Daily Excelsior...Business

Prices likely to fall in post Vat scenario ......

Cotton procurement touches all time high .....

Centre planning 27 new coal projects .....

ICWA mulls change of name to ICMA .....

ADB sees India’s GDP slowing to 6.1% in
FY06, inflation at 3%

NEW DELHI, Mar 20: Asian Development Bank today forecast a lower 6.1 per cent economic growth for India next fiscal from the estimated 6.9 per cent in 2004-05.

"In 2005-06, GDP growth is likely to decline to 6.1 per cent mainly on account of an expected cyclical decline in the growth of industry and services to 5.2 per cent and 7.3 per cent respectively," ADB said in its latest economic bulletin.

The lower growth projection from ADB is in contrast to Finance Ministry’s expectation of 7-8 per cent growth in the coming years.

For 2004-05, the Central Statistical Organisation has projected 6.9 per cent growth over 8.5 per cent in 2003-04. The growth projection is based on the assumption of 4.4 per cent growth in farm sector.

"Despite an expected downturn in industrial business cycle, industry is projected to grow at 6.7 per cent. Services sector growth is projected at 7.7 per cent," ADB said.

While projecting a lower growth, ADB forecast a lower 3 per cent inflation during the next fiscal compared to 4.2 per cent in 2004-05 and 6 per cent in 2003-04.

However, ADB said "downside risks that could undermine the growth and inflation projections include a weak monsoon, a sharp increase in oil prices, inadequate fiscal consolidation and hardening of domestic interest rates following tightening of money supply growth."

"The expected increase in us fed rate could lead to a decline in capital account surplus," it said.

ADB also warned that growth in investment especially in infrastructure holds the key to sustaining high growth over the long run.

While investment has grown to 26.5 per cent of GDP till 2003-04 from 26.3 per cent in 2002-03, ADB said "current rate of infrastructure investment is 3.5 per cent of GDP is way below the required rate of 8 per cent estimated by an expert group on commercialisation of infrastructure projects chaired by Rakesh Mohan."

"The current rates of both private and public infrastructure investments have been well below target. The key problem in attracting adequate private capital in infrastructure is lack of appropriate risk allocation between creditors and investors," it said.

In this context, ADB said "development of a domestic market for long term securities is therefore critical for infrastructure financing."

The main constraining factor for stepping public investment in infrastructure is the large consolidated fiscal deficit of Centre and States, ADB said. (PTI)

Amul for technical co-operation with Pak;
investment in Lanka

NEW DELHI, Mar 20: Amul, the most successful cooperative movement in India, is moving across borders to Pakistan and Sri Lanka.

The brand owned by Gujarat Cooperative Milk Marketing Federation Limited (GCMMF) is in discussion with dairy association of Pakistan to provide technical assistance for establishing a quality dairy infrastructure in that country. It is also close to finalising a Rs 10 crore investment deal for setting up a dairy plant in Sri Lanka.

"The Dairy Industry Association of Pakistan has written to GCMMF to help equip the industry there with modern dairy infrastructure. The matter is currently being discussed by our chairman and a decision would be taken on the proposal soon," officer on special duty, GCMMF, R K Khanna told PTI.

Earlier, the cooperative was looking at setting up its own dairy plant in Pakistan but a restrictive trade regime between the two countries prevented any forward movement on the proposal.

"We are not looking at setting up a plant in Pakistan now. If discussions bear results, we would restrict ourselves to being technical partners in the upgradation of the dairy industry in Pakistan," Khanna said.

GCMMF has also announced plans to invest Rs 10 crore in Sri Lanka for developing a dairy plant with production capacity of two lakh litres of milk per day.

Khanna said that the project failed to take-off after announcements made last year due to the fluid political situation in the island country. Besides, the devastation caused by the Tsunami further acted as an impediment.

"Now things look favourable and once Sri Lankan Government gives us a go ahead, we would begin setting up the plant there," Khanna said.

In Sri Lanka, GCMMF plans to set up a dairy plant initially for liquid milk before going for other products.

The cooperative is also actively pursuing growth in exports to penetrate the huge market of Indians living abroad.

