Byapaar.com -The Indian Business Blog

Traditionally, import of crude oil has occupied the lion share of India’s import bills and although India has been doing exceedingly well in other sectors in bringing down the trade deficit over the last decade, crude oil has always made Indian balance sheet look bad. Naturally, when the price of crude oil touched a record high of $122 per barrel, Indian government agencies and private businesses have been shivering for fear of a downturn of the whole economy.

Due to fear of inadequate supply of crude oil, its price has been riding fast and almost doubled during last 12 months. The recent hike is a direct result of production disruption in Kenya due to a strike and militant attack. The rising tension between the West and Iran has not helped things either with the world feeling jittery.

The effect is more pronounced in India as there is very little domestic production and India depends on crude oil import for almost ninety percent of its needs. So far Indian consumers have been enjoying a subsidized rate offered by the government and collectively shared by big state firms like Oil And Natural Gas Corporation (ONGC) and Gas Authority Of India (GAIL). It is estimated that the government will shell out as much as Rupess 1550 billion to subsidize the domestic oil market. Private companies dealing in retailing petroleum products are the most sufferers and Reliance has already closed all of its 1430 retail outlets all over the country because they are not subjected to price restrictions and are not entitled to receive subsidy. There is a huge gap of Rupees 8-10 between private retailers and that of public sector companies.

The steep rise in crude oil price has also affected other sectors in the Indian economy. The national currency is weakening and governments plan to restrict burgeoning inflation through strong Rupees has gone away with this latest development.

My exam is over- but my PCP (Personal Contact Program) for second year will start tomorrow and will continue till 27th. Still I’ll keep blogging regularly here.So no problem.

The other day I was browsing the net and chanced upon a site called UK Business For Sale. To be frank I have never heard of the word business sales as I live in a remote place in India. I do frequent to big cities for this or that reason but still have never came across it.

Let me be more forthcoming! I believe this is a totally new concept in India.

So what is this concept?

Simple! There are some agencies that broker between buyer and sellers of start-ups or established businesses. The agencies have people as members from both groups – buyers and sellers. To be more precise, suppose I own an established business that is making reasonable profit. But there is something I found which seems more interesting and appealing to me. In this situation I want to sell my current business so that I can venture into the new domain of my interest and also can fully concentrate on it. Instead of finding the suitable buyer myself, I can hire an agency that will do the needful for me for a specific amount of fee. This will save me lots of time, energy not to mention the convenience factor. In India, I saw this in real estate rector but not in business establishment sector.

The concept of organized business dealing has been going on in developed countries for long. But I don’t know its presence in other developing countries where most business sectors are not organized. But this UK Business For Sale website has opened a whole new world to me. After some more search and research I have found that the Business For Sale brokerage in the UK is an industry in itself. They don’t only use the conventional marketing but are offering their services through the web. Hopefully, this post of mine will be read by concerned persons and bring in the concept here and start a new business.

Good luck to them.

Due to my imminent professional exam starting from 18th April, 2008 - I’ll not be able to blog for next 3 weeks. Once its over, I’ll resume the job that I like to do - i.e. blogging.

Indian Tax authorities has recently ordered Microsoft Inc. to pay over Rs. 7 billion in tax liabilities it is due on royalty income of its products in the country. It is to be noted that Microsoft does not sell any of its software or hardware products in India. But it has been offering licensed use of its products to Indian customers. Gracemac Corporation, Nevada, a 100 percent subsidiary of Microsoft has been involved in licensing out to end users in India since 1999. According to user agreement, the software has to be activated for end-users to use and it is not sold but licensed.

But in a recent order, Indian tax authorities have said that Microsoft is liable to pay taxes on royalties it collects for licensing out. Just to note figure, Microsoft has received Rs. 22.4 billion as royalty fee between 1999 and 2005 and according to taxation law, it is liable to pay Rs. 3.5 billion in tax. But as it has not paid the tax in due time, the amount has swelled to over Rs. 7 billion including interests during the period.

Initially, Microsoft has declared to Indian Income-Tax department that, since it does not sell anything in India, its income is nil. But tax authorities say that since a price is charged for the licensed use of Microsoft products, the usage fee and royalty on it is taxable.

