India Panel Said to Pave Way for Wal-Mart, Tesco With Investment Approval

By Anto Antony and Andrew Macaskill - Jul 22, 2011

A panel of Indian bureaucrats recommended allowing foreign companies to own up to 51 percent in multi-brand retail stores, according to a finance ministry official with direct knowledge of the matter.

The panel has proposed a minimum investment of $100 million by overseas retailers in the world’s second-most populous country, the official said, requesting not to be identified before a public announcement. “Finer details” are being worked out and the cabinet will take a final decision after consultations, according to the official.

The recommendations by the group that met yesterday in New Delhi may pave the way for Bentonville, Arkansas-based Wal-Mart Stores Inc. (WMT) and Paris-based Carrefour SA (CA) to open supermarkets in the South Asian nation where Business Monitor International says retail sales may almost double to $785 billion in 2015 from $396 billion in 2011.

“We’ll see a lot of new retailers coming in, who will be keen on looking at India,” Kishore Biyani, managing director at India’s largest listed retailer Pantaloon Retail Ltd., said in an interview to Bloomberg-UTV. “It looks like a positive step. The industry needs money and the industry needs to grow.”

Retailers such as Wal-Mart, Carrefour and Cheshunt, England-based Tesco Plc (TSCO) have been lobbying for the chance to sell products to India’s 1.2 billion people, arguing they will lower prices and provide the scale that can improve local food networks. About 40 percent of India’s fruit and vegetables rot before they can be sold because of a lack of cold-storage facilities and poor transport infrastructure.

Inflation, Food Waste

“Inflation remains stubbornly high and food waste is a major concern because of limited cold storage facilities,” said Natalie Berg, co-global research director at Planet Retail in London. “A relaxation of FDI would enable the global retailers to invest in technology and bring efficiencies to the market, ultimately leading to lower prices for consumers.”

Wholesale-price inflation in India accelerated to an average 9.6 percent in 2010 and 2011, from 2.4 percent in 2009, as food and fuel prices rose. The central bank has raised its benchmark interest rate 10 times starting March 2010 to rein in gains.

“We’re following closely the potential evolution of legislation in India,” Carrefour spokeswoman Florence Baranes- Cohen based in Paris said in an e-mailed statement on July 21. “We are convinced that Carrefour can contribute to modernize distribution in India, to develop partnerships with local producers and make the supply chain more efficient.”

Arti Singh, senior vice-president for corporate affairs for Wal-Mart’s India operations in New Delhi, declined to comment.
Cash and Carry

India currently allows 51 percent ownership in retail outlets selling only one brand and 100 percent in cash-and-carry stores.

Should the Cabinet agree to the proposal it may anger small shopkeepers who say they will be forced out of business, potentially putting millions of jobs at risk, and add to political opposition to Prime Minister Manmohan Singh’s ruling Congress party. The government doesn’t need approval from parliament to change retail investment laws.

India was ranked fourth on U.S. consulting group AT Kearney’s Global Retail Development Index for 2011. The growing middle class, expanding economy and increasingly brand-conscious population will help push up retail sales, the consultant said.

India’s middle class in India may grow to 267 million people in the five years to March 2016 from 160 million people, according to the National Council for Applied Economic Research.

The nation’s economy has expanded at an average pace of 8.7 percent in the 6 years to 2010 compared with a 1.3 percent growth in U.S. gross domestic product.

To contact the reporters on this story: Anto Antony in New Delhi at aantony1@bloomberg.net; Andrew Macaskill in New Delhi at amacaskill@bloomberg.net

To contact the editors responsible for this story: Sam Nagarajan at samnagarajan@bloomberg.net; Peter Hirschberg at phirschberg@bloomberg.net
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Sensex Gains, Erasing This Week’s Loss as Wipro, Larsen & Toubro Advance

By Santanu Chakraborty and Rajhkumar K Shaaw - Jul 22, 2011

India’s benchmark stock index rose, erasing this week’s losses, after European leaders agreed on aid for Greece, easing concerns the region’s debt crisis may spread and threaten global growth.

Wipro Ltd. (WPRO), the nation’s third-biggest software services provider, paced gains among peers. India’s largest software makers get a quarter of the sales from Europe. After eight hours of talks in Brussels, leaders announced 159 billion euro ($229 billion) in new aid for Greece late yesterday, risking temporary default in their efforts to prevent the crisis spreading. Larsen & Toubro Ltd. (LT), the largest engineering company, added 1 percent.