During 2004-05, the total export earnings of the cooperative is expected to grow to Rs 100 crore. (PTI)

ONGC gains on oil spiral but IOC, BPCL,
HPCL slip on bourses

NEW DELHI, Mar 20: The global oil price spiral has come as a boon to ONGC whose shares have surged by nearly 10 per cent since the beginning of this year, but those of IOC, BPCL and HPCL have slipped.

The cut in customs duties and hike in excise duty in the budget came as a dampener to refiners and marketing companies while hike in global crude prices only increased their woes.

Reliance bucked the trend as its petrochem business continues to boom notwithstanding the fiscal measures and external developments.

Despite the family feud of Ambani brothers, the Reliance scrip gained over 5 per cent from January 3-March 18.

The ONGC scrip gained by about 10 per cent to Rs 911.10 and its market capitalisation has also grown by an equivalent percentage to a whopping Rs 129,916.85 crore.

But it was a different story for IOC, BPCL and HPCL. While the IOC share price fell by nearly 10 per cent, HPCL slipped 18.70 per cent while BPCL was down by 17.66 per cent during this period.

The movements come amid the volatility in prices of global crude prices that rose to a record high of 57 dollars per barrel.

Crude on the New York Metal Exchange was at 42 dollars per barrel on January 3, 2005, and by budget day it had risen over 22 per cent to 51.75 dollars a barrel.

For domestic crude oil producer ONGC, the oil price rise is favourable for its revenues as it receives import parity prices - the prices based on the imported cost of crude oil.

This was reflected in the surge in its share price by 2.56 per cent from Rs 830.45 on January 3 to Rs 851.75 on budget day (February 28).

However, oil refining and marketing companies have not been so lucky as domestic prices of products like petrol and diesel have remained static (since November 2004) and have not kept pace with the dizzy rise in global crude prices thereby causing losses.

Indian Oil Corporation’s share price fell 4.75 per cent from Rs 515.95 to Rs 491.45 from January 3 to February 28.

HPCL share price fell nearly 14 per cent from Rs 407.85 to Rs 351.25 and BPCL fell 8.30 per cent from Rs 466.45 to Rs 427.75 during this period.

Companies which are not substantially into oil marketing and mainly into refining like Reliance industries and ESSAR oil have, however, bucked this trend and have actually seen appreciation in their scrips over this period.

Reliance gained 2.38 per cent from Rs 543.10 to Rs 556.05 and ESSAR oil nearly 10 per cent from Rs 32.80 to Rs 36.00 during this period.

Since refiners get import parity prices on their products like petrol and diesel, their refining margins of 5-10 dollars a barrel remain protected technically and hence pure refiners should not bear a significant adverse impact of rising crude prices.

Rise in RIL share price is also explained by favourable conditions in its other major business —petrochemicals -where the business cycle is peaking.

However, rising oil prices have hit sentiment in smaller refining companies scrips. Kochi refineries shares shed 22.63 per cent of its value while MRPL lost 9.35 per cent.

While global crude oil prices rose unrelentingly even after February 28 by another 10 per cent from 51.75 to over 57 dollars a barrel by March 18, 2005, the budget had some negatives for the sector as a whole.

The Finance Minister cut the customs duty on crude oil from 10 to 5 per cent.

Since ONGC receives import parity prices, its effective revenues would fall by the amount of reduction.

However, this would be more than offset by the over 10 per cent increase in international crude oil prices since budget day and the scrip shrugged off the customs duty reduction gaining another 6.97 per cent to Rs 911.10 from budget day till March 18.

Oil refining companies were adversely impacted by the cutting of import duty on petroleum products like petrol and diesel from 15 per cent to 10 per cent which would result in lower revenues for refiners as they receive import parity prices for petroleum products - the lower customs duty resulting in lower realisations.

As a result, pure refiners like Kochi refineries and MRPL continued to lose value - their scrips falling another 9.82 per cent and 1.59 per cent respectively from budget day till March 18, 2005.

Those refiners who are also into oil marketing experienced a double whammy to their revenues as the budget simultaneously raised excise duty on petrol and diesel.

In addition, the FM increased the cess for road development to Rs 2 from Rs 1.50.

However, the Government has so far not allowed oil marketing companies to pass on these increases in excise duty and road cess to consumers.

