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DROUGHT HITS SUGAR PRICES IN INDIA

The two years of drought and climate-related challenges are creating a whiplash in sugar prices as largest producer Maharashtra struggles to supply the nation. And though as households, we spend only 3% of our monthly food budget on sugar, eventually we also pay for the more expensive sugar in ready-to-eat foods, ice creams, sweets, snacks, cold drinks, confectionery, and restaurant meals. The food and hospitality industry, which buys 65% of the country’s sugar, passes on the price increases to us.

Maharashtra, which contributes a third of India’s total supply, is expected to produce 40% less sugar in 2016-17. In Karnataka, production is down 44% due to the drought. Together, that is loss of sugar enough for two months consumption.

Due to the acute water scarcity, farmers in these two states did not plant new sugarcane crop in 2016-17. The ratoon crop also yielded less juice. At least 45 sugar factories in Maharashtra shut operations early because no cane is available. The rest will shut in the next one-and-a-half months. Since the slack in Maharashtra and Karnataka will not be compensated by the increased production in Uttar Pradesh, India may fall short of sugar to meet demand. By September end, when the 2016-17 sugar marketing closes, we are likely to be left with stocks enough for only 47 days. This will be the lowest in several years.

In Uttar Pradesh, mills have produced 10% more sugar than last year and sales are brisk. As a result, farmers are being paid at least 75% of their bill within the 15-day deadline. The delayed payments are mainly by corporate groups with high debt and poor cash flows. While farmers and mills are coping well, consumers are less fortunate. The tight supplies have pushed up retail prices to above Rs 45kg in the metros just four months into the new sugar marketing year. Industrial consumers are also paying more in the wholesale markets. Sugar was 28% more expensive in December compared to the same month in 2015, shows latest Wholesal price index.

US BORDER TAX: INDIAN PHARMA COMPANIES TO HIT

MUMBAI: Domestic pharmaceutical companies may be impacted and could see a rough road ahead in the US, if it decides to implement the proposed border adjustment tax (BAT) under the plan to revamp corporate taxes. The new measure is aimed at boosting US manufacturing by taxing imports, while exempting US business export revenues from corporate taxation.

Analysts said the border adjustment tax will be “detrimental” to domestic companies exporting to the US, and may erode the profitability by 17-46%, if the bill is passed in the present format. The Republicans plan to adjust taxes at the border, essentially subsidising exports and taxing imports, under the controversial corporate tax reform plan. India contributes around 30% of the overall volume of drugs consumed in the US, with generic companies, including Sun Pharma, Lupin and Glenmark, exporting around 40% of their overall sales.

The passage of the proposed BAT is not certain, an analysis by BofA Merrill Lynch Global Research said, as it has been opposed by advocates of free trade, and previously by US President Donald Trump. The measure may lead to appreciation of the dollar, thus negating to a large extent any trade/balance of payment impact. “While border adjustments for indirect taxes have not seen much challenge at the World Trade Organisation level (WTO), the US attempt at border adjustment of direct taxes might infringe WTO compliance,” the report said.

The move is being opposed as it may elicit similar protectionist response from other countries which trade with the US. “BAT in its proposed form could negatively impact EBIT of Indian pharma companies by 17-46%, if the tax rate is 20%. However, if BAT is implemented and corporate tax rate is retained at the existing level of 35%, the impact could be as severe as 30-80% of FY18E,” it added.

If implemented, the move may be counter-productive as domestic generic companies will be under pressure to increase prices in the US, experts said. This is at time when pharmaceutical companies are under attackin the US for high drug prices, with Trump having claimed earlier that they were “getting away with murder”.

FORD TO EXPAND NETWORK IN SMALLER TOWNS

COIMBATORE: Ford India is expanding its footprint in tier-3 and tier-4 towns. The auto major would expand its sales and service outlets to 500 from the current level of 376 in the next 2-3 years, a senior official said. Most of the expansion would be in smaller towns, said Prabhu N, vice president, customer service operations, Ford India.

“Our expansion is focused on tier-3 and tier-4 locations since we have covered most of the main cities already,” he said. Ford’s sales and service outlets are now present in 209 cities across the country. “There is a good demand from smaller towns,” Prabhu, who was here to launch Ford’s new showroom and service facilities in the city and nearby Pollachi, said.

Customers can now find out how much it would cost to service the vehicle from the company’s website, he stated. Ford has made its spare parts available to multi-brand workshops and four-wheeler mechanics in its attempt to bring down the cost of ownership, he said. Ford now has spare parts distributors in Delhi, Karnataka, Kerala, Tamil Nadu, Gujarat and Rajasthan.

 

DIGITAL TRANSACTION GROWS EXPONENTIALLY

MANGALURU: The number of digital financial transactions made through Unified Payments Interface (UPI) and Unstructured Supplementary Service Data (USSD) mode has grown exponentially by 3,574% and 10,60%
respectively till January 18, union minister of state for law and justice and electronics and information technology, P P Chaudhary said at an ASSOCHAM event held in New Delhi.

“As on January 19, over 3.8 lalh customers and 21,000 merchants have been rewarded under Lucky Grahak Yojana and DigiDhan Vyapar Yojana,”said Caudhary Addressing an ASSOCHAM summit on ‘Growing Cashless & digital economy.’

