In This IssuePresident’s Message

Chamber’s Activities: 4Workshop on Central Budget and the Finance Bill 2011-12 4Memorial meet for Mr A Sivasailam4Workshop on Post Union Budget Analysis4FFT on Revitalising Indian Agriculture4Programme on Arbitration – The Indian & International Perspective 4Management Development Programme on Central Excise & Service Tax, Coimbatore

General Committee Expert Committees

SPOT LIGHT: SMEs

Policy Watch

Trade Fairs & Exhibitions

Economic Review

Others: Press Release Representation to Standing Parliamentary Committee on Finance - DTC Central Excise – Formation of Help Desk/Help Line

Volume 24 – No.12 – March 2011

The Madras Chamber of Commerce & Industry

Workshop on Central Budget and the Finance Bill

M.R. Venkatesh addressingSriram Seshadri addressing

Revitalising Indian Agriculture

S. Viswanathan making a presentation Dr. V. Rajagopal at the mike

T.T. Srinivasaraghavan welcoming the participants

Seated are the speakers from Singapore and UK

Programme on Arbitration - The Indian and International Perspective

T.T. Srinivasaraghavan welcoming the gathering l to r: Srinivasan K Swamy, R. Seshasayee, S. Viji, M.A. Alagappan, Dr. Pratap C. Reddy, N. Sankar, A. Krishnamoorthy, N. Murali and N. Srinivasan.

Memorial Meeting in honour of Mr A Sivasailam

l to r: A. Rangachari and T.T. Srinivasaraghavan

K. Vaitheeswaran at the mike

Prof. P.C. Kesavan addressing

Disaster Management – Sense to Sustain!

The recent parallel disasters that struck Japan and their large scale impact have been, to say the least, horrific.Yet the relatively calm and organised manner with which Japan went about managing the widespread aftermath is an awakening call to the state of our wisdom and the state of our organisational and personal resilience, if unfortunately we were to be hit by even a lesser disaster.

While we may be capable of the thought processes involved in disaster management, somewhere the urgency appears to be eternally lagging. Every housewife, for example, knows the importance of ensuring the standby cooking gas cylinder as a critical factor to keep the kitchen going but when it comes to critical infrastructure and service dependencies on which our businesses and lives depend, chronic complacency and finding comfort in reactive approaches supported by the suicidal syndrome of ‘it won’t happen to me’ or ‘it is beyond me’ overrules wisdom!

We are witness to the increasing trend, in recent years, of the number and intensity of earthquakes, tsunamis,

cyclones, floods, fires, terrorist attacks and their widespread impact on human lives and societies.

There are important governance lessons to be learned from the Japan disaster on resilience in managing the aftermath of disasters, on mitigating their intensity and where possible, prevent disasters through proactive planning and management. If we have not thought about it as yet within our organisations, it is high time we did so and if we have already started, to reinforce the practicability of such initiatives.

Disaster Management is both a science and an art, for it starts with a strong management will towards building a structured and well organised approach to resilience that will work when it needs to. This needs to be supported by requisite resources, all round support, participative co-ordination with various governmental and external agencies, continual vulnerability assessments considering all critical business dependencies, early warning systems, post disaster management, to name a few. Emergency Management is a critical subset of Disaster Management that should stand the test of global principles and an approach that is comprehensive, progressive, risk-driven, integrated, collaborative, well co-ordinated, flexible and professional.

There have been several international and some subdued national initiatives to spur thinking and action on disaster management such as the ISDR, World Congress on Disaster Management 2011, the Hyogo Framework for Action 2005-2015: Building the Resilience of Nations and Communities to Disasters and the setting up of our own National Disaster Management

Authority and enactment of the Disaster Management Act,2005. Such initiatives offer ready guidance to organisations seeking to build resilience against disasters.

The NDMA has so far released 27 guidelines on the management of natural and man-made disasters and also issues like medical preparedness and mass casualty management. However, it must be recognised that implementation of the guidelines is a difficult task and we must have a plan for this. A disaster response expert with an international relief NGO says “We have to take on disaster management as a big topic in our educational system. All citizens,especially children, should be trained in this with special emphasis on medical aids”.

Ensuring continuity of business is amongst the foremost objectives of business governance which needs a truly concerted approach in alliance with internal and external stakeholders, and the ecosystem at large.

Best wishes,

T T Srinivasaraghavan President

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2nd March 2011

Workshop on Central Budget and the Finance Bill 2011-12

The annual budget workshop, which is a flagship event of the Chamber, was organized on 2nd March at Hotel Deccan Plaza.

Mr T T Srinivasaraghavan, President, welcoming the delegates said the Chamber had been debating whether there is need to have these post budget analyses at all. While criticism is valid, our Chamber’s post-budget meeting figures in the list of exceptions and we are therefore compelled to carry out this exercise year after year.

Coming to the budget itself, there is no bad news and no bad news is itself good news he felt .He said direct taxes hit you directly and therefore reactions are instant. Indirect taxes hit us after some time. When we read the fine print, one does not feel that fine any more.

He referred to non-tax announcements made by the Finance Minister, notable of mention are

(1) The intent of establishing a national manufacturing policy. Manufacturing had taken a somewhat back seat because of services sector. The most visible thing in this year‘s budget is that there is no increase in excise duty.

(2) On Finance and services sector, the FM has made reference to a bunch of reforms. No doubt most of these have been pending for long and if they actually get done, it will be better late than never.

(3) On the disappointing side he said vexed issues such as black money and inflation have not been addressed properly.

Mr A Rangachari, former Budget advisor to the International Monetary Fund then gave the economic implications of the Union Budget. He said fiscal issues are very difficult to tackle especially when there is a coalition Government at the Centre. Fiscal deficit is a very crucial parameter and is a major factor in fiscal consolidation. Fiscal policy and monetary policy have to go in tandem he said. He called for a time bound and credible reform based medium term fiscal plan to tackle inflation and boost investor confidence.

He said the medium term projections should be based on realistic and explicit assumptions embodying the expected results from specific reforms on the revenue and expenditure side.

We are riding on revenue buoyancy he said. Fiscal deficit is a long standing problem. There are many problem areas calling for reforms. These have to be identified and reform measures initiated with a time frame. The medium term road map for fiscal consolidation has to be based on this. The latest budget has promised an amendment to the Fiscal Responsibility and Budget Management (FRBM) Act, laying down the fiscal roadmap for the next five years to be introduced in the course of the year. Hopefully, this roadmap will address the issues on revenue and expenditure sides he said.

On the problem of black money, he quoted the Union Finance Minister as having commissioned a study on unaccounted income and wealth held

within and outside the country. There have been several studies done and task forces formed. What is needed is action he felt.

He also called for closing sick and cash loss making Public Sector Undertakings as they were a burden on the Central budget and the prospects of their revival were dim. The Centre should recover the losses by selling the huge tract of valuable land owned by these PSUs.

According to him, transparency in budget estimates and projections needed a second look.

The quasi-fiscal borrowings by government agencies have to be highlighted while discussing fiscal deficit and government borrowings. Full budgetary implications of schemes and statutory responsibility of government have to be reflected in medium-term projections. The current distinction between plan and non-plan expenditure distorts priorities. It is wrong to assume that all non-plan expenditure is bad he said.

The latest railway budget has imposed a heavy burden on the general budget. There is a cross subsidy of passenger fares by freight. This is particularly objectionable when government is trying to deal with inflation. The rationale for a separate railway budget merits a second look. He said at least tighter control of railway budget is needed.