According to some estimates, oil companies are facing a loss of Rs 550 to 600 crores a month on account of non-revision of petrol and diesel prices domestically. (PTI)

VAT confusion compounded ahead of April one deadline

NEW DELHI, Mar 20: With the countdown having begun for the implementation of the Value-Added Tax (VAT) regime, the emerging picture appears hazy as various State Governments have adopted an ambivalent or even confrontationist stand on their readiness to adopt the new taxation system from April one next.

Dealing a serious jolt to its implementation in the country from next month, Chief Ministers of the five BJP-ruled states on Saturday said that the VAT system would not be acceptable for them unless it was introduced in all states of the country simultaneously.

Under the new regime, more than 550 commodities will come under an across-the-nation VAT rate and will replace sales tax which is marked by a multiplicity of rates across the country.

Leading traders organisations including the Federation of Associations of Maharashtra (FAM), one of the oldest trade bodies, have called for state and country-wide bandhs to oppose some of the provisions in the VAT regime proposed in the budget.

With the BJP Chief Ministers Vasundhara Raje (Rajasthan), Dr Raman Singh (Chhattisgarh), Mr Babu Lal Gaur (Madhya Pradesh) and Arjun Munda (Jharkhand) — Gujarat was represented by Finance Minister Vajubhai Vala — deciding not to implement the VAT deadline, citing the instances of Uttar Pradesh and Tamil Nadu, there is uncertainty about the system actually getting underway.

The Chief Ministers, who met here under the chairmanship of BJP president L K Advani, said all the five states, including Jharkhand, which was yet to pass the VAT legislation, were in a position to implement the VAT system from April but if major states like Uttar Pradesh, Tamil Nadu, Uttaranchal, Himachal Pradesh and Chandigarh were out of the net, confusion and chaos would reign among the states, traders and consumers.

Mr Yashwant Sinha, who initiated measures to implement the VAT system in the country as Finance Minister in the NDA tenure told newspersons that the CMs expressed concern at the difficulties experienced in the next four years when VAT and Central Sales Tax will co-exist.

The consensus that emerged was that the Centre should fully address the difficulties before insisting on introduction of VAT. It is essential that the VAT be introduced only when care is taken of the fiscal interests of the states, concerns of tax payers and the consumers, Mr Sinha said.

The introduction of the new system should be after requisite preparatory steps are taken and a general atmosphere of support is created. "Piecemeal introduction of a new tax system is undesirable," he said.

The Uttar Pradesh Government is still undecided on whether to implement VAT. Chief Minister Mulayam Singh Yadav said here on Friday that VAT would only be implemented after taking traders into confidence, adding that the State Government was trying to achieve a balance between the demands of the traders and the Centre.

The traders of up meanwhile are holding a nationwide hunger strike. The hunger strike, which began on March 17, would continue till March 24.

Meanwhile, the Delhi Government has introduced the Delhi VAT (amendment) bill 2005 in the State Assembly seeking to enlarge the scope of composition scheme by enhancing the maximum limit from Rs 25 lakh to Rs 50 lakh to give relief to about 20,000 traders in the city.

Accordingly, traders having an annual turnover of up to Rs 50 lakh could pay a flat compounding fee of one per cent towards VAT.

The State Government has decided to increase the limit through an amendment after realising that on the one hand the revenue loss would not be too much and it could save a lot of effort as little could be gained from scrutiny of cases in this bracket.

The amendment also proposed to incorporate a scheme of deduction at source at the time of making payments for works done by contracts at the rate of 12 per cent to ensure better compliance and collection of tax and safeguarding of the revenue of the Government.

State Finance Minister A K Walia stressed that VAT, which would come into force on April 1, would check corruption as it would lessen the interaction between tax officials and the traders besides reducing hassles as the self-assessment system would have have less paperwork.

The Tamil Nadu Government has decided to proceed with the introduction of VAT and seek a broad consensus on the issue. Finance Minister C Ponnaiyan told the Assembly that the state would enter the VAT regime, only if the Centre agreed to compensate for the losses of about Rs 2,700 crore, including Rs 1,500 crore due to the phasing out of Central Sales Tax (CTS) in view of switching over to VAT.

The Centre had indicated that compensation from losses due to the phasing out of CST would be provided at 100 per cent in the first year and 75 per cent in the second year, but it should provide 100 per cent compensation in the second year too, Mr Ponnaiyan said.

