INDIA BUSINESS WORLD - JULY 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

WAR ON INFLATION: Government has put his cards on the table. On Tuesday, a hawkish Reserve Bank of India governor Yaga Venugopal Reddy hiked the key shortterm interest rates by a quarter point — second time in 45 days, paving the way for banks to raise interest rates on loans, as well as deposits.

TELE ENQUIRY FOR LEGAL CASES: In yet another first for a judicial body in the country, telecom tribunal TDSAT is all set to launch a telephone inquiry system — similar to tele-banking and tele-medicine — to inform litigants and lawyers about the status of their cases…. .

ANTI-DEMOLITION LAW WILL STAND: EXPERTS: Even as the Supreme Court has rapped the government over its moratorium on demolition, worried traders and fidgety politicians are of the view that the legislation is well within the purview of law. The government too is sure that the apex court's recent observation on the validity of the bill would not impede the operations of the law.

HC STAYS SACKING OF AIIMS BOSS: The Manmohan Singh government on Friday got a cracking slap from the Delhi High Court when it stayed the AIIMS governing body's recommendation sacking Dr P Venugopal from the director's post.

CURRENT ACCOUNT WILL BE IN RED: RBI: The government's projection of a continuing deficit in the current account could impact the flow of FII funds in the economy.

REALTY STAYS DREAM FOR OVERSEAS VCFS: Foreign venture capital funds' (VCFs) realty dreams are stuck on Mint Street . RBI has cited concerns relating to valuation practices in the real estate sector, besides the eligibility of overseas VCFs to invest in it. The central bank had opposed investment by foreign VCFs in real estate in the past too.

ANTI-DEMOLITION LAW SET TO BE DEMOLISHED: THE Manmohan Singh government's game-plan of escaping the wrath of the people of Delhi by putting in place a law declaring a year's moratorium on the sealing and demolition of unauthorised structures was on Monday staring at the possibility of being struck down by the Supreme Court.

JAITLEY HAD VISION TO PREDICT THIS WILL HAPPEN: MUCH before the Supreme Court conveyed its anger over the moves initiated by the UPA government to ‘poach on the judiciary's turf' by enacting the Delhi Laws Act, the Centre had been forewarned by the BJP that the law would not pass judicial scrutiny.

DELHI SET TO HERALD RETURN OF RENT CONTROL: THE urban development ministry is planning to resurrect rent control, first in the Capital and thereafter, states willing, in all major metros. It proposes to fix monthly rents in a price band of Rs 4-9 per sq ft for residential properties and Rs 50-125 per sq ft for commercial spaces.

RBI WARNS AGAINST TOO MUCH MONEY: THE Reserve Bank has cautioned against the higher than projected growth in money supply and bank deposit. Simply put, higher money supply growth signals inflationary potential from the demand side or what is popularly known as demand pull inflation. It is a situation of too much money chasing few goods, thereby causing a rise in the general price level in the economy.

INDIA 'S FDI SOARS 158% : INDIAmay soon have a chance to catch up with China as far as attracting FDI is concerned. Experts predict that foreign investments into China may soon be heading for a downward trend. A large number of Chinese companies have indicated that their foreign partners are reducing investments in the country, according to a leading global business intelligence and analysis group Stratfor. Foreign direct investment (FDI) declined by 0.7% in the first half of 2006 in China compared to India where FDI grew by 158% between January and March 2006.

SEZ DOORS SHUT ON TRADING UNITS: THE government has slammed the brakes on trading units seeking to enter the numerous special economic zones (SEZ) coming up across the country. While development commissioners of SEZs have been asked not to clear applications from trading units, senior officials of the finance ministry are in consultation with their counterparts in the commerce & industry ministry to debar trading units from availing incometax exemption available under Section 10A of the Income-Tax Act.

AGRI, PLANTATION GET 100% FDI FREEWAY BY DEFAULT: HAS THE government allowed 100% foreign direct investment (FDI) in agriculture and plantations with automatic clearance thrown in as an additional bonus for foreign investors? In normal course, this explosive question would have come from the Left parties, BJP or UPA allies. This time around, a missive has been fired by RBI, which has found incongruities in the UPA government's ambitious plan to liberalise FDI policy, especially in sensitive areas like agriculture, plantation, real estate and transfer of shares to non-residents.

