INDIA BUSINESS WORLD - JUNE 2006
THE MONTH THAT WAS

News & important developments from the most prospective of the New World markets……. India. Our effort is to provide you with the latest and relevant developments that take place in the Indian business, economic and legal environment.

ECONOMIC & LEGAL NEWS

GDP EXCEEDS ESTIMATES, GROWS 8.4% IN 2005-06 : INDIAN economy has recorded a higher 8.4% gross domestic product (GDP) growth in 2005-06 as per the revised annual estimates, surpassing the advance estimates of 8.1%. The growth is significantly higher compared to the previous year's 7.5%.

NRI IS NOW BIGGEST NON-RESIDENT LENDER : MOVE over World Bank. The biggest source of India 's foreign debt is now our very own NRI. Non-resident Indians have emerged as the largest overseas lender to the country, surpassing traditional sources such as multilateral and bilateral foreign agencies.

RBI MOVES TO REIN IN INFLATION, HIKES RATES BY 25 BPS : THE days of easy money are over. Interest rates are set to rise across the board on all loans including home loans with Reserve Bank of India hiking the short-term benchmark interest rates. The rate hike, aimed at reining in inflation, caught most bankers offguard.

INDIA LIFTS 4% DUTY ON FARM GOODS FROM NEPAL : INDIA has agreed to lift 4% additional duty on primary products, though Nepal is pushing for a blanket waiver on all goods. The issue was taken up during delegation-level talks held after the one-on-one between Prime Minister Manmohan Singh and Nepal premier G P Koirala.

REALTY MFS ONLY FOR RESIDENTS : INDIAN investors may get to take an exposure to the real estate sector with the government and the capital markets regulator set to approve norms for allowing realty mutual funds. Foreign investors may, however, have to sit out for a while given the concerns expressed by the regulators and the government of an asset price bubble building up.

PROFIT BOOKING SHEARS SENSEX : A FALL in some Asian markets and profit booking by nervous investors after early gains led the Sensex to fall by about 1.5% and end below the 9,000-point level for the first time since December 2005. The trend, however, is beginning to improve, say traders, with signs of fresh buying.

RAHUL MAHAJAN GETS BAIL, PROSECUTION BAD PUBLICITY : TEN days after he was arrested on charges of drug-abuse, Rahul Mahajan, son of the late BJP leader Pramod Mahajan, walked free when a special court granted him bail. The special court's decision to allow the bail comes after the prosecution failed to produce concrete evidence to prove the charges slapped on Rahul under Section 25 of the NDPS Act, which is non-bailable. The section applies to a person who is found in possession of over 2 gm of cocaine or 5 gm of heroin.

TRANSFER PRICING SCRUTINY THRESHOLD ALL SET TO BE TRIPLED TO RS 15 CRORE : MULTINATIONAL companies can breathe easy on the transfer pricing (TP) front. The finance ministry has decided to triple the threshold for compulsory scrutiny of such cross-border transactions to Rs 15 crore. Those who will benefit from the reduced compliance burden include IT and ITeS companies, pharma and auto majors, foreign banks and firms engaged in diamond trade.

DEAL OFF: JET-SAHARA DOGFIGHT NOW IN COURT : THE Jet-Sahara deal has crashed. In a day of fastmoving developments, Jet and Air Sahara took their battle to court even as the home ministry decided to give security clearance to Jet Airways' chief Naresh Goyal but refrained from issuing it before the deadline of 21st midnight .

INDIA HAS 83,500 MILLIONAIRES : INDIA is making faster dollar millionaires than most other economies. The number of high net worth individuals (HNI) grew by 19.3% in 2005, the second best performance after South Korea 's 21.3% — though Korea is growing on a lower base.

INFLATION TOPS 5% : GOOD times don't last forever. The inflation figure released every week has ceased to be a distant macro number. When the government announced an annual inflation rate of 5.24% (it had last crossed 5% in May '05), neither financial markets nor the man in the street was surprised. The markets had started factoring it following a rise in fuel price while households were learning to live with a surge in prices of fruit, vegetables, pulses such as chana and wheat.