Mr Sriram Seshadri, Chairman of the Expert Committee on Direct Taxes made a presentation on the issues in

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10th March 2011direct taxes wherein he covered personal taxation, corporate tax, procedural amendments, etc.

Mr K Vaitheeswaran, Chairman of the Expert Committee on Indirect Taxes, dealt with indirect tax issues as well as customs and service tax. He said high rates of taxes will create evasion. Service tax is moving away from receipt based taxation to accrual based taxation. It is not good to tax healthcare he felt. He also felt that Government was playing with SEZs.

Mr M R Venkatesh giving his views on the budget said countries like China, Indonesia, Thailand etc. have much higher manufacturing base. Manufacturing base cannot be increased unless you increase skilled manpower, education, infrastructure, roads etc. Compared to others, we are losing competitiveness in our manufacturing sector. We are importing more and exporting less he said.

He said if you can give thrust to manufacturing and agriculture alone, you can eradicate poverty in our country.

There was Q&A session at which the speakers took questions from the audience and gave clarifications.

Leading All India organizations like Assocham, FICCI, CII, AIMA and local Chambers like MCCI, SICCI as also Madras Management Association all came together in one platform to pay homage to the doyen of industry Mr A Sivasailam who passed away on 12th January 2011. The lead in organizing this event was taken by the Madras Chamber.

At the meeting, leading dignitaries recalled the close association they had with Mr Sivasailam.

Welcoming the gathering, Mr T T Srinivasaraghavan, President, recalled Mr Sivasailam’s association with the Chamber, as its President in 1979-80. He was also a great supporter of the Chamber during his life.

Mr Srinivasan K Swamy who was instrumental in getting the speakers said the event was organized to celebrate the life of Mr Sivasailam who had made enormous contribution to the business community. His contribution to religious bodies and institutions has been commendable. He referred to his high level of personal integrity and soft spoken skills and the institution of a Business Leadership Award through MMA when awards at that time were little known.

He also made a reference to the establishment of Institute for Environmental Sciences which offers Masters programmes and the ‘J’ farm where agricultural scientists carry out research and development for various agricultural products.

Mr R Seshasayee, Managing Director

of Ashok Leyland observed that Mr Sivsailam’s major achievement was to have built a huge business empire during the Licence Raj, without the help of any proximity to politics. Equally it was an achievement of sorts to resist the temptation to grab headlines by mindless acquisitions during the post-licence raj era.

He also recalled how Mr Sivasailam contributed to the Child Trust Hospital even before he was asked for funds. He said Mr Sivasailam was a philanthropist who shunned publicity.

The unpretentious qualities of Mr Sivasailam are remarkable. He had respect for everyone. He said he has reached godliness. The best way to pay tribute to him is to imbibe his values every day.

Mr N Murali, Senior Managing Director, Kasturi & Sons Ltd., observed that the Hindu group and Amalgamations group have been good neighbours for several decades and noted that Mr Sivasailam was always eager to help. He also spoke of Mr Sivasailam’s faith in R&D and knowledge in agriculture. What marked him out from others is the way he treated everyone, his simplicity, his concern for the welfare of the employees, etc. He further said this was probably the first time that all major Associations and Chambers like CII, FICCI, ASSOCHAM have come together to organize an event.

Mr S Viji, Chairman, Sundaram Finance Ltd., said long before CSR came in, he was known for his philanthropy. He referred to his passion

Memorial Meet for Mr A Sivasailam

MCCI Conference Room

The Chamber's Conference Room is available for hire. Ideal for meetings, interviews, etc. Has a seating capacity of 26.

Charges: Full day - Rs 4000 (for members) Rs 5000 (for non members) Half day - Rs 2000 (for members) Rs 3000 (for non members) LCD Projector - Rs 1000 (full day) Rs 500 (half day)

For details: Contact Mrs J Edwards Tel: 24349452/24349871 or Email: jessie.edwards@madraschamber.in

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CHAMBER’S ACTIVITIES

18th March 2011

for agriculture and said his’ J’ farm, played a great role in green revolution.

Mr N Sankar, Executive Chairman, Sanmar Group, recounted instances which showed Mr Sivasailam’s attention to the minutest details and his sense of humour. He said Mr Sivasailam was one of the best known business personalities from Tamilnadu. He took over the reins of the group at a very young age and built it up over the next few decades into one of the leading industrial houses in India. He was a philanthropist and was involved with many management associations and public bodies. He said he had worked with him closely in Madras Chamber of Commerce & Industry and Assocham and had learnt a lot from him.

Mr M A Alagappan, Chairman, AMM Foundation, referred to Mr Sivasailam’s interest in plantations. He also informed the audience of the little known facts – Mr Sivasailam’s interest in horses and vintage cars. He said Mr Sivasailam believed in doing business in an ethical way.

Dr Pratap C Reddy, Chairman, Apollo Hospitals said Mr Sivasailam was the first to invest in corporate healthcare. His interest in agricultural sector led him to the establishment of TAFE. He described him as a leader who led others.

Dr V Krishnmurthy, Chairman, National Manufacturing Competitiveness Council and former Chairman of several public sector organisations who had known Mr Sivasailam personally for four decades, sent his message which was read out at the meeting. He said both of them worked together in resolving some of the industrial relations problems at Simpson’s and in evolving a long

term plan for increasing production and productivity at Simpson’s manufacturing units.

He said his contribution to the growth of Indian economy through his business and manufacturing activities was indeed great. His contribution to enhancement of the moral values and cultural heritage through his philanthropic activities is something which is unparallel.

One common message that ran across all the speeches was Mr Sivasailam’s penchant for philantropy, which he practised well, away from the limelight.

A book of poems on Mr. Sivasailam written by Mr N Srinivasan, (formerly of Fraser & Ross) who has been associated with Mr Sivasailam for five decades, was released at the meeting.

Mr A Krishnamoorthy, Chairman, Amalgamations and brother of Mr Sivasailam said he was overwhelmed by the warm sentiments expressed by the speakers.

Workshop on Post Union Budget Analysis As part of its outreach programme, the Chamber organised a workshop on Post Union Budget Analysis at the SRM Hotel in Kattankulathur, Kancheepuram District for the benefit of accounts / tax /finance Executives working in the Corporates in that area.

The faculty consisted of Mr S Ramachandran and Ms. Madhri Guruswamy of Fox Mandal Associates, a leading international tax firm and a member of the Chamber.

They dealt with Direct Taxes, Indirect Taxes, Central Excise and Service Tax matters.

The programme was attended by 20 participants.

MCCI’s Coffee Table BookENTRIES INVITED FOR AN APT TITLE

On the occasion of our 175th year, we shall be bringing out a Coffee Table Book which will highlight the Chamber’s history from 1836 and

will contain photographs of many of the events held from that year.

The Chamber had published its history during the 150th year celebrations in 1986 and the book was titled “The Voice of Enterprise”-

150 years of The Madras Chamber of Commerce & Industry.

We would like to give a very apt title to our Coffee Table Book and would like to involve our members in this endeavour. Please put

your thinking caps on and send us your entry. The best entry will be awarded a prize at the closing of our 175th year celebrations on

29th September 2011.

Mail to: jessie.edwards@madraschamber.in

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19th March 2011

India has been taking pride in saying that we are an agrarian economy, quoting often that “India’s heart beat is in its villages”. However, the current India’s growth story, though impressive in many ways, does not go to prove the above statement. India’s agricultural growth has always lagged behind the growth in the overall economy and had been around 3 to 4% despite the fact that nearly 60% of our population lives on agriculture. Our current aim of achieving a double digit overall growth will be difficult to attain unless the agriculture also grows in the same pace.

