[aaykarbhavan] Business standard news updates 19-12-2013

Tesco- Tata joint venture atest case for retail FDI

RAGHAVENDRA KAMATH Mumbai, 18 December The proposed Tesco- Tata joint venture announced on Tuesday would be be a test case for foreign direct investments (FDIs) in Indian retailing. The government has mandated that foreign companies invest a minimum of $ 100 million and half the total FDI go in back- end infrastructure within three years of the first tranche. Yet, Tesco is taking a 50 per cent stake in the Tataowned Trent, which already runs hypermarkets under the Star Bazaar brand. Although the multi- brand FDI retail policy mentions fresh investment of $ 100 mn, the subsequent clarifications made it seem that funding in new facilities was mandatory. However, how much must be spent by foreign retailers on new investments is still a grey area. Keenly watched Trent has said the proposed partnership will operate and build on the existing portfolio of Star Bazaar stores in Maharashtra and Karnataka, thereby triggering a debate on new ventures versus expansion of existing ventures. Consutants and retailers Business Standard spoke to noted the sector would closely watch how the Tesco- Tata JV would comply with the prescribed rules. "We need to see whether they will bring the existing stores under the JV or operate these separately," said a director of a top management consultancy firm, on condition of anonymity. Kishore Biyani, founder and chief executive of Future Group, was more forthcoming: "If it ( Tesco) is making investments in a brownfield (existing) venture ( Trent Hypermarkets), it is definitely awelcome move from the policy perspective." The Trent spokesperson said, " We believe the application is fully in compliance with the existing policy. We are not in a position to speculate further." Where Tatas lack, Tesco comes in A chief executive of a national retail chain said Tesco would invest in new facilities at back- end and front- end stores once the JV becomes operational. "The Tatas might not have invested a lot in back- end, since they run just 16 stores. So, Tesco can invest in the back- end infrastructure now. Otherwise, it is difficult to deploy those funds," said the chief executive. Adding: " I believe Tata is adjusting whatever they have invested so far as equity. So, in a 50: 50 JV, Tesco is paying for front- end created by Tatas." Kumar Gopalan of RAI said, " It is first in the market and a great signal that overseas retailers will look at Indian retail now." However, he also believes everything depends on government approvals. "Government has to clear the venture. A lot of reading between the lines will happen. Tatas and Tesco must have done detailed work to comply with policy guidelines." Mohit Kampani, president and chief executive at Spencers Retail, said: " All the money which will be brought in towards new facilities in back- end and front- end is a welcome move for the industry." If equity investments come from foreign retailers, it is better, as they understand the business better, he added. Trent says the tie- up will operate &build on its Star Bazaar stores UNCLEAR POLICY How much must be spent by foreign retailers on new investments is still a grey area

 

