INDIA BUSINESS WORLD - August 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

EMPLOYEES PROVIDENT FUND SCOPE TO WIDEN : IF YOU can't fix it, stretch it, anyhow. Even as the rickety social security mechanism reform for workers stays on hold, the government is planning to expand its coverage by amending the Employees Provident Fund and Miscellaneous Provisions (EPF&MP) Act. The proposal is to expand the list of industries covered by the Act to all production units that employ at least 10 workers.

LOAN RATES RISE BLOCKED BY GOVT: IN A sweeping display of authority, the government has told leading banks in the country not to rush through a hike in interest rate on all loans, including the fiercely growing home loans.

POWER OF ATTORNEY PROPERTY DEALS SET TO BE ILLEGAL: THIS may come as a warning bell for all those who have bought property on power of attorney (PoA). The urban development ministry is planning to declare all such property transactions illegal in future, as a PoA deal has often been used to avoid registration.

FOREX RESERVES UP $675M AT $164B: FOREIGN exchange reserves rose $675 million during the week ended July 28, largely on account of revaluation of reserves. According to figures published by the Reserve Bank of India (RBI) in its weekly statistical supplement (WSS), total foreign exchange reserves including gold and SDR rose $675 million during the week ended July 28 to $164 billion.

MONEYLENDER IN PRIVATE LENDING COULD COMES BACK: RBI IS exploring what could be the most challenging banking business in the country yet. It's about allowing banks use the village moneylender to reach out to farmers in need of loans.

INDO-MAURITIUS TAX TREATY UNDER REVIEW: FINANCE minister P Chidambaram on Friday said the government was reviewing the Indo-Mauritius Double Taxation Avoidance Treaty to stop its misuse. The Mauritius route has often been used by Indian companies to do round tripping of their funds and to show them as genuine FII investment in the domestic stock markets. However, Chidambaram made it clear that only some provisions of the treaty were up for review.

COLA BAN MAY HIT INVESTMENTS: US : JUST ahead of a large American trade mission's arrival in India, the US government has warned that the recent ban on soft drinks by state governments could affect investment. Undersecretary for international trade Franklin L Lavin, who is leading what is billed as one of the biggest ever US delegations, said the ban is a setback for the Indian economy, according to an agency report.

CHANDIGARH TOPS : CONSUMER for consumer, Chandigarh pips all big metros in the country, reports Shailesh Dobhal from New Delhi . The Union Territory 's consumers are not just the richest (on per capita income), but also the biggest spenders (per capita expenditure) among the top 50 cities in India . Why, the city even comes second to Thiruvananthapuram on per capita savings, proving that consumption and profligacy are not necessarily interchangeable in the Indian context.

POWERFUL SELLOFF BOOST: GOVT TO SELL 24% VIA IPOs : THE government will reduce 24% stake in some key public sector power companies by offering substantial equity to the public through initial public offers (IPOs). Power companies, as a result, are all set to raise about Rs 3,800 crore through IPOs — expected to hit the market this fiscal.

SEA CHANGE: GOA PLANS TO DEMOLISH BEACHFRONT UNITS : PURCHASING a seaside property in Goa could now well be at your own risk. The state government has decided to come down heavily and demolish illegal buildings along Goa's coast that violate the Coastal Regulation Zone (CRZ), which lays down certain limits on construction along Goa's ecologically sensitive coastal and river belts.

SEZS MAY GET NEW NORMS : THE latest episode in the ongoing saga of hostility between the ministries of finance and commerce over special economic zones (SEZs) could bring tears to the eyes of developers riding high on the new SEZ policy. The government would have to rewrite the SEZ policy and all approvals would need a fresh look, if the finance ministry's latest proposal is accepted.

IN PESTICIDES ROW, COLAS GET A CLEAN CHIT : IN A MAJOR reprieve for cola companies, the government on Tuesday said an expert committee set up by it found “no conclusive evidence of the presence of pesticides in the concentration reported (by CSE)”. The statement puts a question mark on the partial or complete bans imposed on colas by different state governments.