MITTAL STEELS A GLOBAL MARCH: FOR INDIA , it's a harbinger of things to come — economic superstardom. An Indian braves the odds and a belligerent Arcelor board to come out on top of the global league tables — be it in terms of personal wealth (only recently he was number three in the list of the world's Richie Rich) or stature in global business. Bill Gates did well to step down. Bulge-bracket investor Warren Buffett, well, does he have a chance?

SAHARA FILES CAVEAT, JET TRANSFER PLEA: The legal battle between Jet Airways and the Sahara Group gathered momentum with both parties approaching the Supreme Court. While Air Sahara filed a caveat in the apex court to prevent Jet Airways from getting any ex-parte order, the Naresh Goyalowned airline filed a transfer petition. Jet wants all ongoing cases relating to the failed Rs 2,300-crore deal to go to the Bombay High Court.

FUEL BILL TO BURN LARGER HOLE : THE government has introduced trade parity pricing strategy for the retail petro sector, doing away with the import parity pricing regime that was put in place in April 2002. Prices of petrol and diesel have been increased by an average Rs 4 and 2 per litre respectively in accordance with the new pricing regime.

77% $ HOT MONEY : RBI has said 77% of the net annual foreign capital inflow in 2005-06 (April-December) was ‘volatile'. This is the first time that the central bank has defined what it means by volatility in foreign capital flows with respect to India.

RAHUL ARRESTED, TRIES TO BLAME IT ON THE DEAD : DELHI Police arrested Rahul Mahajan, son of late BJP leader Pramod Mahajan, under the Narcotic Drugs and Psychotropic Substances (NDPS) Act.

APOLLO HOSPITAL COMES UNDER POLICE SCANNER : NOTWITHSTANDING its U-turn on the presence of drugs in Rahul Mahajan's blood and urine samples, the Apollo Hospital has come under the police scanner for putting out conflicting versions on the issue.

FMC CLAMPS DOWN ON PROPRIETARY TRADING : UNRUFFLED by the fears of a global meltdown and roller-coaster stock market, commodity futures trading has surged. That's good news with several investors getting a window to make money. But a runaway market has also stoked the regulator's concern.

PROCESSING FLOOR FOR SEZS TO BE CUT TO 35% : IN A move that comes as a shot in the arm of developers of multi-product SEZs, the government has decided to reduce the minimum ‘processing area' requirement to 35% as compared to 50% earlier. A decision to this effect was taken by the empowered group of ministers (eGoM) on SEZs ––headed by defence minister Pranab Mukherjee. The decision to lower the minimum processing area requirement would help corporates such as Reliance, DLF, Adani and Unitech that are planning multi-product SEZs spread over at least 1,000 hectares of land.

HIGHEST FII INFLOWS AMONG NEW MKTS : INDIA has one of the highest exposure to FII inflows among emerging economies. While in India , FIIs formed nearly 70% of foreign investment (FDI plus net portfolio equity flows), in China and Brazil , the percentage was 26% and 30% respectively for 2005. Unlike India , a major chunk of foreign investment entered China , Brazil and Russia as FDI .

LIQUIDITY TWISTER BLOWS AWAY SMALL & MIDCAPS : ONE of the most absorbing stories in the Indian stock market has turned sour. Mid and small-cap scrips, which had captured the imagination of retail investors, have suddenly run out of steam.

RBI TRIPS FIIS : EVEN as FIIs sold around $2 billion in the local markets in May, the Reserve Bank of India (RBI) kept buying. It bought over $2 billion from the market, thus weakening the rupee and making it unattractive for FIIs to remit back their money .

RELIANCE JV PACT FOR HARYANA SEZ DEFERRED : THE Reliance mega SEZ slated to come up in Haryana appears to have hit a speed breaker. The signing of the joint venture agreement for the Rs 30,000-crore multiproduct SEZ, which was supposed to have been inked between RIL chairman Mukesh Ambani and Haryana CM Bhupinder Singh Hooda, has now been postponed by at least a week. The project is understood to have been delayed because of concerns raised by 10 Janpath about certain aspects of the project. According to sources, Haryana chief minister Bhupinder Singh Hooda has been summoned to New Delhi by Congress president Sonia Gandhi to discuss the SEZ project. Sources said it was likely that Mrs Gandhi and her colleagues would take a relook at the last-minute changes made in the land use rules of the SEZ being developed by HSIIDC and Reliance .