According to company statesman,

“Microsoft believes it is in compliance with Indian tax laws and the income tax treaty agreement between India and the US. The case in point is an old issue relating to the financial period 1999 to 2004 and for an overseas Microsoft entity.”

clearly referring to the agreement the two super powers have to avoid double taxation. However, analysts believe that royalty payments which are going out of India could be taxed.

Inflation has been rising and rising high touching a 13-months record at 6.68 during last week. Indian government has naturally become nervous as general election is not far away and it does not want to be seen a failure to control price rises just before election. So it has called a high level cabinet committee meeting as to how it can tackle the disturbing inflationary  trend.

But it is almost clear on how it plans to from what P. Chidamabaram, the Finance Minister suggested! According to him inflation has to be curbed even if it is at the cost of growth. The Indian industry has sharply reacted to the suggestion made by Mr. Chidambaram. According to Mr. Sanjay Budhia, the Chairman of CII ( Confedaeration Of Indian Industry) - the government should adopt a policy that would support a balance between industrial growth and inflationary reduction. Any hasty measure by the government to bring down inflation would result in loosing the momentum of growth that India has seen over the last decade or so.

For long large developing economies like India and Brazil have been demanding a bigger say in the affairs and running of IMF. Finally, it seems their voice have been heard as the IMF board, in a recent  in a recent proposal has made few changes in the voting structure of the 185-nation lending organization to make it more relevant.

The move is going to enhance the voting shares of emerging economies of India, China, Mexico, Brazil and South Korea. But it will also reduce the same voting shares of countries like Russia, Saudi Arabia, Venezuela, Chile, Argentina and Egypt. This is the first such change in the voting structure of the agency since its inception in 1944. The proposal pledges to increase each member’s vote by 3 times. Hence, India’s voting percentage will be 2.34 - up by a mere 0.42 share.

Indian economy has been one of the fastest growing economies in the world for last one decade or so. Its Gross Domestic Product (GDP) has been growing consistently over 7 percent. The India Central Government has finally decided to reward its 3.5 million strong civil servants by way of its Sixth Pay Commission recommending and increase of 30-40 percent salary hike.

But initial reactions to the recommendations are that of disappointment because in the words of Justice B.N. Srikrishna, chairman of the commission,

” I told the finance minister that my recommendations will displease everybody…… ”

But nobody - neither political parties nor employees’ unions have  commented so far on the 658 page report.

It seems that the biggest beneficiaries will be those in the higher echeleon  of the bureaucratic hierarchy. The contentious issue about the report is that - it recommended pay hike but at the same time it wants the government to trim its workforce. It also recommended downsizing the service tiers from 35 at present to 20 tiers. It also recommends for introducing 5 pay bands to cover all ranks.

The civil servants are to get rank pay along with basic salary. For example, the highest ranked officer in India, the Cabinet Secretary will get a consolidated monthly salary of Rs. 90,000 besides allowances and perks. But still it is far too low than those CEOs in private companies. What is attractive though is the position, security and other related benefits that come along with a government official.

PS: I’ll follow-up this post with Salary hike in PVT. sector within next few days and make a comparision.

In a recent survey by international consultancy major KPMG on corporate India ( “India Fraud Survey Report - 2008″ ) , it has been revealed that fraudulent activities have become a huge concern to companies. The study has revealed that, corporate fraud has increased 54 percent since a similar report was done in 2006. Financial sector is leading the pack followed by real estate and infrastructure sector.

The survey shows that companies pay bribe or other facilitation payment to do business in India. And senior management employees are most likely to get involved in these shadow dealings than other employees as they have access to sensitive company information and can override controls. The unethical behavior and lack of clearly laid down anti-fraud measures have made India Inc. a haven for thugs. Service providers are also involved with corruption in a big way. Its no surprise that losses caused due to fraud or corruption is mounting really high.

According to Deepankar Sanwalka, head of forensic services, KPMG India -

“With the increase in the number of business transactions combined with the lack of effective monitoring, frauds are a real time threat for most corporate houses in India. It comes as a surprise that even larger firms operating in India do not have adequate risk management strategies.”