“The market is are reacting positively to global cues,” said Manish Sonthalia, who manages $300 million in equities at Mumbai-based Motilal Oswal Asset Management Co., in a Bloomberg UTV interview. Indian stocks may “perform better” in the second half of the year and the central bank may not raise rates at its meeting next week, he said.

The Bombay Stock Exchange Sensitive Index, or Sensex, gained 122.45, or 0.7 percent, to 18,558.64 at 9:55 a.m. in Mumbai. The gauge is set for a 0.1 percent advance this week. The index has declined 10 percent this year, the second-worst performer among key indexes in the world’s 10 biggest markets, amid rate increases.

The S&P CNX Nifty Index on the National Stock Exchange rose 0.6 percent to 5,576.85 and its July futures traded at 5,583.85. The BSE 200 Index increased 0.7 percent to 2,300.95.

An “upswing in returns, earnings, cash generation and potential easing in macro and growth concerns should drive the market higher,” Aditya Narain, an analyst at Citigroup Inc., wrote in a report received today. “The current year should be good for corporate India.” The brokerage maintains a positive outlook for India stocks and has a Sensex target of 21,500 for December 2011.

Wipro gained 0.7 percent to 404 rupees. Infosys Ltd., the second-largest software services provider, rose 0.7 percent to 2,787.4 rupees and larger rival Tata Consultancy Services Ltd. (TCS) gained 0.6 percent to 1,129.25 rupees.

Larsen climbed 0.9 percent to 1,806.05 rupees.

Overseas funds sold a net 311 million rupees of Indian equities on July 20, paring their investment in stocks this year to 96.2 billion rupees, according to data on the website of the Securities and Exchange Board of India. Companies on the measure are valued at 14.8 times estimated earnings, compared with 11 times for the MSCI Emerging Markets Index.

To contact the reporters on this story: Santanu Chakraborty in Mumbai at schakrabor11@bloomberg.net; Rajhkumar K Shaaw in Mumbai at rshaaw@bloomberg.net.

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net
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Indian Refiners Said to Seek Saudi Oil Next Month as Iran Warns of Cutoff

By Pratish Narayanan and Anthony DiPaola - Jul 20, 2011

Indian refiners asked Saudi Arabian Oil Co. for at least one additional shipment in August as a payment dispute jeopardizes Iranian cargoes, four people with knowledge of the matter said yesterday.

Iran has told customers in India that they won’t receive shipments next month unless outstanding bills are paid, according to the people, who asked not to be identified because they aren’t authorized to speak to the media. Indian refiners have said global sanctions against Iran over its nuclear program have made banks unwilling to transfer oil payments.

Iran may stop oil exports to India starting Aug. 1, state- run Fars news agency reported July 18, citing an unidentified official in the Oil Ministry. The country hasn’t issued export permits for crude shipments to India for August, Fars said. India owed $5 billion for oil shipments, Iranian Central Bank Governor Mahmoud Bahmani said that day, according to the Islamic Republic News Agency.

Staff working for Ahmad Qalebani, managing director of National Iranian Oil Co. in Tehran, referred questions on the matter to Mohsen Qamsari, head of international affairs. Qamsari didn’t immediately respond to two calls to his office.

Saudi Aramco, as the world’s largest crude exporter, has told refiners in India it can replace some of the Iranian crude, people with knowledge of the situation said earlier this month. The Dhahran-based company didn’t respond to an e-mailed request for comment.
Second-Biggest Supplier

India imports about 21 million metric tons of crude from Iran annually, making it the country’s second-biggest supplier after Saudi Arabia, S. Sundareshan, a former Indian oil secretary, said on Dec. 30. Total oil trade between India and Iran is worth $9.5 billion a year.

R. Gopalan, a secretary in the department of economic affairs in India’s Ministry of Finance, declined to comment yesterday on the dispute.

The biggest Indian buyer is Mangalore Refinery & Petrochemicals Ltd. (MRPL) Other purchasers of Iranian crude include Essar Oil Ltd. (ESOIL), Hindustan Petroleum Corp. and Indian Oil Corp.

“Supplies are maintained based on an interim arrangement,” Mangalore Refinery, which buys about 7 million tons a year of crude from Iran, said in its 2010 annual report.

India voluntarily stopped channeling funds for Iranian oil through a bank in Germany, a government official said April 5.

Iran hasn’t yet given Indian refiners loading dates or shipping amounts for August, three of the people familiar said yesterday. Iran typically provides this information by the middle of each month for the following month’s supplies, they said.

