COMPANY DENIES STAKE SALE TALKS

GMR Wants to Sell Spore Power Plant

Seen in talks with SE Asian utilities for sale to raise $650 m
ARIJIT BARMAN, SABARINATH M & RACHITA PRASAD MUMBAI Cash-strapped infrastructure conglomerate GMR has decided to exit its first independent power project (IPP) outside India by selling the entire 70% stake in its Singapore plant, popularly known as the Island Power Project. With GMR expecting to raise over $650 million through the sale, the move will generate liquidity and help pare its consolidated group net debt of . 37,681 crore as of December 2012, which amounts to a gearing of 3.5 times. The Bangalore-headquartered group is currently in advanced negotiations with a group of strategic South-East Asian power and utility majors, and is hoping to conclude a deal in the next few months, said multiple sources aware of the development. GMR officials, however, denied any plans to sell. We deny any such stake sale in the 800-MW GMR Energy Singapore Pte Ltd, said a company spokesperson, responding to an email query from ET. The 800-MW combined cycle gas turbine power plant located at Singapores Jurong Island built at an estimated cost of $1 billion with a 57:43 debt-equity ratio is in its final stages of completion, and is likely to begin commercial operations by December this year. Spore Asset Believed to be Crown Jewel in GMRs Power Portfolio The project is housed under GMR Energy (Singapore) Pte Ltd, a subsidiary of GMR Infrastructure. In 2011, Petronas International Corporation, an arm of Malaysian state-run oil company Petronas, had bought a 30% stake in the project for $38.5 million (. 209 crore) and become a joint sponsor. GMR inherited the entire Singapore project for a paltry $10 million in 2009 as part of its $1.1billion global acquisition of US-based Intergen NV in 2008. A year later, when GMR sold its 50% stake in the global utility company to a consortium led by China Huaneng Group, it retained this asset, believed by many, to be the crown jewel in its power portfolio. GMR has also been in active discussions with Singaporean companies such as Keppel Energy a part of the diversified Keppel Corporation and Sembcorp Industries a leading energy, water and marine group operating across six continents for the Jurong Island plant, said one of the sources mentioned above. A Hong Kong-based private equity fund is also believed to have been approached. The potential buyer will be a strategic player from South-East Asia. GMR has been selectively reaching out to them, added an official on condition of anonymity as the talks are still private. While Temasek-backed Sembcorp has over 5,800 mw of gross power capacity and has been responsible for Singapores first privately developed IPP, Keppel Energy has been developing, owning and operating power plants in diverse geographies, including Singapore, Brazil, China, the Philippines, Ecuador and Nicaragua. Interestingly, Petronas, which has the right of first refusal in the project, is unlikely to exercise the option to increase its stake. Mails sent to Keppel, Sembcorp and Petronas did not generate a response till the time of going to

press. GMR has been scouting for investors, but now that the project is closer to completion, it is hopeful of getting a better valuation and sealing the deal, said a power sector consultant. The project, once plagued with project-related delays and fuel linkages, has secured LNG supplies from BG for 16 years. Its a modern plant that is ready to fire with assured fuel linkages. And being in a stable market like Singapore with a robust price discovery mechanism for both retail and wholesale customers, GMR can expect to seek a significant premium, said a power analyst with a leading foreign brokerage firm. All the power generated locally is pooled into a common National Electricity Market in the island city. Depending on the efficiencies of generation, the actual pricing of the power is realised. Modern facilities like the Jurong Island Power project is among the top three in the merit list. GMR has four operational power assets and around 12 are at various stages of development. Most of the Indian projects, however, are stuck due to disruptions in coal or natural gas supplies. Its international power plants are in Nepal and Singapore. GMR also owns coal mines in Indonesia and South Africa, but given the huge interest burden and cash flow constraints, the company has adapted an asset light and asset right strategy wherein new projects are pursued under joint ventures unless the asset is self-funded. The company has been focusing on de-leveraging the balance sheet, and working on various options to raise funds such as offloading stake in a host of highway projects and power plants. Last week, the group sold 74% in Jadcheria Expressways to private equity fund Macquarie SBI for . 206 crore. Gross revenues from GMRs power vertical in FY12 were . 2,374.9 crore while its EBITDA fell 45% compared with the previous fiscal to . 190 crore. It, however, posted a loss of . 158.9 crore vis-a-vis a . 224.1-crore profit in FY11.

