SPECIAL COVERAGE
CHANDIGARH

LUDHIANA

DELHI



THE TRIBUNE SPECIALS
50 YEARS OF INDEPENDENCE

TERCENTENARY CELEBRATIONS

B U S I N E S S

FIPB seeks review of FDI policy
New Delhi, May 20
The Foreign Investment Promotion Board (FIPB) has asked the Department of Industrial Policy and Promotion (DIPP) to review the FDI policy at the earliest so that indirect shareholding in any company was not misused by foreign firms to violate sectoral caps.

MRP-based tax regime
Pharma sector revenue dips

Chandigarh, May 20
The MRP-based tax regime for the pharma industry has failed to have the desired results, as a majority of the pharma industry has shifted to the tax-exempted states of Himachal Pradesh, Uttaranchal and Jammu and Kashmir. As a result of this policy, the revenue from the pharma sector has declined by almost Rs 300 crore in the last fiscal.

Govt to ease IDR norms to woo foreign companies
New Delhi, May 20
The government is likely to make the entry of foreign companies to Indian bourses easier by diluting the Indian Depository Receipts (IDRs) norms regarding pre-issue capital and market capitalisation by next month.

‘Merchant airports’ on anvil
New Delhi, May 20
The civil aviation ministry has put forward a new concept of ‘merchant airports’ in the country with the infrastructure to be managed by private enterprises and security issues being handled by government agencies.


EARLIER STORIES

 
A model displays an outfit at a fashion show in Siliguri late on Saturday
A model displays an outfit at a fashion show in Siliguri late on Saturday. — PTI photo

Tata trucks to take on global majors
Mumbai, May 20
After indigenous production of world-class cars, Tata, now, plans to come out with a whole new range of trucks to compete with global majors.

Exporters explore euro-dominated trade options: Ficci survey
New Delhi, May 20
In the wake of strengthening rupee and consequent pressure on profit margins, Indian exporters are exploring euro-denominated trade opportunities.

Market Update
Market set to scale new peaks

The market surged last week, tracking firm global markets and on reports that there will be early onset of monsoon. The BSE Sensex settled at 14,303 last Friday, a gain of over three and a half per cent over the previous week.

Tax Advice
Annuity payments from LIC taxable

Q. I had taken LIC’s Jeevandhara Policy (deferred annuity with return of GIVE amount on death) in September 1988 for a period of nine years. I paid nine annual premia till September 1997, when I retired and the amounts were deducted from my total income. I have been getting annuity payment cheques of Rs 1,065 per month from October 1997 from LIC. I wish you to seek your advice on the following:

 

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FIPB seeks review of FDI policy

New Delhi, May 20
The Foreign Investment Promotion Board (FIPB) has asked the Department of Industrial Policy and Promotion (DIPP) to review the FDI policy at the earliest so that indirect shareholding in any company was not misused by foreign firms to violate sectoral caps.

"In its meeting on Friday, FIPB has asked the DIPP to review FDI norms and clearly define direct and indirect shareholding in a company so that sanctity of sectoral caps is maintained," a senior official said.

The decision has been taken following complex equity structure in Hutch-Essar, which led to a considerable delay in clearing the British telecom major Vodafone's $11.1 billion acquisition of Hutchison Telecom's stake in the Indian company, sources said.

It is necessary to have clear definition of the real beneficiary of shareholding in a company so that sectoral caps were not breached, they said.

The issue assumes importance since there were allegations that minority shareholders in Hutch Essar- Asim Ghosh and Max Group Chairman Analjit Singh - were fronting for HTIL, shares of which were acquired by Vodafone.

The sources said DIPP will revise FDI norms in consultation with finance and law ministry, and if required, a note could be submitted for cabinet approval as well.

The FIPB cleared the $11.1 billion Vodafone deal, said sources, after prolonged delay, but wanted clarity regarding nominal and actual shareholdings in a company so that there was no unnecessary delay of FDI in any controversial deal.

It is also pressing for early review of FDI norms, so that there was no ambiguity over its decisions and it complied with any legal scrutiny in courts, sources added. — PTI

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MRP-based tax regime
Pharma sector revenue dips
Ruchika M. Khanna
Tribune News Service

Chandigarh, May 20
The MRP-based tax regime for the pharma industry has failed to have the desired results, as a majority of the pharma industry has shifted to the tax-exempted states of Himachal Pradesh, Uttaranchal and Jammu and Kashmir. As a result of this policy, the revenue from the pharma sector has declined by almost Rs 300 crore in the last fiscal.