To contact the reporters on this story: Pratish Narayanan in Mumbai at pnarayanan9@bloomberg.net; Anthony DiPaola in Dubai at adipaola@bloomberg.net

To contact the editors responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net; Stephen Voss at sev@bloomberg.net
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Wipro First-Quarter Net Meets Estimates on Rising Software Services Demand

By Ketaki Gokhale and Jay Shankar - Jul 19, 2011

Wipro Ltd. (WPRO), India’s third-largest software exporter, reported first-quarter profit that met analyst estimates as clients outsourced more computer services.

Net income was little changed at 13.3 billion rupees ($299 million) in the three months ended June 30, from 13.2 billion rupees a year earlier, Bangalore-based Wipro said in a statement today. The profit compared with the 13.1 billion-rupee median of 41 analysts’ estimates compiled by Bloomberg.

Wipro joins larger rivals Tata Consultancy Services Ltd. (TCS) and International Business Machines Corp. in signaling global demand for software services remains buoyant amid global economic uncertainty. T.K. Kurien, named chief executive officer of Wipro’s information-technology business in January, aims to boost sales by expanding operations through overseas acquisitions and reorganizing the business.

“Clients are getting used to the uncertain environment and in spite of macroeconomic concerns, there haven’t been cuts to their budgets or delays in IT spending,” Hardik Shah, an analyst at KR Choksey Shares & Securities Pvt. in Mumbai, said before the earnings announcement.

Wipro gained 0.4 percent to 415.20 rupees in Mumbai trading yesterday, trimming the drop this year to 15 percent. India’s benchmark Sensitive Index has declined 9 percent in the period.
Sales Forecast

The software provider forecast second-quarter revenue at its information-technology division, the company’s biggest, to range between $1.44 billion and $1.46 billion. First-quarter sales grew 18 percent to 85.6 billion rupees.

The company doesn’t give sales or profit forecast for all its businesses combined. Wipro also makes light bulbs, hydraulic equipment, soaps and other consumer products.

Wipro, which provides services such as designing and building software programs, product-engineering and back-office support to companies including BP Plc (BP), and Verizon Communications added 49 customers in the quarter.

The company’s information-technology division hired 4,105 employees last quarter and had 126,490 workers at the end of June, according to the statement.

“We are seeing early signs of positive momentum after the reorganization,” billionaire Chairman Azim Premji said in the statement.

Wipro said on Jan. 21 that T.K. Kurien would take over as chief executive officer of its information technology business after Girish Paranjpe and Suresh Vaswani resigned as joint CEOs. Kurien has worked at Wipro for more than 10 years and earlier served as president of its eco-energy business and head of the consulting and business process outsourcing businesses.

The software company in February said it would reorganize its technology business into industry-focused units, including divisions devoted to banking and financial services, healthcare, and media and telecommunications. The reorganization was a “long-term play” for Wipro, that would start to yield benefits only from the second half of the year, Kurien said at the time.

To contact the reporters on this story: Ketaki Gokhale in Mumbai at kgokhale@bloomberg.net; Jay Shankar in Bangalore at jshankar1@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net
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India Government Sees Growth Imperiled With Rising Greek-Like Tax Evasion

By Tushar Dhara and Cherian Thomas - Jul 18, 2011

As Rama Murthy completes the sale of his three-bedroom apartment in the southern Indian city of Hyderabad, he accepts from the buyer a bag full of rupees -- a part of the purchase price the tax man will never see.

“Almost 40 percent of the sale price I got in hard cash,” said Murthy, 39, who works at a software maker. “It’s illegal, but it’s rampant in India to avoid paying tax.”

India loses 14 trillion rupees ($314 billion) from tax evasion annually, depriving it of funds for investment in roads, ports and power, said Arun Kumar, author of “The Black Economy in India.” General government tax revenue totals an estimated 18 percent of gross domestic product, the lowest among the four BRIC nations, and down from an average 19 percent the past five years, International Monetary Fund data show.

With so little revenue, the government must borrow more to fund a planned $1 trillion five-year infrastructure program needed to help secure Prime Minister Manmohan Singh’s target of 10 percent sustained economic growth. Singh is pushing to pass legislation by April 2012 that would pare exemptions and lower personal and company levies to improve compliance, in what would be the biggest income-tax overhaul in half a century.

“In the last 35 years we have been losing 5 percentage points of growth every year,” said Kumar, who teaches economics at Jawaharlal Nehru University in New Delhi. “Instead of 7.5 percent now we could have grown at 12.5 percent. What China and Southeast Asia achieved, we could have done.”
Yields Rising

India’s 10-year government bond yields climbed 27 basis points yesterday from April 1, the start of the fiscal year, to 8.26 percent, partly on concern the government may borrow more than its 4.17 trillion rupee target for 2011-2012. Yields on similar-maturity Chinese debt rose 2 basis points, Brazil’s fell 40 basis points and Russia’s ticked up 1 basis point. Treasury yields tumbled 56 basis points, or 0.56 percentage point.