countdown to the BUDGET

Chidambaram Likely to Win a Growth Oscar
Investor First FM to shun tax measures that could hurt fragile business sentiment
DEEPSHIKHA SIKARWAR NEW DELHI In his eighth budget, Finance Minister P Chidambaram will put in place policies that he hopes will lift the growth rate to around 6.5% in order to raise revenues, which will help rebuild government finances as well as create new jobs ahead of general elections in 2014. The upcoming budget is likely to shun controversial tax measures that could hurt fragile business sentiment and weaken consumer demand. Policymakers feel that a revival of investment-led growth could solve Indias many problems. Getting growth back (on track) is the top priority now. With growth in place, everything else will follow. This budget will precisely aim to do that by focusing on manufacturing and infrastructure sectors, a finance ministry official involved in the budget-making exercise told ET. He said the budget is likely to target a growth rate of around 6.5% in 2013-14, well above most private estimates that have dropped to less than 6% after the Central Statistical Office forecast 5% growth for the current year earlier this month. The 5% growth is the lowest since

2002-03. The idea is that if you can get growth back on track, revenues will see a natural buoyancy, said another government official privy to the deliberations. Green Shoots of Economic Recovery Yet to Appear A gain of 1-1.5% in growth will add at least 25,000-30,000 crore to your tax kitty, the official said. While policymakers within the government have been divided over theaccuracy of the 5% forecast, the so-called green shoots that suggest economic recovery are yet to become visible. Industrial production contracted by 0.6% in December. Given this grim backdrop, ministry officials feel proposals like a higher tax on the rich, increase in indirect taxes or a special income tax slab for high-salary earners could spook sentiment and dampen demand that has already taken a hit from the governments fiscal consolidation drive. Further, multinationals such as Shell and Nokia have again raised concerns over aggressive tax measures and GE and Vodafone have warned of the negative fallout on Indias business environment, which will make finance ministry leery of tax measures that could dampen sentiment without yielding much for the government. Analysts say the governments attempt to keep the fiscal deficit at 4.8% of GDP next fiscal will cause further compression in demand, shaving off half a percentage point from growth, adding to the need for measures to boost investment. While the govt has taken several measures since September 2012, continued action from all policymakers is needed to reverse the decline across all the macro variables, Rohini Malkani of Citi said in a note last week, pegging growth for next fiscal at 5.7%. Revival of growth also tops the political agenda as the ruling UPA needs requisite funds for its social sector programmes. The UPA has seen how the fruits of growth helped it launch large social sector programmes such as the MNREGA in its first term and helped its return to power in 2009. The populist overtones that last budgets usually have may be absent this time, said another government official. Ajay Shah, senior fellow at NIPFP, feels the economy is in a worse situation than the 5% GDP growth suggested and policymakers need to show greater resolve. They need to do careful soul searching on how to restructure and restaff so as to get the maximal implementation punch in return for the political will thats displayed in the budget speech, he said. Economists say the revival has to be manufacturing driven for growth to yield higher tax revenues and new jobs.

ENTERPRISE APPLICATIONS
Cos Asked to Design for Mobile First, Rest Later
Companies like IBM putting mobility at the centre of application development
HARI PULAKKAT BANGALORE

ING Vysya Bank, with around 500 branches and an additional 500 ATMs, is too small to

compete with the banking titans directly. So it does what small companies do in such situations: use tact and finesse to lure and retain customers. The bank was evaluating technology options to use mobility as a strategic edge, when it was attracted to an Israeli company, Worklight. This startup, set up in 2006, had a useful piece of technology. It enabled companies to create, in one seamless process, an application that could work in any device: a laptop, iPad, iPhone, Android phone Its capabilities were impressive, but there was one problem. Worklight did not operate in India. This was in early 2012. Soon after, ING Vysya heard an interesting piece of news: IBM was acquiring Worklight. IBM, which had worked hard to build formidable products and services in cloud and analytics, had suddenly found itself inadequate in mobility, a rapidly-emerging area that was becoming a conduit to these two businesses. With IBM having a substantial presence in India, ING signed up with Worklight quickly. IBM went on to acquire more companies, totaling 10 in the mobility space in four years, and launched a brand called MobileFirst on Thursday last week. We are planning to double investments in mobility this year, says Ed Brill, director of IBM Mobile Enterprise Marketing. MobileFirst, as the name implies, asks companies to turn their current development philosophy on its head. Instead of making mobile applications an extension of their desktop software, IBM is asking companies to design mobile applications first and then think about the rest later. For them to do this well, IBM has spread a splendid set of tools: a mobile development platform, a security platform, a mobile device management product, mobile analytics, an ecosystem which includes service-provider A&T (only in the US) and universities, and a plethora of services around of them. Although not mentioned explicitly, it would include a cloud service also, often serving as a critical part of mobile services. Mobility is now considered as one of the mega trends affecting the IT industry, on par with three trends that defined and directed it earlier: Mainframe, client-server and Internet. Many chief information officers and analysts now bundle mobility with other recent developments like social, cloud and analytics. These four trends are together called SMAC, a term that describes the close association between social, mobile, analytics and cloud. All four areas are bustling with startup innovation. Big IT companies are watching them closely. Mobile applications have been growing slowly over the last decade, but mobile commerce had not, till recently. Phones were not good enough then. The networks were slow. Enterprises had legacy applications that were not easy to extend to a mobile. So you could, in theory, buy stuff on the mobile or do other financial transactions, but customers were often put away by the poor experience. Yet, many companies underestimated the power of mobile commerce. In just two years, a number of enabling factors began to coalesce into a powerful wind that pushed customers to mobile commerce. Phones can now compute as fast as desktop computers five years ago. 4G took off in developed markets. Clever startups made mobile application development easier. Customers who have started complex transactions on their mobile are often left frustrated, and companies began noticing that they end up not making purchases. During the Internet days, says Sowri Santhanakrishnan, vice-president of mobility at Cognizant, the enterprises and the consumer had pushed equally hard. With mobility, the consumer is pushing the most, and also saying I want my experience my own way. Companies did not understand the speed of change Facebook is a good example and struggled with the development of mobile applications. Phones had smaller real estate when compared to laptops. There are a large number of these mobile devices, and each one needs to be treated differently. Mobile browsers were not good

