FM Jaswant Singh : Whither National Tax Tribunal

Yet again, the Indian legal community has scuttled a reform to keep its own selfish interests alive. First, it blocked the entry of foreign law firms. Now, it has obtained two stay orders on the formation of a National Tax Tribunal (NTT). The finance ministry recommended the creation of the NTT, comprising 15 benches that would hear cases related to direct taxes and 10, that would do indirect ones, with an eye on speeding up the resolution of the 28,000 tax cases pending in various high courts. The amount involved? Rs 46,000 crore. And the tribunal would have made it unnecessary for the Supreme Court to reconcile the varying judgements of various high courts on similar cases. The legal fraternity didn't like the move one bit. After all, the tribunal's members could be lawyers, chartered accountants, even bureaucrats from the Central Board of Direct Taxes. As a tax consultant with a leading multinational consultant firm points out, "The setting up of the tribunal would have hit out at very monopoly of this profession and done away with the exclusive preserve of the lawyers as far as tax issues are concerned.'' That's been nixed for now.

-Ashish Gupta

Honda Spreads Its Wings
After scooters, the Japanese four-stroke maestro is readying motorbikes.

HMSI's Kenjiro Iguchi : Ready to bike it

This year will see the entry of yet another player into the Indian motorcycle market. But this will be a player unlike any other. This will be the entry of the world's largest two-wheeler manufacturer, Honda. Wait a minute, doesn't Honda already have a JV with the Munjals of Hero Group? Yes, it does, but this entrant is wholly Honda-owned.

As a company, Honda Motor Scooters India (HMSI) will not be a new entrant. It has been rehearsing its entry into the motorcycle market by understanding the scooter market. With three products available on the market, Activa, Dio and Eterno, HMSI has done the impossible: it has halted the slide in the segment. In April-December 2003, the scooter market stood at 660,000 units, a climb of 10,000 units over the same period last year. All this growth has been fuelled by hmsi, whose market-leading share is at a third of the segment thus knocking Bajaj Auto off even this pedestal.

HMSI Director (Sales and Marketing), Kenjiro Iguchi refused to tell BT anything about the upcoming new motorcycle. "I have not even told my dealers, how can I tell the press?" he asks. But people in the know say that the product will be a 125cc motorcycle in the Rs 40,000 price-band, which would put it firmly in the meat of the market.

Honda is very clear why it is entering this segment. The two-wheeler market has had an average growth rate of 22 per cent from 3.8 million units in 1996-97 to 5.1 million units in 2002-03. However, the share of motorcycles in this market has grown from 30 per cent to over 75 per cent in the same period of time. "We expect the overall two-wheeler market to continue to grow", says Iguchi.

He also believes that HMSI will be able to replicate its scooter success in the motorcycle segment. "Honda works on the philosophy of "market-in", which is based on understanding the customer's requirements and designing a product around those requirements," Iguchi says. HMSI did extensive customer research before it launched the scooters, and is doing the same for the motorcycle.

The bottomline: Rivals had better keep an eye on their rear view mirror.

-Kushan Mitra

FDASH BOARD

A
He broke the political ice between traditional enemies, and now Prime Minister A.B. Vajpayee has done cricketing fans the world over a huge favour by backing the Indian cricket team's tour of Pakistan.

C
No, the outspoken and upright Union Minister isn't getting a C for criticising the head-in-sand Comptroller and Auditor General. Rather, Arun Shourie gets a C for apologising to the CAG for his warranted criticism.

Q&A
"Outsourcing Of Auto Parts Is For Real"

Sundram Fasteners' Suresh Krishna: Going global

For years, now Suresh Krishna of Sundram Fasteners has been one of General Motors' best suppliers. The future, however, could see his Chennai-based company, which already has plants in the UK, China, and Malaysia, emerge as India's first auto-components MNC. BT's R. Sridharan buttonholed Krishna at a recent TPM seminar in Delhi. Excerpts:

There's a lot of talk about India becoming a global supplier of auto components. Do you buy that?

Outsourcing of components is for real. I have been saying it for the last four-five years, and I now think the trend will grow. It's an economic compulsion.

Can all suppliers aspire to a global supplier status?

I have my doubts. If you are a Rs 50-crore company with good quality and a buyer does give you, say, a $50-million (Rs 230 crore) order, a whole lot of issues will crop up: You need money, and if you are family-owned, you'll have to dilute your stake, at which point some family members may baulk. Also, a single product recall can wipe you out. It's a big risk. You have to be a successful player in India before you can go global.

