Switchover time: She is unlikely to notice the change to VAT

By the time you read this article, the value-added tax (vat) regime-the most comprehensive tax reform in the country's history-would have been implemented in 21 states and the ongoing traders strike (hopefully) resolved. This means, it's finally goodbye (at least in most parts of the country) to the plethora of state-level surcharges, special additional taxes, purchase taxes and turnover taxes. The new system will resolve the problem of cascading taxes adding to the price of goods-by offering full-tax credit on inputs. More importantly, it is self-policing: The benefits are available only if proper documentation is maintained and full disclosures made. This will curb tax evasion, bring more revenues to state exchequers and replace the existing inspector-raj system with a system of self assessment by traders. The 4 per cent Central Sales Tax (CST) will also be phased out gradually.

Under vat, which covers 550 goods, there will be two basic rates: 4 per cent for more than 270 items and 12.5 per cent for the rest. There is a special category of tax-exempted goods (medicines) and a 1 per cent tax on gold and silver ornaments. Yet, for all its pluses, putting vat on track has not been easy. And this is not merely because seven states still remain outside its purview... the Indian avatar is very different from the one that is practised in nearly 130 other countries, including our neighbours, China and Sri Lanka.

The Indian brand of vat covers only goods and not services, unlike the Goods and Services Tax (GST) that is levied in other nations. Also, unlike in other countries, the CST, octroi and entry tax have not been incorporated into vat. There is only a promise to phase them out. And we all know how good the government is at redeeming its fiscal pledges!

So what does this truncated and imperfect vat regime mean for Indian business and trade? Most experts believe that the situation is not as bleak as it looks. "The pricing of products on an all-India basis, and fixing dealer and distribution margins will be the main problem areas," says S. Madhavan, Executive Director and Head (Indirect Tax Practice), PricewaterhouseCoopers. Moreover, the cost of compliance in vat-enabled states will be much higher than in the other states since every registered dealer will have to maintain extensive documentation of invoices, cash memos and bills in order to get tax credits. It's little wonder then that traders, long used to issuing hand-written bills, are spending sleepless nights worrying about the fate of their "No. 2" books.

The introduction of a truncated vat is unlikely to make any difference to India Inc.'s bottom lines, though it may involve some logistical re-arrangement. At Dabur India, for instance, CFO Rajan Varma has had to make some changes to his accounting system to take care of vat-compliant states and others that are not. The company also had to change the selling prices of some of its products in the two categories of states. But it's the absence of notifications that's getting his goat. "Most of us are still pretty lost without proper notifications," he adds.

Yet, experts say, even an emasculated vat is a step in the right direction. It is obviously much better than the previous sales regime, which has led to an unhealthy "tax rate war" among states to attract investments. And the shortfalls-the phasing out of CST over time, integrating all state-level taxes into vat and the introduction of a comprehensive goods and services tax-will probably be addressed in the months ahead. It's just a matter of time.

-Ashish Gupta

The Good Company
PepsiCo parlays CFO Indra Nooyi's Indian-ness into a show of its corporate goodness.

Indra and India: Made for each other

Last June, when Coca Cola chairman and CEO Neville Isdell visited India, the company's Indian subsidiary went into a he-is-not-coming-is-he-coming?-it's-not-a-public-visit-sorry-no-comments routine that finally left its flak catchers red in the face and the media fuming ("We can't write about Coke? Great, we'll write about pesticides."). In contrast, PepsiCo's local arm, which must have learnt something from the other guy's discomfiture, celebrated the visit of President & CFO Indra Nooyi, helped in no small measure by the lady's Indianness and the fact that she is the product of two legendary academic institutions, the Madras Christian College and the Indian Institute of Management, Calcutta.

The visit gave the company an opportunity to publicise the fact that India was its fastest-growing market after China, the fastest-growing market for snack foods in the world, and an incubator for managers for the PepsiCo global system. Nooyi announced a $500-million (Rs 2,200-crore) investment into India (the company already has invested $700 million, Rs 3,080 crore), the decision to take Kurkure, a product launched by the local arm, global, several launches, and the fact that Pepsi had wrested leadership of the Indian market from "the other company". Nothing wrong with that; these are important milestones in the life of any business, and understandably both Nooyi and the Pepsi team in India must be justifiably proud of them.