The MRP-based tax regime was introduced by the government in 2005, with a primary objective to increase revenue and to bring down the prices of medicines. However, according to information available with The Tribune, the revenue was declined to Rs 1,900 crore in 2006-07, as compared to Rs 2,200 crore in 2005-06. This is for the first time in a decade that the revenue from the pharma sector has taken a dip.

Sources in the industry said with over 70 per cent of the pharma industry now having been migrated to the three tax-exempted states, a further dip of Rs 500 crore in revenue collection was expected this year. Even the prices of medicines have gone up by 5 to 10 per cent in the past one year. This has been confirmed by the reports on rising prices of medicines prepared by NIPER, Mohali, and Economic Advisory Council headed by Dr Rangarajan. 
Sources said though the small-scale pharma sector had been demanding withdrawal of the MRP-based tax regime, the finance ministry had been supporting it.

“All large drug manufacturers are sourcing their produce from the small units located in the three tax- exempted states. Thus, they are able to save on taxes, while the small-scale pharma units in the non-exempted states are losing their competitive edge (in terms of pricing). In spite of repeated requests to the finance ministry to raise the abatement for the small-scale manufacturers from the existing 42.5 per cent, the issue has been hanging fire,” said Jagdeep Singh, president of the Punjab Drug Manufacturers Association.

It is learnt that the Economic Advisory Council has already recommended that the abatement for the small manufacturers be raised to 60 per cent. The revenue department has now sought data from the small-scale drug manufacturers, so that the abatement could be hiked.

“Earlier, data from 161 small scale units was provided, but it was made a benchmark to refuse the request for 80 per cent abatement on the grounds that abatement over 70 per cent would entail payment of entire duty by Cenvat credit,” said Jagdeep Singh, adding that they have now sought the intervention of Prime Minister on the issue.

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Govt to ease IDR norms to woo foreign companies

New Delhi, May 20
The government is likely to make the entry of foreign companies to Indian bourses easier by diluting the Indian Depository Receipts (IDRs) norms regarding pre-issue capital and market capitalisation by next month.

Indian Depository Receipts (IDRs) are financial instruments that allow foreign companies to mobilise funds from Indian markets by offering equity and getting listed the stock exchanges.

This instrument is similar to GDRs and ADRs that allow foreign companies to raise funds from European and American markets, respectively.

The ministry of corporate affairs has cleared the final guidelines and it will be sent to the law ministry for vetting, official sources said.

The modified IDR guidelines are likely to dilute the conditions for pre-issued paid-up capital, free reserves and minimum average market capitalisation of the company.

The existing guidelines, issued in 2004, require companies to have at least $100 million as pre-issue paid- up capital and free reserves and $500 million average turnover during three financial years preceding the issue.

These requirements are likely to be cut to $50 million and $100 million, the sources said. The final guidelines are likely to retain most of the provisions proposed in the draft guidelines, floated earlier for consultation purposes, the sources said. — PTI

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‘Merchant airports’ on anvil
Tribune News Service

New Delhi, May 20
The civil aviation ministry has put forward a new concept of ‘merchant airports’ in the country with the infrastructure to be managed by private enterprises and security issues being handled by government agencies.

A statement issued by the ministry last week said, “the entrepreneur is expected to set up and operate an airport on the basis of its commercial viability, subject to the safety and security oversight of the government.”

“Such a proposal will dispense with the requirement for investment of government resources and therefore a more liberal, license-based approval procedure can be considered,” the statement said.

Civil aviation secretary Ashok Chawla chaired the meeting on Friday, which was attended by representatives of leading chambers, infrastructure funding agencies, banks, airport operators and state-run aviation companies.

It was pointed out that although there were no international practices in this regard for benchmarks, but given the rapid growth of civil aviation in India and need for infrastructure, airports needed to work on commercial lines.

International air traffic has been growing at about 15 per cent per annum while the domestic passenger traffic has surpassed 40 per cent. “This growth has placed tremendous burden on the existing airport infrastructure.”

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Tata trucks to take on global majors

Mumbai, May 20
After indigenous production of world-class cars, Tata, now, plans to come out with a whole new range of trucks to compete with global majors.

