[aaykarbhavan] Business standard news updates 19-4-2013

SEZ, engineering, textiles sectors get booster dose in Foreign Trade Policy

BS REPORTER New Delhi, 18 April The government today announced relief for special economic zones (SEZs) by tweaking the minimumlandarea requirement and allowing change in ownership. In its last supplement to the Foreign Trade Policy ( FTP), 200914, the commerce department, however, did not meet the muchawaited demand for doing away with the minimum alternate tax (MAT) on SEZs. Commerce & Industry Minister Anand Sharma said the issue did not fall under his purview and he had conveyed exporters' concerns to the finance ministry. The supplement stressed on measures to boost high- value exports of engineering products and the labour- intensive textiles sector. Though the department did not officially put a figure to it, the package announced today could be to the tune ₹ 1,500- 2,000 crore. Sharma made changes to the popular export promotion capital goods ( EPCG) scheme by merging the zero- duty EPCG scheme, which expired last month, with the threepercent EPCG scheme. Besides, textile exporters also got the combined scheme — a merger of zero- duty EPCG scheme and the technology upgradation fund scheme. The two- per- cent interest subvention scheme for textile made- ups and engineering sectors was also extended.

SEZ, engineering, textiles get sops

NFOREIGN TRADE POLICY N at least 10 per cent growth, with a set of incentives. For special economic zones (SEZs), there was no relief from minimum alternate tax ( MAT) and dividend distribution tax (DDT). Does this mean the government wouldn't be doing anything further? Iwould not like to comment on that. Yes, it is indeed a problem. But I think the export performance for SEZs was very good. MAT is a much larger issue, which the finance minister is aware of. Equilibrium of sorts has already been reached. Now, we have to look at other factors that contributed to the costs … we are trying to re- discover our export competitiveness. In 2012- 13, the export performance of SEZs improved 30 per cent. So, MAT is clearly a disability, but it is not something that would pull us down. Considering the measures announced today, what growth in SEZ exports do you expect this year? We expect a greater improvement this financial year. What would the package announced in the supplement to the FTP cost the exchequer? It is difficult to estimate the amount. For exports, it is not necessary that everyone claims credit for the current year. Trade deficit was the major factor behind the high CAD. Do you see any comfort on these fronts this financial year? In 2012- 13, the trade deficit rose 4.5 per cent compared to 2011- 12, despite three quarters recording extremely poor export numbers. Now, exports have already started looking up. We expect the trade deficit to be controlled, purely on merchandise trade, as exports are now rising. BS REPORTER New Delhi, 18 April The government today came to the rescue of exporters facing tough external headwinds by giving a major policy boost to Special Economic Zones ( SEZs). Aiming to spur outbound shipments by 10 per cent this financial year, significant measures to propel the engineering and textiles sectors were announced. Commerce & Industry and Textiles Minister Anand Sharma, while announcing the measures, declined to specify an estimate of the dole. He expressed hope that the measures would boost outbound shipments and help control the spiralling trade deficit, which had reached a record level of $ 190.9 billion in 2012- 13 from $183.4 billion in 2011- 12. The annual review to the Foreign Trade Policy ( FTP) 2009- 2014 announced today could be ₹ 1,500- 2,000 crore. It reduced the minimum land criteria to fulfill the contiguity criteria for SEZ developers. The requirement was reduced by half for multi- product and sector- specific SEZs. For multiproduct SEZs, the minimum land area requirement has been reduced to 500 hectares, from 1,000 ha. For sector- specific SEZs, this has been reduced to 50 ha, from 100 ha. For information technology ( IT) SEZs, which contribute the most to SEZ exports, the minimum land criteria has been done away with. However, SEZ developers would have to fulfill a minimum built- up area criteria. These measures will be applicable for new SEZs. The government allowed transfer of ownership of SEZ units, including sale, for players who want to opt out. This has been done as the SEZ policy does not have a clear exit route. The government also tweaked the popular Export Promotion Capital Goods Scheme ( EPCG) by merging the zeroduty EPCG scheme, which expired last month, with the three per cent one. This is expected to give a fillip to investment inflows in capital goods. Additionally, for the benefit of textile exporters, the government has merged zero- duty EPCG scheme with the Technology Upgradation Fund Scheme. " This, I hope, will provide a push to our labour- intensive textile industry," Sharma added. The government also extended the two per cent interest subvention scheme to the textiles and engineering sectors. The Incremental Export Incentive Scheme, introduced in December 2012, was extended till 2013- 14. Sharma said the government would conduct a mid- year review of the export sector, where more measures could be announced. Govt to undertake another review by Oct- Nov 'We expect a 10% increase in exports in FY14' On the sidelines of the announcement of the annual supplement to the Foreign Trade Policy 2009- 2014, Commerce Secretary S R RAO tells Indivjal Dhasmana & Nayanima Basu that the trade deficit would be controlled. Edited excerpts: SR RAO Commerce secretary VOICES Though most of CII's suggestions pertaining to SEZs are reflected in today's announcement, industry is still looking forward to the fast removal of MAT and DDT, along with Chapter- 3 benefits to be granted to SEZs SGOPALAKRISHNAN President, CII The measure... will help in promotion of garment exports. We had asked for duty credit scrip of five per cent for the garment industry, which is used to offset Custom duty. The government has assured it will take up this issue soon A SAKTHIVEL Chairman, Apparel Export Promotion Council It was a routine policy. It has no bold or big- ticket announcements. Another setback has been the lack of focus on marketing, as no announcement of an export development fund was made MRAFEEQUE AHMED President, Federation of Indian Export Organisations For the notified SEZs not operationalised, there are no facilities or incentives in the policy. Reduction of minimum area may not result in a substantial further investment, mainly because most notified SEZs are yet to be operationalised for want of withdrawal of MAT and DDT PC NAMBIAR Export Promotion Council for EOUs and SEZs Minimum land requirement for SEZ developers [1]Reduced to 50 hectares from 100 hectares for sector- specific units [1]Reduced to 500 hectares from 1,000 hectares for multi- product SEZs [1]Minimum land criteria done away with for information technology zones Export Promotion Capital Goods scheme [1]Zero- duty scheme merged with 3% one; expected to boost investment inflows in capital goods [1]Zero- duty scheme merged with Technology Upgradation Fund Scheme; to help textile industry SEZ exit route [1]Promoters can transfer ownership of SEZ units, including via sale Others [1] 2% interest subvention scheme extended to textiles and engineering sectors [1]Incremental Export Incentive Scheme extended till 2013- 14; expected to increase exports to the US, Europe, Asia, Latin America and Africa Commerce Minister Anand Sharma ( R) with Commerce Secretary S R Rao at the release of the annual FTP supplement in New Delhi on Thursday PHOTO: DALIP KUMAR TRADE LIFELINE