Factfile of the Survey:

• 70 percent companies believe fraud will increase over the next 2 years.
• 75 percent respondents identified fraud as a matter of highest concern.
• 80 percent said fraud poses a big problem.
• 60 percent acknowledged fraud occuring in their own companies.
• 5 percent companies lost more than Rs. 100 millions due to fraud.
• 11 percent lost between Rs. 1 to 100 millions due to fraud.
• 53 percent reported loss less than Rs. 1 million.
• Unethical behavior of employees and inadequate anti-fraud measure main worrying factors.
• 60 percent respondents do not have adequate knowledge of anti-corruption law.
• Financial sector hit worst - followed by real estate & infrastructure - pushing IT & ITeS to third place.

The European Union (EU) and Indian government have been trying to come to a Free Trade Agreement for quite sometime now and it was to get formalized by the end of this year 2008. But what has been coming out of it has become a  big frustrating experience for the Union Government.

The main contentious issues are still to be addressed properly  and not only that, instead of problems being solved, they are mounting by the day. The negative list, non-tarrif barriers and other differences remain though time is running out. India wants its service industry to get more ground in the EU and the EU wants its products to have easy access to the vast Indian market.

A ministerial meeting is scheduled to be held next month between the two parties in order to sort out differences and exchange negative lists. But negative lists of both sides are growing by the day as more and more products and even allied industries  are seeking protection in the negative lists. The EU has already handed over its negative list that might affect India’’s export of goods primarily based on petrochemical products, not to mention textiles, cosmetics, glassware, fertilizers and pharmaceuticals. Originally, India and the EU were supposed to keep 90 percent of the products under the agreement. But it seems that the figure will decrease to a great extent. The finalization of India’s negative list is still going on as more Indian companies or products are lobbying to get into the negative list to protect their business. It should be mentioned that, goods falling under the negative list would cost more due to high tarrifs.

According to a study by FICCI (Federation Of Indian Chambers Of Commerce and Industry), the Indo-EU trade could reach $572 billions by 2015 if the agreement is properly and timely  implemented. Naturally, Kamal Nath, the Indian Commerce Minister is very disappointed with the slow pace of talks.

On the other hand, some experts feel that India should forget these kind of agreements and look for more pacts which would be integrated with India’s reform policies and thuse bore more fruits.

it has been well documented by each and everybody concerned with Indian that the economic reform started in 1991 under the aegis of then Prime Minister P. V. Narasimha Rao and Finance Minister ( now Prime Minister) Dr. Manmohan Singh is irreversible whatever the political situation in the country is. It is just a case of different approach to carry on the national agenda! Nothing can prove this point more than the left front which are presumed to be the thorn in India’s progress, seeking private participation and foreign direct investment in their endeavor to bring to national prominence of the only significant state they rule i.i. West Bengal. They are even ready to get into collision with the poor ( for long they have claimed to be champion of the poor) in their drive for land acquisition for industrialization. This has been well documented by their brutal repression of poor farmers in an obscure but promising area called Nandigram.

Under all these circumstances, the Indian industry as a hole want broader understanding and collaboration by major political parties from broader spectrum to draw a common programme on economic and induatrial policies for India. Recently FICCI ( Federation of Indian Chambers of Commerce and Industry) has urged the political leaders in this regard and pledged to help them to draw a broader policy that would be acceptable to all parties concerned irrespective of their political affiliation.

The other major industry forum CII ( Confederation of Indian Industries) has also supported the move. In a statement Marut Sengupta, head of policy at CII said that

“If this happens, it will create a greater degree of understanding between industry and government.”

Rajeev Chandrashekar, the newly elected president of FICCI said that the policy would focus on the government’s role in strengthening independent regulators, increasing economic efficiency, improving institutional framework and restructuring government expenditure. The chamber plans to hold lots of seminars in this regard to promote their agenda.

This is to be noted that the present coalition UPA government is running on a Common Minimum Programe envisaged by the left front. So Industry proposal is nothing new and should find greater support that could probably usher in a new dynamism in India’s growth story.