B U S I N E S S

News Analysis
Poor infrastructure Indian Silicon Valley’s bane
Bangalore, August 1
The fight for Bangalore’s infrastructure, and in larger terms for an economic and political model that seeks to create wealth rather than rely on short-term redistribution, is beginning in earnest. Many, however, fear that it is a losing battle.

• The virus risk

Bharti, Reliance send missive to minister
New Delhi, August 1
Telecom majors Bharti and Reliance have called upon the government to reject any proposed move to allow cellularoperators direct connectivity between two circles bypassing the STD operators as it would adversely affect them.

No standard deduction on income from tuitions
Q. I am a salaried employee of Haryana Government and pay the due income tax. My homemaker wife earns about Rs 60,000 per annum from private tuitions. Besides, she has some income from interest on certain fixed deposits, which is to the tune of Rs 70,000 per annum.

Models display outfits by Turkish designer Oezlem Sueer at a fashion show in Duesseldorf, Germany, on Sunday. — AFP

	HP Tourism opens doors to private parties August 1, 2004
	Govt presses NTPC divestment accelerator July 31, 2004
	IDBI Bank to merge with parent organisation July 30, 2004
	GTB shares dumped at Rs 2.55 July 29, 2004
	Reliance profits up 30 pc July 28, 2004
	Your money is safe, FM assures GTB depositors July 27, 2004
	RBI’s moratorium timely, say bankers July 26, 2004
	Global Trust Bank under moratorium for 90 days July 25, 2004
	Kelkar proposes a new-look taxman July 24, 2004
	Jet Airways slashes apex fares July 23, 2004

Film and TV artist and Chairman of Madhya Pradesh Tourism Development Corporation Nitish Bhardwaj (left) discusses a point with Chief Minister Uma Bharti during the regional meet on tourism development in Madhya Pradesh. The meet was organised by the Hotel and Restaurant Association in Bhopal on Sunday. — PTI

• Gift from daughter

• HRA and PAN

• Tax on pension

Market enthused by quarterly results
Impressive results by corporate India buoyed the marked last week despite monsoon concerns and spiralling oil prices. The Sensex and Nifty gained 1.9 per cent each to close at 5170 and 1632 respectively.

• TCS IPO

• Hind Lever

News Analysis
Poor infrastructure Indian Silicon Valley’s bane
Sridhar K Chari
Tribune News Service

Bangalore, August 1
The fight for Bangalore’s infrastructure, and in larger terms for an economic and political model that seeks to create wealth rather than rely on short-term redistribution, is beginning in earnest. Many, however, fear that it is a losing battle.

Bangalore is the place that US democratic presidential candidate John Kerry described, much to the amusement of Bangaloreans, a city “completely wired” to the Internet. That points to two things — one, the perception of the city abroad as a hi-tech city making a mark on the world scene. The other, the bemused domestic reaction, simply points to the abysmal level of the actual infrastructure here, notwithstanding the continued success in IT.

By all indications it is poised to get worse. Wipro’s Azim Premji recently threatened “to pull out” of Bangalore, citing both high employee attrition levels and the poor infrastructure in terms of power, roads, and public transportation. He added significantly, that the Cong – JD (S) coalition state government seems not to have even an intention to do anything, offering no hope over the next five years. Other companies feel as strongly, but hesitate to voice their concerns publicly as they don’t see much point.

Said the chairman of another top IT company in unequivocal terms: “(Deputy Chief Minister and Finance Minister) Mr Siddaramiah’s Budget seems to simply demolish whatever gains have been made in the last five years.” The Budget, which even as it shows a surplus for the first time in eight years and hikes allocations to agriculture by more than a hundred per cent, is pointedly silent about Bangalore, and weak on measures to improve roads and power. That is keeping in line with the administration’s avowed pro-poor, pro farmer tilt, widely seen as the lesson of the recent elections in terms of the risk an administration carries in appearing too urban centric or pro-industry. Even the annual IT.com fest has been given a `beyond Bangalore’ flavour.