“If the government does end up making a substantial amount in revenue as a result of the tax overhaul, their deficit requirements should come down and the interest burden will also come down,” said Killol Pandya, Mumbai-based head of fixed income investments at Daiwa Asset Management (India) Pvt. The prospect “enthuses me as a bond investor,” he said.
‘License Raj’

India’s post-independence tax and regulatory code created incentives to keep transactions outside the tax system. Singh began attacking that structure as finance minister in 1991, accelerating tax cuts and reducing the bureaucracy. The top individual income tax rate is now 30 percent, from 97.5 percent in 1971. The country’s debt still exceeds that of other BRIC nations, which group India with China, Russia and Brazil, as a share of the economy, IMF data show.

“For every little thing, companies needed license from the government,” said D. H. Pai Panandiker, president of RPG Foundation, a New Delhi-based research group. The so-called “license raj” encouraged the creation of the underground economy, he said.

Even today, “no permission is available without the payment of money, so the cost of doing business is very high,” said Sharad Kumar Saraf, the managing director of Mumbai-based Technocraft Industries, which makes steel pipes and fittings for export.

India’s government revenue as a share of GDP compares with 36 percent in Brazil, 37 percent in Russia and 21 percent in China, the IMF says. Its debt ratio is 68 percent, against China’s 17 percent, Russia’s 8.5 percent and Brazil’s 66 percent.
Greek Example

In a country where the per capita income is 50,000 rupees and the income tax exemption limit is 180,000 rupees, only 3 percent of India’s 1.2 billion population pays tax, according to the finance ministry. Endemic tax evasion makes it tougher to stem any crisis in investor confidence, as Greece discovered last year. The IMF made addressing tax compliance a key part of its loan program for the European nation.

Singh’s government, which has been rocked over the past year by its own corruption challenges, including a scandal over the award of telecommunication licenses, in March appointed three research institutes to estimate the size of the so-called black-market economy. They are scheduled to release their findings and policy recommendations by August 2012.

Singh a year ago introduced the so-called Direct Tax Code legislation to overhaul levies on companies and households. It would cut the corporate rate to 30 percent from the current 33 percent and phase out tax “holiday” periods that give businesses incentives to alter the timing of their transactions.
Incentive to Cheat

“When you give these kinds of tax incentives there is always the possibility for misuse in the form of money laundering and shifting of profits,” said Sunil Gupta, a finance ministry official who helped write the legislation. He said he hoped it would be enacted by the start of the 2012-2013 tax year next April. Gupta estimated India loses as much as 800 billion rupees a year because of corporate tax incentives.

The bill aims to bring more individuals into the net by minimizing exemptions, such as for some real-estate transactions and investments in infrastructure bonds and equity mutual funds. It would boost by 200,000 rupees a year the sum an individual has taxed at the lower 20 percent rate.

“Every certified accountant, lawyer and doctor and small services provider isn’t interested in being part of the system,” said Kavita Rao, an economist in New Delhi at the National Institute of Public Finance and Policy who will lead one of the three black-market economy studies. “It penalizes the guys who pay taxes.”
Single Tax

A separate effort to overhaul indirect taxes may prove more challenging as it requires an amendment to the constitution. Singh plans legislation to introduce a nationwide goods and services tax, or GST, that would replace most indirect taxes.

The bill may also abolish a state-by-state entry tax that truckers must pay when they transport items across the country, said Vivek Johri, an Indian Revenue Service official at the finance ministry who is helping write the proposed legislation.

Should all the different indirect taxes be replaced by a single levy, it will be easier to conduct audits of companies, Johri said. “Right now there are too many government tax agencies who are not talking to each other. That will change.”

A third effort is to rewrite a tax treaty with Mauritius, an Indian Ocean island chain and suspected destination of a share of flows of unreported income out of India. Finance Minister Pranab Mukherjee said June 21 the two have resumed talks on the matter. Under the current arrangement, capital gains on Indian shares held by a Mauritian company aren’t subject to Indian tax.
Hamstrung in Parliament

One challenge underlying all of the initiatives is a political paralysis in parliament that’s hamstrung Singh since corruption charges erupted over irregularities in the 2008 sale of licenses to run mobile-phone services. One minister was forced to resign over the scandal and is in jail along with a federal lawmaker and company executives as their trial continues.