MAURITIUS DOESN'T WANT TO BE SINGLED OUT ON TAX TREATY : FIIs using the Mauritius registration route to invest in Indian stock markets can breathe easy. The tax haven has insisted that its controversial double taxation avoidance agreement with India should not be re-written, unless all similar tax treaties signed by India with other countries, exempting capital gains tax waiver, were also amended.

REALTY FDI RULES EASED : THE government is planning to ease the entry of foreign investors in real estate by reducing the minimum area criteria to 10,000 sq mt for commercial developments and 10 acres for residential projects. At present, no FDI is permitted in commercial setups under 50,000 sq mt and housing ventures below 10 hectares.

NEW DUTY-FREE SHOPPING NORMS FROM MIDNIGHT : HERE'S some relief for air passengers and duty-free shops which were facing a virtual ban on shopping at the airport due to security measures. Civil aviation secretary Ajay Prasad said on Tuesday that passengers can now purchase any item, including liquor, from duty free shops. However, these items shall not be handed over directly to the passenger at the duty-free outlet but will be kept in a ‘uniquely identifiable bag' and delivered while boarding the aircraft.

RBI FEARS SEZS MAY CREATE IMBALANCE IN ECONOMY : THE Reserve Bank of India (RBI) has voiced concern that the growth of special economic zones across the country could aggravate uneven development by pulling out resources from less developed areas. Moreover, the central bank has said the revenue loss suffered by states on account of tax breaks can be justified “only if the units in SEZs establish backward and forward linkages with the domestic economy”.

US LOOKING TO REGULATE BPOS HERE : THE US Office of the Comptroller of the Currency (OCC), which regulates and supervises US banks and their agencies, is extending its jurisdiction to Indian shores. It is looking at auditing and inspecting Indian BPOs that directly or indirectly serve US banks.

FOREIGN PE COS FIND POWER HOT : THE Reserve Bank of India (RBI) has voiced concern that the growth of special economic zones across the country could aggravate uneven development by pulling out resources from less developed areas. Moreover, the central bank has said the revenue loss suffered by states on account of tax breaks can be justified “only if the units in SEZs establish backward and forward linkages with the domestic economy”.

COLAS SHOWN DOOR IN K'TAKA, KERALA : IN A MOVE that could impact FDI inflows, Kerala and Karnataka on Wednesday joined four other states in banning Coca-Cola and Pepsi, following the pesticides controversy. While Kerala announced a blanket ban on the production and distribution of the two soft drinks, Karnataka banned them from schools, colleges and hospitals. The latter joins Gujarat , Madhya Pradesh, Rajasthan and Chhattisgarh in enforcing a partial ban.

BUSINESS NEWS

I-T DEPT TO MATCH EXCISE, TAX FILING : THE MESSAGE from Income Tax department is loud and clear — there is no room for evasion. The department is now gearing up to tighten its noose further. It is creating a special module which will allow it to match details of returns filed for income tax with those in excise duty.

NO SERVICE TAX ON APARTMENT SALE : YOU could well be spared from paying a 12.2% service tax on your dream house in a swank apartment complex. The government has made it clear that a builder or a realty developer who builds property himself will not have to pay service tax. Simply put, there will be no service tax on sale of a flat.

RESET CLAUSE IN FIXED HOME LOANS: HOME loan documents are turning out to be virtual minefields. And, it is a time of reckoning for home loan seekers in India, whose notions of a fixed interest rate on loans are about to be tested.

LOUIS VUITTON GETS FIPB NOD FOR INDIAN FORAY: LOUIS Vuitton Malletier (LVM) — the world's largest brand in fashion and leather goods — has got the green signal from foreign investment promotion board (FIPB) for acquiring 51% equity stake in LV Trading. This marks one of the first approvals for FDI in single branded retail in the country. The government had relaxed FDI norms in the retail sector by allowing joint ventures with retailing of a single brand early this year.

NO TAX ON SALARIES EARNED HERE IF YOU'RE OVERSEAS FOR 6 MONTHS: IN A path-breaking order, the Authority for Advance Ruling (AAR) decided that salary received in India by a person who resided 182 days or more outside India is not taxable, since he will be considered a nonresident during the relevant year.