The problem of course, is that this is severely wrong headed. Infosys Chairman Narayan Murthy notes: “It is completely wrong to say that IT only benefits the rich. The actual gains that can be achieved in terms of access to education, telemedicine, empowerment etc are big.” Another indicative example from the budget is the 140 percent hike in sales tax rates on computer software and hardware.

“This does not affect us,” notes Mr Murthy. “It is the weaker sections who are affected.” Adds Infosys Chief Financial Officer Mohandas Pai: “When we go to the villages for social welfare projects, computers are what they ask for.” The industry is now getting together to lobby the government to reduce the rates.

There are several fly over and underpass projects initiated in the City in the last term, and the pace of work on them has significantly slowed down. Many of them are a downright mess. Says Mr Narayan Murthy – “actually it does not cost much to improve the road infrastructure.” According to a study done by Infosys, it will cost about Rs 12 crore per km to build a four lane highway on stilts. With an additional Rs 4 crore per km, an 8-lane highway can be built.

There is a crying need for such a road to Electronic City on Bangalore’s outskirts, which houses Infosys among numerous other companies. He says: “It would be a good idea to collect a sum from all the companies in Electronics city. We can all contribute.”

The IT sector’s fight for infrastructure, and indeed a vision of economic growth that will benefit all classes and sectors of society, is not new. It was Narayan Murthy who several years ago led a team of people and started to repair potholes on Hosur Road. Mr Azim Premji’s diatribes were launched against the previous Krishna government as well, whose only saving grace was that they did launch several infrastructure projects, albeit less than required and at less than optimal pace.

Another case in point is the Bangalore Action Task Force (BATF) agency set up by the government in association with many city-based companies, from the IT and BT sectors. The agency is now going to be closed, because the government is silent on whether or not it wants to continue with the agency. BATF Chairman and Infosys CEO Nandan Nilekani recently confirmed that BATF would handover ongoing projects to the civic agencies concerned and close shop. Infosys was paying the salaries and rentals for the BATF office. BATF was not just about roads and public transportation amenities; it was involved in various projects like door-to-door garbage collection, public toilets, and the like. In fact New Delhi Chief Minister Shiela Dikshit is said to have expressed interest in the idea.

This time, the biggest fear is that even the intentions may not be there. In any case, the money may not be available after spending on populist schemes. Chief Minister Dharam Singh, on his part, has made the right noises in public about continued support for IT, and he promised Premji that work would be done on the roads and infrastructure.

He can only be believed when the city sees some concrete steps being taken.

The virus risk

Mumbai: Virus attacks on computers across the globe, which have posted a 20 per cent rise in the first two quarters of 2004, has put Indian Business Process Outsourcing (BPO) firms at a “higher risk” as they work on a 24x7 basis, according to computer security firm McAfee Inc.

“In India, BPO companies are at a higher risk of security breaches and they also run the major risk of data loss and compromising of confidential client information,” McAfee India director (sales) Kartik Shahani told PTI here today.

These companies work all 24 hours and seven days of the weeks, with no or nil holidays depending on the firm, which makes them vulnerable to attacks, he said.

However, other Indian companies are “relatively safe” as they are within the “time zone advantage”, he said. — PTI

Bharti, Reliance send missive to minister
Tribune News Service

New Delhi, August 1
Telecom majors Bharti and Reliance have called upon the government to reject any proposed move to allow cellularoperators direct connectivity between two circles bypassing the STD operators as it would adversely affect them.

In a joint letter to the Communication and IT Minister Dayanidhi Maran, Bharti and Reliance said introduction of such a regime will make the existing National Long Distance (NLD or STD) licences redundant leading to monumental loss of Rs 6,000 crore spent in creating world class infrastructure. They claimed that this could result in a loss of Rs 1,800 crore annually to the two.

On the other hand the Cellular Operators Association of India, save these two operators, have strongly favoured the direct connectivity between two operators in two circles.

They have pointed that by allowing the direct connectivity between neighbouring circles, the government could bring down cellular tariffs further. At present, the cellular operators are paying up to Rs 1.10 per minute to NLD operators like Bharti and Reliance for transferring their calls between two circles.

Sources said that TRAI is yet to finalise its recommendations on the matter. 

