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Thursday,
February 28, 2002, Chandigarh, India  
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BUDGET — HOPES &
EXPECTATIONS-V Budget
loses secrecy, more predictable now Govt to
appoint adviser for BPCL, HPCL Canada
relaxes immigration rules |
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HDFC
Bank to monitor customer behaviour Electrolux
aims at 12 pc growth
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BUDGET — HOPES
& EXPECTATIONS-V The budget presentation today does not have the excitement of the early 90s when major policy shift was happening. The direction today is very clear. What we need today is rationalisation of laws and their implementation. The government would have to walk the talk — the policies are already in place. Also, with the global and Indian economy reeling under recession, the Budget will also include a series of measures to get over the hump and kickstart the recession-hit economy. The war perception and war threat will also be kept in mind while preparing the Budget. Although we believe that several forward-looking measures will be announced, we doubt the government’s ability to implement serious reforms. In our Budget countdown series, we have presented sector specific demands & expected measures that may be announced in the Budget. In this story, we will cover other measures that may be announced in the budget: * Oil and gas sector: We expect the government to adhere to its April, 2002, deadline for the marketing deregulation of the oil and gas sector. This will pave the way for the entry of private players in the distribution of petroleum products like high speed diesel and motor spirit. * Agricultural reforms: Freeing up inter-state movement of foodgrains, removing restrictions on external trade and improving the quality of rural infrastructure like roads will help farmers to sell their produce at the best prices in the market. However government concentration has been more on the policy of procuring foodgrains at increasing minimum support prices on rice and wheat. This encourages the production of these foodgrains, whereas their share in consumption is actually declining, thereby promoting large and unnecessary foodgrain surpluses. Discontinuing/amending the lop-sided scheme will encourage production of other value-added crops and positively impact farm incomes. The government is expected to give tax sops to companies involved in the production and marketing of cereals and other food items for getting in private investment in the agricultural sector. Not only multinationals such as Nestle, Hindustan Lever and Kellogg’s will gain but also more private participation in the sector will be encouraged. It is also likely that Finance Minister Yashwant Sinha may ask states to do away with taxes on production and marketing of cereals. The Finance Ministry is of the opinion that private participation on a large scale is only possible when the role of the Food Corporation of India (FCI) is restricted to maintaining buffer stocks. The Planning Commission has emphasised that the government should strictly follow the minimum support price set by the commission for agricultural costs and prices. The procurement prices should not exceed the costs of production in a big way. * Power and urban infrastructure: India’s budget 2002/03 is expected to focus on power and urban infrastructure reforms. Since most of these subjects fall under the state’s domain, the government is likely to offer incentives to states which undertake the reforms. India’s beleaguered power sector may be allowed to raise funds through infrastructure bonds at par with domestic financial institutions in the upcoming budget. Individuals subscribing to the bonds will be able to enjoy a tax rebate as in the case of infrastructure bonds. Equal emphasis should be given on changing the policy framework and increasing allocation by the government on power projects. More money to be spent on infrastructure development. Also, structural reforms should continue in the electricity sector so that state bodies become financially viable and pressed for greater focus on the distribution side. * Entertainment industry: The entertainment industry is seeking the same status as enjoyed by the infotech and communication sectors and wants exemption from service taxes, reduction in customs duty for equipment, defined norms for advance tax and setting up of a special anti-piracy fund. * FMCG: The fast moving consumer goods, FMCG, sector has been badly hit by the ongoing economic slowdown. In the coming Budget, the FMCG industry wants revision of the duties levied on most products and raw materials. They also want the government to move towards a single tax regime. Excise duties above 16per cent should be brought down to 16 per cent. Also, the intermediate raw material rates should be kept lower than finished product rates. * Steel Industry: Excise duty on steel used for construction is likely to be brought down to 8 per cent in the forthcoming Budget in a bid to boost housing and infrastructure activity to pump-prime the economy, now witnessing a slowdown. The reduction is expected following a strong case made out by the industry to reduce excise duty on items such as rods, bars and GI sheets, which are extensively used in construction. The steel ministry is reportedly also pressing for retention of import duties on steel at the present level in the Budget and has made out a case for removal of abnormality in the present duty structure. * Consumer durables industry: The consumer durables industry wants a revision of the existing rates of excise and customs duty. *