NEW COMPANY FORMATION PROCESS : NEW CO BORN IN LESS THAN ONE HOUR: THE process began at 10.41 am and in little less than an hour, at 11.40 am, a software firm was born, creating history in India's regulatory firmament. On Tuesday, Corporate Professionals eSolution Pvt Ltd got registered from the promoter's own office in an hour, with some synchronised legwork thrown in at two government offices.

ANIL GOES AT GOVT, MUKESH: THE GLOVES are off, once again. For the first time after the petroleum ministry rejected the RIL-RNRL gas deal, ADAG chairman Anil Ambani has openly lashed out against the government and Mukesh Ambani-run Reliance Industries. Anil Ambani claimed that gas supply was the only issue holding up the 8,000 mw gas-based power plant at Dadri, and that RIL was deliberately creating hurdles for the project.

DISNEY SET TO TELL CHANDAMAMA STORIES: WALT Disney, the iconic American brand synonymous with kids and fun across the world, is in talks to buy out Chandamama, the well-established household magazine that kids and adults love equally.

HOME & CAR LOANS GET DEARER, BANKS RAISE PLRS 25-50 BPS: GET ready to pay more for loans. Big lenders have increased prime lending rates (PLR). These are State Bank of India (SBI), Punjab National Bank (PNB), Bank of Baroda (BoB), Oriental Bank of Commerce (OBC) and HDFC.

FDI INFLOW SURGES 47% TO $1.74 B IN APRIL-JULY '06 : INDIA attracted FDI of around $1.74 billion during April-July 2006, registering a 47% growth over the inflows during the corresponding four months of the previous year. Only $1.18 billion came India 's way during April-July 2005.

NEW SEZ RULES MAKE RELOCATION HARD : UNITS planning to relocate to special economic zones (SEZs) to take advantage of tax sops are in for some disappointment. The commerce ministry has introduced amendments in the SEZ rules to check diversion of exports and production activity to SEZs.

DDA GETS TWICE OF RESERVE PRICE AT JASOLA, GREEN PARK : DELHI Development Authority (DDA) has kicked off the auction of 300-odd residential plots in prime locations around Delhi . The first batch of 13 plots — at Jasola and Green Park — fetched DDA Rs 54 crore, almost double the combined reserve price of Rs 28 crore.

FINMIN CUTS IMPORT DUTY ON PALM OIL TO CONTAIN PRICES : As part of government's efforts to keep prices from spiralling out of control, the finance ministry on Friday cut import duty on crude palm oil from 80% to 70%.“The step has been taken to cushion the impact of increase in international prices of edible oils. International prices of palm oil are firming up and the landed costs of the commodity is also expected to go up.

MAHARASHTRA TO POWER AHEAD WITH TWO SEZS : GET ready to pay more for loans. Big lenders have increased prime lending rates (PLR). These are State Bank of India (SBI), Punjab National Bank (PNB), Bank of Baroda (BoB), Oriental Bank of Commerce (OBC) and HDFC.

POSCO FIRST FOREIGN FIRM TO BOARD INDIAN RAILWAYS : RAILWAY minister Lalu Prasad Yadav is keen to bring Korean steel maker Posco on board. In what would be the first investment by a foreign company in a railway project, Posco is all set to pick up 10% equity in a rail corridor connecting its steel plant with Orissa's Paradeep Port.

TAXMEN ALL SET TO KEEP CLOSER TABS ON STT RETURNS : SECURITIES Transaction Tax (STT) returns are likely to come under increased scrutiny of the income-tax department this fiscal. The department is also toying with the idea of including permanent account number (PAN) in STT returns.

STRONG FUTURES: GOVT PLANS DEFERRED INCENTIVE SCHEME FOR WHEAT IMPORTS : AFTER successfully using advance licences for tiding over sugar shortage, the government believes an incentive scheme may work for wheat as well. The government is examining a plan to give sops next year to traders who import wheat this year. The move is aimed at ensuring there is no shortage between August and December next year. Bringing the import duty on wheat to zero is already on the cards.

TATAS TO HIKE STAKE IN GROUP COS TO 51% : THE TATA group on Tuesday reiterated that it would raise its stake its group companies where its current holding was less than 51%. “Currently, we have over 51% stake in only two companies — TCS and Tata Tele— in all the other companies we are looking at enhancing our stake,” Ishaat Hussain, director finance of Tata Sons Ltd, told the reporters on the sidelines of a function.