enough for complex transactions, as even HTML 5 is still not fully mature. IBM says its products and services convert these problems into a revenue opportunity. Worklight helps customers build applications once and deploy everywhere. The Rational Test Workbench helps companies test these mobile apps. The new Appscan for iOS it had launched Appscan for Android devices finds and fixes security issues in iOS applications early during development. IBM Endpoint manager helps CIOs manage multiple devices that employees use these days. Tealeaf mobile solution analyses the mobile behaviour of customers and converts them into revenue opportunities. And so on, with more products and services. It is an impressive array to match for competition, but other IT companies are building their own strategies to penetrate this market. IBMs closest competitor in this regard is SAP. This German firm is an early mover, and considered a leader in mobile application platforms by Gartner early last year. IBM was then considered a niche player. SAP has made a few big acquisitions in this space. This includes database and mobile applications platform company Sybase, the mobile applications developer Syclo. SAP has set aside $155 million to invest in startups, and is on the lookout for buying other startups too. We have integrated all our mobile technologies in the last six months, says S Rajeswara Rao, vice-president of mobility platform, SAP Labs India, and so have an excellent ecosystem with powerful offerings in mobile, analytics, cloud and big data to help businesses run better. Other than SAP, IBM is competing with service-providers like Accenture, Infosys and Cognizant, the mobile platform company Kony Solutions, and a large number of startups. Cognizant and Infosys have their own products for mobile application development. Cognizants middleware TruMobi, for example, collates data from many sources in the company, strips them to the essentials, and sends them to mobile applications. Kony Solutions is a serious player in mobile development and management platforms. Startups like Kurogo and Marmalade have their own niches. India has its own share of startups too, including with some uniquely Indian ideas. The Chennai-based mobile platform company Uniphore Software Systems is one of the countrys most-watched startups. Unlike other areas of IT, the Indian mobile business market is likely to evolve like in other countries. There is usually a time lag of about three years before some of our products begin to be used widely in India, says Naveen Gupta, vice-president of IBMs websphere business. But we do not expect this lag in our mobile business. Users of mobile technology, particularly the banks, have some unique challenges to overcome. Our big challenge is to cater to the technologically-illiterate as well as the ambitious user, says Aniruddha Paul, head of IT Change at ING Vysya. Techtonic Change The IT Movers Earlier Mainframe, client-server and Internet The Latest IT Movers SMAC: Social, mobile, analytics and cloud Why SMAC? More and more people access social networks through mobile devices Data from mobile usage provide inputs for analytics Phones can now compute as fast as desktop computers fi ve years ago 4G is catching on in developed markets Clever startups made mobile application development easier Quite a lot of social, mobile and anaytics data is increasingly being stored in the cloud

I-T Can Probe Shell Deal for Transfer Pricing Violations

Experts say dept right in sending a notice to Shell and TP rules apply to share deals
M PADMAKSHAN & R SRIRAM MUMBAI

