OPINION, P8 & 9 COMPANIES, P6 EDITORIAL India isn’t tax noncompliant, its taxes are in line with GDP INTERNATIONAL, P16 A GULATI & R ROY FOR USING ‘KHADI’ TAG AFTER A YEAR IN PRISON Basing MSPs on A2+FL isn’t a big deal but the deficiency payments are fraught with danger Khadi commission seeks `525-cr damages from Viney Singh-led Fabindia Samsung scion Lee walks free as S Korea court suspends jail term MUMBAI, TUESDAY, FEBRUARY 6, 2018 VOLUME XXXXXV NO. 275, 24 PAGES, `6.00 FOLLOW US ON TWITTER & FACEBOOK. APP AVAILABLE ON APP STORE & PLAYSTORE WWW.FINANCIALEXPRESS.COM READ TO LEAD P U B L I S H E D F R O M : A H M E D A B A D , B E N G A L U R U , C H A N D I G A R H , C H E N N A I , H Y D E R A B A D , K O C H I , K O L K ATA , L U C K N O W, M U M B A I , N E W D E L H I , P U N E SENSEX: 34,757.16 ▼ 309.59 NIFTY: 10,666.55 ▼ 94.05 NIKKEI 225: 22,682.08 ▼ 592.45 HANG SENG: 32,245.22 ▼ 356.56 `/$: 64.07 < > 0.00 `/€: 79.84 ▲ 0.22 BRENT: $67.81 ▼ $0.77 GOLD: `30,267.00 ▼ `185.00 — BOND MARKETS Govt can’t borrow as PSBs walk out Pension funds: A long-term solution for the elderly Life insurers can provide cash-flow through annuities for old-age financial requirements. For that, the government should issue very long-term bonds for pension funds to invest ■ Personal Finance, P15 Budget woes, global sell-off pull Sensex down 310 points A SELL-OFF in global markets further hit sentiments on the domestic bourses already reeling under Budget woes, pulling the Sensex down by nearly 310 points to a three-week low and the Nifty by 94 points on heavy selling, reports PTI. Since the day of the Budget, the Sensex has tanked by over 1,208 points in three sessions and the Nifty lost 361 points. PAGE 11 Over 3,000 MW of wind capacity on sale for want of servicing THE DECADE-LONG fight between Enercon and its Indian arm, Wind World India, is proving to be a serious issue for the wind energy sector, as turbines with over 3,000 MW capacity have become near non-functional for want of servicing and lack of components, people close to the development told Vikas Srivastava in Mumbai. PAGE 3 Jan 2018 Rise in yield (bps) Bond purchases (` crore) 31 10 8 18 11,345 10,430 4,379 6,473 11 14 18 426 2,230 1,279 2017 February 08, 2017 September 21, 2017 October 30, 2017 December 28, 2017 2018 January 16, 2018 January 29, 2018 February 01, 2018 Source: Bloomberg ket price over the MSP, and there are no estimates of what this can cost. Data from Bloomberg show that, in January, PSBs sold over `10,000 crore in G-Secs after buying over `12,700 crore in December 2017 and `19,600 crore the month before that (see graphic). More than this,PSBs are no longerdoing as much ofvaluebuying as in the past. On February 8, 2017, for instance, when the benchmark yield closed 31 basis points up,PSBs What Budget envisages Petroleum subsidy at `24,900 crore for 2018-19, assuming average crude oil price at $57.50/barrel & ` at current level of 64 against $ 01 Probable: Average crude price at $62.50/barrel: Additional subsidy requirement will be ~`8,000 crore 02 Possible: Average crude price rises at $65/barrel, additional subsidy requirement will be `12,000 crore Under-provided? Kerosene subsidy for FY19 budgeted at `4,200 crore against last year’s `8,660 crore (RE); arrears at `2,300 cr SAURABH KUMAR New Delhi, February 5 BUDGET 2018-19 HAS assumed the average price of the Indian basket of crude in 2018-19 to be $57.50 a barrel, the same as last year, and estimated the petroleum subsidy for the year at `24,900 crore; however, manyanalysts reckon the possibility of average cost of imported crude to be around $62.50 a barrel in the next fiscal while crude at $65 a barrel cannot be ruled out either. Given that 80% of the country’s crude consumption is met through imports — staterun ONGC and OIL also resort to import parity pricing — crude at $62.50 a barrel and the rupee at the current level (~64 against the dollar) would mean an additional oil subsidy requirement (oil marketing companies’ under-recoveries) of over `8,000 crore on LPG and kerosene, the only two products underprice control. If the crude prices average at $65 a barrel,then at the current exchange rate the additional subsidy needed over the budgeted level will be close to `12,000 crore. Also, oil price above $65 a barrel could put pressure on the government to reimpose price controls on petrol and diesel in some form. Continued on Page 2 SUMIT JHA New Delhi, February 5 Flower power President Ram Nath Kovind and wife Savita take a stroll in the Mughal Gardens at Rashtrapati Bhavan in New Delhi on Monday, a day before the opening of the gardens for public viewing THE FINANCE ACT,2016,had said minimum alternate tax (MAT) won’t apply to foreign institutionalinvestors(FIIs)and foreignportfolioinvestors(FPIs) as they normally won’t have a place of business in India and giventhedecisionretrospective effectfrom2001.Budget201819 has gone a step further: It clarifiedthatforeigncompanies in specified infrastructure sectors,whichoperateinthecountry with permanent establishment(PE)—readbranchoffices — but are under Section 44BB, given the facility of paying tax on a presumptive income basis won’t have to dread MAT. This