| Senior citizens rule a quarter of firms |
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New Delhi, 12 June After two years of setting a rare example by relinquishing all board responsibilities at the ripe 'young' age of 65 years, N R Narayana Murthy has done a U- turn by deciding to return to Infosys as its chairman. A not- very- small group of senior- citizen counterparts at other companies must be whispering to themselves: " If you were to come back, why leave in the first place?". Plus- 65 chairpersons are no aberration so far as India Inc is concerned. In fact, the age group of these senior citizens is a dominant one on Indian boards. According to data provided by Indianboards. com, the boards of nearly a fourth of top 500 Indian firms are headed by senior citizens —some even by octo- and nonagenarians. Of the 112 listed companies that have elderly people as chairpersons or managing directors, one company has a head who is older than 90 years, 10 companies' chiefs are in their 80s, 58 leaders are in their 70s and 43 in the 66- 69 age group. At 92 years, Kumar Mangalam Birla's grandfather, Basant Kumar Birla, the chairman of Century Textiles & Industries, is the oldest chairperson of a listed Indian firm. Hero's Brijmohan Lall Munjal, who rode the Ludhiana- based bicycle maker into the fast lane, continues to run the group at 89. While the Birla patriarch occupies the chair in a non- executive role, Munjal continues in executive position. K P Singh, 82, is the rock of realty major DLF, while JB Chemicals & Pharma's J B Mody, Chettinad Cements' M A M Ramaswamy and Great Eastern Shipping's K M Sheth are some of the octogenerarians heading company boards. As many as 58 companies have chairmen/ managing directors in their 70s. Some of the prominent names in this category include Rahul Bajaj, the chairperson of Bajaj Auto, Bajaj Finserv, Bajaj Holding and Investment and Bajaj Finance. Among these companies, he continues to be executive director of Bajaj Auto, while he has a non- executive role at other companies. Bajaj, also a promoter shareholder in all companies, will turn 76 soon. Similarly, 71- year- old Adi Godrej chairs the boards of Godrej Consumer Products, Godrej Industries and Godrej Properties. Nusli Wadia, who turns 70 soon, heads Bombay Dyeing, Britannia and Bombay Burmah Trading. Lalit Modi's 71- year- old father, KK Modi, is Godfrey Phillips' managing director. Though the next generation has been waiting in the wings, these family businesses continue to look up to their patriarchs for guidance and leadership. This also helps keep the flock together, some say. However, such arguments do not explain why even truly public companies with no identifiable promoter group should continue with elderly chairpersons. Anil Kumar Manibhai Naik, 71, is the executive chairperson of Larsen & Toubro. MD & CEO of the company, K Venkatramanan, is only slightly younger at 68. Recently, Naik told a newspaper there was no successor in sight and that he was " slogging to find" one. Turn to Page 20 > NO RETIREMENT AGE IN INDIA INC Many chairmen & MDs continue to hold reins well into their 80s |
| GST won't be a game- changer, only a name changer |
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This is how Sushil Kumar Modi, Bihar's finance minister and chair of the Empowered Committee (EC) of State Finance Ministers, summarised his description of the design of the Goods and Services Tax ( GST) at a recent meeting with national chambers and tax professionals. The price he had to pay to win consensus of the foot- dragging states was to make it so banal and insipid that it would largely preserve the status quo of the taxes that they levy. He might succeed in making GST inevitable, but it will not be a " game- changer", only a" name changer". It is not something that will set the Indian economy free from the cage of the Hindu rate of growth. Under the EC model, GST will have two components: one levied by the Centre ( CGST), and the other by the states ( SGST). Both will apply to a common base of goods and services. Goods will be classified in four baskets: exempt from tax, taxable at a nominal rate ( mainly precious metals taxable at one to two per cent), taxable at the concessional rate, and taxable at the standard rate. The base for goods, as well as their division into the four baskets, will be the same as what it is under the value- added tax ( VAT) currently levied by the states. The status quo will also prevail for the base for services. The current base for the service tax levied by the Centre will be adopted for both CGST and SGST, except that it will be broadened to include those services currently under the exclusive domain of the states ( for example, movie admissions). This status quo for the base would mean no tangible reduction in tax- cascading that occurs through taxation of raw materials, parts, and capital goods acquired for use in production and distribution in exempt sectors. GST has been estimated to provide a boost to the gross domestic product of 0.9 to 1.7 per cent, but all of this is critically dependent on a substantial reduction in cascading. There will be no GST on real property and, thus, no credit or offset allowed for the building materials and equipment acquired for use in commercial and industrial construction. Petroleum will come within the scope of GST under the Constitution, but is kept outside the GST law at least initially. There will be no credit for the taxes on exploration, development, refining or distribution of petroleum. The alcohol industry