Not only that the agricultural growth is important for the overall economic growth, but also is the fundamental factor for many other issues like unemployment and under-employment in the rural sector, migration of rural population to urban areas causing stress on the urban infrastructure, imbalance in regional development creating a rural- urban divide, etc.

It is with this objective and in the context of low growth rate in the agricultural sector, rising food inflation and the proposed Food Security Act, the changing face of the Indian economy from the traditional agrarian economy, schemes such as MGNREGA having an impact on the agricultural labour etc., the Chamber organised the FFT on Revitalising Indian Agriculture.

In his welcome, Mr T T Srinivasaraghavan, President, said FFT series is an initiative that we kicked off as part of our 175th year celebrations. We had interesting debates and discussions on a variety of subjects, not restricted to business and industry, but involving a larger polity.

He said the Madras Chamber had a huge role to play in the formulation of agriculture policy, education policy, etc. back in the 19th century. Right through our history we have been associated with the growth and development of agriculture in this part of the country.

He referred to food inflation and said it is not something that we normally pay attention to but the situation this year is going to be very acute. Food inflation is a symptom of deeper malice.

Agriculture supports 58% of the population today as against 75% at the time of independence. The contribution of agriculture to GDP has come down very much. The per capita availability of resources is 4-6% less than world average and it is going to get more worrying as the demographic pressure builds up.

Compared to what we were 60 years ago, Indian agriculture has made great strides. We have a growing population whose demographic profile is very different.

The global food shortage is a disturbing picture. We therefore thought that it is proper for the Chamber to address itself to this crucial issue, enlighten itself on the issues at hand and then make a proper representation to the powers that be and how we can involve ourselves in a very critical issue that faces us and our country today.

He then requested the Panelists to make their presentations:

Prof. P C Kesavan, Emeritus Professor, IGNOU & Distinguished Fellow, MSSRF:

Addressing the gathering, Prof. Kesavan said Agriculture today is in great peril. Food prices are going higher and higher. Times are ahead when we may not be getting sufficient food.

2,50,000 Indian farmers have committed suicide. 40% of the farmers want to quit farming. Fertile lands meant for agriculture are being diverted to industry.

For our population of 12,000 million, our resources are very meager. 70% of the fresh water is used for agriculture.

Prof. M S Swaminathan brought in Green Revolution using genetic technology. In Punjab, the production of wheat went up from 12 million tonnes to 18 milllion tonnes that year. Another good thing the Green Revolution did was it overcame the population rate of growth. Today the rate of growth of population is 1.9% p.a. and the food production is 1.2%.

India was able to build buffer stock but did not have post-harvest facilities and the food got wasted.

He said it is the farmers who do not have food to eat. About 60% of the farmers who produce are also the consumers. In US and Canada, only 2% of the farmers produce food.

Immediately after independence, population should have been contained he said. What is it that we want to give to our succeeding generations? Is it waste junk? Is it nuclear waste? Is it electronic waste? Is it the polluting water system? he asked.

The only solution he felt was that we should get back to agriculture.

FFT on Revitalising Indian Agriculture

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Another worrying factor is the climate change which will bring very serious repercussions. Whether it is due to our human making or the nature making, the fact is global warming is here he said.

He further said the glaciers in the Himalayas have shrunk. Several of the rivers will become seasonal. All these will lead to agricultural catastrophy.

He said rain water harvesting, nation wide, is good. It should be a community centric effort.

Indian agriculture has always been a gamble with monsoons. With climate change, the monsoon pattern also has changed. Studies have revealed that even if there is slight increase in the temperature, there will be reduction in the production of foodgrains.

India cannot copy or should not copy any model including the GM model. We have to stand on our own feet he felt.

Mr S Viswanathan, Editor & Publisher, Industrial Economist:

Mr Viswanathan recalled his association with the Chamber dating back to the 1980s and said he was immensely benefited from the information bank that the Chamber had. He said this tradition should continue.

Coming to the subject, he said Mr C Subramanian is to be credited as the Father of the Indian Green Revolution. India shines in manufacturing and services. These two sectors contribute to 82% of GDP and to around 8.2% of the economic growth. In contrast, agricultural performance is dismal. It contributes to only 18% of GDP and to 0.3% of the economic growth. But this sector impacts about 65 to 70% of the population that lives in the villages. Thus, India doesn’t shine for the majority of the population.

We in the cities are getting the benefit of

high economic growth but the majority of the people in the rural areas are not getting the benefit.

He said our agriculture is conducive to farming right through the year. We are wasting water by offering free power to farmers. In US only one crop is possible whereas in India, 3 crops are possible he said.

India has large arable land of around 400 million acres. And farming is possible round the year in most parts of the county.

Agricultural land is being grabbed by industries and services. 300 years ago the only activity known in US was agriculture. They needed industries, they needed land. We should try to get more from the existing land. Japan, Korea have done it. Why not we do it? he asked. There are solutions available. Are we ready? he asked.

We should select the crop to suit weather conditions.

Tamiladu has been topping in manufacture and in agriculture. In Malaysia, oil palms is a major source of revenue. In Tamilnadu peanuts can be effectively produced using less water.

He said there is a solution available for every problem. China, Taiwan, South Korea have all done with mechanized farming.

He made a mention of the Agriculture Consultancy Management Foundation (ACMF) set up as a not for profit trust to educate and train farmers on productivity improvement through demonstration plots. The mission of ACMF is to double food production in a decade. He said ACMF believes in bringing together and synthesizing the good work done by corporates, universities, government research institutions and hundreds of individual farmers.

Dr V Rajagopal, Former Director, CPCRI & Founder, Hunger Elimination and You (HEY):

Dr Rajagopal addressed on active involvement of corporate sector - a top priority for revitalising agriculture and combating hunger. He said according to FAO report, the year 2011 will face global food crisis. There have been floods and droughts in many countries with the result production of cereals, rice, wheat, pulses etc. will be low. Global climate change has also affected food production.

Giving the scenario in India he said there has been severe drought in Andhra Pradesh and some other States and unprecedented floods in many States in the last two years. Over 50 lakh hectares of land could not be used for cultivating rice and millions of tons of rice and other crops lost in harvest. The food inflation has been unprecedented – the worst at 19.6%.

The crux of the problem in agriculture has been due to shrinkage of farm lands for cultivation; non-remunerative prices for the produce; natural calamities affecting the farming operations; fluctuation of market prices and heavy loss to the growers; unsatisfactory minimum support price, etc.

He suggested the following for revitalising agriculture:

Crop diversification – multi crop system; adoption of good agriculture practices; advanced technologies for production and processing; post harvest technologies; strengthening storage facilities/transport for farm produce; crop insurance, etc.

Speaking about global hunger index, he said over 850 million people around the world are under-nourished. And over 1020 million people in the world go hungry every day. As far as India is concerned, people in States like Punjab,

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Haryana, Andhra Pradesh and Assam are placed under “Serious hunger” category while 12 States including Tamilnadu are placed under “alarming hunger”.He said Government should enhance budgetary provision for poverty alleviation and hunger elimination. A Hunger Elimination Fund should be established in every organisation with voluntary contribution by employees. Healthy, active poor may be provided food under the scheme “food for work – earn to eat – live with dignity” and involve corporate, business establishments/NGOs for providing infrastructure facilities.

