRs on the Nasdaq which aided the sensex rise.

Additional support to the sensex came from a sharp upswing in old economy counters like Reliance, State Bank of India, Tisco, Grasim, GACL and RPL that helped the key sensitive index clear the crucial 3300-level.

Medium and small cap new economy shares continued their northward journey following good enquiries from speculators, as well as, retail investors.

Mirroring the trend, the sensex opened firm at 3262.93, which was also the day�s low, and moved up further to a high of 3335.95 before concluding at 3322.77 as against last Friday�s close of 3252.20, a steep gain of 2.17 per cent.

The broad-based BSE-100 index also flared up by 40.06 points to 1577.73 from 1537.67 previously.

A sharp rally in new economy shares could be gauged by a strong improvement in sectorial index, the BSE-IT, which shot up by 120.34 points or 8.69 per cent to 1505.71. Foreign institutional investors reportedly picked up shares of Infosys Tech, Satyam Computer, Wipro, Digital Global and few second-line IT stocks. United Breweries, Hinduja TMT and Nocil hit the 20 per cent upper price band at close, while Zee Tele hit the 10 per cent upper circuit filter.

In the specified group, 136, including 20 index-based scrips, registered gains while 37 others closed with losses. The BSE-200 index and the dollex-200 were quoted substantial up at 346.83 and 120.25 from last Friday�s close of 338.61 and 117.35 respectively. The BSE-500 index rose by 24.99 points to 1025.68 from 1000.69 previously. The dollex-30 also moved up to 568.10 from 555.80.

The volume was up at Rs 1,514.67 crore from Rs 1,400.69 last Friday. Infosys Tech was the most active share with a turnover of Rs 201.81 crore followed by Wipro at Rs 169.21 crore Satyam Computer (Rs 133.95 crore), Digital Global (Rs 91.93 crore) and Global Tele (Rs 85.61 crore). Infosys soared by Rs 352.85 to Rs 3,910.15 while Wipro was up Rs 129.40 to Rs 1,462.


Calcutta, Nov. 26: 
The Indian Oil Corporation (IOC) may snap marketing ties with Reliance Petroleum after the oil sector is deregulated in April next year even though the Ambani-owned company has offered its entire petroleum products to the public sector oil major for marketing.

The Indian Oil board will meet on November 30 to take a final decision on the offer made by Reliance Petro.

According to IOC sources, if the present arrangement is allowed to continue it will have an adverse impact on the oil major�s production capacity at its refineries.

�The contract was signed for controlled products since the oil sector was under administered price mechanism. But now, with the APM about to be abolished, the contract has to be reviewed,� they said.

IOC has already obtained legal opinion on this matter and the board will examine the pros and cons of the existing contract.

The IOC spokesman, while confirming that �some proposals� have come from Reliance, refused to divulge any detail.

�The matter is highly confidential and we can speak about it only after the board takes a final view on it,� he said.

The contract between IOC and Reliance also included plans for setting up a marketing joint venture after the oil sector deregulation.

�But there is hardly any development on that front as the government is sitting on the proposal for a long time. This is the reason why IOC is now very keen to terminate the contract to pave the way for new arrangements which will be beneficial for both the companies,� sources said.

According to the contract, IOC is currently lifting about 50 per cent of Reliance Petro�s 16 million tonnes of controlled products while the two other public sector units�Hindustan Petroleum Corporation (HPCL) and Bharat Petroleum Corporation (BPCL)�pick up 25 per cent each for marketing.

Both BPCL and HPCL also want new contracts based on competitive price movement keeping in mind the free market scenario.

A senior BPCL official confirmed that the company is keen on signing a new contract as the existing contract �has lost its relevance now�.

�We are waiting for the IOC to take a decision on the matter before we spell out our views,� he said.

Reliance, however, seems to be unfazed by the development. Company sources said it has drawn up a three-pronged strategy to see through the free market economy in the oil sector.

�Although our priority is to strengthen our marketing ties with IOC, we are also open to marketing our products directly through outlets, especially in the highways, and also forming joint ventures with potential players, who have strong marketing networks,� they said.

The richest private sector group is also among one of the frontliners in the run for public sector oil marketing company�IBP Ltd, in which the government will be divesting its majority stake.


New Delhi, Nov. 26: 
Parliamentarians today attacked the Companies (third amendment) Bill, 2001, which seeks to relax share buyback rules, on the ground that it would encourage multinationals to take over their Indian subsidiaries.