Textile industry seeks changes in tax structure: * Tourism sector demands 5-point strategy: In its wish list to the Finance Minister, the tourism sector demands a 5-point strategy from the forthcoming budget – rationalisation of tax structure, visa on arrival, infrastructure status, branding and positioning of the sector and creation of new circuits. It also demands abolition of hotel expenditure tax of 10 per cent, service tax of 3 per cent, luxury tax of 12.5 per cent and liquor tax of 33 per cent. The tourism industry faces losses of Rs 6,000 crore post-September 11. It also wants to promote new circuits of Kerala, Karnataka, Shillong, Leh and Ladakh, Bodh Gaya and Ajanta and Ellora caves. * Tonnage-tax for shippers: The expert committee on shipping, headed by economic adviser Rakesh Mohan, recommends that ship-owners either opt for a tonnage-tax based regime or the normal corporate tax. Other recommendations include a graduated tax system by which a company’s tax liability will depend on the tonnage of its fleet, exemption from income tax for Indians serving on domestic-flag vessels, taking them on par with those working on foreign-flag ships. The shipping industry also demands upward revision in rate of depreciation for ships from 25 per cent to 40 per cent, 10-year tax holiday for coastal shipping, zero customs duty on ship repair equipment and spares for coastal ships and restoration of exemption from withholding tax on external commercial borrowings. * Further decontrol of sugar likely: The government is expected to move further towards total decontrol of sugar in the forthcoming Budget by allowing mills to sell 90 per cent of their production in the open market. Consequently, mills will have to give only 10 per cent of their output to the Centre for PDS. * Budget could make imported liquor cheaper: The forthcoming Budget for 2002-03 is slated to make imported liquor cheaper by bringing down the basic duty on imported hard liquor from 210 per cent and rationalising the additional duty. The basic customs duty on hard liquor is expected to come down to 185 per cent this budget, sticking to the government’s commitment to reduce it to 150 per cent by 2004. * ISPs demand service tax exemption: Internet Service Providers demand a three-year tax exemption from the 5per cent service tax imposed in budget 2001. Other demands include rationalisation of customs duty which ranges between 5-35 per cent for hardware imports. Additionally, ISPs demand on-par treatment with basic and cellular telecom service operators by being treated as infrastructure sector and being charged a lower customs duty of 5per cent. * Divestment: Some possible measures to expedite public sector divestment can be expected. * Excise & Custom rates: Excise and customs rates have been already rationalised to a great extent one can expect only minor tinkering by the Finance Minister on that front. * De-reservation of SSI sector: India’s competitive advantage in exports is getting hampered because most of its export goods are reserved for the small-scale industry (SSI) sector, which cannot invest in technology to enhance competitive advantage. The anomaly is that imports of these goods are allowed but larger domestic companies are discriminated against. As a result, export competitiveness in sectors like readymade garments and leather products is getting impeded. * Labour and bankruptcy laws: Weak bankruptcy laws encourage willful defaults by the corporate sector. Current labour laws inhibit the ability of the corporates to restructure costs in times of downturn and impact their long-term prospects. Formulation of a meaningful exit policy and amending the Contract Labour Act would help industrial units to cut labour costs and manage their bottom lines better in times of a downturn. * Minimum alternate tax: There are indications that the finance minister may do away with the minimum alternate tax (MAT) in the forthcoming budget. This would be possible if he is able to reduce tax concessions that will compensate for the MAT. * Service tax: The government is likely to announce a roadmap in the Budget to bring all services under the tax net overtime and also define an exemption limit based on the turnover of firm. At present all companies have to pay service tax regardless of their turnover. * Tax rates: The Finance Minister will be aiming at bringing down tax rates while also ensuring that more people come under the tax net. Most probably corporate tax rates will not be brought down in one go from 35 per cent to 30 per cent and the reduction will be in phases, with the rates ultimately coming down to 30 per cent. Regarding income tax the current slabs may be extended and one can expect more benefits for senior citizens. * Capital gains tax exemption: Budget 2002-03 may give a one-time capital gains tax exemption to broker-members of all recognised exchanges to give bourses an exit route in their transition to demutualisation. * Additional tax on crude oil: The government seems to be contemplating