The Tribune, Chandigarh, India

BUDGET — HOPES & EXPECTATIONS
The countdown begins

EVERY year, sometime in February (notwithstanding the rise and fall of governments) the business community as well as the common man on the street awaits the Budget, eagerly wanting to know what it has in store for him and how it will affect his life. This year is no different. There are certain expectations and certain fears regarding the Budget. The rumours have begun about the benefits that many industries or companies will get.

However, history shows that the small investor has been left holding junk shares with no value, while the smarter folks who got the market going ahead of the budget have counted their wonderful capital gains. And it is budget time!

In any case, all of a sudden, the government machinery seems to be finally moving, which has brought cheer to the markets. Just three weeks ahead of Budget 2002-03, the Cabinet cleared a slew of reform proposals, including shedding government flab through a VRS scheme, full decontrol of sugar from April 1, removal of a dozen items from the purview of the Essential Commodities Act and incentivising the pharma sector by approving a new pharmaceutical policy.

The Cabinet also discussed the dismantling of the Administered Price Mechanism in the petroleum sector. It, however, left it to the the Prime Minister and the Finance Minister to finalise the roadmap and the modalities, which will be part of the Budget. What’s more, following the sale of VSNL to the Tata Group and IBP to IOC, the Cabinet Committee on Disinvestment has plans to divest BPCL and HPCL, the two big refining-cum-distribution majors, within three months from dismantling of the administered price mechanism.

However, much of the euphoria that inundated the equity markets seems to be receding, as the disinvestment highs etc wear off. Nevertheless, investors once again seem to be hopeful of a fresh dose from the Budget, which will keep the buzz alive.

As far as the Budget is concerned the Centre may make only cosmetic changes — it may not be too populist or too harsh. Then again, sector specific measures may be announced in the Budget. In our Budget countdown series, we present the expected measures that may be announced in the Budget.

Healthcare unit

THE government had announced in the last Budget that a new drug policy would be announced which will reduce the span of control of the Drug Pricing Control Order (DPCO). The Cabinet finally approved the policy on February 5, but some clarifications are still awaited on the same. Once again, the mood prior to the Budget is one of anticipation. The sector expects substantial sops to increase private participation.

The wish list

* Like every other sector, healthcare players want an infrastructure status. The sector is lobbying for infrastructure status as building hospitals is an investment intensive venture.

* Biotechnology is still an emerging story. The sector requires a boost to fuel growth. Expectations from this sector centre on duty structures for reagents and equipment, which form a large chunk of investments for biotech companies. The key demand of the sector is waiver of duties for research and development (R&D). At present the duty on reagents used in R&D is as high as 55 per cent. This needs to be brought down.

* Development of skilled manpower is important. The information technology (IT) industry has benefited to a great extent from sops to develop manpower. If similar sops are given to the biotech sector, the growth would be speeded up. There is a need for the government to set up institutes that will produce biotechnology specialists who are on par with the best in the world. The sector feels that there will a boom in the coming years and companies should be prepared with skilled manpower to take advantage of the opportunity. The government should recognise the potential of this sector and treat it on par with the IT sector.

* Some players are pressing for a reduction in customs and countervailing duties on the import of research equipment as well as chemicals and consumables used in research.

* Sec 80-1B (8A) allows a 10-year tax holiday to those who are engaged in scientific research and development activities. This benefit should be extended to existing manufacturing pharma companies setting up approved R&D centres.

Expected measures

* The government is examining a proposal by the Health Ministry to issue tax-free bonds of over 50 billion rupees to fund creation of a health infrastructure throughout the country. The tenure of the bonds would range between seven and 10 years.

* The industry feels that zero duties or a flat duty structure will put biotech companies on par with those in other countries. In the last Budget, the Finance Minister had extended deduction of 150 per cent of the expenditure on in-house R&D in certain areas of biotechnology and clinical trials. Despite this there is a feeling that more incentives are required for the industry.

* We have seen some noises coming from the DPCO front in terms of the kind of breaks pharmaceutical companies can get on R&D expenditure. One of the major issues which is expected from the Budget on research is the import of research equipment, import of consumables and chemicals required for research. They are all subject to normal customs duties and countervailing duties and the relief the industry wants immediately because that pushes up their cost of research.