During a debate on the Bill, opposition members said the move would make the acquisition of these companies cheaper and enable the MNCs to take away Indian capital as well. Tabling the statutory resolution opposing the Bill, CPI member Ajoy Charaborty said the proposed amendment would be detrimental to the interest of small investors and trammel their democratic rights. There was no urgency to bring in such a legislation, he added.

Congress member EMS Natchiappan termed the Bill as the �last nail in the coffin� of small investors and said it had nothing to do with the terror strikes in the US and its impact on the stock market. The objectives to the Bill state that the legislation is designed to revive weak market sentiments especially in the wake of the terror strikes in the US.

On his part, Jaitley said the proposed amendment would only make the buyback process simpler.


Calcutta, Nov. 26: 
States may get a whopping Rs 25,000-crore central financial assistance to rejuvenate their power sectors if a proposal, drafted by the Union power ministry, is cleared by the Cabinet at its meeting later this week. The financial aid, according to the power ministry proposal, will be provided as advance central plan assistance and will be used to improve the sub-transmission and distribution systems.

The power ministry had approached ICICI Ltd to check out the financial viability of the proposal. The financial institution, which had already submitted an interim report, is likely to forward its final recommendation any day now.

The proposal has, however, one catch�funds will be made available to only those states that agree to restructure their distribution circles. �Those states which agree to restructure distribution circles with a view to operating it as profit centres will get the assistance,� sources in the power ministry said.

The power ministry proposal also includes setting up of a special purpose vehicle (SPV) to provide a single window for project approval and funding. It will also raise resources from multilateral lending bodies at low cost to meet 50 per cent of the project cost.

According to a note prepared by power ministry, �An investment of Rs 100-150 crore per circle will be required for upgrading the sub-transmission and distribution network. To cover all the circles in the country an outlay of Rs 50,000 crore will be required, out of which the Accelerated Power Development Programme (APDP) will provide Rs 25,000 crore, which is 50 per cent of the project cost. The balance 50 per cent will be raised from financial institutions.�

The note further states, �It is proposed to approach multinational agencies like World Bank, Asian Development Bank, Japanese Bank for International Co-operation to obtain a line of low-cost credit maturing over a long period. This will help in the availability of funds to state electricity boards and state utilities at a reasonable low rate.�

The states will be required to operate distribution circles as independent profit centres and independent administrative units with adequate delegation of technical financial and administrative power.

They will also have to decentralise meter-reading, bill collections which, to a major extent, should be undertaken by private entities.

State governments would also have to ensure that SEBs make energy audit mandatory and commercial accounting for each 11 kilovolt feeder. They will also have to agree to the opening of escrow account to ensure repayment security.

A pilot project is already under implementation to reduce transmission and distribution losses through investments in the upgradation of sub-transmission and distribution network.

The power ministry, in consultation with state governments, has picked up 60 circles in different states in the first phase to be developed into centres of excellence.

Sources said, �The first phase of the pilot project would be completed by the end of the month and based on the report it would be implemented in other states.�


Calcutta, Nov. 26: 
The World Bank today granted $ 450 million to Powergrid Corporation of India Ltd. This is the second tranche of World Bank loan received by the state-owned power transmission company.

A PGCIL spokesperson said, �The necessary formalities were recently completed by us. This loan will enable the company to move a step closure towards the establishment of a national grid in the country.�

The projects to be implemented with the help of this loan include East-North Inter-Connector-I (Sasaram HVDC), East-South inter-connector-II (Talcher-II Transmission system). It would also help PGCIL to diversify into telecom business.

The commitment of the World Bank has also removed uncertainties on fund mobilisation for such ventures.


New Delhi, Nov. 26: 
Foreign investors will have to stump up at least $ 10 million if they want to set up fully-owned township ventures in the country. The draft guidelines for 100 per cent foreign direct investment in townships also state that investors will not be able to use the automatic approval route. All proposals will have to be approved by the Foreign Investment Promotion Board (FIPB).

The ministry of urban development and housing, which had earlier announced its intention of allowing 100 per cent FDI in townships and was preparing the detailed guidelines on the entry of FDI in the real estate sector, is believed to have decided on allowing foreign investors subject to a minimum lock-in period of three to five years.

The minimum capitalisation of the company at $ 10 million, which translates into an investment of Rs 48 crore (at current exchange rates), and a lock-in period of three to five years have been kept in order to prevent the entry of non-serious players into this segment.