It further suggested that the Centre should also give more flexiblity to the state in drawing up the list of commodities to be exempted from the VAT net, he said. Initially, the Centre included rice in the tax net, but when the state had objected to it, the Centre gave the option to the State Governments to exempt commonly used items from the tax net, the minister pointed out.

As the state’s interests were involved, the State Government would explore all avenues to protect the interests of all sections and reach a consensus before introducing the new tax system.

Stating that the Centre would get more revenue by way of buoyancy in Income Tax and Service Tax collection after introduction of VAT, Mr Ponnaiyan said the state would ask the Centre to enhance the states’ share from the divisible pool of Central taxes to at least 50 per cent against the 12th Finance Commission’s recommendation of 30.5 per cent and also demanded that the service tax benefit be devolved to the State Government. Though VAT would be a state’s legislation, it would benefit the Centre a lot, he added.

Mr Ponnaiyan said some of the commonly used items which enjoyed zero per cent tax would attract four to 12.5 per cent tax after VAT and the Centre should allow the states to exempt these from VAT.

The Tripura Government too recently promulgated an ordinance to introduce the VAT in the state from April 1 along with the rest of the country. However, the "Tripura Value Added Tax Bill, 2004" was re-introduced in the ongoing budget session of the State Assembly.

The select committee was formed in the last sitting of the Tripura Assembly in December last year following the demand of the opposition MLAs, who pointed out loopholes in the bill, first introduced in the House in the last session.

In Thiruvananthapuram, Chief Minister Oommen Chandy said that VAT would come into effect in Kerala only after it was implemented in at least half of the states in the country.

After talks held by the Kerala Government with traders’ representatives on VAT implementation failed, the traders have announced that they would go ahead with the nation-wide agitation from March 24. The wholesale dealers were on a strike since March 15.

According to Vyapari Vyavasai Ekopana Samithi Thiruvananthapuram district president Peringamala Ramachandran, the existing system of single face taxation is transparent and efficient as only the "first seller" (wholesale dealer, C and F agents) is required to pay the tax.

Mr Ramachandran said the Government was forcing the retail dealers to collect the tax for the 25,000-odd wholesale traders in Kerala. Retail traders numbering 10.5 lakh are opposing imposition to VAT.

He said the State Government would be losing a revenue of Rs 840 crore annually if VAT was implemented.

The system would help only the producers as they need to pay only tax on raw materials, enabling them to get an additional profit of Rs one lakh crore annually.

If the Centre refuse to compensate the loss in time, the Kerala Government would face a serious financal crisis even to disburse salary to its employees, he said adding that the main income to the state exchequer was from Sales Tax. It was because of this that Tamil Nadu Chief Minister J Jayalalithaa was opposing VAT, he claimed.

The decks have been cleared for introduction of VAT in Himachal Pradesh with the VAT bill scheduled to be presented in the State Assembly before March 31, a report from Shimla said.

Excise and Taxation Commissioner Narinder Chauhan told UNI that a cabinet sub committee was constituted 18 months ago to interact with the traders on this issue. He said the committee held several discussions with various sections of the traders to educate them about the benefits of this tax.

He said most of the traders were now in favour of introduction of this act. Besides, the State Excise and Taxation Department had held many meetings with the traders to remove their doubts and apprehensions. The traders who were earlier opposed to the tax and also went on a token one-day strike were now preparing to work under the new guidelines.

The picture is different in Rajasthan, which has made it clear that it will not introduce vat unless the Centre clearly specified a roadmap for phasing out of Central Sales Tax, a report from Jaipur said.

"We are not in position to implement vat unless there’s a clear roadmap for phasing out of CST," Minister of State for Finance Virendra Meena and Chief Minister Vasundhara Raje told reporters recently, arguing that the two taxes could not be allowed side by side.

Small and medium traders in Rajasthan would be worst hit under the new tax regime, she had said, pointing out that unlike other states, Rajasthan was a "consuming state" and did not favour VAT.

The Orissa Government, which had already adopted the requisite bill in the State Assembly during the last session, appeared ready for the April one deadline.