will continue to suffer the pain of cascading in perpetuity since it will be excluded (exempted) from the GST domain within the Constitution itself. Exemptions are rampant in the service sector, as well. The most notable is the exemption for virtually the entire infrastructure sector. This means no offset for the taxes that get embedded in the cost of highways, bridges, railways, and international shipping. There is speculation that electricity generation and distribution may also meet the same fate. Health and education sectors are also exempted, but the amount of cascading in these sectors is relatively small. The Central Sales Tax ( CST) and the entry tax are other major sources of cascading under the current system. Both of these were to be subsumed under GST, except for an entry tax levied and collected by municipalities. The states have now sought a broader exception for the entry tax, i. e., for any entry tax in lieu of Octroi levied by the state. The states also remain apprehensive of revenue loss from the elimination of CST. They are actively considering options to continue it at two or four per cent. With neither a pruning of the exemptions nor any change in the composition of the concessional rate basket, the revenueneutral rate for SGST is being worked out to be close to the current rate, which is approximately 12.5 per cent. Assuming full harmonisation of CGST and SGST tax bases, the CGST revenueneutral rate could also be in the 10 per cent- plus range, yielding a combined rate of 22.5 per cent- plus. A tax at this rate would be bad economics and bad politics. It would erode compliance, and be susceptible to leakages and intense pressures for further exemptions. It would be a drag on the service tax, which would experience anear doubling of the tax burden from the current rate of 12.36 per cent. For goods, the combined CGST+ SGST rate would remain approximately the same as the current VAT plus the central excise rate. However, with conversion of the invisible central excise into a visible CGST, consumers would find GST twice as painful. Little wonder that Modi is soliciting advice from the national chambers on creative ways of hiding the tax from the consumers. GST may be inevitable, but few would be enthralled by the model the EC has developed. State governments would be well advised to go back to the drawing board and put some politics back into the GST design by broadening its base and lowering the rates. Without it, GST will remain a mirage — a squandered opportunity for visionary reform of our tax system. The author is Tax Partner, Ernst & Young. These views are personal The Empowered Committee of State Finance Ministers' design squeezes out the politics from the new tax but makes it unacceptable as an alternative to the existing structure The states have sought a broader exception for any entry tax in lieu of Octroi levied by the state Assuming full harmonisation of CGST and SGST tax bases, the CGST revenue- neutral rate could also be in the 10%- plus range, yielding a combined rate of 22.5%- plus. This rate would erode compliance, and be susceptible to leakages and intense pressures for exemptions SATYA PODDAR BLOOMBERG |
| FIIs may no longer have to register with Sebi |
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Mumbai, 12 June Foreign institutional investors ( FIIs) shouldn't need to register with the Securities and Exchange Board of India ( Sebi) when looking to invest in the country, recommends acommittee under the chairmanship of former Cabinet Secretary K M Chandrasekhar. The panel has recommended doing away with prior direct registration of FIIs and Sub Accounts with Sebi, according to a statement on the regulator's website. The committee has also recommended merging FIIs, Sub Accounts and Qualified Foreign Investors (QFI) into a new investor class to be called the Foreign Portfolio Investor ( FPI). "FPIs would be able to register themselves with and transact through Designated Depository Participants (DDPs). The qualification of DDPs would be as prescribed by Sebi," said the statement. Suresh V Swamy, executive director, tax & regulatory services, at PricewaterhouseCoopers, said the move would ease entry for foreign investors. "It will ( then) be much faster to get certification and there is likely to be significant reduction in the time required for a registration. Additionally, it will also save costs in the form of registration and renewal fees which were paid to Sebi," he said. According to those involved in the process, the time required for FII registration is supposed to be seven days, and three days for sub- accounts. However, the process can take up to six to eight months in some cases, with time spent on documentation and follow- up queries. This is likely to reduce with registration through DDPs, a role likely to be played by custodians, according to those handling such matters. Other suggestions The committee has also recommended that FPIs considered to be high risk entities not be allowed to issue Participatory Notes ( P- Notes). It has also suggested a riskbased approach to the Know Your Client ( KYC) procedures, dividing foreign investors into three categories in increasing order of perceived risk. The first category includes government and governmentrelated entities such as foreign central banks, and sovereign wealth funds. The second category would cover regulated entities such as banks and asset management companies already registered with Sebi. The third category would comprise any entities which do not come in the first two. The