would mean that oil drillers like Shclumberger,Hal- Q3 NET UP JLR a let-down for Tata Motors FE BUREAU Mumbai, February 5 AUTOMAKER TATA MOTORS posted an 11-fold growth in third quarter net profit to `1,215 crore year-on-year, but failed to meet Bloomberg consensus estimates of `2,350 crore due to the significantly weaker performance of its UK subsidiary Jaguar Land Rover (JLR). JLRreported a profit before tax of £192 in the third quarter, which was 25% less than what it had reported in the same period last fiscal. This was due to a cyclical weakness in its US and UK markets and uncertainty on the future of (` cr) Q3FY17 Q3FY18 % growth Net sales Ebitda Net profit 16.06 79.14 Ebitda 7.7 margins (%) 988.64 11.9 420 Source: Company diesel cars in Europe and UK. Clearing of the 2017 Range Rover and Range Rover Sport inventoryforhigherincentives also hurt profitability. Tata Motors’ consolidated Ebitda(earningsbeforeinterest, tax,depreciationandamortisation) grew 420 basis points to 11.90% in the quarter; however, it was less than analysts’ estimateof12.2%.Netsales,on the other hand,beat estimates, growing 16% in the quarter to `74,156 crore. However, Tata Motors’ standalone business, which has been posting losses for the last five quarters or since the second quarter of fiscal year 2017, reported a turnaround with a profit of `184 crore in thequarter.Thiswascompared to a loss of `1,046 crore in the same quarter last year. Continued on Page 2 Suzuki profits soar on strong sales in Asia JAPANESE AUTOMAKER SUZUKI Motor reported huge gains in quarterly profit on Monday, citing strong sales in Asia at a time when its bigger peers are struggling forgrowthintheUnitedStates, a key market for Japanese cars, reports Reuters. Suzuki, on track for record annual earnings, booked a 68% on-year jump in OILAND NATURALGasCorporation (ONGC) is facing a delay of at least a year in starting production from its biggest project, according to people with knowledge of the matter. The nation’s top explorer, which planned to produce gas from a deep water block in the Krishna-GodavariBasinoffthe country’s east coast from June 2019, won’t produce first gas until at least the second half of Continued on Page 2 Singtel to raise stake in Bharti holdco FE BUREAU New Delhi, February 5 SINGAPORE-BASED TELECOM operator Singtel will invest `2,649 crore in Bharti Telecom, the promoter company of Bharti Airtel, through preferential allotment of shares. With this transaction, which is subject to regulatory approvals,Singtel’s total stake (along with its affiliates) in BhartiTelecomwill increase to Bharti Airtel Previous close : 421.80 October-December operating profit, with its cars and motorcycles continuing to dominate in India. 450 Full report on Page 16 420 418 Shrinking output (%) 40 India crude oil imports quantity monthly 28.57 20 0 -20 India crude oil production monthly Jun 29, 2012 -8.31 Nov 30, 2017 Source: India’s oil ministry/Bloomberg doublingtheshareofgasinthe country’s energy mix to 15%. Speeding up new develop- ments is also vital for ONGC as it faces declining production from older fields. It plans to 439.5 435 Intra-day (Feb 05) 405 ONGC faces at least a year’s delays in its biggest project 2020, the people said, asking nottobeidentifiedbecausethe information isn’t public. Oil production will start a year after gas. ONGC hasn’t completed tendering for major equipmentandservicesforthe $5-billion project,they said. Production from the KGDWN-98/2 block in the Bay of Bengal, where the depth of water is comparable to ultradeep fields in the Gulf of Mexico,is critical to Prime Minister Narendra Modi’s goal of cutting India’s oil imports and liburton and Dolphin Drilling, shipping lines like MSC Mediterranean Shipping and Mitsui OSKLines,orairlineslikeBritish Airways won’t have any MAT liabilityinIndiaiftheyhadpaid tax at 5% of the total receipts from their operations here. Malaysian and other Southeast Asian highway developers that have exposure to India’s highway projects will also benefit from the MATwaiver. Under sub-section (1) of Section 115JB of the Income Tax Act, if tax payable on the total income of a company is less than 18.5% of its book profit, the book profit shall be deemed to be its total incomeandMAThastobepaid on it at 18.5%. ● `2,650 CRORE STUCK IN PIPELINE BLOOMBERG Mumbai/Delhi, February 5 Continued on Page 2 MAT waiver now for firms with PE too Continued on Page 2 Oil price a threat to Budget maths exemptions arewithdrawn,he said. However, having gone through the adverse consequence ofVodafone-like retrospective amendments, the government would rather let exemptions get over, as there are sunset clauses attached to them. And any premature withdrawal of exemptions could lead to litigations, as companies typicallybase their business decisions on exemptions as well,said Jaitley. The finance minister also said that most of the fiscal deficit slippage of 30 basis points from the target for this fiscal would have been bridged hadthegovernmentfactoredin full-yearGSTcollection,instead of that of 11 months following the introduction of a new accountingsystem.Hesaidearlier indirect taxes for a particularmonthwerecollectedinthat