GOVT LAND AGENCIES RAKING IN CRORES : THE government agencies and authorities — with the mandate for urban development — are making money at a rate that would embarrass fast-growing business houses, thanks to the real estate boom. During the last one year, some of the agencies, such as DDA in Delhi and Noida authority, have contributed more than Rs 3,000 crore to the government's treasury. And this excludes retail transactions, which, if taken into account, would become more than three times over. The Mumbai Metropolitan Region Development Authority (MMRDA), for its part, has sold 48,000-1.1 lakh sq ft plots for Rs 2,500 crore last year.

JOBS GROW FASTER THAN WORKFORCE : JOBLESS growth is empty rhetoric, at least off the farm where the bulk of growth takes place. Off-farm jobs are growing faster than the workforce, finds the Fifth Economic Census, whose results were released by the government. Between 1998 and 2005, jobs in enterprises other than those engaged in crop production and plantations rose by 2.5% a year whereas the growth of the workforce is 2% a year. The growth in employment is an improvement over the fourth census rate of 1.7% a year during 1990-98, pointed out GK Vasan, minister of state for statistics and programme implementation. This shows an accelerating trend in job growth in the latter half of the reform years compared to the initial years.

JET MAY CALL OFF SAHARA TAKEOVER : THE proposed Rs 2,300-crore takeover of Air Sahara by Jet Airways — one of the largest corporate deals in India — is coming unstuck. If Jet chairman Naresh Goyal does not get security clearance from the government before the midnight of June 21, the deal may be called off. It seems Jet is using the lack of security green light to wriggle out of the deal, which has been given a thumbs-down by the market with the Jet share plummeting to new lows .

INDIA ON A ROLL; TAKES LION COUNT TO NINE : EVEN as FIIs sold around $2 billion in the local markets in May, the Reserve Bank of India (RBI) kept buying. It bought over $2 billion from the market, thus weakening the rupee and making it unattractive for FIIs to remit back their money .

CABINET CLEARS NALCO, NLC SELLOFF & DUTY-FREE IMPORT OF FOOD ITEMS : THE UPA government showed fresh resolve to move forward on critical reforms and take care of am aadmi by pushing for divestment in profitable PSUs and allowing import of foodgrains and sugar by private trade at zero duty. The longstalled disinvestment programme got going again with the Centre clearing the sale of 10% equity in Nalco and Neyveli Lignite Corp (NLC) in the market. The clearance was given by the Cabinet committee on economic affairs (CCEA) chaired by the PM .

NDMC LIKELY TO SLAP SERVICE CHARGES ON GOVT PROPERTIES : PROPERTIES in Lutyens' Delhi including Rashtrapati Bhawan, Prime Minister's Office, central government offices and diplomatic missions may be made ‘liable' to pay a service charge to New Delhi Municipal Council (NDMC). The government is considering amendment to the NDMC Act, which would empower the municipal body to collect service charges from government establishments in lieu of property tax.

JET-SAHARA FIGHT GETS POLITICISED AND HOTTER : THE Jet-Sahara tussle intensified further. While the court extended the freeze on the Rs 1,500-crore escrow account “till further orders”, the failed deal got more politicised

BUSINESS NEWS

SARAL GIVES WAY TO 4-PAGE I-T FORM: SARAL (simple) days of filing income-tax (I-T) returns are over. I-T Department notified a new fourpage I-T returns form, which will record expenditure details of assessees, besides capturing their income statements.

SURI TO ACQUIRE BALAJI'S 7-STAR FOR RS 390 CRORE: HOTELIER and Rajya Sabha MP Lalit Suri's Bharat Hotels is set to make a 'grand' entry into Chennai's thriving hospitality market.