The share transaction between Shell India and its global parent can be scrutinised by the Income-Tax department for violation of transfer-pricing (TP) rules, tax experts say. Indian quasijudicial tax authorities have also ruled in recent orders that the countrys transfer-pricing rules apply to share transfers between foreign parents and affiliates of Indian companies and to buybacks, thereby strengthening the I-T departments case against Shell. In separate rulings last year, the Authority for Advance Ruling (AAR) has said transfer-pricing rules apply to share transactions between foreign companies even when income is not chargeable under the I-T Act, 1961. Earlier this month, the I-T authorities served a transfer-pricing order on Shell India, saying the company undervalued its shares when raising money from its global parent Shell Gas BV a few years ago. Shell sold 8.7 crore shares to its parent. The I-T authorities say Shell undervalued the shares deal by . 15,220 crore. The price should have been . 187 per share and not . 10 per share, they added. The order triggered a furious storm of protest with Shell saying this is a tax on FDI and termed the tax demand as absurd. We do need the right signal that India is going to be a stable fiscal, legal, tax regime. We are not going to have surprises along the way, said Yasmine Hilton, the India head of Royal Dutch Shell, told reporters on February 12. Income-tax officials say the reality is very different. Only two conditions are to be met if a transaction has to be brought under the TP net. The transaction should be international and between associate parties, says SC Tiwari, former member of the Income-Tax Appellate Tribunal, (ITAT), and a tax lawyer who believes that the department is right in sending the notice to Shell. Section 92B of the Act gives wide ranging powers to the Income-Tax department to scrutinise any kind of international transaction between two associated enterprises. The term international transaction is defined as one between two associated enterprises covering the purchase, sale, lease of intangible and tangible property. It includes provision of services, lending and borrowing of money, and importantly from the income taxs point of view, includes any transaction having an impact on the profits, loss, income and assets of such enterprises. The tax department could also argue that Shell India and Shell Gas BV are associate enterprises within the meaning of Section 92A of the Income-Tax Act. The explanations provided under Section 92B cover capital financing, including any type of long-term or shortterm borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business. All these transactions will come under transfer pricing. Why did they (Shell) sell it at . 10 per share? Why not at . 30 or 40, an I-T official asked. In separate rulings last year, the Authority for Advance Ruling (AAR) has said transfer-pricing rules apply to transfer of shares of an Indian company between two foreign parents though capital gains tax would not apply because of the Indo-Mauritius Tax Treaty. The first was a case

involving global giant GlaxoSmithKline Pharmaceuticals, whose Mauritius subsidiary sold some shares of the Indian listed company to its Singapore arm, according to a regulatory update provided by KPMG in August 2012. AAR rejected the Income-Tax departments argument regarding the applicability of capital gains, but said transfer-pricing rules from Section 92 to Section 92F of the Income-Tax Act will apply. It did this by saying the notion of income under Section 92 is not restrictive and said the transferpricing rules apply whether the gain or income is chargeable in India or not. The word income as defined in the Concise Oxford Dictionary means money received, especially on a regular basis for work or through investments. The definition under the Act does not restrict its meaning, AAR said. In another case involving a Mauritiusbased group company of GlaxoSmith-Kline, AAR upheld a similar view. Though AAR had earlier taken a view that transfer pricing is attracted only when income is chargeable under the Act, however based on the wording of Section 92 of the Act, the definition of income under the Act, the general meaning of income as per the dictionary, the said view cannot be accepted. Girish Dave, who was the architect of the income tax demand on Vodafone and a practising tax lawyer, said the departments case is valid and that TP rules can be applied on share transactions also. Critics of income tax argument disagree. Where is the income in this transaction? Income is deemed to have arisen after several layers of assumptions. It is not fair, especially when one knows that transfer pricing is an exercise in allocating income and tax in a transaction between two countries, said Ketan Dalal, joint tax leader, PricewaterhouseCoopers (PwC). Income-tax officials declined to talk about income determination pointing out that the process is in its early stages and several layers comprising appeals and counter-appeals need to be crossed before a final order could be given. While Shell has its strong backers, the income-tax authorities clearly believe that they are acting within the bounds of provisions of a law which are sweeping and all-encompassing. [email protected]