The foreign investors will also have to develop a minimum area of 100 acres which can be increased with subsequent approvals to be given depending upon case to case. Under the existing guidelines, 100 per cent FDI in project-related construction and advisory services is already allowed. In fact, allowing FDI in the housing sector has been greeted by the industry. Many of them feel that the entry of foreign investors will create value in the industry as latest technical knowhow will flow in.

They also feel that the entry of foreign investors cannot be harmful for the industry as real estate or property is one thing that cannot be taken away physically. In fact, the Federation of Indian Chamber of Commerce and Industry has already pushed for the permission of 100 per cent FDI in housing through the automatic approval route. However, a recent survey of foreign investors interested in housing sector, done by Chesterton Meghraj Property Consultants, showed that contrary to the belief investors are interested in residential housing sector rather than retail or townships.


Mumbai, Nov. 26: 
He returned to his homeland after five years. So naturally his employees were on high alert. But the second home-coming of Manohar Rajaram Chhabria was quite low profile and understated.

The normally acerbic Chhabria, who was here to sign a landmark tie-up that put his mega brands�Royal Challenge, Director�s Special�on shelves abroad, seems to have mellowed down quite a lot.

While he spoke with a drawl his face did not betray any emotion when uncomfortable questions were thrown at him.

It is reported that Manu has buried the hatchet with his younger brother Kishore, but the Dubai-based business baron did not seem to be over-enthusiastic about the matter.

On the other hand, he provided a vital piece of information that steadily his three daughters are being inducted into the business.

Komal Wazir, the face of the Chhabrias, may eventually go to Dubai, the headquarters of the Jumbo group, sources said. His eldest daughter, a housewife now, may be given responsibilities in the group and so also his youngest one.

Chhabria, however, denies any succession motive behind these inductions. �They are professionally qualified and they have done their bachelor�s degree in Houston,� he said.

While a lot has been written on the prospective reunion of the two brothers, Manu does not seem to be in any hurry. His condition for rapprochement is simple��First, Kishore has to return the brands.�

The brands under question include Officer�s Choice that Kishore �hijacked� along with BDA Distilleries, the maker of the brand, when he sided with UB Group supremo Vijay Mallya, the arch rival of Manu.

On the much-talked-about move to relocate his offices to Mumbai from Calcutta, Chhabria said that to achieve global ambitions a business needs �proper manpower, telecom infrastructure and very good port facilities.� He is looking for setting up another Shaw Wallace House in Mumbai.

Asked about the strife-torn Dunlop India, he said the problem is simple: �the high cost of production�. Everything else had been sorted out. �Manpower needs to be reduced. We may have to go for a VRS and then the company will turn into a goldmine,� he declared.

Hindustan Dorr Oliver and Mather & Platt, he says, have received a big boost recently. �They (the two companies), have secured huge orders from Iraq (amounting to Rs 250 crore) which will keep the orderbooks full for two years.�

Asked about his standoff with Mallya and the money owed to him, Chabbria pooh-poohed it by saying that he has to go to the courts to get it. �He (Mallya) has taken the assignment. Let him go to the court and take it.�

The liquor baron with interests in tyres, engineering and electronics today signed a memorandum of understanding on behalf of Shaw Wallace for a global tieup with Kyndal, one of the world�s largest producers of Scotch whisky. The tie-up will lead to the launch of major liquor brands in India.

This was announced at a press conference today, attended by Chhabria himself and Brian Megson, chairman and chief executive of Kyndal.

The coming together of two major players in the liquor industry, will see Kyndal�s impressive portfolio of brands like Whyte and Mackay Scotch, Dalmore Single Malt, Vladivar Vodka and Glavya liqueurs in the Indian market, helped by the distribution set-up of Shaw Wallace.



Foreign Exchange

US $1	Rs. 47.99	HK $1	Rs.  6.10*
UK �1	Rs. 68.06	SW Fr 1	Rs. 28.50*
Euro	.Rs. 42.33	Sing $1	Rs. 25.85*
Yen 100	Rs. 38.70	Aus $1	Rs. 24.50*
*SBI TC buying rates; others are forex market closing rates


Calcutta			Bombay

Gold Std (10gm)	Rs. 4605	Gold Std (10 gm)Rs. 4550
Gold 22 carat	Rs. 4350	Gold 22 carat	NA
Silver bar (Kg)	Rs. 7000	Silver (Kg)	Rs. 7090
Silver portion	Rs. 7100	Silver portion	NA

Stock Indices

Sensex		3322.77		+70.57
BSE-100		1577.73		+40.06
S&P CNX Nifty	1080.60		+21.60
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