Mumbai, April 30
The government will cut the tax on interest payments to foreigners on government and corporate debt to 5 percent from up to 20 percent for a two-year period, in a bid to draw further inflows to bridge its current account deficit and polish its reformist credentials.

The move meets a long-term demand of foreigners and makes Indian debt more attractive. Many other Asian countries such as Singapore do not tax such interest income. Finance Minister P. Chidambaram also clarified that a tax residency certificate issued by a foreign government would be an accepted proof of residency for tax purposes.

The government, in its budget proposals, had created confusion with a proposal stating that a tax residency certificate "shall be necessary but not a sufficient condition" to take advantage of double taxation avoidance agreements.

Chidambaram, moving amendments to his budget proposals on Tuesday, said that the February budget proposal to lower withholding tax on infrastructure bonds would now be extended to government debt and infrastructure bonds. The cut will be effective from June 1, 2013 to May 31, 2015, he said.

The Finance Bill was passed by the lower house of Parliament amid an opposition boycott.

The 10-year benchmark government bond yield fell as much as 4 basis points to 7.73 percent while the Indian rupee breached 54 level to the dollar after the relaxation was announced.

The cut in the withholding tax follows recent easing in rules for investment in government and corporate bonds.

Chidambaram, who has been pushing reforms to draw inflows, recently met investors in roadshows in United States and Canada.

"This development coupled with the recent simplification of foreign investment limits in debt and easing of know-your-customer norms shows that the regulators are gradually liberalising the debt markets," said Rohit Arora, emerging market rate strategist at Barclays Capital.

"Our estimate of $6-8 billion capital inflow in government bonds in 2013/14 fiscal year is at a upside risk following these measures."

Foreigners have invested over $11 billion in Indian equities and nearly $3 billion in debt so far in 2013.

The latest measures by Chidambaram shows his attempt at pushing through executive reforms at a time when the opposition has stalled parliament over various charges against the government, including meddling in the affairs of the federal investigative body. — Reuters

New Delhi/Mumbai, April 30
Anglo-Dutch consumer goods giant Unilever Plc offered to pay as much as US $5.4 billion to raise its stake in its Indian unit Hindustan Unilever, banking on fast-growing spending power in Asia's third-largest economy.

The offer to lift its share to as much as three-quarters of Hindustan Unilever Ltd, India's largest consumer goods maker, is the latest big corporate bet on long-term consumer demand in India despite economic growth at a decade low. It also reflects Unilever's focus on emerging markets amid weakness in the United States and Europe.

"This represents a further step in Unilever's strategy to invest in emerging markets and offers a liquidity opportunity at what we believe to be an attractive premium for existing shareholders," Unilever's CEO Paul Polman said in a statement.

Unilever said it would buy an additional stake of up to 22.52% in Hindustan Unilever, of which it already owns just over half, in what would be the most valuable such offer in India.

The bid at Rs 600 per share — a 20.6% premium to Monday's closing price — sent shares in Hindustan Unilever surging as much as 20% to an all-time high early on Tuesday.

Several market watchers said investors might be unwilling to part with their shares at the offer price, which could force Unilever to settle for a smaller stake or raise its offer price.

"Many of the foreign funds or institutional investors hold the stock and when they play the India growth story they love to play it with HUL (Hindustan Unilever)," said Aneesh Srivastava, chief investment officer at IDBI Federal Life Insurance, which holds shares in the company.

"It is a very attractive stock and the quality of management is the best. So, given these factors, investors will not sell so easily," he said.

On Monday, Hindustan Unilever beat expectations with a 15 percent increase in March quarter earnings.

The offer, payable in cash, is expected to begin in June. In a similar deal in November, UK-based GlaxoSmithKline Plc offered to buy a further 31.8% stake in its Indian consumer products business for about $940 million. That offer ended up lifting the parent company's stake to 72.5%, just shy of its 75% target.

SLOW ECONOMY, BIG POTENTIAL: The Indian economy is likely to have grown at just 5 percent in the fiscal year that ended in March, far below the government's double-digit ambitions, and foreign direct investment has been sluggish as companies worry about bureaucratic red tape and uncertain regulation in India.

Still, several recent deals point to robust corporate interest in long-term spending growth in India.

Last week, Abu Dhabi-based Etihad Airways struck a deal to pay $379 million for a 24% stake in Jet Airways, while Swedish clothing chain Hennes & Mauritz said it would spend about $130 million to open an initial 50 stores in India.

In November, UK-based Diageo, the world's biggest spirits maker, agreed to buy a majority stake in United Spirits Ltd, the dominant Indian player, for $2.1 billion. Automakers, meanwhile, are investing to add plant capacity despite a decline in car sales in the last fiscal year.