He called upon the corporates to act as stakeholders in agriculture sector, help in establishing special agriculture zones (SAZs) for overall rural development; promote agri-business to ensure employment opportunities for youth and women; evolve strategies for contract farming; provide funds to research institutes for specific areas of research relevant to the region. Also establish cold storage facilities for protecting huge farm produce and help in transport/marketing. He also called upon the corporates to set up training centres for skill development of rural women engaged in agriculture production, processing, packaging.

He urged the corporate to set aside at least 10% of the profits for feeding a minimum of 10,000 people with hunger.

His motivational phrases were: If you cannot feed one hundred persons per day, feed at least one daily. Let the minds of the heads of the corporate sectors get ignited to follow the footsteps of Mother Teresa. Feeding the hungriest is the great service. Join Hunger Elimination and You Movement.

There was a Q&A Session. The programme was attended by about 60 participants.

21st March 2011

Programme on Arbitration – The Indian and International Perspective

Arbitration is at a very nascent stage in India though in other developed countries, this is accepted as an effective and speedier way of resolving disputes. When India Inc. is going global and when businesses are coming together for more than one reason, disputes and issues are bound to arise between different stakeholders. Legal remedies could prove to be costlier, time consuming and may ruin the long term business relationships. Arbitration as a tool for dispute resolution could then prove to be very successful in such cases.

To get an overview of arbitration and how it works in India and other developed countries like the UK and Singapore, a meeting was organized by the Chamber jointly with Southern India Chamber of Commerce & Industry on 21st March at Hotel Savera. The Nani Palkhivala Arbitration Centre, Chennai and UK Trade & Investment, Chennai, were the Associate Partners. The speakers were from UK, Singapore as well as India. Brief details of their addresses are given below.

Mr T Shivaraman, Vice-President of the Chamber welcomed the gathering. He said given the way how international businesses are happening, there is hardly any company in India which does not have one or more international relationships. The relationship develops as the business gets larger. We presume the partnership is smooth and actually do not see the need for arbitration specialists but we need to be clear about what options exist and if the

issue arises, how we can solve it.

He said most companies in India got into international space quite recently and therefore it is necessary that we understand what options exist between the legal systems so as to be clear. There is no point in worrying about when you have a dispute with your partner.

He said every businessman, the decision maker, should have some understanding of the issues and legal remedies available.

This was followed by a special address by Mr Jawahar Vadivelu, Vice-President, SICCI. Referring to the Indian economy he said in the next decade, it could treble in size from its current size of US $ 1.4 trillion. However, given the staggering 34 million legal cases still pending in the various courts across India and the ineffective and unsatisfactory state of ADR in the country, the case for reform in the Indian legal sector has never been clearer or more urgent.

As India integrates further, commercially, with the rest of the world, the need for international commercial arbitration of the highest international standards is bound to continue to rise over time and with the rise of information technology and the complexity of international trade and investment, there are now newer elements/newer angles to both traditional as well as contemporary international commercial disputes all over the world.

He said if arbitration is to be a preferred means of resolving trade

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disputes, it has to address the realities and specific needs of developing countries. There is also a need for harmonisation of arbitral law in the Asian region. A sound legal system that is serviced by readily available, effective and diverse dispute resolution facilities is indispensable and fundamental to the growth and investment and to the attraction of capital. It gives international investors the much needed assurance that any commercial dispute can be efficiently and fairly dealt with, both in and out of the court system.

Mr N L Rajah, Advocate, representing Nani Palkhivala Arbitration Centre said litigation is inevitable. But how do we resolve disputes? What are the options available in the legal scenario? These have become a matter of active consideration in India. The existing legal system has failed. Cases are building up, finding no solution. There have been active discussions about Alternate Disputes Resolution for the last 10-15 years. 30 million cases are pending all over the country and it will be 324 years for us to clear the cases!

We do not have sufficient number of judges to dispose off the cases. He said through arbitration and conciliation warring countries can be brought together. The Indus treaty is an outcome of arbitration and conciliation he said.

He referred to the Arbitration & Conciliation Act 1996 and urged the participants to please go in for institutional arbitration, if disputes arise. He felt that the Indian industry has not woken up to the advantages of ADR. You can settle your disputes through mediation and conciliation he said. In India we are at its infancy. He said try to settle the disputes by arbitration and mediation and do not

spill over to courts.

The speakers then made their presentations. Brief details are:

Mr Francis Goh, Partner, Harry Elias Partnership LLP, Singapore:

Mr Goh explained how arbitration mechanism is working so effectively in Singapore. He encouraged the participants to incorporate the arbitration clause in all their agreements so that when the disputes arise, it helps since there are already agreed procedures.

Section 12A of the International Arbitration Act (effective 1 January 2010) gives power to the Singapore Courts to grant interim relief in support of foreign arbitrations he said.

Ms Sujatha Jayaraj, Southern Railway:

She said Indian Railways have a huge investment and disputes bound to arise leading to arbitration. With a Capital-at-charge mainly comprising Tracks and Bridges, Rolling Stock, Buildings & Structures, including Land & Machinery & Plant of Rs.1,50,000 cr. and an Investment Plan of Rs.58,000 crores in the coming financial year, the Indian Railways is a true symbol of inclusive growth and contribution to the National infrastructural needs. With such huge investments entailing adherence to varied contract management practices, disputes are bound to arise leading to arbitration.

The general conditions of Contract framed by Indian Railways provides for resolution of disputes through arbitration. She highlighted a few clauses of the General Conditions of Contract.

Though it is generally held that disputes leading to arbitration are largely on

account of calculation mistakes, non - supply of material or supply of defective material, delay in settlement of bills, withholding of payments, non-clearance of site, change in scope, etc., the main reasons in the recent past were on account of increase in the rates of Steel and cement and non - provision of PVC clause and recovery on account of risk and cost. Both these aspects have been taken care of by the recent amendments to GCC. PVC clause is provided in all contracts and with the introduction of Performance Guarantee clause, recovery on account of risk and cost is no longer there. This has definitely brought down the number of arbitration cases.

She said the GCC provides for the contractor to seek arbitration. The Railways being the Government has the right of lien on any amount in any other contract with the Railways or any Government Department. In view of this, arbitration is always referred to by the contractor and not the Railways.

What we want is a fair and reasonable resolution of dispute because what is at stake is public money and the reputation of the Government she concluded.

Mr Ganesh Chandru, Senior Associate, Clyde & Co., Singapore:

He spoke on getting the arbitration agreement right. He said keep it simple; if institutional, ensure that the institution is correctly named and rules are incorporated. Use model clause where there is one. Indicate the place of arbitration; avoid choosing governing law of arbitration different from the place of arbitration.

Mr Steven Y H Lim, Partner, Clyde & Co. LLP, Singapore:

Mr Steven explained about the services of Singapore International Arbitration

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Centre, how its emergency procedures help to settle disputes even within 3 days, etc. He said in 2009 and 2010, Indian parties were the highest users of SIAC among foreign parties.

The advantages of institutional arbitration have been use of model clauses – avoidance of pathological clauses, incorporation of best practices through continual rules review and development and availability of emergency procedures.

Ms Jane Player, Partner, Bird & Bird LLP., UK:

She made a presentation on what is international arbitration, the role of institutions, what do we need to know of arbitration clauses, and arbitration in UK and the most important advantages of International arbitration. She also informed about the checklist for the drafter of the arbitration agreements; how important it is to choose the correct arbitrator. She said should a dispute arise, the dispute resolution clause in an agreement may well become the most important clause of all. It is therefore worth giving it the care and attention it deserves from the outset.