According to Orissa Finance Minister P C Ghadei in Bhubaneswar, the VAT is more scientific and is being implemented in 133 countries across the world. Besides increasing revenue collection, reducing prices of goods and benefiting the consumers, the system would also check tax evasion, revenue leakage and streamline the tax system.

But all Orissa Federation of Traders Association general secretary B K Mohanty opined that the implementation of VAT would lead to price rise and hit the consumers due to multi point tax collection.

The implementation of VAT, he said would lead to the fall of revenue morever,the traders,mostly the retailers,he said would find it difficult to keep accounts of all items as prescribed by the law.

The traders in Orissa have called for a Orissa bandh on March 19 to protest the implementation of VAT from April one.

The All Orissa Druggist and Chemist Association had also opposed the VAT system in drugs and medicine procurement. Its general secretary Prabir Das has demanded that the existing levy of first point tax be implemented in case of medicines.

The association had decided not to purchase medicines from the wholsalers from April 1 to protest against the implementation of VAT.

In Hyderabad, Federation of Andhra Pradesh Chambers of Commerce and Industry (FAPCCI) Trade and Commerce Committee chairman Nitin K Parekh said that the VAT should be uniform in the Sales Tax implementation in the country instead of following the states different taxation.

Talking to UNI, Mr Parekh said the present VAT Act would not deliver benefits to the traders and business men. He said that every state in the country was adopting their own taxation formula and it could hamper the interests of the business men.

Mr Parek said the VAT act had no common law and classification of tax rates which were necessary for the benefit of consumers and traders. He said the act was against the expectations of the business community and it was in favour of the Government for revenue generation.

Mr Parek said that VAT Act was designed " by the Government, of the Government and for the Government" and forgot the interests of traders and consumers. Neither the State and Union Governments nor empowered committees had ever invited the consumer activists, trade and industrial organisations to give their comments and suggestions on VAT, he remarked.

He said the Governments had failed to take the suggestions from the business communities since 2000, when the empowered committee on VAT started deliberations.

Mr Parek said that the VAT was implemented in more than 120 countries and covered almost 70 per cent of the world population. The Centre should study the taxation formula which was being implemented in developed countries and take steps to ensure that consumers and business communities were benefitted.

In Kohima, Nagaland Finance Minister Kewekhape Therie introduced the Nagaland Value Added Tax Bill, 2005 in the State Assembly on Friday, the first state in the north eastern region to introduce the VAT legislation.

Talking to UNI, State Finance Commissioner H K Khulu said that with its introduction, consumers of the state will be highly benefitted as the tax is linked with the production companies to the consumers. The VAT has an interlink with the national level and inter-state level and as a transparent taxation it will help the consumers a lot, he added.

He said four per cent and 12.5 per cent tax will be levied on main items while most of the goods taxable at eight per cent at present shall be brought down to a uniform rate of four per cent under the act. (UNI)

RBI puts restrictions on Pune coop bank

PUNE, Feb 20: The Reserve Bank of India has banned the city-based citizens cooperative bank from carrying out any banking activities till further notice and placed a limit of Rs 5,000 on withdrawals by the account holders.

The RBI directive, issued on February 18, has prevented the bank from accepting any fresh deposits, granting or renewing loans etc till further notice, banking sources said here today.

The Board of Directors of the bank was superceded some time ago and an administrator — Anand Katka — was appointed.

The RBI has placed a limit of Rs 5,000 on cash withdrawals by its account holders, the sources said.

Katka has assured the depositors of the bank, which has 13 branches in the city, that they would get their money back.

Pune Urban Banks Federation president Anil Bhonsale said the Maharashtra Government should try to revive the citizen’s cooperative bank, which was earlier known as Pune contractors cooperative bank. (PTI)

Prices likely to fall in post Vat scenario

MUMBAI, Mar 20: The prices of almost all goods are likely to fall by one per cent across the country after the introduction of Value Added Tax (VAT) from April one.

"There is no likelihood of prices going up in post VAT scenario. On the contrary, the prices are likely to fall by one per cent after April one," empowered committee of state Finance Ministers member secretary Ramesh Chandra told PTI here.

"The rumours spreading on price hike in the post VAT system is a misconception. VAT would rationalise tax burden and bring down general price level when all the components of the system design are taken together," Chandra said.

"At present, there is an unhealthy competition between states with regard to tax rate and trade diversion. Vat is expected to stop this trend," he said.