With the golden quadrilateral highway project linking four metros, in advance stages of completion, there is a dire need for trucks with more powerful engines to move goods faster.

“We are revamping the whole range of products in commercial vehicles,” Tata Motors’ managing director Ravi Kant said.

Kant said the company would launch its new trucks with international styling in new markets like Korea.

Tata Motors has formed a joint venture company with Thonburi Automotive Assembly Plant -Thailand-based independent assembler of automobiles - to manufacture, assemble and pick-up trucks. — PTI

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Exporters explore euro-dominated trade options: Ficci survey
Tribune News Service

New Delhi, May 20
In the wake of strengthening rupee and consequent pressure on profit margins, Indian exporters are exploring euro-denominated trade opportunities.

The combination of factors like rising cost of raw materials, hike in interest rates and appreciating rupee has jolted the confidence of Indian exporters that some of the exporters, especially SMEs, are contemplating catering only to the domestic market for the time being.

According to the Ficci survey, exports in segments such as textiles, gems jewellery, tea, spices, leather and marine products are extremely price sensitive and recent movement in Rupee’s value has started impinging on their export performance.

While, on one hand the rupee realisation for exporters is going down, on the other their margins are getting squeezed to the point where some of them are contemplating catering only to the domestic market for the time being, it says.

The survey has clearly brought out that the recent appreciation of the rupee from a value of 44.28 to 40.84 a dollar over a period of just 10 weeks has taken the exporting community by surprise.

The most hit are small and medium enterprises which, unlike large enterprises, have neither the option of reducing their cost burden by resorting to external sources of finance like ECBs nor have the knowledge of how to safeguard and hedge currency exposure using sophisticated techniques like the forward contracts.

The survey, which was carried out during April and May 2007, drew responses from 304 companies with a wide geographical and sectoral spread. The turnover of the companies ranged from Rs 1 crore to Rs 15,000 crore.

The survey also shows that while large companies are in a position to offset the impact of the rising rupee on their exports through greater and cheaper imports, small and medium enterprises also suffer on this count as almost all of them source locally produced inputs for manufacturing the finished goods.

Another notable finding of the survey is that the exporters are not viewing recent strengthening of the Rupee on account of the RBI’s hands-off approach and non-intervention in the forex market as a short-term phase.

Rather, there is an apprehension that the rupee will continue to maintain its current level over the next few months. Adjusting to the phenomenon, exporters are on the lookout for clients and markets where euro could be replaced as a medium or exchange for the US Dollar.

This move indicates that over the next few months, India’s exports to the USA may witness a slowdown while our exports to the EU may increase, the survey points out.

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Market Update
Market set to scale new peaks
by Lalit Batra

The market surged last week, tracking firm global markets and on reports that there will be early onset of monsoon. The BSE Sensex settled at 14,303 last Friday, a gain of over three and a half per cent over the previous week.

The market is likely to head higher and test alltime high in the coming weeks, as buying is likely to continue at higher levels, led by a robust set of results from India Inc. Technically, sensex has given a break-out above 14,300 and is likely to face next resistance in the range of 14384-14479. While strong support exists at 14160 and 14100 levels.

Similarly, the Nifty also breached a major hurdle of 4,200 and is eyeing an alltime high of 4,245.30. It has resistance in the range of 4,245-4,280, while support exists at 4,180 and 4,120 range.

With liquidity remaining abundant with both domestic and overseas investors, the market is likely to test all-time highs.

Inflation, which has been a concern in the past few weeks, seems to be coming in cooling. These will boost the sentiment further. RBI Governor Y.V. Reddy has kept inflation target of 4.0-4.5 per cent for the medium term.

Also, the progress of the monsoon will hold the key to the direction of the domestic bourses. The weather office said last month that this year’s monsoon rains were likely to be 95 per cent of the long-term average, with a 5 per cent margin of error. The annual monsoon is vital for India’s economic health as it provides the main source of water for agriculture, which generates more than a fifth of gross domestic product (GDP).

Investors, before investing, should look at the fundamentals and the quality of management of the company and should not get carried away in the euphoria of indices touching new highs.

HDFC mid-cap opportunities fund

Close-ended funds investing in stocks from the mid and small cap (capitalisation) segments have emerged in the past couple of years. HDFC Mid-Cap Opportunities Fund (HMOF) from HDFC Mutual Fund is the latest addition to this list. It is a three-year close-ended fund, and will be converted into an open-ended fund at the end of the stipulated period.