WAR OF CENTURY: WADIAS, BIRLAS IN PROPERTY DISPUTE: THE complex operated by Century Textiles in the heart of Mumbai could become a bone of contention between two of the country's oldest business houses, the Wadias and the Birlas, over ownership and land usage. While the Wadias claim the lease is for 99 years, the BK Birla group says it's for 999 years.

BUSINESS NEWS

SC TO STUDY HOUSING LOAN EMIS: The interest burden on most home loans would come down, if the Supreme Court upholds a “cease and desist” order issued by the Monopolies and Restrictive Trade Practices Commission against housing loan major HDFC. HDFC's review petition in the Supreme Court is slated for hearing soon. MRTPC has found HDFC's method of computing interest charges on its home loans to be a “deceptive trade practice”. At stake is the method of annual rest being followed by the lending institution where a monthly rest is more appropriate.

TALKS OF DOC QUITTING PULL DOWN SENSEX 258 POINTS: Rumours of Prime Minister Manmohan Singh's likely resignation from office sent stock prices into a tailspin on Friday, with major indices crashing over 2%. The talk was denied by the Prime Minister's Office post-market hours. On Thursday, the PM had announced a freeze on the divestment programme, bowing to pressure from coalition partners, and this fuelled rumours that he may step down in protest.

GOVT MAY LOWER SBI HOLDING TO 51%: The government is vetting a proposal from the State Bank of India to raise equity capital. This could mean lowering the stake of its principal shareholder to 51%. RBI holds 59.73% in the bank at present, which will be transferred to the government in this fiscal year.

HARDSHELL: MAURITIUS CECA MAY GET SECURITY CHECKED : China and Pakistan may cast their shadow on the proposed Comprehensive Economic Cooperation Agreement (CECA) between Mauritius and India . Security agencies have expressed concerns that the agreement with Mauritius could provide an easy access to Pakistani and Chinese companies to route their investments into India.

DELHI MOST FAVOURED FDI DESTINATION: The national Capital has overtaken the financial capital of the country as far as attracting foreign investment is concerned. Delhi has received one-fourth of the country's total FDI, as against 20% for Mumbai between January 2000 and March 2006. Bangalore , a distant third, received 7.4% FDI during the period.

MUMBAI TO OPERATE LEVERS : Consumer heavyweight Hindustan Lever (HLL) is believed to be consolidating its operations under one roof, putting an end to its decades-old system of two power centres — home and personal care in Mumbai and foods in Bangalore .

MORGAN STANLEY BUYS INTO DELHI REALTY FIRM FOR $65 M: MORGAN Stanley Real Estate has picked up a stake in Delhi-based developer Alpha G Corp Development for Rs 300 crore or around $65 million. Although exact equity stake could not be known, it is expected to be in the region of 15-20 %. This will be the second major investment by Morgan Stanley in India in the real estate space over the last four months when it picked up equity in Bangalore-based Mantri Developers for a similar amount.

FIPB CLEARS FII STAKE IN BHARTI, RELIANCE: The Foreign Investment Promotion Board has cleared the proposals of both Bharti Televentures and Reliance Communications to increase their foreign share holdings to 74%. Both proposals had been deferred earlier.

WORD WITH RIVALS ON FBT CAN AVERT I-T KNOCK: YOUR neighbour's tax payment could well become your burden. Companies can't just relax having paid their own fringe benefit tax (FBT); they must also take a peek at what their peers are paying. If your FBT payout is significantly lower than what your peers have paid, be prepared for the taxman's knock at the door.

TAX HOUNDS ON SHOPAHOLIC CREDIT CARD HOLDERS' TRAIL: SPEND in haste, repent at leisure, especially if you thought the tax hounds wound sniff out the plastic trail. The Central Board of Direct Taxes (CBDT) has asked banks to provide permanent account numbers (PAN) of credit card holders who have run up bills of over Rs 2 lakh but not given their PAN.

GOVT MAY HIKE EXCISE ON LCVS RUN ON DIESEL : THE Cabinet will take up a proposal to levy higher excise duty on light commercial vehicles (LCV) run on diesel. The idea is to discourage diesel-run LCVs as part of an energy-conservation strategy. If implemented, this is bound to impact the sales of LCVs. The finance ministry will examine the tax proposal shortly.