Govt looking at raising FDI caps, Chidambaram tells investors

PRESS TRUST OF INDIA New York, 18 April Finance Minister P Chidambaram has assured global investors that their concerns over India's economy would be put to rest and the government would achieve its " ambitious economic agenda" by next year's Lok Sabha elections. "Global industry wants India to succeed. India will succeed. I know this past year has caused a lot of concern but this year is over and by the elections, we will achieve our ambitious economic agenda," he said yesterday at a closed door meeting with investors, hosted by the US- India Business Council ( USIBC) here. He also said the government was considering raising foreign investment limits in various sectors, including defence and insurance, To review the Foreign Direct Investment ( FDI) sectoral caps, the government has already set up a committee, which held its first meeting earlier this month and is likely to meet again soon. "Let the report ( of the FDI committee) come, and I feel many caps deserve to be either relaxed or removed," he said. There is a need to review FDI sectoral caps, he said. " There were many caps imposed at different points in time. We have set up a committee to go into the nature of each cap and ask aquestion: Has the cap served a purpose? Does it continue to serve a purpose? If it does, let the cap continue. If it does not, then the cap should either be relaxed or removed." There are various sectors where FDI limit is way below 100 per cent. While in multi- brand retail it is 51 per cent, in telecom and banking it is 74 per cent. While the Cabinet has approved hiking FDI limit in insurance and pension sectors to 49 per cent, a Bill to that effect is pending in Parliament. Further, in commodity exchanges, asset reconstruction companies, credit information companies and private security agencies, up to 49 per cent FDI is allowed. On raising the FDI cap in the defence sector, Chidambaram said it was a suggestion mooted by Commerce and Industry Minister Anand Sharma. " I am sympathetic to it and the committee will have to decide if the cap needs to be reviewed." Chidambaram said the insurance Bill, which seeks to raise FDI cap to 49 per cent from 26 per cent, was in Parliament and he had discussions with Leader of Opposition of both the Houses. They have promised to revert after internal consultations, he added. "The ceiling has got to be at 49 per cent some day. Whichever government in office, it should be persuaded to increase and why not now is the question," he said. Finance Minister P Chidambaram speaks at a luncheon with US CEOs and business leaders organised by the US- India Business Council, in New York on Wednesday. PHOTO: PTI

 