the imposition of additional tax on domestic crude oil which could be accorded import parity upon dismantling of Administered Price Mechanism from April 2002. The cess is Rs 900 per tonne currently. The finance minister is expected to separately work out modalities to raise resources from incremental gains accruing to them from the sale of indigenous crude oil. * Imposition of tax on insurance premia: The Union Budget is likely to levy a tax on the insurance premia paid by policyholder so in order to meet exigencies such as national calamities. This is also with the intention to protecting insurance companies to bear the huge cost of a national calamity like flood or earthquake. * Peak tariff duties to be lowered: To strike a balance between the interests of domestic and foreign investors, the government plans to reduce the peak tariff duties by a token 5per cent in the forthcoming budget, by lowering it from 35per cent to 30per cent. Further, the government may have to lower the peak tariffs by 10per cent over the next two years beginning 2003-04, if it intends to stick to its promise of bringing them down to East Asian levels of 20 per cent by 2004-05. Fiscal and agriculture reforms will get top priority. The Finance Minister will also like to increase revenues and cut expenditures to get out of the fiscal mess. In view of the collapse of a slew of co-operative banks as well as some Financial Institutions, the effort will be to improve regulatory capacity to forestall episodes of market misconduct and swiftly enforce law. The government could soon make education a fundamental right in the Constitution while building a pension system which can avert poverty in old age. With these reform measures, India’s growth rate will improve significantly and the country will be one of the fastest growing economies of the world. However, given the
government’s unwillingness to take unpopular decisions, a substantial
cut in the fiscal deficit can be effectively ruled out. Also, given the
coalition nature of the government and lack of political consensus, we
remain doubtful about the government’s ability to implement most of
these reforms. On the other hand, hope springs eternal and so we are
keeping our fingers crossed.
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Budget loses secrecy, more predictable now New Delhi, February 27 Every Finance Minister used to bring into the Lok Sabha his distinct style, individual preference and party ideology while spelling out the Union Budget proposals. After the Budget even mundane items like tea and milk used to cost more and school bags and stationery got affected. Whether it was the case of Late Choudhary Charan Singh showing his distaste for the toothpaste and promoting black toothpowder or the suave Rajiv Gandhi promoting computers and cars there was a personal touch of the past Finance Ministers in the Budget statement. However, with the advent of economic liberalisation in the early nineties, the Budget has over the years got demystified. Finance Ministers no more tinker with excise duties of individual items, increasing them one year and decreasing them the next. Lobbying has given way to discussions. Pre-budget meetings are no more a ground for demanding small concessions here and there and participants in fact contribute their mite to the construction of the Budget. The openness and transparency of the Union Budget can be gauged by the pre-Budget speculations appearing in the media. Most statements are based on announcements by the Finance Minister himself or Finance Ministry officials. Some of the expectations for this year for instance have more or less been confirmed at the highest level. There is little disagreement on the speculation that interest rates on small savings such as Provident Fund would be cut. The recommendation is after all contained in a report given by an expert committee on small savings. Finance Minister Yashwant Sinha has announced in the past that Customs duty rates would be brought down this year to meet World Trade Organisation commitments. Indications of a countervailing duty on certain items to protect the domestic industry is also on the cards. The Economic Survey has reiterated the need to widen the tax base. More and more services would be brought under the ambit of the Service tax. The only scope for speculation here is who would constitute the new services? It could be the doctors, lawyers, and other non-salaried professionals. More steps to boost the infrastructure sector is in the offing. There is a proposal to set up an Urban Infrastructure Fund with an initial corpus of Rs 500 crore and this would be subsequently increased to Rs 5000 crore. On the Prime Minister’s directions, the road sector would continue to get additional support and plans are there to allot a sum of Rs 11,000 crore for this ambitious programme. Mr Sinha has talked about foreign capital being welcomed and measures being taken to encourage inflow of foreign direct investment and foreign institutional investor money. The Finance Minister has to only announce the specifics of these proposals. On February 28 when Mr Sinha walks into the Lok Sabha with his traditional briefcase, there would be little anxiety and apprehension. No rabits are expected from the briefcase and a major part of his speech would sound quite familiar.