Prof. Youseph Farah, University of Essex, UK:

Prof Farah spoke on the finality of arbitral award. He said it should be binding on both the parties. The arbitrator should respect the intentions of the parties.

He said Indian courts should make an attempt to make India as an international arbitration hub. The courts should also encourage international commercial arbitration.

It has been the Chamber’s aim to reach to the corporates in Tier II cities and with this in mind, the Chamber organized the above programme at The Residency Hotel, Coimbatore.

This programme assumed special significance in the background of the current Union Budget and aimed to provide an in-depth knowledge of the practical and functional rules and procedures.

Ms. K.Saraswathi, Secretary General, MCCI, in her welcome address mentioned that the program in Coimbatore is a part of the outreach program organized by the Chamber. She also mentioned about the Chamber’s proposed plan of setting up a Skill Development Centre as one of the special initiatives for the 175th Year.

Mr C Rajendiran, IRS., Commissioner of Central Excise & Service Tax, Coimbatore was the Chief guest and he delivered a special address.

Mr Rajan observed that the Chamber celebrating its 175th year is a great achievement by itself and he felt institutions like the Chamber are rare to find.

He also applauded the entrepreneurial approach of the Coimbatore business community whom he said is ahead in tax compliance and also in e-filing. However, he requested the industries to use more of electronic procedures.

He further said that paying taxes is an indirect way of contributing to the nation and making the country economically vibrant. He also observed that in the interest of the

business community, particularly in Coimbatore, the Department was planning to organize different awareness programmes for auditors and accounts personnel. He also expressed confidence that once GST is in place, there would be standardized procedures throughout India and the ease of doing business would improve.

He also said Chambers who have lot of value systems would do well in organizing programmes such as these as it would help in updating the practical knowledge.

In the forenoon session, Mr K K Sekar, Deputy General Manager - Taxation, Ashok Leyland Ltd., and Co-Chairman of the Chamber’s Expert Committee on Indirect Taxes gave an overview of the Union Budget implications on Central Excise. In his address, he covered current issues in manufacture, classification, valuation; exemptions and concessions, refunds/demands and penalty, cenvat credit and appeals.

In the afternoon session, Mr K Vaitheeswaran, Advocate & Tax Consultant and Chairman of the Chamber’s Expert Committee on Indirect Taxes made a presentation in which he covered implications on service tax, analysis of various key services relevant to industry including construction & works contract tax , Cenvat Credit, Export and Import of Services, etc.

The participants had many queries and the faculty answered them all.

The programme was attended by 50 delegates.

CHAMBER’S ACTIVITIES

Management Development Programme on Central Excise & Service Tax

25th March 2011

10

GENERAL COMMITTEE

Before proceeding with the agenda, the President made a reference to the Tsunami and the Earthquake which hit Japan the previous day and the devastation that took place. The Committee expressed its anguish at this disaster.

Union Budget Proposals - General review and implications:The President referred to the recent budget proposals of the Union Finance Minister. Members felt that the budget has been presented considering the forthcoming elections and there was nothing much to comment about.

However, there were a few issues on the indirect taxes front. It was decided that the Chamber should send its post-budget memorandum to the government at the earliest.

The point relating to service tax for Chambers of Commerce should also be included in the memorandum.

MCCI - Skill Development Initiative – Progress: Avalon has identified a probable list of companies for collaboration. The Chamber is writing to them to seek appointments during the first week of April.

The President said that Mr Rajeev Ranjan, IAS.,Principal Secretary, Industries, should be met at the earliest and he should be informed of the broad roadmap of the project. The specifics with regard to the project can be shared later. He said he appears to be very keen on skill development and hence the Chamber should not

miss the opportunity to get his advice and inputs.

In the meanwhile, Avalon has been asked to compile the details of all Government schemes, which will be shared with us later.

Members also felt that the Consultants should be asked to prepare a project report which will help the MCCI in presenting it to the concerned agencies for financial help.

The President felt that a small core committee should be in place to work with Avalon in this project.

While on this, the President said that IOB which is also celebrating its 75th year, was interested in doing some joint activities along with the Chamber in commemoration of their 75th year. He felt the Chamber should identify 2-3 areas where we can make some difference and see how we can execute them.

Members were informed of the various meetings organized by the Chamber during January/February as well as of the forthcoming programmes.

Chamber Day - 29th September 2011:The President said that the 175th year celebrations will conclude on 29th September 2011 and the entire halls of ITC Sheraton Park have been blocked.

The Coffee Table Book is under preparation and Mr Sriram had already completed 18 chapters. They make an interesting reading of the work done by the Chamber in the 18th and 19th century.

The proposal for the development of a Skill Development Training Centre at Tiruvallur is in progress.

Revision of charges for Certificate of Origin & Visa Recommendation letter: Members were informed that the Chambers under the banner of Consultative Committee of City Chambers of Commerce, Chennai, charge a uniform sum for issue of certificate of origin, attestation of invoices and other documents. The current charges are:

- Certificate of origin for Members - Rs.50/- per set

- (for non-members Rs 70/- per set)

- Visa recommendation letter (issued to Members only)- Rs.50/- per letter.

The above charges were fixed in 2001 by the Consultative Committee.

Since the charges were fixed 10 years ago, it is only appropriate that they are revised taking into account the all round increase in costs. MCCI had therefore taken a lead in suggesting to the National Chamber of Commerce, who is holding the term of Consultative Committee for the current year, to look into the revision of above charges.

Reconstitution of the General Committee: As per the Articles of Association of MCCI, the Chamber will be sending the election notice to all the Members during the first week of April.

9th March 2011

If u cannot fly, run. If u cannot run, walk.

If u cannot walk, crawl. But whatever you do,

KEEP MOVING TOWARDS YOUR GOAL.

~ Martin Luther King

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EXPERT COMMITTEE - LOGISTICS

Course on Exim Procedures:Under the auspices of the Logistics Committee, a course on EXIM Procedures has been planned. Though the Chamber had organised soft skills training course earlier for the college students, this would be the first introductory course organised by this Expert Committee.

The Committee suggested that before starting the course, the Chamber should meet the Principals of MOP Vaishnav College and SIET College highlighting the contents of the course and requesting them to send their 3rd year arts and science students to take part in the course. Since there were enough opportunities available in the logistics trade, this course would certainly help the students to get jobs in the trade.

Commissioning a Study on Port and Allied Issues:The Committee noted that the entire logistics trade had been affected due to many reasons and the experience with the Chennai port and its functioning have not been satisfactory. The Trade and Industry have represented to the Chennai Port on a number of occasions

on various matters and their efforts have failed. The trade was suffering due to labour issues inside/outside the port, container terminal issues, gateway entries, bad roads, road-rail–harbour connectivity and other inter-connected issues. Congestion surcharge was increased 3 times in the last 5 years. Today, the volume of business has increased manifold while it is not the case with Port and other connected agencies. They felt that the Ministry of Shipping and the Port Officials should come forward to solve the problems affecting the logistics trade and should find alternate methods. Due to the problems, both internal and external, the administrative costs and hidden costs had increased substantially.

The Committee had therefore suggested that a study on Port and Allied Issues should be commissioned and should be released at a Conference/Seminar to be organsied by the Chamber.