He also said that common service centres (CSCs) are functioning as ground level soldiers for spreading awareness about less-cash economy in the country. “Since the beginning of the month of December 2016, a total of 1.97 crore citizens and 6.15 lakh merchants have been trained by CSC wokers as on January 19.”

Chaudhary informed that various other societies and organizations within the Ministry of Electronics and Information Technology (MeitY) such as National Institute of Electronics and Information Technology (NIELIT) and National Informatics Center (NIC) have also started undertaking initiatives for awareness building and training on digital payments.

Bharat Interface for Money (BHIM) app has witnessed several million downloads in the country in a span of just few days. “With further updates of applications to be released in the coming few days, we expect it to become the mainstay for undertaking financial transactions throughout the economy sooner than envisaged earlier.”

Digital payment will generate a transparent economy and enhance direct and indirect tax collection. “We can assume there can be a rise of 25%of the direct taxes and this money could be used in shoring up infrastructure to bridge the divide between rural and urban.” People should not worry about 58% of India’s population that is based on agriculture sector for its livelihood as their systems is transparent and they do not pay income tax.

“There are hardly four days in a year when they visit the bank as day-to-day they do not require purchasing milk and other things used in kitchen as everything happens in their field and so the transaction is very less,” he said.

AIRPORTS TO START FUNCTION FOR REGIONAL CONECTIVITY

NEW DELHI: Forty-three unused airports will soon start operations as the government has got bids to start flights to and from these cities under the regional connectivity scheme (RCS). The first subsidized regional flight, with fares capped at Rs 2,500 per hour of flying, will take off by February-end or early March, said aviation minister Jayant Sinha.

“We have got bids from 11 bidders, including schedule airlines, for 190 routes connecting 43 unserved airports like Jaisalmer, Bikaner, Jamshedpur Jalgaon and Akola and for 12 underserved (which get less than seven flights a week like Gwalior).This is the first round of bidding and affordable aerial regional connectivity will grow as more routes are bid out in coming days,” Sinha said.

The first RCS flight may be to Pantnagar, with the hill state city getting connected to Delhi and Dehradun. Jamshedpur-Kolkata may be the second. India has 35 airports which e ready to receive flights but areready to receive flights but don’t get as airlines don’t find these routes financially viable. The overcome this challenge the government plans to raise viability gap funding (VGF) for RCS operators by charging Rs 7,500-8,500 on each schedule flight to and from big cities. It expected to raise Rs 400 crore from this cess for regional connectivity fund (RCF), apart from another 20% funding coming from state governments. However, airlines -which in turn will pass on this burden on flyers -have challenged this new cess in court.

Sinha said: “We are in talks with airlines on this issue. There are several ways to raise RCF and this was the most preferred one. However, operators need not worry as the government is backing this scheme and will pay them the required VGF.” The levy to fund RCS will be reviewed once every quarter to factor in fluctuation in prices of jet fuel and other operating cost.

LABOR FORCE  GROWS RAPIDLY

MANGALURU: India’s labour force will expand by 160-170 million in2020, depends on various factors which includes population growth rate, labour force participation, education enrolment at higher levels etc, an ASSOCHAM -Thought Arbitrage joint study has pointed out.

Overall, the labour force increased from around 337 million in 1991 to around 488 million in 2013 – an expansion of 151 million in labour force in roughly 22 years. Employment level more or less followed the same trend as shown by the labour force but employment level fell short of the labour force throughout the period, creating a consistent gap between the two. Employment in India witnessed an increase to 470 million in 2013 as compared to 323 million in 1991, the ASSOCHAM-Thought Arbitrage joint study on ‘Employment Generation and Rebooting India’ noted.

Between 2000 and 2010, 64 million jobs approximately were generated in India. On the other hand, labour force participation witnessed an increase of 72 million in absolute terms. The disconnection between economic growth, skilling, education and jobs is growing. This is an alarming situation since in the future India’s work force is expected to increase exponentially. The reason for the decline in India’s employment, especially in the organised sector is due to the relatively low and almost constant share of manufacturing in the country’s GDP, adds the paper.

BUDGET 2017 IN THE MAKING

Mumbai: A slight cut in corporate tax rates appears imminent in the forthcoming Budget 2017. However, what attains more significance is the possibility of a reduction in Minimum Alternate Tax (MAT) rates, which have increased over the past few years even as corporate tax rates have remained static (see table).

MAT provisions, as they largely stand now, draw their genesis from the Finance Act, 2000, which introduced tax at 7.5% of book profits. The corporate tax rate was then 35%, which in subsequent years declined to 30%. Over the years, not only have MAT rates risen, but the ambit has also been expanded. For instance, both SEZ developers and SEZ units were brought within the MAT ambit from the financial year 2011-12 onwards.

A high MAT rate of 18.5% adversely impacts the cash flow of companies that have low taxable income or have incurred losses. Further, it also dilutes the tax incentives otherwise available to business entities.

Government sources admit that rationalisation of MAT has been on the cards. However, no additional MAT-related concessions are expected to be available for SEZ developers and units, which will continue to becovered by its provisions. Apart from discussions relating to a possible reduction in the MAT rate by a few percentage points, the other point of deliberation in the run-up to the budget relates to the period available for carry-forward and set-off of MAT credit against normal taxes.

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