FII REGISTRATION FEE DOUBLED TO $10,000: THE Securities & Exchange Board of India (Sebi) has hiked registration fees for foreign institutional investors (FII) to $10,000 for five years from the earlier $5,000 while also increasing the fees for sub-accounts to $2,000 from $1,000, as per a communication sent to FIIs last week.

HDFC BANK GUARANTEES NOW FAIL TO PASS MUSTER AT NSE: A TUSSLE has broken out between the National Stock Exchange and HDFC Bank. The exchange has stopped accepting guarantees issued by the private bank, which by far is the most aggressive lender in the capital market.

ICICI BANK TO CUT 24% STAKE IN 3i: ICICI Bank is looking at reducing its stake in Mumbai-based software services firm 3i Infotech to 30% from close to 54%, report K Yatish Rajawat & Rajesh Unnikrishnan from Mumbai.

PSU BANKS GOING TO 'VE SOME LAKHY GUYS: THE finance ministry has recommended an annual incentive of Rs 10 lakh for the CEOs of public sector banks to put them at par with their counterparts in private sector banks.

SEZ PROCESSING AREA REDUCED TO 25%: IN A move that comes as a major bonanza to India Inc, the government has decided to allow 75% of the total area of special economic zones (SEZs) to be used for non-export activities such as schools, hospitals, banks, housing and entertainment. The Board of Approval, which clears SEZ applications, has been authorised to allow this concession in the case of multi-product SEZs.

NTPC DADRI PLAN TAKES A HIT AS RIL RENEGES ON GAS PRICE : THIS surely is the death knell for the NTPC power projects at Dadri. Reliance Industries (RIL) has now indicated that selling gas at the contracted price may not be possible given the change in global gas prices.

HINDALCO PROMOTERS TO INCREASE HOLDING 5%: THE PROMOTERS of Hindalco, Kumar Mangalam Birla, his family and associates, will hike their stake in the company by 5% as low share prices and the fear of hostile raids spur promoters across the country into adopting defensive strategies.

JET FLAGS OFF FLIGHT FROM AMRITSAR TO LONDON : JET Airways announced the launch of a direct flight from Amritsar 's Rajasansi airport to London 's Heathrow from August 4. At a press meet held here on Wednesday, Jet Airways CEO Wolfgang Prock-Schauer said it will be a thrice-a-week service — on Fridays, Saturdays and Sundays. “Though it is difficult to find the exact number of air-passengers from Punjab to England , but as per our estimates 37% of the total traffic of Delhi to England comprises Punjabi travellers,” said Mr Schauer. The Airbus plane that will be used on this route will have 196 and 30 seats in the economy and executive class, respectively.

LUPIN LOSES PATENT SUIT IN AMERICA: PHARMACEUTICAL company Lupin on Thursday said a district court in the US has ruled against the company in a patent infringement suit filed by Sanofi-Aventis and King Pharmaceuticals.

REALTY SPECULATORS SET FOR DEMOLITION: THE urban development ministry is planning to make it must for those in possession of ‘urbanisable' land to start construction within six months of procuring the property. Otherwise, the land would be acquired by government at floor rate, which is usually lower than market rate. The main aim of the proposed policy is to keep cash-rich speculators at bay.

AIR DECCAN TO BUY $500M ENGINES: AIR DECCAN has signed an agreement with IAE International Aero Engines for V2500SelectSM engines at the ongoing Farnborough International air show in London . The agreement will be extended to cover Air Deccan's existing fleet of 14 Airbus A320 aircraft and an earlier firm order of 30 Airbus A320 aircraft. The latest engine order is valued at more than $500 million (Rs 2,250 crore).

ONE FORMULA RACE :TATAS, SUZUKI MAY USE SAME 1.3 L DIESEL ENGINE: CONSUMER is going to be the winner in this race between the giants. Auto industry sources say the Tata group is in the process of finalising its decision to set up a diesel engine plant in India to produce the same 1.3 litre Fiat diesel engine that Suzuki has also licensed from the Italian company.