ONGC Wont Share Cost of Further Exploration in Cairns Rsthan Block

RAJEEV JAYASWAL NEW DELHI State-run ONGC, which has a 30% stake in Cairn India-operated Rajasthan oilfields, has refused to share the cost of further exploration in the block, which the government recently allowed to help increase oil production by over 70%. ONGC has no objection to further exploration of the block. There is huge upside potential. But as per the production sharing contract (PSC), ONGCs involvement comes only after commercial discoveries are made, an ONGC executive said. Companies executives say that ONGC reserves its right, as per the PSC, not to participate in the exploration programme. The decision of ONGC to participate or not in exploration will have no impact on the exploration programme. Cost recovery of all exploration expenses will be recoverable from future discoveries. ONGC will have the option to acquire 30% PI in any discovery at the later stage, one executive with direct involvement in the project said. The management committee, in its meeting of February 14, endorsed Cairns proposal for exploration operations in the Rajasthan block. ONGC was in agreement with the proposed exploration programme, a Cairn spokesperson said. ONGC did not respond to ETs email query. The management committee has members from Cairn, ONGC and the oil ministry. Cairn has already taken steps to mobilise a rig to location and expects to spud the first exploration well in the next few days, the company spokesperson said. Oil minister Veerappa Moily has recently taken a policy decision that allowed energy firms producing oil and gas in a block to further explore the producing fields with an aim to maximise output in the interest of Indias energy security,two senior ministry officials said. The decision will help companies such as ONGC, GSPC, Reliance Industries, Oil India and Cairn. While Cairns has all required approvals to start drilling for new prospects in the Rajasthan block, Reliance will soon be able to start drillings as audit issues and efforts for oil and gas discoveries are two separate matters and unnecessary delays will adversely affect nations energy security, one of them said. Cairn plans to drill the first exploratory well by March. Renewed exploration activity in the block will help the Rajasthan block produce over half-a-billion barrels of hydrocarbons which amounts to

about a third of the expected ultimate recovery potential in Rajasthan. This will ultimately help Cairn and ONGC JV produce 300,000 barrels of oil per day from Rajasthan, said a Cairn official who did not wish to be named. Cairn India is producing 170,000-175,000 barrels of oil daily from the Rajasthan block and plans to raise output to 200,000-215,000 in the current financial year. rajeev.jayaswal

GSM Cos Want to Swap Spectrum with the Forces

Telcos want to exchange their 2100 MHz airwaves with 1900 MHz so that commercial operators have additional spectrum for 3G services
KALYAN PARBAT KOLKATA

GSMoperators want the armed forces to exchange their 2100 MHz airwaves for 1900 MHz so that commercial telecom operators have additional spectrum for 3G, or third generation, technology services. Telcos such as Bharti Airtel, Vodafone and Idea Cellular have written to communications minister Kapil Sibal to explore a spectrum-swap deal with the armed forces to secure an extra 15 units of 3G airwaves. However, the proposal could unleash a fresh slugfest with CDMA technology operators like Reliance Comunications and Tata Teleservices since the block in the 1900 MHz band is reserved for them, for 10 years on renewal of their licence, under refarming recommended by sector regulator Trai. The refarming will involve redistribution of efficient airwaves in the 800 MHz band held by CDMA operators to frequencies in the 1,900 MHz band when the permits of these companies come up for renewal. But GSM operators, in letters to Sibal and the secretaries of defence, finance and economic affairs ministries, have deplored the idea of keeping 15 units of mobile broadband airwaves in the 1900 MHz band idle for another decade for a distant refarming need, given the acute 3G spectrum crunch in 2100 MHz band and poor traction of CDMA services in India. It is unrealistic to leave 15 units of precious mobile broadband spectrum in the 1900 MHz band unused for another 10 years towards a distant CDMA airwaves refarming requirement that is unlikely to even arise. Reserving this spectrum for such an eventuality can disrupt broadband growth in India and is a waste of a scarce national resource, which is why, it is necessary to derive economic value of the 1,900 MHz band by using it for 3G, Rajan Mathews, director general of the Cellular Operators Association of India (COAI), the industry lobby representing GSM firms wrote in his letter. The COAI has urged Sibal to urgently engage with the defence ministry to work out an exchange of 15 units of 3G airwaves in the 2100 MHz band in lieu of the

15 units of idle spectrum in the 1900 MHz band, claiming that such an exercise would free up three extra 5 MHz slots in the 2100 MHz band for commercial use, generate revenue for the government without compromising the spectrum requirements of the armed forces. The industry body, representing GSM operators, claims such a step can unlock an additional 20 units of 3G airwaves in the 2100 MHz band since DoT has one 5 MHz block left for 17 circles, having already auctioned 20 MHz for 3G services. At present, 150 MHz out of a total 300 MHz between the 1700 MHz and 2000 MHz frequencies is allocated to the telecom department, while the balance 50% is with the armed forces. Industry sources familiar with the matter also claimed that Trais original recommendation on refarming 800 MHz spectrum is flawed since CDMA handsets are not backward compatible with the 1900 MHz band, unlike GSM phones that work on both the 900 MHz and 1800 MHz frequencies. Refarming of the 800 MHz band will force the 40-million plus CDMA subscribers to buy new handsets compatible with 1900 MHz frequencies since their current handsets wont work, said a top executive close to a leading CDMA technology company. War over Waves Bharti, Voda and Idea want to secure extra 15 units of 3G airwaves But the proposal could unleash a slugfest with CDMA tech operators since the block in the 1900 MHz band is reserved for them for 10 years on renewal of licence, for refarming But GSM operators are against keeping broadband airwaves in 1900 MHz band idle COAI has urged the govt to urgently engage with the defence min, claiming that such an exercise would free up three extra 5 MHz slots in the 2100 MHz band for commercial use, generate revenue for the govt without compromising the spectrum requirements of the armed forces Sources claim Trais original recommendation on refarming 800 MHz spectrum is fl awed since CDMA handsets are not backward compatible with the 1900 MHz band 40million plus Total number of CDMA subscribers