* The current duty of 16 per cent on pharmaceutical may be maintained, however, bulk drugs and formulations falling under categories such as anti-aids, anti-cancer, anti-TB and immuno suppressants merits total exemption. Some drugs falling under these categories are already exempt.

* All in intermediate material, which are not sold but fully consumed for manufacturing the exempted product, should be exempted. Presently such material is taxed and CENVAT is not available.

* The Finance Minister had announced a proposal to permit exporters to import duty free R&D equipment of the value of 1 per cent of the total FOB value of export of previous year. The details of this scheme have not been made known yet.

The private sector could play a major role, but the lack of encouragement from the government is a hindrance. The government should give incentives to encourage private participation in healthcare. This could include tax holidays for healthcare players.

The auto sector

THROUGH the industry body, players have made representations to various concerned people in the Finance Ministry. On a macro front, the industry is looking for increased infrastructure focus with more stress on roads and other channels of goods movement like ports, railways to improve efficiency margins and the margins for the industry including auto sector. Let’s see what happens.

The wish list

* Special Excise Duty on passenger cars (including MUVs) to be reduced from 16 per cent to 8 per cent to bring down the effective duty rate to 24 per cent.

* Concessional Excise Duty of 16 per cent on ambulance-vehicles and doing away with the present system of paying full duty @32 per cent and claiming for refund of 16 per cent on registration.

* Harmonisation of VAT with a uniform rate across all states and abolishing CST (sales tax) from April 1, 2002, in order that all inter-state transactions to be taxed at VAT.

* Export goods to be exempted from levy of VAT and the credit allowed to be payable on domestic sales. Refund mechanism of excess credit to be devised in the form of freely tradable tax credit certificate akin to DEPB to avoid blockage of funds by industry.

* The customs duty for commercial vehicles falling under 87.02 to be hiked from present 35 per cent to 105 per cent for used vehicles and 60 per cent for new vehicles in respective categories.

* Reduction of customs duty on components i.e. imports in any form other than CBU to 30 per cent from the current level of 35 per cent for vehicles falling under tariff headings 87.03 excluding those under 87.02.

* The CVD (Cenvat Duty) being applicable at the time of imports is lower compared to excise duty payable by local manufacturer/ assembler and does not apply to selling and distribution overheads set up costs etc. To overcome this approach the automobiles should be charged excise on MRP which will be equivalent to the CVD if charged on MRP.

Some players think that the import duties would go down further. Overall, the measures that may be announced in the budget are expected to…

Adopt policies that promote value addition in India, encourage Research and Development, remove the cascading tax structure and remove other procedural bottlenecks to provide a conducive environment to the Indian industry. These would enable the industry to become globally competitive and provide the Indian customer a contemporary choice to suit his purchasing power.

Cut in excise duties expected
Gaurav Choudhury
Tribune News Service

New Delhi, February 23
Yashwant Sinha faces the daunting task of improving the basics of the capital market to boost investor confidence and the Budget can contain measures in this direction.

Fund managers and stock brokers said capital markets are expecting measures primarily aimed at improving the fundamentals of the economy leading to a growth in the investible funds among the populace.

“The health of capital markets is critically dependent on the level of purchasing power of the investors — mainly small investors. Given the declining trend in almost all parameters of the economy, the markets are expecting that the Budget will make some definitive announcements to reverse the downtrend”, a Delhi-based analyst said.

This apart, the downgrading of the Indian economy by the international credit rating agencies, including Morgan Stanley Capital International (MSCI) index, has inflicted a severe dent on the confidence of foreign investor, analysts said. “A lower weightage to India by such agencies, and the simultaneous upgrading of some other Asian countries, have only facilitated capital flight from Indian markets”, he said.

Specifically, in India the health of the capital markets will essentially depend on a few sectors, including, IT, hardware and telecom, media, steel, petroleum, cement, and power among others.

Independent observers here said the market was expecting a reduction in excise duties on hardware to boost the sector. Similarly, it was expected that in steel the excise duty will be cut from 16 per cent to 8 per cent and also not reduce the customs duty from current level of 35 per cent.

Stock market sources said the market was also expecting a correction on the taxation of speculative gains from derivatives. Analysts said this cannot be hedged against losses from derivative losses and, therefore, is not a preferred hedging instrument.