The study would focus on the following parameters:

- EMRIP projects and its viability - Improvement of roads and rail connectivity - Container terminals & cargo handling issues

- Eco-friendly / user friendly operations - Using Ennore Port with high volumes - Development of Minor Ports and its potentials - Handling of cargoes – present and future - vvvvStrengthening Tamilnadu Maritime Board - Taking the Gujarat Model for improvisation - Setting up small airports near SEZ and Rail connectivity to SEZ areas - Short /Long term plans - Focus on Cost - Operation – Facility - Labour issues

Further, it was decided that the Chamber should initiate a press release immediately with regard to the upgradation of 1.5 version in the EDI-Sea Customs which is very badly affecting the trade. It was felt that the time was not opportune to undertake the conversion especially during March when many companies were trying to meet their targets before the end of financial year. For the past two weeks the EDI system had not been functioning. Due to this, exporters were unable to process their documents. The Government should plan such kind of activities well in advance in consultation with the trade.

29th March 2011

Additions to Library:Climate Change reconsidered - The Report of the Non-governmental

International Panel on Climate Change

Institute of Company Secretaries of India: Secretarial Standard on Meetings of the Board of Directors (SS-1)

Secretarial Standard on General Meetings (SS-2) Secretarial Standard on Minutes (SS-5)

Market Surveys - CBI Market Intelligence 2011 - The Netherlands: (In CDs)Medical Devices and Disposables

Food Ingredients - Preserved fruit and vegetables and edible nuts Fresh Fruits & Vegetables

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SPOT LIGHT - SMEs

Cluster initiatives in Tamilnadu- A New Road Map for Sustainable Development

Shri S. Sivagnanam, Director, MSME-DI,Govt. of India

Cluster approach is a functional model to integrate the micro and small enterprises both horizontally and vertically by realizing the significance of mutual learning and group survival. Establishing of CFC with cluster initiatives is a leverage to bring turnaround in the MSME sectors.

The cluster development is the only option and available developmental tool for the MSMEs to improve their core competency, enhance their capacity and scalability. Cluster development is an optimistic business model to kindle the reforms in MSE sectors and pave the way for attaining inclusive growth.

Dynamic clusters are key players of a growing economy. Success stories show that clustered firms can achieve high and sustained rates of growth and competitiveness. However, the development potential of MSE cluster remains largely untapped.

Under cluster model, firms are co-located in a special geographical area and produce and sell a range of related or complementary products. In turn, they face common challenges and opportunities. Few groups from the specific domain intend to join with like minded firms to launch joint development projects with mutual co-operation for very co-existence.

Cluster MantraCo-location Co-existence Co-operation

Why cluster Development?The best means to tap the growth impulses in special geographical areas can be affirmed by adopting the Cluster Development method where a large number of MSEs are engaged in manufacturing a series of production activities with same node of competitions, of course, akin to identical threat and lack of integration. It is a protective and proactive promotional measure to support the “privileged small players”. Precisely micro enterprises integrate their competitiveness in the changed and challenged business environment. Clusters development method stimulates innovation and improves productivity leading them to a critical element of national and regional competitiveness.

Reasons for a firm’s choice of a given geographical setting:

1. The existence of a pool of adequate labor. 2. The existence of specialized suppliers, and

3. The possibility of external spill- overs, - the rapid transfer of knowhow and ideas. 4. Local internal and external economies 5. Increased levels of expertise 6. Easy access to markets through joint Marketing Method, to finance or to specialist services.

7. Achieving high efficiency in production, joint purchasing of common raw materials 8. Officering Group R & D Support 9. Creating common facility centers for certain critical or highly sophisticated operation 10. Creation of new ideas and new business 11. Improving the Business information flow 12. Building strong common infrastructure facilities 13. Easy cluster finance 14. Ability to reach out to many units at a time 15. Provide environment for mutual learning 16. Emerging from the felt-needs of the beneficiaries 17. Self-sustainability for continuous support 18. Clusters provide unique opportunity to address specific needs with specific solutions 19. Clusters provide economies of operation of scale 20. Increased impact and widening support from other support institutions 21. Satisfies the needs of foreign buyers

Enhancing SME Competitiveness through Cluster Development:The promotional tools available for ensuring cluster development are many which can, by and large, be classified under 8 critical areas of cluster intervention which are given below.

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Critical Area of Cluster Intervention

4Creation of Common facility center4Creation of Infrastructure 4Creation of Common Marketing4Creation of Common raw material bank 4Facilitation of Credit4Technology intervention4Quality up-gradation4HRD development

CFC for Enhancing the CapabilitiesThe vision of this industrial cluster is to improve the core competency by creating a strong technology base for the MSE players. The Common Facility Centre (CFC) is one such technological intervention available under the above scheme.

The successful survival of modern micro players depends largely upon the type of support to be accrued under the cluster-driven initiatives and spectrum of services to be acquired under group dynamism from the stakeholders within the defined time frame. The invisible players started realizing the importance of injection of mechanization and modernization process of enterprises under cluster driven initiatives. Creation of Common Facility Centre (CFC) is one such technological intervention available under the MSE-CDP scheme to improve the core competency of the MSE players.

CFC is a growth model to bring in prosperity - opportunity with sustainability - to the majority by narrowing down the critical gap in the ambit of participative development. It is also a pro-policy led pervasive technology based support by Central and State under the group participative

development model to ensure socio-economic development in the remote areas.

Creation of MSE cluster Zone:Creation of cluster zone is a new initiative and a drive to promote the MSEs under financing. It is also a bold attempt to protect the very interest of the MSE players. Identification of Progressive cluster hub will be the prime task before being logistically locating the exclusive MSE cluster institutions. Creation of cluster hubs is a useful entry point for seeking responsible and viable business practice and opportunities for both the cluster agencies and cluster actors.

It is advisable to adopt few active clusters within the cluster hub and start to facilitate the banking service on priority based on the requirement of cluster members. This will create confidence among the lending agencies as well as cluster members.

It is always possible to create multiple businesses within the hub. Success model can be replicated to other cluster zone/hubs.

Selection of Healthy Cluster Hub:Selection of healthy cluster hub needs scanning of geographical concentration of MSE clusters, their birth rate, level of intervention envisaged in the cluster hubs, type of intervention already initiated and triggered under group dynamism by Central and State, focus on level and credential of the SPV/s, the real strength of the consortium, the requirements of the Consortium, viability factor of the CFC and the business capabilities at unit level within

the cluster. There is every possibility to create long term finance option with cluster actors.

It warrants macro-level identification of collective efficiency and bargaining potential approach and the micro-level financial capability approach.

Mapping exercise: Mapping of cluster based on credit requirements is a constructive exercise to identify the potential cluster customers.

Special study on the need and intensity of credit flow to the clusters situated within the cluster hubs may be undertaken and priority of lending can be decided based on the requirement of credit option. Cluster bench marking is yet another exercise to access the real need of finance by the MSE clusters within the hub. A broad cluster action plan may be drawn with a view to address credit requirement of the SPVs or consortia and to exploit the opportunities offered by the groups. Continuous interaction will gradually iron out the elements of hesitance and resistance among the financial institutions and the potential cluster customers and from the minds of the cluster actors.