"It makes a lot of sense to increase stake if the company is serious about staying here for long term," said G. Chokkalingam, chief investment officer of Centrum Wealth Managers, which bought a small stake in Hindustan Unilever after the company reported results on Monday.

"In the long term, we expect there will be more incentive for the parent company to share technology to the Indian unit, introduce more brands here and raise market share," he said.

Last week, Unilever, which makes products including detergent, soap, margarine and ice cream, posted weaker-than-expected first-quarter sales growth of 4.9% for the three months to March 31. Its results were bolstered by 10.4% growth in emerging markets, which account for 57% of turnover.

Numerous global companies have Indian-listed subsidiaries, the legacy of earlier ownership caps. Indian law requires a minimum public shareholding of 25% for listed companies. — Reuters

The gains also tracked advances in European share markets as some investors positioned for the European Central Bank and the US Federal Reserve to extend their monetary measures to stimulate economic growth.

The RBI's policy review and its stance on future rate cuts, especially after the recent slump in commodity prices, are important for the near-term direction of the market, with many analysts saying that a 25 basis point cut seems already discounted at current valuations. The benchmark Sensex rose 0.6%, or 116.68 points, to end at 19,504.18, gaining for the first month in three with a 3.5% rise in April.

The broader Nifty rose 0.44%, or 26.10 points, to end at 5,930.20, closing above the psychologically important 5,900 level, gaining 4.4% for April. The markets will be closed on Wednesday for the May Day holiday. Citigroup said in a report that some investors in Europe referred to India as a 'tease' market, which is on the radar once again due to lower commodity prices, expansionary global monetary conditions and prospects of a good monsoon.

New Delhi, April 30
The World Bank on Tuesday scaled down India's growth forecast to 6.1% for the current fiscal from 7% projected six months ago. The decline in the growth forecast is largely due to the decline in agriculture sector which is expected to grow at 2% in 2013-14 against the previous estimate of 2.7% despite normal monsoon projection.

However, the multilateral funding agency said India is regaining economic momentum and growth is expected to recover gradually to its high long-term potential.

According to the latest India Development Update of the World Bank, Indian economy would grow by 6.1% in 2013-14 on account of robust domestic demand, strong savings and investment rate.

The growth projections for 2013-14 have been arrived at by taking into account present internal and external factors.

"Economic growth is likely to accelerate to over 6 per cent during the current financial year (April 2013-March 2014). Growth is expected to increase further to 6.7% in 2014-2015," said Denis Medvedev, senior country economist, World Bank, India.

"Recent data point to some improvements in economic activity: inflation and trade deficit came down in recent months, while private consumption and investment growth had accelerated in the third quarter of 2012-2013," he said.

According to the Update, a twice yearly report on the Indian economy and its prospects, GDP growth during 2012-13 would be around 5%, the lowest in the decade.

According to the International Monetary Fund (IMF) report released Monday, India's GDP is likely to improve to 5.7% during year ending December 2013 and further to 6.2% a year after.

Last week, the Prime Minister’s Economic Advisory Council had pegged the growth rate for the current fiscal at 6.4%. According to the 2012-13 Economic Survey, India’s GDP growth is expected to be between 6.1-6.7% in 2013-14. “Despite the current downturn, long term prospects remain bright for India. India possesses the fundamentals to grow at sustained high rates over the next several decades,” said Martin Rama, World Bank’s chief economist for the South Asia region.

“The long-term prospects for India is quite bright…we certainly see possibility of 8% growth going forward. With the working age population increasing by 7 million people each year, the country will need to improve its business climate to attract the private sector investment needed for these new entrants to find productive jobs,” he said. — PTI

New Delhi, April 30
A consortium of global telecom majors, including Reliance Jio Infocomm and Vodafone, today signed an agreement for constructing the Bay of Bengal Gateway submarine cable system that will link Malaysia and Singapore to the Middle East with connections in India and Sri Lanka.

The cable system is likely to carry commercial traffic by the end of 2014.

"...Consortium members — Telekom Malaysia Berhad (Malaysia), Vodafone Group (UK), Omantel (Oman), Etisalat (UAE), Reliance Jio Infocomm (India) and Dialog Axiata (Sri Lanka) —signed the construction and maintenance agreement and the supply contract for BBG (Bay of Bengal Gateway) in Kuala Lumpur today" Reliance Industries said in a statement. Reliance Jio Infocomm is the tower arm of Reliance Industries.

The BBG submarine cable system , spanning around 8,000 km, will link Malaysia (through Penang) and Singapore to the Middle East (Oman and UAE) with connections reaching out to India (Mumbai and Chennai) and Sri Lanka, it added. — PTI