Sterlites pollution problem TE NARASIMHAN Chennai, April 18 On March 23, Tuticorin residents woke up to itchy eyes, burning throat and breathing trouble. As they suffered an unusual morning, they first thought it was a gas leak, and then, rumours spread that it was " because of Sterlite". Sterlite Industries, a part of London- based Vedanta Resources, runs India's biggest copper smelter in the region. The plant had been shut on the night of March 21 for routine maintenance. It was due to open on the morning of March 23. While the repair work was going on, some people started to complain of breathing trouble and nausea. Within hours, queues at doctors' clinics grew longer, causing others to panic. Soon, people were seen running about the streets of Anna Nagar, Toovipuram, Bryant Nagar and George Road, fearing for their well- being. The state pollution control board quickly swung into action. The Tamil Nadu Pollution Control Board ( TNPCB) accused the factory of releasing noxious gas in the air. It said sulphur- di- oxide levels had gone off the charts on the night of March 23. It showed a reading of 2939.55 mg/ cubic metre against the prescribed limit of 1250 mg/ cubic metre. It also said that the emission monitor was not connected with the air care centre of TNPCB. The board then issued a closure order for the factory. Sterlite denies all allegations. The company says it was given a clean chit by the district environmental engineer ( DEE) of TNPCB who inspected the factory after allegations of leakage. The DEE report says what really caused people to panic was a minor aberration in the level of sulphur- di- oxide which lasted a few seconds before being rectified. Different accounts In contrast to the TNPCB report, the DEE report said after the repair work was completed, sulphur- di- oxide levels suddenly shot up from 20 ug/ cubic metre to 62 ug/ cubic metre, though they were still within the tolerable limit of 80 ug/ cubic metre. The report adds it was promptly brought down to 10 ug/ metre. But that was enough to fuel the simmering protest by locals against the factory. Sterlite's Tuticorin smelter has been at the centre of controversy right from its inception. The legal battles started in 1996 when the National Trust for Clean Environment challenged the clearances granted to it at the Madras High Court. The factory was accused of polluting the environment and causing irreparable health hazards. The on- and- off protests that have the backing of political parties, such as V Gopalsamy's Marumalarchi Dravida Munnetra Kazhagam and the Centre of Indian Trade Unions, have caused the factory to shut down five times till now. For Sterlite, the frequent shutdowns have resulted in huge losses. The company loses ₹ 50 crore for each day it is not in operation. However, it says it will fight it out in the National Green Tribunal, which has called for an independent inspection of the machinery by an expert committee comprising members from the Indian Institute of Technology ( Chennai). The committee is expected to submit its report by April 29; until then, the smelter will remain closed. PRamnath, CEO, Sterlite Copper, is confident of a favourable resolution. He says the Supreme Court verdict, on April 2, overruling the Madras High Court order to permanently close the factory has come as a shot in the arm. In 1998, a local politician had filed a petition in the Madras High Court seeking closure of the smelter. The High Court had given an interim order to close the plant in November 1998, but it was opened within a month after Sterlite agreed to put in place measures to stop pollution as suggested by the National Environmental Engineering Research Institute (NEERI). In 2010, the Madras High Court had ordered the factory be shut permanently. The Supreme Court in its verdict early this month said the plant was a big source of employment, copper and revenue and that it had cleaned up its act. Gearing up for the future The company says it would go ahead with its ₹ 3,000- crore plan to double capacity, in spite of the controversies. "We are very clear that this plant is not only important for the company but for the country's growth, considering it is a major source for infrastructure projects ( copper is used in defence, electricity, automobile, construction and infrastructure )," says Ramnath, adding that the experiences so far will come in handy in its next phase of growth. Sterlite's legal issues are broadly on four major fronts: its location— it is too close to the ecologically sensitive region of the Gulf of Munnar ; it has not created a sufficient green belt around the factory; that public hearings were not held before giving the plant a go- ahead; and pollutants from the factory were seeping into the ground water. Sterlite stands its ground on all these accusations. It says there is no notification prohibiting the location of a factory in Tuticorin. On the absence of pubic hearing, it says it was granted environmental clearance based on the Environmental Impact Assessment Notification in January 1994, which did not mandate public hearing. It also says that TNPCB, upon request from the company, had reduced the green zone to 25 mts from 250 mts. On the issue of contaminating the ground water— samples taken from the area showed high level of cadmium, flouride, chrome, lead and arsenic in 2005— the company says it has taken several measures to ensure waste did not seep into the ground. The Supreme Court, too, took note of this while pronouncing its verdict on April 2. It said all the deficiencies pointed out by NEERI have been removed by the company. "….. as the deficiencies in the plant of the appellants ( Sterlite) which affected the environment as pointed out by NEERI have now been removed, the impugned order of the High Court directing closure of the plant of the appellants is liable to be set aside," the Court said, while imposing a fine of ₹ 100 crore on Sterlite for polluting the water, soil and air around the plant. But after the gas leak, trouble has hit the company once again. Ramnath says, " According to our companys record, no such incident happened and that no evidence was given by the Board for its allegation." He also says TNPCB acted in great