At 92, the Karmayogi Marches On

Despite retiring as chairman of Leela Hotels and passing on the baton to his sons, Captain CP Krishnan Nair still has his hands full LIJEE PHILIP & M PADMAKSHAN MUMBAI Some 70 years ago, CP Krishnan Nair believed his destiny was to become a monk. Nair and one Balakrishna Menon, both of whom served in the Indian National Army, made a visit to Sivananda Saraswati, a spiritual teacher and proponent of yoga and

Vedanta, with the sole motive of joining his ashram. The yogi held Menons hand as a gesture of acceptance, but asked Nair to go back to the regular world and work. The guru told me my path is that of a karmayogi (one who achieves perfection via action). Nair went back, married Leela, the daughter of a handloom owner in Kannur in North Kerala, and eventually started a garment export business. Menon, for his part, went on to chart his own spiritual path, transforming into Swami Chinmayananda and along with his devotees formed the Chinmaya Mission to take Vedanta to the world. At 92, Nairs journey as a karmayogi is still incomplete. He may have retired as chairman of the Leela Group of Hotels earlier this month with eldest son Vivek taking over as CMD and Dinesh as co-chairman & MD of the group but Nair isnt quite walking into the sunset. He says he still has unfinished tasks such as overseeing the opening of six new hotels in Agra, Jaipur, Ashtamudi in Kerala, Bangalore and Noida. His role in these ventures: I will make them, run them and manage them, says the captain as he is fondly addressed by friends. He does, however, add that wife Leela has asked me not to set up any more hotels and trouble the kids. But their hands are also full now. Their hands are not full with just expansion plans. For the nine months ended December 2012, Hotel Leela Venture, the listed company, posted a loss of . 291 crore, of which . 282 crore is just interest cost. The groups total debt is about . 4,300 crore. The good captain, however, is hardly fazed. The debt is within manageable limits, he asserts, and will be reduced by selling noncore assets such as IT business parks and land parcels and by diluting stakes in existing properties. And a new asset-light strategy is being put in place to enter into management contracts that will bring in revenues with minimal investments. What also keeps Nair stress-free is his daily routine of ayurvedic massages and a game of volleyball. And the spirit to battle still burns bright. Napolean had the guts to take his army to Russia; you cant win a war, or become an empire unless one does something like this, says the former army man. Nair may be well into his 90s, but he has been a hotelier for only just 27 years of his life. His first hotel, Hotel Leela in Mumbai, came up in the mid-80s, almost three decades after a stay at a Kempinsky hotel in Budapest opened his eyes to the opportunity of a luxury hotel chain in India. Nair continues to dream. I want to explore tourism in Bhutan and Sikkim as they are protected areas. I have a proposal to manage a property in Dubai, he says. His dreams go beyond hospitality. One of the more cherished and ambitious ones is to see new, hi-tech cities mushrooming all over the country. And a plan close to his heart is to build one such city in his home district

of Kannur. Nair reckons the countrys destiny would have been totally different if the founding fathers of the country had managed to connect the rivers in India. We have lost an opportunity to become equal to China. And we could have made a huge difference if education for every child had been made compulsory. A 100 IITs and an equal number of IIMs would have helped India forge ahead of China. [email protected]