IBM TO BRING $6000000000 : EXPECTATIONS had been running high. It was a given that IBM chairman Sam Palmisano would make a bigbang announcement in Bangalore at the largest assembly of IBMers outside the US — over 10,000 with a median age of 24. That the setting was the regal Palace grounds and the chief guest none other than President Abdul Kalam, only added to the gravitas of the event. And, the man running the biggest IT company in the world didn't disappoint.

ICICI BANK RAISES LOAN RATES 0.5%: HOME and personal loans were the first to be impacted by the hike in the benchmark repo rate by RBI.

FENDI SET FOR INDIA FORAY : FENDI, the Italian luxury fashion brand from the Louis Vuitton Moet Hennessy (LVMH) stable, is set to enter India . Famous for its leather goods, Fendi will be acquiring 51% stake in little-known Mumbai-based Fun Fashion (FFI).

IIP CLOCKS 9.5% GROWTH: THE index of industrial production (IIP) clocked a growth of 9.5% in April 2006 against 8.1% in the same month of the last fiscal on the back of a robust growth in manufacturing. Over two-thirds weight in the index is accounted for by manufacturing, that grew 10.4% compared to 9.2% last year, according to official data released here.

BIRLAS PAY RS 4,406 CR FOR TATA'S IDEA STAKE:  THE TRANSACTION between the Birlas and Tatas for the 48% held by the Tatas in Idea Cellular has been completed and the money (Rs 4,406 crore) has been deposited in an escrow account. This amount would be transferred to the Tata Group once the transaction is cleared by the DoT, industry sources said.

TATAS BUY EIGHT O'CLOCK COFFEE: TATA Coffee, a 51%-owned subsidiary of Tata Tea, announced that it had acquired US-based Eight O' Clock Coffee Company (EOC) from Gryphon Investors for Rs 1,015 crore ($220 million). The acquisition, which will be financed through a combination of equity and non-recourse debt, is in line with Tata Coffee's plans to enter the US market.

MODERN FOOD ON THE BLOCK:    HINDUSTAN Lever is selling Modern Food. India's largest consumer goods company had bought the bakery company in the country's first privatisation deal in 2000 and has struggled to turn it around ever since.

FIIS GET RBI NOD FOR REALTY PRE-IPO FUNDING :    IN A MOVE that will impact the IPO plans of a host of real estate companies, the Reserve Bank of India has said that FIIs can participate in the pre-IPO placements of these companies. In a recent communication to the finance ministry, the apex bank has said that shares picked up by FIIs in pre-IPO placements would be subject to a lock-in of three years, which is currently stipulated for foreign direct investment (FDI).

AZIM PREMJI, KM BIRLA ON RBI BOARD :     WIPRO chairman Azim Premji, Aditya Birla group chairman Kumar Mangalam Birla and Ambuja Cement chairman Suresh Kumar Neotia feature in the new look central board of directors of the Reserve Bank of India.

CHINESE ZTE TELECOM PLAN GETS RAW DEAL :   DESPITE growing economic relations and claims of strategic partnership, a great wall of security still separates Beijing and New Delhi . The government has put on hold Chinese giant ZTE Telecom's plan to enter wholesale trading in telecom equipment following objections from intelligence agencies. This comes on the back of several other big Chinese investments being objected to by intelligence agencies .

5000CR SEZ :   PUNJAB seems to have emerged as the preferred investment destination of Ambani brothers. Close on the heels of super mega agri project being developed by Mukesh Ambani's Reliance Industries, comes the clearance for a mega SEZ project to be developed by Anil Ambaniled Reliance One World.

UNILEVER OUTSOURCES HR TO ACCENTURE FOR 7 YRS :    CONSUMER goods giant Unilever announced that it has awarded a seven-year contract to Accenture for its global HR operations. IT solutions major Accenture will provide a range of HR services, from recruitment to payroll processing and performance management, in 100 countries. The rollout is expected to begin in a phased manner across the Unilever world, with the first phase of implementation set to begin from the second half of 2006 till 2009.