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Govt to appoint adviser for BPCL, HPCL New Delhi, February 27 “The Cabinet
Committee on Disinvestment (CCD) today decided to appoint advisers for privatisation of HPCL and BPCL... we will now explore all avenues and approach CCD with concrete proposal on the modality of disinvestment in the two PSUs,” Disinvestment Minister Arun Shourie told newspersons here today. He said that decision of the government is that only IOC will not be allowed to bid for HPCL and BPCL. “The decision as of now is to keep IOC out... anyone else can do,” he said. Mr Shourie said that CCD today decided to initiate the process of appointing advisers for disinvestment of HPCL and BPCL. “It is an elaborate process... we will consult and decide on our proposals as to how much to disinvest,” he said. The CCD also decided to sell its balance equity in Modern Food Industries ( India) Limited (MFIL) ( 26 per cent) to Hindustan Lever Limited. Mr Shourie said that it was decided to sell 26 per cent of shares at Rs 11,489.56 to MFIL, amounting to Rs 44 crore after adjusting for their admissible pending claims of post-closure adjustments etc as per the agreements. The government today decided to call financial bids for 26 per cent stake in Hindustan Zinc Limited. Mr Shourie said earlier when price bids were called, only one bid was received in November 2001. “This bid was rejected because it fell short of the reserve price”, he said. The government also approved the Employees Stock Purchase Scheme (ESPS) for the employees and whole-time functional directors of HZL. The total number of employees in HZL is over 8,300. Shares under this scheme would be sold only after the strategic partner takes over the management of the company. The CCD today also decided to disinvest 72 per cent of the government’s equity in Jessop and Company Limited. The accumulated losses of the company as on March 31, 2001stood at Rs 351.18 crore. The company is under the purview.
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Canada relaxes immigration rules Chandigarh, February 27 He said the changes addressed several issues in the controversial Immigration Act passed in December last which had made it extremely difficult to become a landed immigrant in Canada. “Around 70,000 persons who applied for immigration before December 17, 2001, (when the new rules were implemented) are now being offered the opportunity to drop their application and get a full refund. Those who decide to stick it out will get an easier ride”, he said, adding that “even those in pipeline after December 17 would now have easier going in qualifying for immigration”.
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HDFC Bank to monitor customer behaviour Chandigarh, February 27 The bank has already started building a history of the performance of the bank accounts of its customers. In this, apart from including the routine transactions a customer makes via his account, the bank will also analyse customer behaviour in respect to payment of loan installments in case a customer has availed a loan. “Based on our data warehouse, we will determine regularly as to what kind of product will fit the requirement of each customer”, Mr Ram said. Emphasising that the bank’s objective is to provide consistently high quality customer service in the entire range of banking products through innovative use of technology, he said the bank was looking forward to RBI’s Real Time Gross Settlement (RTGS) system after which instant settlement of transactions would become possible. Talking about the latest services like Internet banking and phone banking, he said that a phenomenal change in the customer behaviour had been witnessed in this regard and currently almost 50 per cent of the total transactions were being done through Internet banking, phone banking and ATMs. In its endeavor to provide services based on the latest technology, he said the bank had, for its customers, e-broking facility where direct transfer of funds from the customer’s account to the broker’s account was possible, besides Internet based instant car loans , international debit card and other services. The increased usage of IT in banking had also necessitated alert monitoring so as to provide complete security to the customer for which the bank was using measures like complete secrecy of passwords and strong encryption — bank’s web server was using 128 bit encrypted key, he said.
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Electrolux aims at 12 pc growth Amritsar, February 27 Speaking to newspersons after inaugurating the new showroom “Mangal Home” here Mr Ramasunder said the company was planning to launch new advanced technology refrigerator and washing machine soon. He said Electrolux worldwide with Rs 75,000 crore turnover and a major share of around 30 per cent in the refrigeration segment was looking to enhance its share in the country he said at present only 10 per cent families in India had refrigerators while in the advanced countries it was more than 95 per cent and the penetration had to be made in the semi-urban and in the rural areas.
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