BEER WAR HOTS UP : SABMiller, arguably the world's most aggressive brewer, on Friday threw down the gauntlet to Vijay Mallya by buying iconic Australian brand Foster's India operations and consolidating its position in India 's tough-as-nails beer market.

ASSAULT ON SHIPPING RATES : THE ISRAEL-LEBANON flare-up and the short supply of shipping tonnage are making life difficult for India Inc, just when it grapples with hardening prices of oil and LNG.

BUYING A FLAT? PAY ONLY FOR CARPET AREA : BUYING property will never be the same again if the government has its way. If the proposed legislation is passed, space occupied by walls, terraces and porticos will come for free. The urban development ministry is considering to regulate property transactions by imposing a new system of calculating real estate value on the basis of actual usable area (carpet area). Currently, property value is computed on the basis of both carpet area and super area.

RANA TALWAR SET TO BUY LKB FOR RS 300 CRORE : RANA Talwar is back to what he does best. After taking over two banks — Centurion Bank and Bank of Punjab — the former Stanchart CEO and head of Sabre Capital is about to strike a deal with Lord Krishna Bank (LKB), a Kerala-based, unlisted private bank. Centurion Bank of Punjab (CBoP), where Mr Talwar is the chairman, will take over LKB, subject to RBI approval.

SBI WILL BE GOVT'S FOR A NEAT RS 40,000 CR : SBI, the country's biggest bank, won't go the government cheap. The bank will carry a Rs 35,000 crore to Rs 40,000 crore price tag with it when it joins the government indoors from the RBI fold.

JP MORGAN MOBILISES $360M FOR INDIAN REAL ESTATE FUND : JP Morgan Asset Management on Monday said that its real estate fund — JPMorgan India Property Fund — has mobilised $360 million from institutional and high net worth investors (HNIs) from the US, Asia, Europe and the Middle East.

SAP TO INVEST $1B IN INDIA : THE $10-billion German software maker SAP will invest $1 billion over five years to expand operations in India . It also intends to double the headcount from the present 2,800 over the same period. Of the committed investment, the company will spend about $40 million in boosting R&D activities, which it does through SAP Labs India in Bangalore and Gurgaon. The company also opened a new office in Gurgaon where it will staff 250 people by the end of 2006. By the end of this year, SAP expects 20% of the global R&D, services and support to be done out of India .

MYLAN TO BUY 71.5% IN MATRIX FOR RS 3,424 CR : US GENERIC drugs giant Mylan Laboratories on Monday announced the largest takeover in the Indian pharma industry by agreeing to buy Hyderabad-based Matrix Laboratories for up to $736 million in cash.

VSNL SLASHES INTL BANDWIDTH PRICES BY 40% : VSNL, owned by the Tata group, will build two submarine cable systems entailing an investment of $600m, to bridge the missing link in its global undersea cable business. In a move that could improve its market share, the telco has also slashed international bandwidth prices by up to 40%. The cable between India and Europe via the Middle East will cost around $350m. ET had first reported in its Thursday edition that VSNL was planning a submarine cable between India and Europe . It will be ready by early to mid ‘08. The second cable, from Singapore to Japan via Hong Kong , will require an investment of $250m and is expected to be operational by end ‘07.

NOW, CABLE OPERATORS DEMAND 3G SPECTRUM FOR NEW SERVICES : EVEN as GSM and CDMA mobile operators are jousting for a slice of radio spectrum for 3G services, a new claimant has emerged on the scene. Cable TV operators in India want their share of 3G spectrum for offering new services such as mobile TV and broadband.

DISNEY IN TALKS TO BUY MOBILE2WIN : US MEDIA conglomerate Walt Disney is in talks to acquire Mobile2win, a telecom content provider in China , say industry sources. Mobile2win is a subsidiary of Indian internet gaming and content company Contests2win.com, founded by Alok Kejriwal. Mobile2win's investors include Softbank China , Siemens Venture Capital Fund and Contest2win India.