Decoding Budget Lingo

he governments budget exercise is no different from the way households manage their finances. But those big words finance Tministers read out in their budget speeches tend to sound intimidating. ET simplifies key concepts and jargon for you:
1 Government Revenues & Spending Governments budget is largely about revenues and expenditure. These are divided under two heads: revenue and capital. Spending is also split into plan and non-plan. REVENUE RECEIPT/EXPENDITURE All receipts, such as taxes, and expenditure, like salaries, subsidies and interest payments that in general do not entail sale or creation of assets, fall under the revenue account. CAPITAL RECEIPT/EXPENDITURE Capital account shows all receipts from liquidating (e.g., selling shares in a public sector company) assets and spending to create assets (e.g., lending to receive interest). REVENUE/CAPTIAL BUDGET The government has to prepare a Revenue Budget (detailing revenue receipts & revenue expenditure) and a Capital Budget (capital receipts and capital expenditure). A. REVENUES GROSS TAX REVENUE The total tax received by the government from which it has to pay the states their share as mandated by the relevant fi nance commission. The balance is available to the Union government. NON-TAX REVENUE The main receipts under this head are interest on loans given by the government, and dividends and profi ts received from PSUs.The government also earns from various services, including public services, it provides. Of this, only the Railways is a separate department, though all its receipts and expenditure are routed through the Consolidated Fund of India. CAPITAL RECEIPTS These include recoveries of loans and advances. MISCELLANEOUS CAPITAL RECEIPTS These are primarily receipts from PSU disinvestment. B. EXPENDITURE Before we understand government spending, it is important to know the concept of plan and nonplan spending and the Central Plan. GROSS BUDGETARY SUPPORT The Five-Year Plans are split into five annual plans. The

funding of the Plan is split almost evenly between government support (from the budget) and internal and extra-budgetary resources of state-owned enterprises. The governments support to the Plan, which includes state plans, is called Gross Budgetary Support. PLAN EXPENDITURE This is essentially the budget support to the annual plans. This is typically considered developmental spending (on health, education, infrastructure and social goals). Like all budget heads, it is also split into revenue and capital components. NON-PLAN EXPENDITURE This is in the nature of consumption expenditure, broadly corresponding to revenue expenditure: interest payments, subsidies, salaries, defence & pensions. Its capital component is small, the largest chunk being defence. 2 And The Shortfall When governments expenditure exceeds its receipts, it has to borrow to meet the shortfall. This deficit has material implication for the economy as bridging it increases public debt and eats up revenues through higher interest payments. PUBLIC DEBT The money borrowed by the government is eventually a burden on the people of India, and is, therefore, called public debt. It is split into two heads: internal debt (money borrowed within the country) and external debt (funds borrowed from non-Indian sources). FISCAL DEFICIT Usually the government spends more than what it earns through various sources. This shortfall, which is met with borrowed funds, is called fi scal defi cit. Technically, it is the excess of government expenditure over non-borrowed receipts revenue receipts plus loan repayments received by the govt plus miscellaneous capital receipts. REVENUE DEFICIT It is the excess of revenue expenditure over revenue receipts. All expenditure on revenue account should ideally be met from receipts on revenue account; the revenue deficit should be zero. In such a situation, the government borrowing will not be for consumption but for creation of assets. EFFECTIVE REVENUE DEFICIT This is an even tighter number than the revenue deficit. It is revenue deficit less grants for creation of capital assets. PRIMARY DEFICIT It is the fi scal deficit less interest payments made by the government on its earlier borrowings. DEFICIT AND GDP Apart from the numbers in rupees, the budget document also mentions deficit as a percentage of GDP. This is because in absolute terms, the fi scal deficit may be large, but if it is small compared to the size of the economy, then its not such a bad thing, especially if it is being used to create production capacities. FRBM ACT The Fiscal Responsibility and Budget Management Act was enacted in 2003 and required the elimination of revenue deficit and reduction of fi scal defi cit to 3% of GDP. The financial crisis and the subsequent slowdown had forced the government to abandon the path of fiscal consolidation for a while. A new fiscal consolidation road map is likely to be announced this year. WAYS AND MEANS ADVANCES When state governments or the centre face temporary mismatches then the RBI helps them manage these through temporary advances called ways and means advances. SECURITIES AGAINST SMALL SAVINGS The govt meets a small part of its loan requirement by appropriating small-savings collection by issuing securities to the fund. TREASURY BILLS (T-BILLS) These are bonds (debt securities) with maturity of less than a year. These are issued to meet short-term mismatches in receipts and expenditure. Bonds of longer maturity are called dated securities.3 How The Govt Taxes You The central government imposes many taxes, but they can be divided into two broad categories:

