Mayawati budget proposes sweeteners for the sugar industry, including a revival package

Mayawati has decided to privatise loss-making public sector and cooperative sugar mills, but has postponed transition to the value-added tax (VAT).

The budget has also proposed sweeteners for the sugar industry, including a revival package, encouraged building of multiplexes, asked for private sector investment in power and building of colleges. There are no new taxes in the budget.

Presenting the budget of the BSP government, the chief minister projected a revenue surplus of Rs 6,146 crore, against a surplus of Rs 1,123 crore in fiscal 2006-07. She also doubled the spend on power to Rs 9,209 crore, with plans to set up a 2000-mw plant in the power deficit region of eastern UP.

The state has also managed to lower the fiscal deficit to 3.6% of the state GDP (Rs 12,485 crore) in 2007-08, compared with 4.1% in the previous fiscal. The total receipts for the current fiscal are estimated at Rs 99,709 crore, of which revenue receipts are Rs 74,017 crore, with capital receipts estimated to be Rs 25,691 crore. The total expenditure for fiscal 2007-08 is estimated to be Rs 100, 911 crore.




Exprerts give thumbs down to Infy-Capegemini deal

A few months ago, before its entry its into the elite Nasdaq-100 index, the then CEO Nandan Nilekani indicated that the first major acquisition by Infosys could well be in Western Europe or in the BPO space, in response to the oft-repeated query on its acquisitions. On Thursday, market reports seemed to indicate that Infosys was not only eyeing companies in Western Europe but a player that’s almost thrice in revenues, Capgemini.

Indian IT companies have been trying to break into the high-margin consulting business but without much success. For Infosys, consulting revenues made up just a little over 3% of its topline in FY07. According to estimates of research firm Gartner, the global IT consultancy business today is around $ 55 billion, and expected to grow at a CAGR of 7% to billion by 2010.

Consulting is an opportunity, no Indian IT firm with global ambitions can afford to ignore. An inorganic growth strategy may prove to be the driver and the impetus that the business needs, since none of the players have been able to crack it so far. Capgemini would provide this to Infosys.

The reactions to whether such a move will actually benefit Infosys have been mixed in the analyst and investment banking community. While the consultancy business and a strong European presence of Capgemini are clear strengths that Infosys will gain from, the likely valuation of Capgemini and the potential hit that Infosys will take in its profitability margins, are getting the thumbs down from i-bankers. Abhay Aima, head of equities and private banking group, HDFC Bank, is being cautious about the deal.

Says Aima, “While in the long term it may be a brilliant strategy, what matters to the investor is what the stock swap and the valuation will be in the short term. That is assuming the deal does indeed happen — right now, both companies have denied it.”

Harit Shah of Angel Broking is more sceptical about the deal and says, “Infosys is growing very well organically at over 40%. When it is growing at such a good rate, it doesn’t make sense for it to acquire Capgemini that is growing at 6%. Also, such a large acquisition would change its balance sheet dramatically.” He advocates that Infosys should acquire a niche consulting company in the US and Europe, if it wants consulting capability. But there are some who believe that this might in fact be a good idea. One investment banker we spoke to told ET, “It makes sense for them to acquire a consulting organisation. This apart, it also gives them a local presence in Europe.”

If Infosys were to go through the deal while it might acquire a bigger presence in the consulting space and gain a footprint in Europe it won’t be a bed of roses. It will need to address some core issues pertaining to the existing operations of Capgemini, apart from integration and cultural issues.

Capgemini’s employee base is almost as large as that of Infosys, so Infosys could well be looking at potentially laying off a significant number of people. Also, Capgemini’s operations emerged from the red only in 2005 and its margins are still at 5.8% at the EBDITA level, compared to Infosys’ 31.6%.

Some experts, though, believe such blips are only temporary. Investment strategist, Gul Teckchandani, says, “Downloading functions from the western world into India has largely been accepted. This will definitely allow for decent offshore arbitrage for the Indian companies.”




Govt completes its most 'costliest' acquisition ever; Acquires RBI's stake in SBI for Rs 35,531 Cr

In its costliest acquisition ever, the government on Friday bought out Reserve Bank of India’s (RBI) stake in the country’s largest bank — State Bank of India (SBI) — for Rs 35,531 crore. The Centre purchased 31.43 crore shares of SBI with a face value of Rs 10 each at Rs 1,130.35 per share.

“The entire shareholding of RBI, aggregating 31.43 crore shares with face value of Rs 10 each, in SBI was transferred to the central government on Friday,” SBI informed the Bombay Stock Exchange. SBI shares surged over 4% to their 52-week high of Rs 1,531 on BSE. The scrip gained Rs 60.65 over Thursday’s close of Rs 1,470.35 on BSE. At close of trading, the scrip had settled at Rs 1,525.30, up 3.74% or Rs 54.95. A sum of Rs 40,000 crore had been provided in this year’s Budget for the transfer of RBI’s 59.7% stake in SBI to the Centre. The government has managed the transaction without resorting to extra market borrowings, a finance ministry official said on Thursday.

The deal is revenue-neutral for the government since RBI is expected to transfer the surplus to the Centre during the first half of August, after about 45 days, as its yearly dividend.“It will go through smoothly. Funds are in place, we are raising the money through treasury bills and we might also use some of the government surplus,” a senior finance ministry official said.

It is understood the government has dipped into the ways and means advances (WMA) for the transaction. WMA is a recourse provided by RBI to the Centre and states to meet temporary mismatches in receipts and expenditure.

The government has also decided to acquire RBI’s shareholding in the National Bank for Agriculture and Rural Development (Nabard) and National Housing Bank (NHB) by June 2008. RBI holds 59.73% in SBI, 72.50% in Nabard and 100% in NHB.

“For sake of greater transparency, the valuation of RBI stake in SBI was worked out as per Sebi guidelines taking February 28, 2007, as the ‘reference date’, the day on which the decision of the government to acquire RBI stake in SBI was announced by the finance minister in his Budget speech,” a finance ministry release said.

The Sebi (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 — known as Takeover Regulations — per se were not applicable in this transaction, it said.




US withdraws duty free imports of gold jewellery from India

Days after the collapse of G4 talks on WTO, the US has withdrawn concessions given to imports on gold jewellery and brass lamps from India as well as auto parts from Brazil as part of a revision of trade sops given to developing countries.

The duty-free access was withdrawn under its annual review of Generalised System of Preferences (GSP) through a proclamation signed by US President George Bush yesterday. The changes mean exporters of gold jewellery from India, the world's largest producer, would now have to pay an import duty of 4%. The move will impact close to $ 1.8 billion of jewellery exports to US, which accounts for one-third of the total shipment of 5.21 billion dollars.

The decision would also affect exports of brass lamps, hitting the handicraft sector struggling under the impact of hike in rupee value. Yhe concessions were removed on imports that exceeded the new statutory threshold in 2006 established by US Congress, US Trade Representative Susan Schwab said in a statement. Brazil has also been hit by the withdrawal of GSP benefits on brake, brake parts and ferrozirconium. Besides, gold jewellery from Thailand, wiring harnesses from the Philippines, and methanol from Venezuela were also excluded.

Incidentally, India and Brazil are leaders of the G20 group of developing countries and are part of G4, which also includes the US and EU. Talks between the four key WTO players collapsed on June 19 in Potsdam, Germany, making the conclusion of Doha Round of trade negotiations very unlikely.