VIDEOCON SETS SIGHTS ON THAI CRT : FURTHERING its global consolidation strategy, consumer durables heavyweight Videocon Industries is reportedly in talks to acquire Thailand 's Thai CRT, among the world's largest television picture tube makers. Videocon is driving a hard bargain for the Rs 1,700-2,000 crore company, which is in the red due to unmanageable operation costs.

BHARTI, ERICSSON IN OUTSOURCING DEAL : BHARTI Airtel, the country's largest mobile operator, on Thursday announced yet another outsourcing deal, this time a $1-billion network expansion contract with Swedish equipment vendor Ericsson. The company will raise resources internally to fund the order.

COURIER FDI CAP MAY BE CUT : IN AN unprecedented move, the government is considering lowering the FDI limit in the courier and express sector to 49% from 100% now. If the government has its way, MNCs like DHL, Federal Express and Blue Dart will soon have to scout for Indian partners.

NEW DEVELOPMENTS AND JOINT VENTURES

MAXIS TO INVEST RS 2,200 CR IN AIRCEL CELLULAR: MALAYSIA 'S leading telecom service provider, Maxis Communications, will invest Rs 2,200 crore in the current financial year into Aircel Cellular to support the existing and additional circles targeted by the company. This implies, Aircel, which currently has operations in Chennai and Tamil Nadu telecom circles, has the investments required to expand its presence to an additional ten circles by March 2007.

GOLDMAN SACHS TAKES 10% IN CREMICA: PRIVATE equity is on its way to the hinterlands. Goldman Sachs has taken a 10% stake in Ludhiana-based Cremica, valuing the company at Rs 500 crore. The deal was signed couple of days back, and some "formalities" remain, according to Akshay Bector, MD, Cremica. He said the company will use the moolah for fresh acquisitions and organic growth. "Cremica has been valued preciously. Overall it's good deal," Rajni Bector, founder of the Cremica group.

NORTEL TO SET UP R&D CENTRE IN BANGALORE : GLOBAL telecom major Nortel has established its R&D centre in Bangalore . The centre — called Nortel Technology Excellence (NTEC) — will focus on product design, development and testing.

ONGC DREAMS BIG ON M'LORE SEZ; TO INVEST RS 10K CR, CREATE1.7 L JOBS : ONGC will pump in about Rs 10,000 crore in the Mangalore Special Economic Zone (SEZ) which has been approved recently by the Board of Approvals for SEZs. The Mangalore multi-product SEZ, expected to start operations in the next two years, will give jobs to 1,70,000 in the first five years.

TATAS SET TO PICK 26% STAKE IN SOUTH AFRICAN TELECOM VENTURE : THE TATAS are picking up 26% stake in a new telecom company in South Africa , InfraCo, where the remaining equity will be held by the South African government. The JV will be the third network operator in South Africa , and will, apart from offering long-distance services within the country, build and operate marine telecom infrastructure for international long-distance traffic. The investment will be routed through Tatas' long-distance arm VSNL, which already owns Tyco, one of the largest players in the ILD space. The JV, when it becomes operational, will enhance VSNL's share in the ILD market.

RELIANCE SAILS INTO PORT SECTOR WITH 40% BUYOUT OF REWAS : MUKESH Ambani's Reliance Industries (RIL) is foraying into the port sector in a big way. The group, which is setting up a mega special economic zone (SEZ) in Navi Mumbai, will pay around Rs 200 crore to pick up close to 40% stake in Rewas Port Ltd (RPL). The Rs 5,000-crore greenfield port, around 10-nautical miles off the Mumbai harbour, will be developed by Reliance and initial promoters Amma Lines. The deal is likely to be signed early next week, said sources close to the development.

TATAS ACQUIRE 30% IN EBI FOR $677 MILLION : TATA Tea, India 's second-largest tea maker, on Wednesday announced a bold move to expand its overseas operations with the largest foreign equity investment by a private Indian company.

HEIDELBERGCEMENT TO TAKE CONTROL OF JV WITH INDORAMA : GERMAN giant HeidelbergCement, the world's fourth-largest cement maker, plans to take control of its equal joint venture with Indorama Cement to consolidate its position in the Indian market. A formal announcement is expected in the next few weeks.