SIFY FACES BRASS EXODUS: SIFY is staring at a management crisis with top brass set for sudden exit. Sources said managing director and CEO R Ramaraj and a group of top honchos have put in their papers amidst talks about growing strife with new promoter, US-based private equity firm, Infinity Capital Ventures.

ARCELOR'S SHAREHOLDERS DUMP SEVERSTAL FOR MITTAL: SHAREHOLDERS in the European steel group Arcelor voted here Friday by a majority of 57.94% to reject an alliance with SeverStal of Russia, clearing the way for a deal with Mittal Steel.

HONDA TO INVEST RS 3,000 CR: HONDA Japan will invest another Rs 3,000 crore in India across all its operations in the next 10 years. The company will also kick off a new parts business called Honda Motor India, which will be headed by Masahiro Takedagawa, president and CEO of Honda Siel. Mr Takedagawa will also co-ordinate Honda's different businesses in India . Honda is also aggressively looking at setting up a new plant for bringing in its small car to India . “In the last 20 years, we have invested around Rs 30 billion and would make investments of a similar amount in the next 10 years in all the three operations,” said Takeo Fukui, CEO, Honda Motor Co.

DHOOTS DAEWOO DEAL'S ON : VIDEOCON is on the verge of acquiring South Korean chaebol Daewoo's consumer electronics business worldwide.

MITTAL EFFECT? TATA SONS TO UP STAKE IN TATA STEEL: THE TATA group will increase its stake in Tata Steel by about 7%, through a preferential issue of shares, to ward off possible hostile takeover, chairman Ratan Tata said on Wednesday. “The steel industry is highly fragmented and considerably vulnerable. The only safeguard is to increase the founding family's stake over time,” Mr Tata told shareholders of Tata Steel.

REALTY COS VIE FOR FII GREENBACKS: THE recent green signal for FII participation in the proposed IPOs and pre-IPO placements of DLF and Parsvnath has led to a scramble among real estate companies. A number of companies — including Ansal Properties & Infrastructure and the Pirmal-Morajee combine's Peninsula Land — have sought permission for selling equity to FIIs through IPOs and pre-IPO placements.

CHANDRASHEKHAR BOARDS GOAIR: AFTER telecom, Rajeev ‘BPL' Chandrashekhar has moved to another passion — aviation. Always a keen flier with his own private jet, Chandrashekhar has now joined the board of the Wadia group-promoted low-cost carrier Go Airways.

HCL TECH BAGS $780M CONTRACT FROM SKANDIA: HCL Technologies, the country's fourth-largest software services exporter, has cut a $780-million outsourcing deal with Skandia, the 151-year-old financial services firm owned by Old Mutual. This is the largest outsourcing deal signed by an Indian software services firm till date, dwarfing Tata Consultancy Services' € 200m (approximately $255m as per current exchange rates) deal with ABN-Amro bagged last year.

EIH BUYS 67% OF PALACE ON WHEELS : OBEROI group's East India Hotels has taken a 67% stake in the Palace-on-Wheels super luxury train project in Rajasthan— expected to go on rails in September 2008—with a project cost of around Rs 60 crore.

HUTCH WINS ORASCOM FDI FIGHT: THE Foreign Investment Promotion Board (FIPB) on Friday cleared Hutch Essar's (HEL) proposal to raise FDI from 49% to 68%, notwithstanding strong opposition from national security advisor (NSA) MK Narayanan and Hutch's Indian partner Essar. The foreign investment includes the 10% indirect shareholding of Egypt-based Orascom, which it holds by virtue of its 19.3% equity in Hutch International. This is the first approval for more than 49% FDI in a telco.

FOR WARBURG PINCUS, INDIA STILL FAVOURITE HUNTING GROUND: INDIA continues to remain a favourite hunting ground for the US-based Warburg Pincus, which stunned the private equity world last year by making a more-than-five-time return on its $300-million investment in Bharti Tele-Ventures. Warburg is now close to acquiring a stake in the Delhi-based Lemon Tree Hotels, a budget-hotel chain and has invested $66 million in Aryan Coal Benefications, the largest provider of coal benefication services in India including, washing and processing of coal.