SPOT LIGHT - SMEs

Advertisement TariffBack cover (4 colour) - Rs 5000 per insertionInside front/inside Back cover (4 colour) - Rs 4500 per insertionFull page (inside) 2 colour - Rs 3000 per insertionHalf page (inside) 2 colour - Rs 2000 per insertionFor details contact : Mrs J. EdwardsTel: 24349452/24349871 or Email: jessie.edwards@madraschamber.in

Workable model Consolidation of pragmatic and workable cluster model need strong cluster policy at regional level. Integration of regional level programmes in consonance with central level programmes is necessarily required for healthy growth of cluster. The workable cluster model needs revamping the present cluster approach based on forced attention on targeting the priorities and fundamentality. Such a model should give functional freedom for implementing the cluster policy.

Cluster intuitive in TamilnaduA Long tireless Cluster Journey:

It is a long tireless never ending journey undertaken by MSME-DI Chennai to handhold the cluster members for enduring cluster community development. MSME-DI,Chennai and IC & DIC have come together in this task. The move was triggered under the aegis of Additional Chief Secretary, Department of MSME, Govt. of Tamilnadu. As a humble beginning, officers from Cluster cell conducted 3 regional level seminars each at Chennai, Coimbatore and Madurai by involving all the cluster partners and stakeholders in the year 2006. It was the beginning

story of cluster drive in Tamilnadu. The response was very encouraging and the MSE cluster community in those regions was benefited. Approach paper was prepared in Tamil for the benefit of the MSE clusters.

Tamilnadu is a forerunner in successfully implementing the Cluster scheme by creating visible benefits to the micro players under group initiatives. Though the Cluster initiative was started late in the year 2006 in Tamilnadu , Tamilnadu Govt. is able to map 171MSE clusters across the State and has already started supporting more than 80 micro and small product specific MSE clusters to establish CFC under the flagship programme of MSE-CDP scheme with the active support of other stakeholders.

Creation on MSE Cluster hubs in TamilnaduMSE clusters are having warehouse opportunities and strengthening of maturity level is an embellishing exercise. The MSE clusters in Tamilnadu have got greater relevance and geographical significance. These MSE clusters are evenly spread across the State over the years.

There are 3 such cluster hubs in the State of Tamilnadu. Such critical hubs

have been identified based on presence of vibrant clusters and sensitivity of the cluster activities initiated by the consortia within each hub.

Commitment on promotion of 50 MSE clusters in the 11th Five Year Plan:Tamilnadu Govt. is committed to promote 50 MSE clusters during the 11th 5year plan and an outlay of Rs.12.50 crore is already earmarked for this purpose of promoting MSE clusters in the State of Tamilnadu. It is also committed to support the Industrial clusters / Associations for establishing Common Facility Centres in strategic locations, based on demand but subject to a ceiling of Rs.1.00 Crore per cluster.

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SPOT LIGHT - SMEs

Former UN Secretary-General Kofi Annan said: ”The stark reality is that most poor people in the world still lack access to sustainable financial services, whether it is savings, credit or insurance. The great challenge before us is to address the constraints that exclude people from full participation in the financial sector. Together, we can and must build inclusive financial sectors that help people improve their lives.”

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The highlights of the cluster initiatives and successes are given in the Tamilnadu cluster profile table

SPOT LIGHT - SMEs

Directory of Members 2011The next edition of Directory of Members of MCCI is due this year. A communication calling for information has already been sent. Members' cooperation in submitting the information in the prescribed format is solicited. A great opportunity for members to place their advertisements in the Directory as well, as it will reach a wide cross section of people, corporates, Consulates, other Chambers/institutions, Government departments, etc.

Please contact the Chamber secretariat for further details.

Tel: 243499452/24349871 Email:jessie.edwards@madraschamber.in

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SPOT LIGHT - SMEs

Exclusive MSE Cluster web Portal www.mseclusters-tn.com

It is a public domain being maintained by MSME-DI, Chennai, M/o MSME, Govt of India. It will act as information and servicing providing promotional tool confining to the MSE cluster movement in Tamilnadu. It is the joint effort of MSME-DI, Govt of India , Department of MSME, Govt. of Tamilnadu and IC & DIC, GoTN.

This portal will eventually be a one stop search engine to provide standardized and uniform support service to cluster community in Tamilnadu . The portal is attempting to map the MSE-Clusters in Tamilnadu and to create awareness on cluster revaluation and success of group dynamism to the public.

Road Map for Real Inclusive growth

Cluster movement is the only solution to achieve sustainable development and spatial integration. Support under the

cluster development is inevitable as it can ensure higher levels of success and competitiveness besides ensuring inclusive growth. Such growth model needs average Rs.2 - 3 crore in each growth centre to create growth impulses under group initiatives. Tamilnadu has171 MSE clusters. The average fund required for entire clusters works out to around Rs.684 crore appx. It is well enough to achieve inclusive growth across the State and improve the competitiveness of the micro and small players. The Central and State can contemplate a comprehensive need based new cluster strategy to promote such group dynamism under cluster initiatives as a part of the promotional measures to achieve higher order of growth in the State in particular and necessary fund support may be earmarked in the State Plan itself to assure guarantee in implementation of the envisaged projects within 5 years.

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SPOT LIGHT - SMEs

Creation of more growth propel model at sub regional level

CFC projects under implementation in TN

Forthcoming Programmes:

Seminar on Core Sector Development in South India Saturday, 23rd April 2011 - Hotel Raintree Anna Salai, Chennai 600035.

(9.30 a.m. to 5.00 p.m.)

Core sectors identified: Crude oil, Petroleum refinery products, coal, electricity, cement and finished steel. Faculty: Senior officials and resource persons from Leading corporates/National Mineral Dev.Corpn. Ltd.

Leading consulting firms/PSUs and Financial Institutions.

Participation fee: Free for members - Rs 500/- per delegate for non-members.Please contact MCCI Secretariat for registration. Tel: 24349452/24349871

Email: madraschamber@madraschamber.in

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SPOT LIGHT - SMEs

MSMEs: Enhancing Competitiveness Through Reduction of Transaction Costs

B. Yerram Raju*

SMEs are the emerging economic force to drive the growth of the manufacturing sector, both qualitatively and quantitatively. Acknowledging this fact, Government of India has taken quite a few initiatives in the last few years – a separate law for the sector; targeting growth in lending for the sector by the commercial banks and SIDBI; Rating support through the Small and Medium Enterprise Rating Agency (SMERA) for the sector with cost subvention from the Government and interest subvention from the Financing Institutions; establishing a sync with micro enterprises and SHGs; promoting the growth of clusters through domestic and international support; strengthening the BDS providers etc. Japan and Germany are showing keen interest through their NGO outfits in the country like the JITCO, GTZ, ZDH, FNF etc., as they see a vast potential for global tie-ups and franchising in this sector at low cost. This article focuses on the transaction costs that are eroding Indian SME competitiveness and the way they can be tackled drawing a few lessons from China.