More importantly, Nooyi struck a close-to-subliminal blow for the company, trying to establish its innate goodness. She did not duck any questions: pesticides, obesity and snack foods, it was ok to ask her anything. "If you look at our products, there is no question that people will talk about health and wellness, and obesity," she said as a response to a question from this writer about Big Food being the next Big Tobacco. "I am never going to deny that; our goal as a company is to provide a range of choices and let consumers select what they want to eat." Maybe Coca Cola could do with an Indian in its higher echelons.

-Shailesh Dobhal

OBITUARY
Om Prakash Jindal: 1930-2005

A farmer from Haryana with no formal education, O.P. Jindal, who died in a helicopter crash on March 31, 2005, established a business empire that was the fourth largest in the country last year, with revenues in excess of Rs 12,000 crore. At the age of 22, Jindal set up a plant to manufacture steel pipes near Kolkata; 18 years later, he founded a steel plant in hometown Hissar. Then followed two decades of intense activity in steel, steel products, and power. In 1991, Jindal put his four sons in charge of various companies of the group (effecting an informal division, although he did little to untangle a web of cross-holdings that could come back to haunt the sons) and entered politics. He had just been appointed Power Minister for the state of Haryana. Given that India's politicians are late bloomers, his career was cruelly cut short.

XENAPHOBIA
The Amazon Express

In safe hands: Quick, get in while I cover you

For those people who wondered where they could hire a chauffeur like the one who appears in an ad for M&M's Scorpio (above), Diwan Rahul Nanda may have an answer. The head of security firm Topsgrup-not just any other security firm; it boasts an ISO certification, proposes to start a security training institute near Mumbai by 2006; and an Initial Public Offering of stock is in the works-is putting 50 women body guards, some of whom could be employed as chauffeur for the rich and famous, through their paces. "We already have 500 lady guards," clarifies Nanda, "but these will be combat officers who will be differently trained." Most of them, he is confident, will be snapped up by women celebs and celeb-wives who are not too comfortable with male guards. The uniforms for the 50 are still being designed and, for the record, this writer has no idea whether they will be like the one worn by the chauffeur in the ad.

-Priyanka Sangani

SELF WORTH: PRADEEP KAR
Serial Enterprise
A self-styled tech visionary reinvents himself and his company, yet again.

Three years ago, this magazine ran a profile of Pradeep Kar, now 45, the Founder, Chairman, and Managing Director of Microland, marvelling at his ability to ride waves (bubbles, some unkind tongues may label them), managing to exit at the right time at the right price in a text-book style demonstration of putting the greater fool theory to work. Since then, Kar, who, in 15 years founded seven companies only to sell five and merge the rest with flagship Microland, has remained fairly low-profile, even in Bangalore where the man is definitely part of the smart set.

Now, Kar is back, armed with a war-chest of $7.3 million (Rs 32.12 crore) that came, in equal parts from his own money, JP Morgan, and ICICI Venture, to exploit what he is confident is the next big thing: infrastructure management services, or IMS, which involves remotely managing the hardware and network infrastructure of companies. "We have the potential to be #1 in this space," he says. "We have always been leaders, not followers." He claims that the company already does some work in the area for a Fortune 5 firm and others such as Standard Chartered, Bharat Petroleum and Blue Dart.

This, presumably, is what has occupied the man for the past few years. "We have had 16 consecutive profitable quarters," boasts Kar. "We are gaining momentum and the new investments will help in building up facilities as we scale." He reckons that 2007 will be when IMS goes mainstream, implying that the same year could see Microland regain some of its former glory.