Direct Tax and Indirect Tax DIRECT TAX This is the tax that business, companies , firms and partnerships and we all pay from our income or wealth. It is called direct tax because the person who pays the tax has to also bear the burden of the tax. CORPORATION (CORPORATE) TAX It is the tax that India Inc pays on its profits. It is the single biggest source of tax for govt. TAXES ON INCOME OTHER THAN CORPORATION TAX Its income-tax paid by noncorporate assesses such as individuals and Hindu undivided family (HUF). SECURITIES TRANSACTION TAX (STT) STT is the small tax you need to pay on the total amount you pay or receive when you buy or sell shares on stock exchanges or transact in mutual funds. This is in the nature of a transaction tax. WEALTH TAX This is the tax individuals pay on their accumulated wealth. It is levied on individuals, HUFs and companies at the rate of 1% on the amount by which the net wealth exceeds 30 lakh. CAPITAL GAINS TAX It is the tax levied on profi t or gain made on sale of a capital asset such as shares, house, commercial property. Long-term capital gains tax is levied at 10% & short term at the marginal income-tax rate of an assesse. DIVIDEND DISTRIBUTION TAX (DDT) Dividends are tax free in the hands of investors but the entity distributing dividends to investors pays DDT to govt. MINIMUM ALTERNATE TAX (MAT) It is often the case that companies report profi ts but pay no tax. Such cos have to pay a certain minimum tax on their book profi ts. WITHHOLDING TAX This is a small tax deducted whenever a payment is made that is like an income for the receiver such as dividends, interest, royalty or even capital gains. INDIRECT TAX Its essentially a tax on our expenditure, and includes customs, excise and service tax. It is called indirect tax because the tax is paid to the government by the person selling the good or providing service but its final burden is on the consumer. It is considered a regressive tax as the burden is equal whether youre rich or poor. CUSTOMS Anything purchased from another country and brought into India is subject to this tax. It serves a twin purpose, yielding revenues for the government and protecting Indian industry. UNION EXCISE DUTY This is a duty imposed on goods manufactured in the country. SERVICE TAX It is a tax on services rendered. GST A proposed single tax that will replace the plethora of indirect taxes. This will make tax administration effective, compliance easy and evasion difficult. Consumers will benefit from the decline in the incidence of tax. 4 Reading The Balance Sheet Govt prepares its accounts on a cash basis as opposed to accrual basis by companies. ANNUAL FINANCIAL STATEMENT This document details the govts receipts and expenditure for the financial year. This 16-page document is actually the annual budget, as stated in the Constitution. It is divided into three parts Consolidated Fund, Contingency Fund and Public Account each of which provides a statement of receipts and expenditure. Expenditure from the Consolidated Fund and Contingency Fund requires the nod of Parliament. CONSOLIDATED FUND This fund is the governments lifeline. All the revenues, money

borrowed and receipts from loans it has given flow into this account. All govt expenditure is made from this fund. FINANCE BILL For most of us, this is the all important budget document. All tax measures are included in it. The memorandum, another document, explains the provisions of the Bill in simple terms. CONTINGENCY FUND As the name suggests, any urgent or unforeseen expenditure is met from this 500 crore fund, which is at the disposal of the President. The amount withdrawn is returned from the Consolidated Fund. PUBLIC ACCOUNT This is an account where the government acts more like a banker, as this is a collection of money belonging to others such as public provident fund. 5 The Social Agenda SWAVALAMBAN This is a co-contributory scheme to promote voluntary retirement savings towards pensions. The government makes a contribution to NPS account of unorganized sector workers. AADHAAR It is a 12-digit individual identification number that serves as a proof of identity and address, anywhere in India. BHARAT NIRMAN Bharat Nirman is UPAs ambitious plan to build infrastructure in rural India: Irrigation, roads, water supply, housing, rural electrifi cation and rural telecom connectivity. FOOD SECURITY ACT The govt plans to provide highly subsidised foodgrain to majority of the population. It is expected to be rolled out in the next fi scal. SWABHIMAAN This is a government campaign to extend banking facilities through business correspondents to habitations having population in excess of 2,000. DIRECT CASH TRANSFER OF BENEFITS It is a poverty alleviation initiative under which welfare benefi ts are given directly to the poor in cash (in their bank accounts) rather than in the form of subsidies. 6 & Some More... DIRECT TAXES CODE (DTC) BILL This is a comprehensive revamp of the income tax law that has been in the works for many years. ABATEMENT This is like a discount with reference to taxes. Abatement is given when the tax is not levied on full amount but on a portion of the transaction. RESOURCES TRANSFERRED TO THE STATES The Centre gives funds to states in two ways: a share in taxes and budget support for their plans. These are largely in the nature of grants, and include those given to states for managing Centrally-sponsored schemes. DISINVESTMENT The process of sale of government shares in state-owned entities. QUALIFIED FOREIGN INVESTORS Foreign individuals, groups or associations that are eligible to invest directly in India. They must be from countries that follow global anti-money laundering rules. VIABILITY-GAP FUNDING Financial support to a public-private partnership (PPP) infrastructure project to make it viable for the private-sector investor.