committee has recommended doing away with the requirement of personal identification documents such as copy of passport, photograph, etc, of the designated officials of FPIs belonging to categories I and II. Those in category III will not be allowed to issue P- Notes. Sandeep Parekh, founder and managing partner, Finsec Law Advisors, agreed with the different KYC procedures for different classes of investors. "Clearly, you need to have a more stringent KYC process for high- risk investors, while it can be simpler for sovereign wealth funds that are governmentbacked," he said. The committee has also recommended easing the norms for Foreign Venture Capital Investors ( FVCIs). " The committee felt the present list of nine sectors should be considerably expanded. Alternately, anegative list may be announced by ( the government), so that the rest of the sectors are opened for VCF activity," went the statement. Some suggest there is great scope for expanding the current list. " All sectors should be opened for FVCI. Why choose winners? Only certain sectors such as liquor, gambling and tobacco can be prohibited," said Parekh. Additionally, the committee has recommended a 10 per cent rule to define portfolio investments. Any investment beyond the threshold of 10 per cent in a company's equity shall be considered foreign direct investment. It has suggested the categories of non- resident Indians and FVCI should continue. The committee included representatives from the government and the Reserve Bank of India, beside various market participants. In October 2012, the Sebi board had decided to rationalise various routes meant for portfolio investment in the country. Following which, the Chandrasekhar panel was set up by Sebi in December 2012. The panel, termed Committee on rationalisation of investment routes and monitoring of foreign portfolio investments, was asked to suggest steps for implementation of the Working Group on Foreign Investment in India ( WGFI) recommendations. The WGFII, headed by U K Sinha, who was the UTI Mutual Fund chief at the time, had in 2010 suggested merging of all foreign investment routes. Chandrasekhar panel recommends wide- ranging revamp of foreign investment routes, with less of clamps SMOOTH SAILING? Move Impact Risk- based KYC Easier entry for government agencies, regulated entities FIIs no longer have to register Faster registration for with Sebi; FII, Sub Accounts, foreign institutions QFIs merged under FPI route Expand sector list for foreign Early- stage companies from venture capital investors more sectors can access foreign venture capital money Investments below 10 per Provides claritywhen cent level- FII, rest FDI differentiating between strategic and portfolio investments |
| Check violation of public holding norm: SAT to Sebi |
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Mumbai, 12 June The Securities Appellate Tribunal ( SAT) today asked the Securities and Exchange Board of India ( Sebi) to check whether certain companies had violated the minimum public shareholding norms. While hearing a matter between Gillette India and Sebi today, the tribunal said the securities market regulator shouldn't just contemplate action against such companies, but also think of ways to address the issue. Gillette India had moved SAT after Sebi had rejected its three- step plan to meet the 25 per cent public shareholding requirement. After hearing the arguments of Gillette's and Sebi's counsels, SAT member Jog Singh decided to reserve the tribunal's judgment. Currently, promoter holding in Gillette India stands at 88.76 per cent, of which Procter &Gamble ( P& G) owns 76 per cent; the rest is held by the Poddar Group, its Indian promoter. Gillette had proposed Poddar Group conduct transfer of four per cent holding to P& G at a premium of 25 per cent; the premium would be paid to Poddar Group for relinquishing control. Subsequently, the shareholder agreement between P& G and Poddar Group would be terminated, with the latter giving up all control and management rights in the company. Finally, P& G would sell about five per cent holding in Gillette India to public shareholders, through an offer for sale. Appearing for Sebi, advocate JJ Bhatt told the tribunal the regulator was apprehensive of accepting Gillette's proposal, as under this, the public wouldn't have access to 25 per cent holding. He added the proposal was aimed at circumventing the public shareholding norm. " Gillette could have sold some shares and Poddar could have sold some shares. The intent seems to be to go around the guidelines," he said. Gillette's counsel, Somasekhar Sundaresan, told the tribunal Sebi was discriminating, as the regulator seemed to have no problem with a few other companies that had reclassified promoters as non- promoters, to meet the public holding norm. He cited the examples of Gokaldas Exports, Capital First ( formerly known as Future Capital) and Balmer Lawrie. Following this, SAT member Jog Singh asked the Sebi counsel to look into other cases in which entities were reclassified as public shareholders. Reserves judgment in Gillette India case THE STORY SO FAR |Sebi had rejected Gillette's proposal to meet 25% public holding norm |The Sebi counsel said the proposal was aimed at circumventing the norm |Gillette's counsel told SAT Sebi's action was discriminatory |Sebi told to look into cases in which entities were reclassified as public shareholders |
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Company Secretary, Chennai
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