17 june 2000

initial block cleared for maruti divestment
new delhi: it seems that the divestment process in the country’s first joint sector auto company has begun. the core group on divestment today cleared the decks that will allow the government to offload 50 per cent stake in the automobile major, by the end of the current fiscal.

it is understood that the core group has also cleared a divestment plan which involves divestment in 21 psus, including mtnl, vsnl, ibp, rashtriya ispat nigam and indian oil.

the core group also considered divestment of 26 per cent stake in hindustan zinc. however, a final decision will be dependent on technical clarifications that have got to be sorted out by the department of disinvestment in consultation with the administrative ministry.

the divestment in mineral exploration corporation will, however only be done in 2003 once the prospecting licence has been obtained by the company. divestment in bharat breaks & walls have, however, been left to parent burn standard.

supreme court drives last nail in leasing industry’s coffin
calcutta: for an industry already besieged by problems of sales tax, the latest ruling by the supreme court, is the proverbial last nail in its coffin.

until now, the sales tax issue on leasing industry has been governed by two schools of thought. one based on the bombay high court ruling in the case of 20th century finance corporation and the state of maharashtra, where it was decided that sales tax was applicable where goods are put to use, and the other based on the andhra pradesh high court ruling in th matter involving itc classic finance, which exempt sales tax on inter-state movement of goods.

by ruling that the place of signing will now determine the tax jurisdiction of a lease transaction, the apex court has given a totally new twist to the balance altogether.

by this ruling, the already-bleeding leasing industry would probably find it excruciating to learn all leases till now presumed to be tax-free are indeed taxable. besides, the leases on which tax has been paid in one state might now be taxable in another. in other words, the supreme court ruling has brought in a principle, which was never envisaged by the tax payers, let alone complied with.

leading experts are of the opinion that inaction on the part of the government to amend the constitution to include "deemed sales" into the fold of "sales" for sales-tax purposes, has led to this situation of the apex court passing a "judicial law", which has compounded the industry’s problems.

therefore, the understanding based on which lease sales tax was administered by almost every leasing company was, either on the basis of the bombay high court ruling or the ap high court, where the only difference was that inter-state leases were not taxable, but where the lease was intra-state, the jurisdiction was still based on the place of use or delivery of the goods.

thus, if leasing companies have paid tax based on place of delivery or use and such place was different from the place of execution of the contract, the tax was wrongly paid, or wrongly not paid, for last 16 years!

16 june 2000

financial institutions may take 40 per cent stake in power trading
mumbai: power trading corp, an independent central power utility, that will trade electricity between state electricity boards' and five mega power projects, is likely to see the financial institutions take upto 40 per cent equity stake in it.

at a meeting held recently, institutions including lic, gic, uti, idfc, idbi, icici and ifci informed the three promoters of ptc — ntpc, pfc and powergrid —about their decision to this effect.

ptc has meanwhile requested to the government to enhance its equity capital from the existing rs 6 crore to rs 40 crore and is likely to get its approval to this effect shortly. this is aimed at enhancing the financial back-up of ptc in order to cover paymen on its payments. also, an enhanced equity base will help the corpt defaults.

a higher equity base would mean that the ptc can honour its commmitments to the ipps even if an seb defaultsoration raise larger funds from the market, whenever required.

13 june 2000

government allows 100 per cent fdi in e-commerce
new delhi: in a major move that will spur foreign direct investment (fdi), the government today announced that it has raised the foreign direct investment ceiling in e-commerce and petroleum refining to 100 per cent from 49 per cent. it also abolished the rs 1,500-crore investment limit for power projects.

the dividend balancing norms imposed on foreign investors engaged in production of consumer goods has also been scrapped. foreign companies are hitherto required to bring in export earnings in the same proportion to that of foreign exchange outgo by way of dividend.

the relaxation of the guidelines in e-commerce was restricted to b2b ventures, and even here the overseas promoters holding up to 100 per cent in such ventures will have to divest 26 per cent stake in favour of the indian public within a period of 5 years.

commenting on the new norms, mr. pramod mahajam, parliamentary affairs minister , said that liberalising fdi was a better option in many sectors than bearing the burden of a higher import bill. he also stated that fdi created infrastructure and generated jobs within the country.

the restriction has been done away with in 22 specified sectors including white goods, entertainment electronics, cigarettes, tea, coffee, sugar, salt, oil, soft drinks, leather and footwear.

12 june 2000

government may allow liberalise ecbs up to $50 m
new delhi: in what may be a path breaking decision, the government is said to be contemplating freeing the external commercial borrowing (ecb) policy for 2000-2001 up to $50 million, subject to guidelines. simultaneously, the automatic approval route would be enhanced from $10 to $100 million. as a result, only large ecb applications would require government clearances.

under the existing regulations, except for ecb applications up to $10 million under the automatic approval window of the rbi, companies have to seek the finance ministry’s approval for their foreign currency commercial loans.

the new norms being considered by the government would specify that corporates should raise foreign currency commercial loans only from registered entities, such as qualified institutional investors such as recognised banks and fis. at the domestic end, the rbi would delegate its powers to the authorised dealer, who would keep tabs on the drawdown on the loan and inform the apex bank for statistical purposes.

by making the authorised dealers responsible for the transactions, the government is trying to ensure that there are no violations of the norms, since the ads would be answerable for the same.

monitoring of the drawdown is essential since the loan is drawn in several tranches and the rbi needs to know the quantum of loan drawn, the outstanding position and the maturity profiles of the loan for its own bop calculations.

while the government has been talking for some time of delegating more and more ecb clearance powers to the rbi under its automatic approval window, this is the first time that it would actually be freeing ecb, even though the limit is up to only $50 million per borrower.

under ecb, the government has till now been monitoring two things, including the cost of debt and the volume of debt. the government is likely to prescribe the cap on interest rates at which loans can be raised under the $50-million window.

the restriction of the borrowers under the $50-million window is being prescribed to ensure that drug and slush money do not find their way into the country.

assocham report states that rupee may face more pressure
new delhi: in a recent paper put forward by the associated chambers of commerce and industry of india (assocham), it is stated that the widening of trade deficit and shrinking foreign direct investment (fdi) inflows will put greater downward pressure on the rupee and force the indian currency to depreciate to a level ranging between rs. 46.5 and rs. 47 to a dollar by the end of current fiscal year.

there has been a sharp increase in the trade deficit during april, which has been compounded by the pick-up in non-oil imports and continuation of oil prices above the $ 25 per barrel level. further, the not so significant expected increase in export earnings on the invisible account has helped push up the current account deficit and exert a negative impact on the exchange rate of rupee.

trade deficit during april doubled to $ 1.1 billion as against $ 0.5 billion in the same period last year.

with the macro signal on capital inflows from abroad also not being encouraging (estimates show that fdi inflows are likely to be squeezed), the chamber is of the view that the deterioration in both the current and the capital accounts will put greater downward pressure on the rupee in the current year.

the chamber paper noted that the mismatch between demand and supply of dollars in may was attributable to the negative fii inflows and `panic' buying by corporates.

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