The market will also be keenly watching the Finance Minister’s statement on the interest rate on small savings, which in all likelihood will witness a reduction by anywhere between 0.05 per cent to 1 per cent.

Central Excise Rules amended for Budget day
Tribune News Service

New Delhi, February 23
The Finance Ministry has issued notifications amending the Central Excise Rules in order to regulate the clearance and removal of goods on February 28, when the Union Budget will be presented in Parliament.

A ‘physical control’ system is being imposed from the time of presentation of the Budget and will remain in force till 12 midnight on the Budget day. However, as a measure of simplification there is no requirement of declaring stock of goods as at 6 pm on the day preceding the Budget.

The permission for removal of goods after 11 am on the Budget day will be granted by the Commissioner of the Central Excise subject to the necessary condition that the assessee undertakes in writing to pay duty at enhanced rate, if any, that may be applicable to such goods with effect from March 1, 2002, and that he will comply with such conditions as the Commissioner may specify in this regard.

The assessee, who intends to remove goods after the appointed time on the Budget day, will be required to make an application in the prescribed form to the Central Excise Officer before 5 pm on February 27.

RENT CASES

By Praful R. Desai
Service of notice

Q: Whether disputes as to service of notice of demand sent by Regd. Post, be taken in Appeal to Supreme Court? Whether can it be entertained?

Ans: The SC was dealing with this point in Rajinder Pershad (dead) by LRs v Smt Darshana Devi (2001 (2) RCJ 539)

Learned Counsel attacks the finding on the ground that postman was on leave on those days and submits that the records called for from the post office to prove the fact, were reported as not available. On those facts, submits that it follows that there was no refusal by the tenant and no service of notice.

The SC observed that it was afraid to accept these contentions of the appellant. In the court of the Rent Controller, the postman was examined as a witness. The SC said that it has gone through the records and also gone through the cross-examination. It was not suggested to him that he was not on duty during the period in question and the endorsement “refused” on the envelop was incorrect.

In the absence of cross-examination of the postman on this crucial aspect, opined the SC his statement in the chief examination has been rightly relied upon.

There is an age old rule that if you dispute the correctness of the statement of witness, you must give him an opportunity to explain his statement by drawing his attention that part of it which is objected to as untrue, otherwise you cannot impeach his credit.

In State of UP v Nahar Singh (dead) (1998 (3) SCC 561), a Bench of the SC stated the principal that S 138 of the Evidence Act confers a valuable right to cross-examine a witness tendered in evidence by opposite party. The scope of that provision is enlarged by S 146 of the Evidence Act by permitting a witness to be question inter-alia to test his veracity.

For the aforesaid reasons, the SC held that no exception can be taken to impugned judgement and order of the HC. The appeal therefore fails and was consequently dismissed.

AVIATION NOTES

Net facility at IGIA
K.R. Wadhwaney

The installation of the internet kiosk at the Indira Gandhi International Airport (IGIA) has been widely appreciated by passengers. Users do not require ready cash in Indian currency. They can use their credit cards in the machines that have been fitted at the security-hold areas.

The Airports Authority of India (AAI) has initially installed nine phones. Four of them are in the domestic area and five at the international side. The facility is available to arriving and departing passengers. There are, however, some grey areas for international arriving passengers but the AAI is optimistic that the system will function without causing problem to any passenger.

The security at the IGIA has been tightened. The system for issuing passes has been streamlined. Actually issue of quantum of passes has been considerably reduced. Credentials are intensely verified and only those who are actively connected with the duties at the airport are issued passes.

The authorities are also enforcing security on the cargo side which, according to some experienced officials, has been a neglected zone.

Traffic picking up

According to recent statistics, traffic from the West has been improving. Some airlines have expanded their operations while some are endeavouring to start direct flights from point to point. One such airline is planning direct flights between Delhi/Mumbai and Istanbul. Air India is also operating its flights to all sectors. There may be resumption of the West-bound flights ex-Delhi soon.

Uncertainty persists

There is uncertainty as to who will be the new Director-General of Civil Aviation (DGCA). The term of the existing DGCA H.S. Khola is about to end. He has had a long innings since he had been officiating as the DGCA when he was the Deputy Director. Will the new DGCA be a bureaucrat or technical incumbent. Those who are connected with aviation are of the firm view that the chief should be technical incumbent.