hurry and did not give the company sufficient time to prove its stand before announcing its closure order. Sterlite also blames the pollution board of unfair treatment. Ramnath says whenever there is a health scare, Sterlite is pulled up, even though there are 20 more factories in the locality which emit sulphurdioxide and ammonia. None of them was checked, he says. There is clearly a lack of unanimity on the part of the state government officials on the events of March 23. The DEE report and the District Collector, Ashish Kumar, gave Sterlite a clean chit. The collector in a press statement after the incident had said the sulphur- di- oxide was within the permissible limit. However, he changed his stand after the show- cause notice issued to the company by TNPCB. In a counter affidavit filed at the Tribunal, Kumar said " the release was to avoid panic in the minds of people so as to avoid aknee- jerk law & order problem". Sterlite's counsel, TVR Rajagopalan, however, says the emission could have been from any of the other 20 factories in the region. The matter is now pending with the Green Tribunal. The expert committee, as recommended by the Tribunal, will comprise two members from the Tribunal and one each from Sterlite and TNPCB. However, the role of the members from Sterlite and TNPCB will be limited to assisting other members on the panel. Ramnath says, " This is a welcome move. This should have been done right at the start before taking the drastic step of closing the plant." A series of controversies has dogged its copper plant in Tuticorin. But the company denies all allegations "According to our companys record, no such incident ( gas leak) happened and that no evidence was given by the Tamil Nadu Board for its allegations" PRAMNATH CEO, Sterlite Copper GOING UP IN SMOKE Sterlite's copper plant in Tuticorin, Tamil Nadu. Sterlite has been accused of flouting environmental norms and contaminating the ground water Sebi may move to T+ 1 trade settlement cycle BS REPORTERS Mumbai, 18 April The Securities and Exchange Board of India (Sebi) is looking at the possibility of shortening the trade settlement cycle for domestic stocks. In a discussion paper today, the capital markets regulator invited suggestions for the proposal to cut the trading settlement to the first day after the trades, known as T+ 1, from the existing system of closing the transaction on the second day, popularly called T+ 2. Feedback has been invited till May 20. The move is aimed at reducing the risk involving lengthier settlement cycles. Also, to cut and free up the capital which is given as collateral. But, brokers warn the shift to T+ 1 could also pose a huge logistical challenge because the banking system is still not geared up for the system. To achieve a T+ 1 cycle, the existing trading, settlement and payment cycle will have to move from manual to automated. "T+ 1 is a feasible idea, provided the fund clearing system compulsorily goes online. Even now, quite a lot of the fund clearing, especially retail, is done physically through the cheque system," said Ambareesh Baliga, managing partner, Edelweiss Global Wealth. In the discussion paper titled ' Risk Management - Safer Markets for Investors', Sebi has conducted a study which explains the feasibility of a shortened settlement cycle. The securities regulator has also proposed to have a new collateral client framework, whereby an investor will be able to place his collateral directly with a professional clearing member who doesn't have a trading right. The move will keep the client collateral at ' arm's length' from the broker, who currently takes the advantage of using it for purposes other than meeting the respective client's margin requirements. Another settlement model proposed is that the clearing corporation will be more proactive, to ensure that collateral is not misused by the broker or trading member. On the T+ 1 settlement cycle, the main issues for which the regulator has sought feedback from market participants are, one, since retail clients pay by cheques, will the implementation of T+ 1 be feasible, and, two, whether the cost of upgrading the existing systems will be less than the benefits envisaged. The benefits of a T+ 1 cycle listed by Sebi include 30 per cent reduction in value at risk, fewer unsettled trades' dues, less risk of counterpart insolvency and savings in operational costs as processes become automated. Deena Mehta, managing director at Asit C Mehta Investments, said introduction of a T+ 1 settlement might affect activity in tier- 2 and tier- 3 cities. "Places where online banking is not available or have not seen too much penetration would be negatively impacted. Brokers in many places might have to ask customers to pay in advance before trading," she said. Incentivising internetbased trading models and mitigation of risk to client collateral are the two other critical proposals Sebi has made in the discussion paper. The regulator has proposed incentives to retail clients who use internet- based trading, as such a framework poses zero risk, since it involves checking and blocking 100 per cent of the funds. " Since this trade model brings no additional risk to the system, there is a case to incentivise more and more investors to use this model, so as to reduce the overall risk in the system," Sebi has said in the discussion paper. Some of the incentives proposed by Sebi include a waiver of margin requirements by the clearing corporation, release of any blocked margin as soon as the pay- is made and lower clearing charges. Proposes to encourage internet- based trading, explores new collateral system; feedback till a month more THE RISK- REWARD GAME |The Securities and Exchange Board of India floats discussion paper Risk Management – Safer Markets for Investors |Shows intent to shortened settlement cycle to T+ 1 |Proposes incentivising internet- based trading models as they pose minimal risk |Proposes two new models for collateral management to mitigate client risk, curb misuse |Invites public comments and suggestions latest by May 20

 

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CS A  RENGARAJAN,, B.Com ,FCS, LLB, PGDBM
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