“The government must start the reform process once again,” Adi Godrej, chairman of Godrej Consumer Products Ltd. (GCPL), said in an interview with Bloomberg UTV on July 8. “Because of the corruption scandals the government went into hibernation. The most important legislation that could really kickstart the economy quickly to 10 percent growth is the introduction of the GST.” India’s GDP expanded 7.8 percent in the first quarter from a year before.

Another reason for lawmakers’ reluctance to embrace the government’s legislation is that a portion of India’s unreported cash is plowed into election campaigns, analysts said.

“The mother of all corruption in India is election corruption,” said N. Bhaskara Rao, chairman of New Delhi-based Center for Media Studies. “The biggest outlet for black money is election spending and political parties will only be curtailing their spending power by backing proposals to curb black money.” He estimated that parties spend $22 billion a year on elections to state and parliamentary seats.

Unreported money sometimes goes back into the economy: Murthy, who sold his apartment for 2.2 million rupees, said he used part of his bag of cash to buy a refrigerator and an air conditioner.

To contact the reporters on this story: Tushar Dhara in New Delhi at tdhara1@bloomberg.net; Cherian Thomas in Bangalore at cthomas1@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.

Lupin May Sell Indian Pharmaceutical Unit

By George Smith Alexander - Jul 18, 2011

Lupin Ltd. (LPC), the world’s largest maker of drugs to fight tuberculosis, is considering selling its Indian pharmaceuticals unit, said two people with knowledge of the matter.

Founding shareholders who own a combined 47 percent of the Mumbai-based company have started the process of finding a buyer for the operations, said the people, who declined to be identified because the discussions are private. The Indian business may be valued at as much as $1 billion, one person said.

Selling the Indian medicines unit, which accounted for 32 percent of Lupin’s 57.1 billion rupees ($1.3 billion) of revenue in the year ended March 31, would help finance investments in more profitable markets overseas. Lupin is the fifth-largest supplier of generic drugs in the U.S. based on prescriptions and U.S. sales jumped 27 percent to 20.5 billion rupees last year.

Lupin said it has no plans to sell its domestic operations. “This is baseless and there is no such activity going on,” the company said in an e-mailed response to questions from Bloomberg News on July 15.

India’s pharmaceuticals market will expand by about 14.5 percent annually to reach $55 billion by 2020 from $12.6 billion in 2009, according to McKinsey & Co. By the start of the next decade, India’s drug sales will be the largest after the U.S., Japan and China, helped by rising household incomes, population growth, improved health insurance coverage and increased prevalence of diseases such as cancer and diabetes, according to McKinsey.
India Share

Lupin was founded in 1968 by Chairman Desh Bandhu Gupta, a billionaire father of five with a Master’s degree in chemistry. Lupin had about 4,000 medical sales representatives in the domestic market, according to its 2011 annual report. Gupta and his family control 46.96 percent of the company.

Lupin, India’s fourth-largest drugmaker by revenue, has a 3 percent share of the domestic market, Nomura Financial Advisory and Securities (India) Pte. said last month, making it the 6th largest pharmaceutical supplier in India by value. Cipla Ltd. had the biggest share of the local market, with 5 percent.

Sales at Lupin’s domestic formulations unit increased 17 percent to 15.5 billion rupees in the year ended March 31. The business has focused more on treatments for chronic diseases over the past five years and less on acute conditions, Monica Joshi, a health care analyst with Avendus Securities Pte, wrote in a July 1 report.

Eight of Lupin’s nine manufacturing facilities are in India -- Goa, Tarapur, Ankleshwar, Jammu, Mandideep, Indore, Aurangabad and Vadodara. The ninth is in Sanda, Japan. Three of the plants have been approved by the U.S. Food and Drug Administration for exporting drugs to the country, according to the company’s website.
Top Sellers

Medicines to fight tuberculosis and other bacterial infections accounted for 26 percent of Lupin’s domestic formulation sales, according to the company’s annual report. It also makes gynecological medicines, drugs to treat heart disease, diabetes and asthma.

Tonact, a generic form of Pfizer Inc. (PFE)’s Lipitor, diabetes medicine Gluconorm and blood-pressure pill Ramistar are Lupin’s top-sellers in the domestic market, according to Nomura.

Piramal Healthcare Ltd. (PIHC) sold its branded generic-drug unit in India to Abbott Laboratories (ABT) for $3.72 billion last year. International pharmaceutical companies have made $11.8 billion of acquisitions in the last five years, according to Bloomberg data.

To contact the reporter on this story: George Smith Alexander in Mumbai at galexander11@bloomberg.net

To contact the editors responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net; Jason Gale at j.gale@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.