Do you foresee consolidation?

It's possible that suppliers who do not have the money will align with bigger players (in a similar deal, Sundram Fasteners bought Autolec). Basically, you require a different mindset to be a global player.

BREW
Sniff Sniff

For the first time in six years, world coffee production will be less than the demand. Against an estimated demand of 110 million bags, supply will be 103 million bags. The culprit: Brazil, where production last year plunged to 28.46 million bags versus 48.48 million bags the previous year mainly due to inclement weather.

That's warming the cockles of coffee producers around the world, but especially India. Coffee growers have seen prices of their bean dip to a 10-year low in 2001, and not recover significantly enough thereafter. In fact, a small uptick may be underway. Price of coffee in the wholesale market has moved up from around Rs 43/kg eight months ago to Rs 51/kg currently.

India has more than 3.5 lakh hectares of land under coffee and produces approximately 3 lakh metric tonnes of it every year. A whopping 80 per cent of coffee grown is exported, fetching $300 million. The industry is also a big employer, with six lakh workers directly employed on its rolls. But "a combination of glut in coffee supply, unfavourable weather conditions, and poor productivity had brought the Indian coffee industry to the edge of ruin," says Lakshmi Venkatachalam, Chairperson of the Coffee Board.

So, the drop in production comes as a welcome break. Yet, planters may be ill advised to read too much into it. There's an overhang of 34 million coffee bags (each of 60 kg) that may stunt price rise. "It is too soon for coffee growers to start celebrating," says Harish Bijoor, former marketing honcho at Tata Coffee and now a consultant. That means what the industry needs to do is to get its act together.

-Venkatesha Babu

Z Is For Conspiracy
BSE has made a complete mess of handling the Z group shares. Is it by design?

On February 6, the Bombay Stock Exchange's (BSE) Investor Protection Fund put out a six-page advertisement in a pink daily listing 2,873 scrips that were part of the exchange's Z-group, advising investors to "take due care before trading in such companies". Instituted in 1996, the Z category is BSE's hall of rogue stock, which have run afoul of the stock exchange in terms of non-compliance with listing agreement, investor complaints, poor trading, or simply are junk. So, you may think that the BSE was doing investors a favour by warning against the notorious category. But here's the interesting bit: The following day, a Saturday, it put out another advertisement referring to the previous day's list and said, "The list also inadvertently contained, due to technical reasons, the names of companies that are not currently in the Z category. The list of such companies will be published with suitable clarification soon." When BT went to press, no such advertisement had been released. Yes, the exchange did come out with an advertisement on February 14, but it was to urge Valentine-smitten lovers to gift a BSE training programme to their beloved.

To be sure, the mistake did not rock the market, but given that Z stocks have traditionally been the hunting ground of unscrupulous brokers, somebody making money on the whole episode cannot be ruled out. At any rate, experts say, the listing smacked of incompetence. Rajnikant Patel, COO, BSE, admits as much: "Rather than listing the shares according to the scrip code, we should have listed it according to the company name, and that would have kept the few Z group scrips otherwise traded in A, B1 and B2 groups, out of this list." Says Dina Mehta, MD, ACM Intermediaries: "The list was lousy and full of errors, and hardly readable as it wasn't listed alphabetically. BSE ought to be more careful."

Out of the 5,533 companies listed on BSE, a whopping 2,789 belong to the Z group. These are thinly traded and prone to price manipulation. Most of these stocks got listed in the early 1990s, when the listing norms were less stringent and dubious promoters raised money from the market. Prithvi Haldea of Prime Database estimates that these scrips may have raised over Rs 1,000 crore from the market through IPOs. For instance, during 1994-1996, 3,492 companies had approached the market and had raised Rs 1,693 crore. Most of these companies like Maruti Syntex, Cupid Condoms, Crazy Infotech now form a part of the Z group. Explains Ambreesh Baliga, Vice President, Karvy Stock Broking: "In such companies promoters have made their money and today they are not bothered about the small investors." Adds Parag Parikh, Chairman, Parag Parikh Financial Advisory Services: "The system has allowed these companies to raise money from gullible investors, but it doesn't have any mechanism to bring them to book. Besides, by delisting and suspending these companies, the authorities are just trying to wash off their hands."

That means the Z group clean-up must start by addressing BSE's own level of competence.

-Dipayan Baishya