NEW DEVELOPMENTS AND JOINT VENTURES

TATA MOTORS, FIAT INK MOU FOR PASSENGER VEHICLE JV : In A long-awaited move, Tata Motors chairman Ratan Tata and Fiat SpA chairman Sergio Marchionne finally decided to shift gears and strengthen a relationship which had begun with a low-key distribution tie-up last year.

CAIRN TO POUR $4B INTO RAJASTHAN OILFIELDS: CAIRN Energy kicked off its India story in style, drawing up an ambitious investment plan of around $4 billion for its oilfields in Rajasthan.

LOW COST, HIGH BENEFIT: DECCAN FLIES PAST INDIAN : No frills has Capt GR Gopinath smiling to his gills. His low-cost Air Deccan has made history by overtaking Indian to become country's second-largest domestic airline. In a space of just three years, the up-and-comer has displaced one of the ruling pashas of Indian skies. June data state that Air Deccan's share has crept up to 21.2% from 19.4% in May while Indian's declined to 20.8% from 21.3%, relegating it to the third slot in domestic aviation hierarchy.

DISNEY TO PICK STAKE IN UTV, HUNGAMA : WALT Disney is expected to pick up a small stake in Indian media and entertainment company UTV as well as a significant chunk in joint venture company United Home Entertainment, which runs popular kids channel Hungama TV, people close to the transaction said.

BIG B IS NOW DR BACHCHAN: THAT the Big B has had more than just a brief dalliance with political art is common knowledge, but now India's greatest superstar is moving into the distinguished realm of academic honours. 64-year-old Amitabh Bachchan was conferred an honourary doctorate in arts by De Montfort University, UK. Not quite the Legion de Honeur, the sceptic might argue, but then the last person to get such a recognition from the University was a certain Nelson Mandela. That's certainly iconic company to keep, and Mr Bachchan seemed suitably impressed. “I am deeply humbled by this recognition. But truly, I feel unworthy,” he said, in his usual measured tone.

RANBAXY BUYS GSK'S GENERICS BIZ IN SPAIN : RANBAXY Laboratories said it had acquired Anglo-American drug maker GlaxoSmithKline's Mundogen generic business in Spain for an undisclosed sum. The firm has a strong presence in anti-infectives and anti-depressants. Ranbaxy CEO and MD Malvinder Mohan Singh said the acquisition was in line with the company's M&A strategy focusing on European markets, where it continues to see growth opportunities. “The acquisition will further consolidate our presence in the rapidly growing Spanish generics market and strengthen our product portfolio,” said a company release quoting Mr Singh.

THOMAS COOK, LKP MERGER TO CREATE BIGGEST INDIAN FOREX CO: INDIA 'S largest money changer Thomas Cook India (TCIL) is set to merge with the number two player LKP Forex in a Rs 200-crore deal. The merged entity will have a 47% share of the Indian money-changing market. The merger was approved by the two company boards on Friday. The share-swap ratio will be decided by July-end after which the scheme of amalgamation has to be approved by the shareholders of both companies and the Bombay High Court.

MAX INDIA MERGES MTVL WITH ITSELF: THE Max India group has merged its telecom holding company Max Telecom Ventures Ltd (MTVL) with group flagship Max India. With this merger, the Rs 400 crore, netted by the group by selling its 1.95 % equity stake in Hutchison Essar last year, and which was so far residing in MTVL, has been transferred into the reserves of the listed Max India.

AIR SAHARA OFFERS SPECIAL FARES : In an attempt to regain market share and win back customer confidence after an aborted merger deal with Jet Airways, Air Sahara has come out with a special fare package. Re-launching its ‘Sixer-in-the-Air' package, Air Sahara is offering six economy class tickets for Rs 26,000. Valid for travel till September 30, the average pay-out per ticket comes to Rs 4,333, including taxes. Limited to the domestic sector, the tickets are open for sale up to July 15.

BOMBED, NOT BOWED : JULY IS the cruellest month for Mumbaikars whose patience and resilience is being put to new tests. Seven deadly blasts rocked the city's western railway system at rush hour on Tuesday killing at least 163 and injuring more than 250. The blasts ripped open first class train compartments, threw bodies on railway tracks, sent panic-stricken people running onto the roads and revived painful memories of the 1993 serial blasts that killed 228 and injured more than 1,200.