verymonth.However,sinceGST for a particular month is collected only by the third week of the next month, the government will be able to collect only 11 months’revenue in the first year of its launch; hence, the shortfallinindirecttaxrevenue. ● RELIEF TO FOREIGN INVESTORS bought `11,345 crore of central government securities on a net basis. Similarly, on September 21 last year, stateowned lenders bought over `10,000 crore of central government securities on a net basis when the yield closed 10 basis points higher compared to the previous session. Even on December 28, 2017, PSBs had bought close to `6,500 crore on a day the benchmark yield ended the session 18 basis points higher. CRUDE SURPRISE OIL SHOCK `250 crore, Jaitley said the 7,000-oddcompaniesthatwill beoutsidethe25%bracketare effectivelypaying22-23%tax, after factoring in exemptions to them. The government will have greater ability to absorb the potential revenue losses due to reduced tax rate when « THE SERVICES sector remained in expansion mode in January, registering the fastest rise in activity in three months driven by a renewed increase in new business orders, says a monthly survey, reports PTI. The seasonally adjusted Nikkei Services Business Activity Index improved to 51.7 in January, up from 50.9 in December, signalling a faster expansion. Jan 2017 « Services sector sees fastest growth in 3 months in January -40,000 — ARUN JAITLEY FINANCE MINISTER « QuickPicks -30,000 REAL ESTATE AND natural gas will likely come under the goods and services tax (GST) ambit before petrol and diesel,as states are reluctant to havethesepetroleumproducts in the GST net as yet, finance minister Arun Jaitley said on Monday. Commenting on his promisetobringdownthecorporate tax rate to 25% even for those having turnover above « With women’s safety being a matter of paramount importance in the country today, brands have a real opportunity to address these concerns, either via products or ads. The trick is to avoid being gimmicky -10,216 -20,000 « Catering to Indian women: Taking the ‘safe’ route 0 -10,000 1,215 Special Features FE BUREAU New Delhi, February 5 10,000 112 THE GOVERNMENT plans steps to ensure cryptocurrencies are illegal within its payments system, while at the same time appointing a regulator to oversee unregulated exchanges that trade in "crypto assets," SC Garg, economic affairs secretary, told CNBC TV18 on Monday, reports Reuters. 13,077 8,852 Cryptocurrencies to be barred from payments system 20,000 About 7,000 companies that will be outside the 25% bracket are effectively paying 22-23% tax, if exemptions are factored in... If you phase out exemption ahead of their sunset clauses, it will lead to litigation 4,941 LARGE LOSSES IN their bond portfolios have resulted in public sector banks (PSBs) all but deserting the bond markets. As a result, the Reserve Bank of India (RBI) has been forced to call off four auctions in just over a month. While Icra had put out an estimate of a `13,000-crore bond loss in October to December,the losseswill keep rising with G-Sec yields constantlyrising.Yields on the old benchmark closed at 7.78% on Monday after closing at 7.76 on Friday. With this, they have risen 49 basis points over the last month and 89 basis points over three months. With no clarity on the impact of Budget announcements such as those on the minimum support price (MSP), banks are wary of more losses. Apart from promising a higher MSP, the Budget also promised that the government will make good any shortfall in the mar- 30,000 Most of fiscal deficit slippage of 30 bps in FY18 would have been bridged if fullyear GST collection had been factored in 74,156 FOLLOWING THE hike in customs duty on smartphones and smart watches, Apple on Monday raised the prices of iPhones by around 3% and that of the Apple Watch by around 8%, reports fe Bureau in New Delhi. The price escalation comes after Budget 2018-19 raised the customs duty on smartphones from 15% to 20% and doubled it to 20% for smartwatches and wearables. (` crore) ‘Realty, gas in GST before auto fuels’ 63,891 BHAVIK NAIR Mumbai, February 5 PSU bank bond purchases SCENARIO IN THE NEWS Customs duty hike: Apple raises iPhone prices No longer bonding SCENARIO Big losses force PSU banks to stay away from bond markets, so RBI cancels four auctions already FMSPEAK 390 Open Close spend `11 lakh crore by 2030 to raise output. The delay in finalising tenders means the companywon’t start to drill wells in the block until next year.Hostile weather conditions in the area allow drilling for only about half the year.An ONGC spokesman was unabletocommentonMonday. ONGC might be able start gas production in the laterhalf of 2020 if it finalises contracts soon,the people said. 48.90% from the current 47.17%. Bharti Enterprises continues to hold over 50% stake in Bharti Telecom. The preferential allotment of shares,which is expected to close by March 2018, would allow Singtel to raise its ‘economic interest’in BhartiAirtel by 0.9% to 39.5%. The funds thus raised will be used for debt reduction, Bharti Airtel said in a statement on Monday. Continued on Page 2 Continued on Page 2
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