Meanwhile, a comprehensive campaign on state-level would be launched to communicate about the benefit of VAT for common people, traders, industrialists and also State Governments in regional languages, Chandra said.

"This campaign will be launched at a national level on the basis of necessary coordination between the state and the centre. The campaign will carried out through regional newspapers, radio channels and other modes which will reach common people," he said.

Centre has alloted Rs 25 crore to various states for publicising the advantages of VAT and Maharashtra state has got maximum amount of Rs one crore for vat publicity campaign, he said. (PTI)

Cotton procurement touches all time high

MUMBAI, Mar 20: Cotton procurement in the country is likely to reach an all time high with the State and Central Agencies already procuring 70 lakh bales owing to a record production of 213 lakh bales this year.

"Procurement from the domestic market at Minimum Support Price (MSP) has touched all time high at 33 per cent of total production against 10 per cent last year through Cotton Corporation of India (CCI) and Maharashtra State Cooperative Cotton Growers’ Marketing Federation Ltd (MSCCGMFL)," industry sources told PTI here today.

The total estimated cotton production is 213 lakh cotton bales and government procurement agencies are still actively buying, the sources said.

"CCI has procured over 26 lakh bales till date and it is expected to purchase another two lakh bales while MSCCGMFL has procured over 42 lakh bales of cotton," they said.

Cotton corporation has procured above MSP from certain pockets of states like Madhya Pradesh, Haryana, Gujarat, Punjab and Andhra Pradesh as part of their commercial operations, they said.

"The loss estimated for state federation due to cotton procurement is at Rs 2,000 crore while CCI’s is calculated between Rs 200 - 250 crore," sources said.

Meanwhile, domestic prices of cotton have firmed up for all varieties while international prices are rallying southward resulting in slowdown of exports, they added.

When contacted CCI chairman and managing director S C Grover said exports have subdued due to poor international prices.

"Indian cotton exports is in a slow down mode as global cotton prices are at par with domestic prices. Domestic cotton prices had gone up in the last week," Grover said.

There is active demand from countries like China, far east, Bangladesh and Pakistan, he said.

"Cotton corporation is awaiting for better international prices as exports will not be a profitable proposition now," he added. (PTI)

Centre planning 27 new coal projects

GUNTUR (AP), Feb 20: The Centre has planned 27 new coal projects to meet the growing demand for coal in the country, according to Union Minister of State for Coal D Narayana Rao.

For the new projects, an expert committee headed by S Sankaran will suggest steps to step up coal production, improve the quality of coal, especially to reduce ash contents and rescue the coal sector from the clutches of the mafia, Rao told reporters here today.

A total of 30 per cent of the industrial establishments are fictitious and they sell coal alloted to them in blackmarket, Rao said adding, "an industry in Nandyal (AP) closed two years ago, but is still receiving coal from Singareni coal mines."

A drive has been launched to identifify bogus establisments, he said.

Rao also gave an account of steps being taken to improve the service conditions of coal mines labours in the country and added their minimum basic pay has been fixed at Rs 5,500 per month. (PTI)

ICWA mulls change of name to ICMA

MUMBAI, Mar 20: The Institute of Cost and Works Accountants of India (ICWA) has suggested change of name to Institute of Cost and Management Accountants of India (ICMA) as a part of complying with the international management accountants’ standards.

"The Standing Committee on Finance of Lok Sabha has also recommended that the nomenclature of ICWA should be changed to ICWA as cost audit report is used for taking managerial decisions," ICWA president H R Subramanya told PTI here today.

Countries like Bangladesh, Sri Lanka and Pakistan have already changed the "works accountants" to "management accountants" and India has to fall in line with the international practice, Subramanya said.

"Government is expected to amend the ICWAI Act and a bill towards this is likely to be presented in this session of Parliament or next," he said.

ICWA is also taking up the issue of extending the cost audit report to competition Commission to avoid duplication of work, he said.

"In addition, cost audit report should be made compulsory for the service sector also by amending the Companies Act. At present, the report is only confined to manufactuing sector," he said.

Subramanya added that ICWA has initiated an year long programme with the theme "competency building under global competition" to commemorate its diamond jubilee (1944 - 2005). (PTI)