This, after all, is the company that, as a hardware distributor and marketer, was larger than Infosys in 1997 (according to a listing by Dataquest magazine). That, coincidentally, was the year the man founded Planetasia.com. "Others might now scoff at us for getting out of the hardware and networking business," he says, "but it was the right decision; margins were razor thin."

There's no denying that, just as there is no arguing the fact that the end of the dotcom boom put paid to Microland's second coming. "It was the implosion of the dotcom boom that did us in the second time," rues Kar. "When firms like Goldman Sachs, that made rosy projections, can go wrong...,"; Kar trails off, perhaps thinking of what might have been.

Actually, he insists, as if reading this writer's mind, all his ventures were successes and his investors made money. "My critics and the people who have left Microland may say anything, but at the end of the day, the piper calls the tune," he says. "You cannot call a JP Morgan or ICICI Venture greenhorn investors." Neither was available for comment.

Given that, there may actually be something to Kar's claim that IMS is the next big thing and that he can "spot inflection points". Maybe, just maybe, things will come together for the silver-tongued salesman. Oops, this writer forgot that, in Kar's opinion, they always have.

-Venkatesha Babu

Free Trade, RIP
With a consensus still elusive, the Hong Kong ministerial meet may be headed for another failure.

Free trade fizzle: Indian Commerce and Industry Minister Kamal Nath (fifty from right) poses with ministers of the G-20 alliance

It had its first brush with death on a cold chilly morning in Seattle on November 30, 1999, when more than 50,000 workers thronged the streets to say "No" to the so-called "corporate agenda'' of the World Trade Organisation (WTO). It met with the same fate four years later at the Cancun Ministerial Summit when the g-20, a group of 20 developing countries led by Brazil, India and China, virtually walked out of the meeting in protest against unfair agricultural practices of the West and attempts by the developed nations to initiate talks on front-loaded investment and trade facilitation measures, which came to be known as the Singapore issues.

Finally, the WTO's General Council Meeting, held in Geneva on July 31, 2004, thrashed out the July Framework Agreement, a broad framework for negotiations on all contentious issues. The new deadline: 2006. The idea was to arrive at a consensus on most of the issues at the sixth WTO Ministerial Meeting in Hong Kong in December 2005. Thereafter, various governments could begin to reduce industrial tariffs and bring down agricultural subsidies.

The urgency to conclude the round by 2006 arises partly from the fact that the "Trade Promotion Authority", granted by the US Congress to President George W. Bush, expires on June 1, 2007. After that, the US government will no longer be able to submit the Doha Round deal to the US Congress for a yes-or-no vote without the possibility of an amendment.

But till date, negotiators have been unable to even work out the "first approximations" of the final package that is scheduled to be adopted by the end of July. That's not surprising considering the agenda: A reduction in industrial tariffs; a formula for reductions in export subsidies; and a timeline for opening up the services sector worldwide. In short, too many cross-currents!

Non-agricultural market access, or NAMA in WTO parlance, is one of the major points of divergence. The US is pushing for a Swiss formula with two co-efficients-one for the developed world and another for the developing nations-for bringing down industrial tariffs. The snag: this formula does not allow countries to keep a few sensitive products unbound or levy high tariffs on select items. The European Union (EU), on the other hand, wants sufficient flexibility to provide for the specific and different needs of developing countries, thereby drawing a distinction between "rich" developing countries and the poorer ones. The developing nations, expectedly, have rejected these proposals.

Agricultural negotiations, too, are at a standstill. The ticklish issue here is the stand-off between the EU and the "Non-Group of Five"-which includes Australia, the us and Brazil-on the framework to calculate the exact amount of subsidy paid on an agricultural item. This information is necessary to proceed with the negotiations on market access in agriculture. The talks on a timetable for liberalising the services sector-where India is pushing for an increase in the h1b quota for professionals-also don't seem to be going anywhere.

So what will another failure at Hong Kong mean for free trade? Simple, say experts; multilateralism will suffer a body blow, and regional trade blocs will become the order of the day. It will also clearly prove that the world is not ready for a system of give and take, so necessary for any negotiations to succeed.

-Ashish Gupta