PARSVNATH BAGS CHANDIGARH TECH PARK DEAL FOR RS 821 CR : IN ANOTHER major realty deal, Delhi-based Parsvnath Developers has bagged 129 acres in Chandigarh Technology Park (CTP) for Rs 821.21 crore upfront, plus 30% share of the revenue that would accrue from the sale of residential units three years from now. The estimated value of this revenue share payable to Chandigarh Housing Board (CHB) is Rs 400 crore, which would have a present value of around Rs 320 crore. Thus, the value of the deal can be pegged at around Rs 1,140 crore.

VEX POPULI: SERVICE TAX ON BROKERS SET TO GO UP :   A NEW irritant awaits the market. Stock brokers may have to fork out more service tax. The new service tax valuation rules which came into effect recently will change the base on which the tax is calculated. Service tax is paid on the brokerage income which on an average works out to 0.5% of the transaction value. The broker is also required to pay a stamp duty which is 0.01% .

INDUSTRIAL WAGES RISE 7.5% ANNUALLY DURING 1998-99 to 2003-04 :    THE demand for workers is rising. This is reflected in the sharp rise in their salaries. Depending on sectors, the average annual wage earnings of workers have grown by 15-35% last year. The New Economy software companies have witnessed more than 35% rise in their wage bill in 2005-06 over the previous year. The share of wages in total expenditure was estimated at 56%. The aggregate wage bill of computer hardware companies has grown by 36% during the same period.

RIL JUGGERNAUT MOVES UP NORTH :     RELIANCE Industries (RIL) and the Haryana government formally inked a joint venture agreement to set up what is touted to be the country's biggest SEZ project. The Rs 40,000-crore project comprising a cargo airport and a 2,000-mw gas-based power plant will be spread over 25,000 acre in the Gurgaon and Jhajjar districts of the state.

SIBLING RIVALRY II: MUKESH'S HARYANA SEZ GETS ANIL'S GOAT :   IT WAS like a ticking time bomb set to go off. Round II of the Ambani battle has begun and it may well turn out to be as ugly and painful as Round I — the trigger being the non-competing clause between the two Ambani brothers that is now alleged to have been violated by Reliance Industries (RIL).

CENTRE CLEARS 8% MUNIS :   TWO years after the withdrawal of the highly popular tax-free Relief Bonds, investors will soon celebrate the return of a new high-return, tax-free instrument.The Centre has given the go ahead to municipal bonds, better known as munis globally, that will offer 8% tax-free return and carry central government guarantee. The rate of return on these tradable bonds of varying maturities would be equivalent to 11.4% taxable.

CLEARTRIP.COM GETS $3 M FROM TWO VC COMPANIES :   CLEARTRIP.COM, a new travel dotcom venture, has received funding from two silicon valley venture capital (VC) firms — the Ram Shriram-promoted Sherpalo Ventures and Kleiner Perkins Caufield & Byers. According to industry sources, the dotcom venture has received about $3 million (around Rs 13.8 crore).

NEW DEVELOPMENTS AND JOINT VENTURES

A&J BACHCHANS WORTH RS 227 CR : FILM actress and Samajwadi Party leader Jaya Bachhan, who has filed her nomination papers for the Rajya Sabha bye-elections from the state, and her filmstar husband Amitabh Bachhan own Rs 227 crore in movable and immovable properties.

EIH DECLARES 1:2 BONUS : EIH LTD, part of the Oberoi Group, has declared a 1:2 bonus, with one bonus equity share of Rs. 2 for every two shares of Rs. 2 face value .

JSPL BAGS BOLIVIA MINE : IN ONE of the largest overseas acquisitions in the mining sector, Jindal Steel and Power Ltd (JSPL) announced bagging the development rights for the El Mutun iron ore mine in Bolivia . The company would invest $2.3 billion over a 10-year period for mining and setting up a 1.7-million tonne steel plant there.

PUNJ LLOYD ENGINEERS SEMBE&C ACQUISITION FOR S$35.2 MILLION : ENGINEERING and construction major Punj Lloyd announced the acquisition of Singapore-based SembCorp Engineers & Constructors (SembE&C), a wholly-owned subsidiary of SembCorp Industries, a leading utilities and marine group in Asia.