Tax advice

No standard deduction on income from tuitions

Q. I am a salaried employee of Haryana Government and pay the due income tax. My homemaker wife earns about Rs 60,000 per annum from private tuitions. Besides, she has some income from interest on certain fixed deposits, which is to the tune of Rs 70,000 per annum. My questions are:

1. Am I liable to pay income tax on my wife’s income?

2. Is my wife liable to pay any tax in the F.Y. 2004, particularly in view of the standard deduction, for which I wonder whether or not she is eligible, and also in view of the earning up to Rs 12,000 from interest being tax-free.

— K. S. Arya, Bahadurgarh

A. Your wife is liable to pay income tax on the income earned by her from tuitions as well as interest on fixed deposits. She will, of course, be entitled to deduction of Rs 12,000 against the interest income earned by her. She is not entitled to any standard deduction as she is not a salaried employee. The tuition fee would be assessible as income from profession.

Gift from daughter

Q. I am a retired citizen. During my bank service posting at Chandigarh, I enrolled myself as a member of the Staff Co-op. Housing Society. The dwelling units are now under construction at Chandigarh.

To meet with the cost of my one unit, my daughter, residing abroad, is remitting funds in my name through foreign drafts, proceeds of which are credited to my bank account. Against each remittance, “Certificate of Foreign Inward Remittance” is issued by the bank on standard format. In such certificates, the clause “purpose of remittance”, reads the same (above) purpose.

Please guide if there are likely complications viz-a-viz I.T. rules and that my filing I.T. return at Jalandhar, where I am submitting such returns since 1975 will be in order.

— Rajinder Sharma

A. The amount received by you from your daughter can be treated as gift by you for which purpose you must obtain a confirmatory letter that she has gifted the amount from outside India. The return can be filed by you at Jalandhar with proper disclosure regarding the gift received and the same having been utilised for the purpose of acquiring the dwelling unit.

HRA and PAN

Q. I have some queries which may kindly be got cleared from an expert.

a) I am residing in my parental house. Though we three brothers are living jointly yet my father has already made will dividing all property in three equal parts. So Am I entitled to claim HRA rebate u/s 10? If I produce rent receipts from my mother, who is the head of family, can I claim the rebate?

b) My son has recently attained 18 year of age. Can he apply for PAN inspite of having no income. If yes, is it mandatory to file I.T. return for him every year. However, I purchased some units/debentures in his name and such income being clubbed in my own income.

— R.K. Sharma, Mandi, H.P.

A. The exemption in respect of house rent allowance is allowable to an assessee to meet expenditure actually incurred on payment of rent in respect of residential accommodation occupied by him. Accordingly, you would be entitled to deduction in respect of the HRA only if the amount is actually paid by you to the person who has given the house on rent. As per your own query, the house is owned by three brothers. Your mother has not let out the house to you. In my opinion, therefore, the house rent allowance granted to you cannot be exempt under Section 10(13A) of the Income Tax Act, 1961.

B) Section 139 A of the Income Tax Act, 1961, provides that every person if his total income during any previous area exceeds the maximum amount which is not chargeable to Income Tax or carries on any business or profession and total sales etc. are likely to exceed prescribed amount in any previous year or a charitable trust or society has to apply for a Permanent Account Number. The Central Government also has the powers to specify any class or classes of persons requiring them to obtain the Permanent Account Number. Your son’s case does not fall in any of the above criteria. It is, thus, not obligatory for him to obtain the Permanent Account Number.

Tax on pension

Q. On my retirement, I was sanctioned original pension of Rs 6,000 p.m. After commutation @ 40 per cent, the balance remains Rs 3,600 (Rs 6,000-Rs 2,400). For the purpose of Income Tax calculations, which of the two figures (i.e. Rs 6,000 or Rs 3,600) is to be taken into consideration? Kindly enlighten me.

— Gurdev Singh

A. The commuted value of the pension is exempt from tax under Section 10(10A) of the Income Tax Act, 1961, provided it is within the limits specified in the section. The amount of Rs 3,600 p.m. would be taxable as income from pension under head ‘Income from Salary’. You will however, be entitled to a standard deduction as prescribed u/s 16(1) of the Act.