The investment objective of the scheme is to generate long-term capital appreciation from a portfolio that is substantially constituted of equity and equity-related securities of small and mid cap companies.

Investment in mid cap companies tend to be under-researched, thereby providing an investment opportunity that is yet to be identified by the market. Investments in such companies offer high growth potential and the opportunity to clock above-average returns over the long-term horizon. On the flipside, since mid-sized companies are often under-researched, there is a fair chance that some reasons for “not investing” could be overlooked.

Investor with higher risk appetite can consider investing in this fund as we believe that the fund house’s (HDFC AMC) process-driven investment approach and expertise can hold the fund in good stead over the long term. The new fund offer (NFO) closes on June 8. 

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Tax Advice
Annuity payments from LIC taxable
by S.C. Vasudeva

Q. I had taken LIC’s Jeevandhara Policy (deferred annuity with return of GIVE amount on death) in September 1988 for a period of nine years. I paid nine annual premia till September 1997, when I retired and the amounts were deducted from my total income. I have been getting annuity payment cheques of Rs 1,065 per month from October 1997 from LIC. I wish you to seek your advice on the following:

(a) Whether the annuity payment from LIC is taxable or not? In case, these are exempted, please mention the section/rule.

(b) Can we deduct these payments amount under Section 80L of the IT Act, 1961 for the past financial years? If yes, then how much amounts can be deducted?

(c) Are LIC policies, matured with bonuses, taxable? In case no, then quote the section/rule.

(d) Is it required to mention in the returns of the financial years if these annuity payments are not taxable?

— P.J. Singh, Chandigarh

A. The answers to your queries are as under:

(a) The annuity payments from LIC are taxable.

(b) Section 80L of the Act, before its omission by the Finance Act 2005 from April 2006, did not cover such annuity payments.

(c) Any sum received under a life insurance policy, including bonus, other than -

(i) any sum received under a policy taken for the maintenance of a person with a disability.

(ii) any sum received under a Keyman insurance policy; or

(iii) any sum received under an insurance policy issued on or after April 1, 2003, in respect of which the premium payable for any of the years during the term of the policy exceeds 20 per cent of actual capital sum assured.

is exempt from tax under Section 10(10D) of the Act.

(d) In view of the reply to your query at (a) above, this question would not arise.

Rebate on travel concession

Q. Value of travel concession is exempt under clause (5) of Section 10, subject to the condition inter alia that it shall not exceed the amount actually incurred for this purpose. The governments give this benefit to its employees once every four years equal to actual expenditure incurred on account of fare only and that too through prescribed modes of conveyance.

The Punjab Government pensioners get travel concession once every two years in July or January, with reference to the date of retirement, equal to one month’s basic pension without any condition. Is this travel concession also exempt from income-tax?

— Mohinder Singh Kahlon, Mohali

A. Section 10(5) of the IT Act, 1961 provides that in case of an individual, value of any travel concession or assistance received by, or due to, him:-

a) from his employer for himself and his family, in connection with his proceeding on leave to any place in India;

b) from his employer or former employer for himself and his family, in connection with his proceeding to any place in India after retirement or termination of his service.

Subject to such conditions, as may be prescribed (including conditions as to number of journeys and amount which shall be exempt per head) having regard to the travel concession or assistance granted to employees of the Central Government. It is further provided that amount exempt under this clause shall in no case exceed expenses actually incurred for such travel.

It would thus be observed that even if the amount is received from a former employer, exemption is available in respect of the amount actually incurred for the purpose of such travel.

Tax liability on bonds

Q. I invested Rs 5,000 in Jal Nigam bonds, Mysore in July 1996 and received a cheque for Rs 28,000 in July 2006. What will be my tax liability? I am an assessee and senior citizen. How much tax will I have to pay on this income of Rs 23,000 in 10 years?

— Babu Singh

A. The facts given are not complete. You have not indicated the nature of bonds purchased by you i.e. whether interest was payable on quarterly, half yearly, yearly basis or the entire interest was to be paid on cumulative basis at the time of maturity. The interest accrued for each year on cumulative basis should have been included in the total income of every year. From your query it seems that the same has not being included. Thus, the entire accumulated interest will be taxable in year of receipt. 

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