BILT BUYS SABAH FOR $261 MILLION : BALLARPUR Industries (Bilt) is acquiring Malaysia 's largest pulp and paper company, Sabah Forest Industries (SFI), in a $261-million deal. The acquisition — the largest by an Indian company abroad in the paper and pulp industry — will catapult Bilt into the top 10 paper companies in Asia , excluding Japan . The deal is subject to due diligence and approvals from authorities and shareholders.

L&T BOARD OKAYS 1:1 BONUS ISSUE : ENGINEERING and construction major Larsen & Toubro said it will issue bonus shares in the ratio of 1:1 to the shareholders. The board of directors recommended a 1:1 bonus issue wherein one share would be issued for every share held, the company informed BSE. The shares of the company closed at Rs 1,988.30, down 6.59% on BSE. Last month, the company had informed bourses that a meeting would be convened on June 7 to consider a bonus issue.

THOMAS COOK SET TO BUY LKP FOREX FOR RS 250 CRORE : TRAVEL and tourism major Thomas Cook is close to acquiring LKP Forex, a wholly-owned subsidiary of LKP Merchant Financing. The deal, understood to be in the region of Rs 250 crore, involves a cash payment and transfer of 15% stake in Thomas Cook, post merger, to LKP shareholders.

LG SETS UP OPTICAL DRIVE PLANT AT PUNE : LG ELECTRONICS India Ltd (LGEIL) announced that it has set up the India 's first and Asia 's second-largest optical disk drive (ODD) manufacturing unit at Ranjangaon, near here.

GODREJ FOODS SET TO BUY NUTRINE FOR RS 270 CR : GODREJ Foods and Beverages, the foods unit carved out of two other Godrej group companies, is set to buy Nutrine Confectionery for about Rs 270 crore in the largest single-brand acquisition in the fast moving consumer goods industry, people familiar with the matter said. Mumbai-based Godrej Foods will be joined in this transaction by IL&FS Investment Managers, the private equity fund promoted by IL&FS Financial Services. This will be the first instance of a private equity (PE) fund teaming up a large business house for a big domestic buyout.

VEDANTA BUYS STERLITE GOLD FOR RS 285 CR : Metals and mining major Vedanta Resources has acquired Sterlite Gold, a gold mining company listed on the Toronto Stock Exchange, for Canadian $68 million (about Rs 285 crore).

MITSUI TO SHELL OUT RS 480 CR FOR 48% STAKE IN 5 FTWZS : JAPANESE giant Mitsui has agreed to pick up 48% stake in five free trade warehousing zones (FTWZs) being developed by MMTC. The total investment by the diversified group in these ventures is estimated at around Rs 480 crore. An understanding to this effect has been arrived at during recent consultations with representatives of the Mitsui Group and Japanese government, commerce & industry minister Kamal Nath.

MYSORE CEM MAY GO GERMAN : GERMANY 'S HeidelbergCement is close to acquiring a major stake in Mysore Cements. Sources close to the development told that the $8.3-billion German company is likely to buy about 30% of the Bangalore-based SK Birla group company and make the mandatory open offer subsequently. The move would also imply a likely exit from the cement business for the Rs 3,000-crore Kolkata-based SK Birla group, which also has interests in textiles, telecommunications and defence electronics. Efforts to reach HeidelbergCement proved futile.

NIKHIL GANDHI TO RAISE 600 CR : AFTER selling the SEZ to Mukesh Ambani and Pipavav Port to AP Moller Group of Denmark, Nikhil Gandhi is set to rope in the defence ministry and four international financial investors — three from the US and one from Asia — to raise Rs 600 crore for Pipavav Shipyard.

GOLDMAN SACHS SET TO PICK UP 10% IN NCDEX : SOME of the most formidable names in Wall Street have woken up to the wonderworld of Indian commodities. Goldman Sachs — the world's leading investment banker and the biggest securities house, has bid for a minority equity stake in National Commodity & Derivatives Exchange (NCDEX), the commodity futures bourse.