Market update

Market enthused by quarterly results

Impressive results by corporate India buoyed the marked last week despite monsoon concerns and spiralling oil prices. The Sensex and Nifty gained 1.9 per cent each to close at 5170 and 1632 respectively.

Investors shrugged of the Global Trust Bank (GTB) crisis, domestic concerns pertaining to below than normal monsoons this season, the effect of the continuous rise in the crude prices, its effect on inflation and consequently on interest rates. The other big development that took place last week was the proposed merger of the troubled financial institution (FI) IDBI with IDBI Bank. The deal would propel IDBI Bank to India’s top of the league banks in terms of the market value at the current market prices, apart from giving it access to large funds required for expansion.

The progress of the monsoon would dictate the near term trend of the market. But the long-term investor can continue to bargain hunt as the market continues to remain fairly attractive.

TCS IPO

Tata Consultancy Service (TCS) is the largest software services exporter from India, ahead of the likes of Infosys and Wipro. Last year, it became the first Indian software company to cross the coveted $ 1 billion revenue mark. While it was operating as a division of Tata Sons till now, post the public issue, TCS will operate as a separate entity and would be renamed — TCS Limited. The company has a wide range of offerings and caters to industries like banking, insurance and financial services, manufacturing, telecom, and retail.

The major concern is the huge payout that has to be made to Tata Sons post IPO by TCS. TCS will have almost negligible amount of cash on its books. This is a big negative as that would hinder the company’s investment plans, at least till it generates sufficient cash. TCS at the higher price band of Rs 900 is discounted 24 times the last year earnings. This is less than that commanded by Infosys. Since TCS has a lower profitability as compared to Infosys, it would deserve valuations that are slightly at a discount to what Infosys command. In the end, we believe that the offer is attractive from a long-term perspective, though gains may also accrue in short term due to strong institutional demand.

Hind Lever

FMCG behemoth, Hindustan Lever (HLL), has declared a 4.8 per cent dip in topline in the just concluded June numbers. But competition has taken a big toll on its bottomline, which has been reduced to half at Rs 244.5 crore for the quarter.

Hindustan Lever Limited is the India’s largest FMCG company with a dominant presence in almost all consumer categories. During the last couple of years, HLL has embarked up on a major restructuring exercise focusing on improvement in quality of earnings and pruning brand portfolio. But price war in its key business of soaps and detergents, initiated by rival P&G, took a toll on this strategy. Margins have declined drastically for soaps and detergents segment in the June quarter.

At the current market price of Rs 116, it trades at 24 times the annualised earnings. Investors with a long-term perspectives can buy the stock on dips for a strict 2-3 years perspective.

BRIEFLY

FIIs
Mumbai, August 1
The foreign institutional investors (FIIs) netted purchases of Rs 913.6 crore ($ 201.1 million) in equities while netting outflows of Rs 200.4 crore ($ 44.2 million) in debt for the month of July. Mutual funds (MFs) recorded net sales of Rs 508.6 crore in the equity market and net purchases of Rs 327.49 crore in debt market in the seventh month of 2004, according to the data available with Securities and Exchange Board of India. — PTI

Fortune’s list
London, August 1
Three Indian corporate heads, including Azim Premji of Wipro, have been chosen as the most powerful people in business in Asia’s Power 25 list.

The other two are Mukesh Ambani of Reliance Group and Nandan Nilekani of Infosys. According to the latest issue of the Fortune magazine, Premji has been ranked 10th while Ambani is 13th and Nilekani 23rd. — PTI

Fiscal deficit
New Delhi, August 1
The Central government’s fiscal deficit has surged by almost 8 per cent to Rs 41,681 crore despite robust growth in tax collections in the first three months of 2004-05. The fiscal deficit till June-end works out to 1.33 per cent of GDP. — PTI

Pepsi
New Delhi, August 1
Soft drink giant PepsiCo India Holdings has said it would introduce $ 2 billion sport drink, Gatorade, this month to enlarge product portfolio and boost sales. “We have decided to launch Gatorade in August. The energy or rehydration drink will be priced at Rs 40 per PET bottle,” PepsiCo India Holdings Executive Director (Exports and External Affairs) Abhiram Seth said. — PTI