Voda gets ₹ 3,700- cr transfer pricing order BS REPORTER Mumbai, 18 December The income tax ( I- T) department has slapped a₹ 3,700- crore final order on telecom major Vodafone, on atransfer pricing case. The claim includes the interest on the tax for assessment year 2008- 09; it does not include a penalty. The high court here had dismissed acase filed by Vodafone on the matter in September, sending it back to the dispute resolution panel of the department. A final assessment order on the matter was sent on Wednesday. " Vodafone disagrees with the panel decision relating to the transfer pricing order which Vodafone received in December 2011. Vodafone maintains there is no tax payable on this transaction and the company will file an appeal before the tax appeal tribunal as soon as possible," stated the British corporation. The Pune unit of Vodafone came under the departments scanner for having transferred some of its shares to the parent company. Tax authorities say this was done on the lines of the accounting practice of transfer pricing, when it should have been done at an arms- length pricing between related parties. Vodafone had earlier said thetransaction was a share subscription and not a share sale, and that the former were not covered by transfer pricing rules, either in India or abroad. And, hence, the I- T departments claim had no legal basis. "The facts of this case – including the transaction structure –were examined in considerable detail by India's Supreme Court, which delivered an unambiguous judgment affirming that there is indeed no tax due. Vodafone will continue to strongly defend its position against this order," stated Vodafone on Wednesday. Typically, we get 30 days to file in the ( I- T Appeal) tribunal and 60 days to file subject matter appeal. We shall stick to it," said a Vodafone official, who refused to be named. Earlier This is the not only transfer pricing case Vodafone has been battling. In October, another matter came to court as the I- T department sent another tax claim, of around ₹ 400 crore, to the company for the assessment year of 2009- 10. This was also referred back to the dispute resolution panel, as the court felt complex matters such as transfer pricing were better decided by tax authorities. Vodafone is also battling amuch bigger tax case, where the claim made on it is ₹ 11,200 crore. This is the capital gains tax claim for having bought a 67 per cent stake in Hutchison Essar in 2007. The Supreme Court gave it a favourable judgment but the government changed its tax laws with retrospective effect to ensure Vodafone came under the tax ambit. LEGAL HASSLES |The claim includes the interest on the tax for assessment year 2008- 09; it does not include a penalty |final assessment order on the matter was sent on Wednesday | The Pune unit of Vodafone came under the departments scanner for having transferred some of its shares to the parent company Nilekani couple gifts ~ 50 crore to NCAER BS REPORTER New Delhi, 18 December In what is one of the largest private gifts to an independent economics research organisation in the country, Nandan and Rohini Nilekani have gifted ₹ 50 crore ( around $ 8.08 million) to the National Council of Applied Economic Research (NCAER) from their personal wealth. The funds will be used to fund a new India Centre of the institution in the national capital along with furthering new research and knowledge capabilities at NCAER. Nandan Nilekani, currently chairman of the Unique Identification Authority of India, is a co- founder of Infosys Ltd and is also the president of NCAER's governing body. His wife, Rohini, is a philanthropist and writer and has been investing towards various causes such as education, environment and sanitation. In 2011, the power couple had donated Bangalore- based Indian Institute for Human Settlements ( IIHS) ₹ 50 crore to fund the establishment of its School of Environment and Sustainability. Nilekani is one of the directors of IIHS. They have also given $ 5 million each to IIT- Bombay in 2002 and Yale University in 2008. In August this year, Rohini sold 570,000 shares of Infosys for ₹ 163 crore to further her philanthropic activities. In an interview to Business Standard, she had said instead of setting up another foundation like ' Arghyam', which supports initiatives for safe water and sanitation, she plans to use the money to support institutions working in the area of governance, transparency, data, etc. These are some of the emerging areas where lots of innovative ideas are coming up and need early support, she had said. " We have identified a few organisations. There are some think tanks, along with some good research that needs to be encouraged." However, it is unclear whether the ₹ 50 crore for NCAER have come from Nandan's personal wealth or from the ₹ 163 crore Rohini derived from the sale of Infosys shares. In the interview, Rohini had also said she had given away ₹ 210 crore till date from her own personal money, which doesnt include Nandan's. Rohini's recent investments have gone to institutions such as Parliamentary Research Service, Ashoka Trust for Research in Ecology and the Environment or ATree, Dakshin Foundation, IndiaSpends, Association for Democratic Reforms etc. In a statement on Wednesday, Nandan Nilekani said from its early days in the 1950s, NCAER's empirical research and data collection have contributed immensely to economic policy thinking in India. " Rohini and I are excited about contributing to a national institution of NCAER's stature, helping it build further on its durable legacy of almost six decades of service to the nation, and supporting its rejuvenation in ways that will make it even more vibrant." The governing body of the institution includes Reliance Industries chief Mukesh Ambani, economist Surjit Bhalla, banker Naina Lal Kidwai and economic affairs secretary Arvind Mayaram among others. NCAER Director- General Shekhar Shah added the country needed institutions like it more than ever before. " India is grappling with hard policy choices, challenges of implementation, regulation and governance, an uncertain macroeconomic environment, and global transformation at a pace that is unprecedented. Mapping a sound course through this can make the difference between floundering and flourishing, between attaining India's vast potential and letting it slip away." UIDAI Chairman Nandan Nilekani with wife Rohini Nilekani FILE PHOTO   All eyes on Sebi after FMC's decision on FT NUNFIT TO RUN AN EXCHANGE N SAMIE MODAK & SACHIN MAMPATTA Mumbai, 18 December Following the Forward Markets Commission (FMC)' s ruling declaring the Financial Technologies India Limited ( FTIL) unfit to operate an exchange, the spotlight is now on the Securities and Exchange Board of India ( Sebi). The stock market watchdog had said any adverse findings by other regulators might have a bearing on the exchange. "… Any adverse findings by any other regulator may result in withdrawal of recognition of the exchange," Sebi had said in a press release in September, while renewing its recognition for one more year. A spokesperson of the Multi Commodities Exchange- Stock Exchange ( MCX- SX) said only adverse findings against the exchange by other regulators would have an impact on its operations. Thus, there would not be any negative fallout, as the FMC order did not name the MCX- SX, claimed the spokesperson. "We are going through the order. As is publicly known, the concerned directors had resigned from the board of the exchange sometime ago, and the exchange is now being led by a new chairman and vice- chairman. As such, we do not expect any adverse fallout of the order on the exchange," said a spokesperson. Meanwhile, sources close to the development said the market regulator may issue a show- cause notice to FT, the founder of MCXSX, on why it should not be declared ' not fit and proper' to own a substantial stake in the stock exchange. An email sent to a Sebi spokesperson received no response. In the 80- page order on Tuesday, the FMC had declared FTIL, chairman Jignesh Shah and former managing directors of MCX Joseph Massey and Shreekant Javalgekar as not ' fit and proper'. This came in the wake of a probe into ₹ 5,500- crore payment crisis in the National Spot Exchange Limited ( NSEL). The FTIL held 99 per cent stake in the NSEL. Shah and Massey had already resigned from the board of MCXSX. Shah was the vice- chairman of the exchange and Massey its managing director and chief executive officer. In November, the MCX- SX board had elected Gopal Krishna Pillai, former Union home secretary, as chairman, and Thomas Mathew, former chairman of Life Insurance Corporation ( LIC) of India, as the vice- chairman. However, FTIL, which has been named in the FMC order, owns 4.99 per cent stake and also warrants along with MCX amounting to nearly 69 per cent stake post conversion, in the MCX- SX. A spokesperson for the FTIL declined to comment on if there would be any fallout of the adverse finding on the MCX- SX. JN Gupta, former executive director at Sebi and founder of proxy advisory firm SES, said the regulator was likely to take steps to ensure the MCX- SX is distanced itself from the said entities. "… Any action will be taken only after following due process of law and natural justice. The regulator will also ensure whether MCX- SX is ring- fenced from the entities declared unfit by FMC," he said. Sebi, in September, while granting a renewal of recognition to the MCX- SX for another one year, had imposed several conditions on the exchange, including on " reconstitution of board, reappointment of any key management personnel." REGULATORY SPOTLIGHT |FMC says FT, Jignesh Shah and Joseph Massey don't meet ' fit and proper' criteria to operate an exchange |Sebi had said that any adverse remarks by other regulators would impact MCX- SX's recognition |A spokesperson for the exchange said that only adverse remarks against the exchange by other regulators would affect recognition |Remarks against promoters or other individuals would not affect its recognition, claims MCX- SX |FT holds nearly 5 per cent in shares and 69 per cent in the form of warrants in the exchange

 

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CS A Rengarajan

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