While Banks like the HSBC, ICICI project a window of opportunity in SME sector, their focus is more on the Medium than the small. ICICI retail banking products are focused on ‘medium’ where they angle for high collaterals to hedge their risks while HSBC focuses on “Factoring” where they find greater scope for easier asset securitization. The ICICI Bank has opened up a media window through SME Dialogue Page in the Economic Times, country’s premier Economic daily. While this being so, the country’s largest public sector bank,

State Bank of India, despite its earliest entry into the sector in 1957 and vast experience through Project Up Tech and Technical Consultancy cells, lately preferred the hub and spoke model for lending to this sector. When it opened special SSI branches targeting borrowers with limits of more than Rs.25lacs, it demonstrated its capacity to accommodate the growth needs of the SSIs much better than several other banks in the country. Today, the borrowers, specially the start-ups have to visit the SME Credit Cells located far distant from the branches where they operate their accounts. Existing borrowers for enhancement of limits likewise have to visit the SMECC. Strategically, instead of taking advantage of its strengths, its preference to ape some of the leading private sector banks is a tragedy. It is bound to lose its competitive edge. Nevertheless, several Indian banks are nowhere their global counterparts elsewhere in the world, in extending financial and other support to the SME sector. Innovations in financing the SME sector are rarely noticed. Where the Banks announce certain new products, their accounting and information systems did not undergo any change correspondingly. The products are routed through the same old cash credit, demand loan or term loan accounts. Most of the Banks continue to feel that the SME sector is high risk-prone; sickness is endemic; markets are uncertain and so on – whether public or private. It is necessary to make an effort to understand the needs of the sector. For example, the needs of pharmaceuticals or electronics are different from the chemicals and

electrical; manufacturing in metals is different from food processing. Each sector has its regulatory framework that defines the financial needs distinct from the other in the life cycle of the operations of the industry. The Finance Minister’s exhortation has certainly improved the credit flow to the sector. The Prime Minister’s Task Force has reiterated the need for fresh approach to the issues in financing. Nevertheless, the things that would require further attention, is in respect of transaction costs that the MSMEs incur, with a view to bundling them up and reducing them.

‘If India continues its recent growth, average household incomes will triple over the next two decades and it would become the world’s 5th-largest consumer economy by 2025, up from the twelfth now.’(The McKinsey Quarterly-2007-8). The same McKinsey in a Special Number four years earlier said: ‘A decade ago, India’s per capita income was nearly the same as China’s; today, China’s is almost twice as high.’ A Survey of Executives (2008) shows that, overwhelmingly, they still see low-cost production as the primary competitive advantage of Chinese Companies and expect little change on that front over the next three years. There is increasing prospect of rising competition from Chinese Companies for all products. The manufacturing Indian SMEs, though have learnt to cope with open market competition and level playing field locally, have to learn a lot from their Chinese counterparts the ways of capturing export markets and combating the surge of Chinese imports. Profitability of total manufacturing sector

* Dr. B. Yerram Raju is an Economist and Regional Director, Professional Risk Managers' International Association, Hyderabad.

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has gone down. Productivity of capital of the manufacturing sector has declined, while labour productivity has increased. However, the latter has increased mainly due to a few industry groups, which are highly capital intensive and have contributed around 85 percent of the profit of the total manufacturing sector. (Sadhan Kumar Chathopadhyay, RBI Occasional Papers 2004).

Likewise, the financial sector yet to grapple with mechanisms that would enhance their presence in the SME sector, needs to learn how their Chinese counterparts are able to lend at 4 percent per annum despite more than twice the NPAs Indian SMEs have thrown up during the last decade.

Transaction Costs – Lessons from ChinaAs an example, let us take the Indian Garment Industry which has a distinct competitive advantage to secure a significant market share: competitive labour costs, abundant raw materials (India is the third largest producer of raw cotton in the world), local textile production, and skilled designers. Clusterization (Apparel Parks), design patents are no doubt helping the sector grow. But the exporters’ productivity is only 35 percent of the US levels—compared with the 55 percent achieved by the Chinese exporters—and the overall productivity of the Indian apparel industry, including tailors and domestic manufacturers, is just 16 percent of the US industry’s productivity.

The plan for a new business district in the central Chinese city of Wuhan, which has 8.3mn inhabitants, offers a look at how one metropolitan area has tackled redevelopment. Smokestack industries such as auto manufacturing and steel dominate the local economy. Therefore, there is a lot to understand what gives the competitive advantage. In other words, we must identify the characteristics that would inspire growth and competitivism among the SMEs at

least in those manufacturing sectors that have the cross-border growth potential. High transaction costs, presumably, are proving to be barriers to competition. Some are transparent and some are non-transparent; some get recorded in their own name and style while some go under miscellaneous expenses. But all these add up to costs that go into the product costs. This would call for study of the underlying transaction costs of the competing manufacturing sectors across the country as some costs are triggered by States and some by the Central Government and several by way of grease money. A list of visible and illustrative costs of setting up a MSME in India is appended.

A Business Development Service Provider like the Industry Chambers and Associations could help reduce the burden on the enterprise by (1) providing information on actual costs; (2) where and when to pay; and (3) collect all of them at a single window for a price from the levying departments and nominal price from the enterprises as it would save the entrepreneur running from pillar to post to remit all of them.

1.Inception Costs4License fees from local bodies Registration fees with 4 The Industries Department4 Department of Company Affairs4 Electricity Department4 Waterworks4 Sewerage department4 Environmental clearance4 Factories Department4 Fire Services4 Telephone services4 Labour Department4 Commercial Tax Department4 Income Tax Dept4 Central Excise & Customs Department

2. Running the Enterprise4 Regulatory Compliance costs4 Factories Department4 Boilers Dept4 Fire services renewal/refilling

4 Labour Dept – Shops and Establishments Act 4 Employees’ Provident Fund4 Company Affairs4 Taxes & Duties

Internal Costs Costs of procurement of raw material 4 Checkposts4 wharfs4 Loading and unloading at State warehouses/godowns, ports/RS etc. 4 Absenteeism4 Delayed attendance of labour for each shift or part of the shift 4 Payouts to the Union Leaders ( could be for buying peace) 4 Strikes4 Lock-outs

External4 Natural calamities4 Social calamities4 Grants 4 Corporate Social responsibility4 Opportunity Costs:4 Attendance at meetings convened by Government; Associations, etc

Financing Costs 4 Opening of Account4 Application for loan4 Number of visits to FIs4 Time taken4 Cost of Loan4 Interest4 Outages4 Collaterals/Guarantees cost4 Compliance costs4 Cost of Renewal of loan4 Interest4 Exchange4 Commission4 Equity costs4 VC negotiation costs

Legal Expenses

Auditing/Accounting Costs

Entertainment Cost

SPOT LIGHT - SMEs

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POLICY WATCH

India-Brazil working to achieve $10 b bilateral tradeIndia and Brazil decided to forge stronger trade and economic ties and to work towards achieving a bilateral trade target of $ 10 billion in the next few years against $ 7.73 billion in 2010. This was agreed to at a meeting between Union Commerce & Industry Minister and the visiting External Relations Minister of Brazil recently.

During the meeting Mr Sharma also raised the issue of imposition of anti-dumping duties on Indian products such as PET films, jute yarn, jute bags, nitrile rubber and stainless steel. He said till now no anti-dumping duty had been imposed by India on import of any items from Brazil.

Effort to give big push to manufacturing growthThe National Manufacturing policy, which aims to create massive employment opportunities and make India a manufacturing hub, is being discussed with PM and it would help catalyse manufacturing growth and sustainable development, according to Commerce and Industry Minister Anand Sharma.

Originally the policy had been announced by the beginning of this year but had been in the discussion stage and consultations were being held with other Ministries before it was finally brought before the Cabinet for approval.

The policy is being shaped to woo foreign investment and increase the share of manufacturing in the gross domestic product.

India ASEAN CEPA by year endWith the Philippines all set to ratify the Free Trade Agreement, the trade regime between the 10 member ASEAN bloc and India is all set to get consolidated paving the way for inking of Comprehensive

Economic Partnership Agreement (CEPA) by year end.

Philippines, apart from Cambodia, was the only country that had not ratified the agreement till date. Other members of the trade bloc are:

Brunei, Malaysia, Myanmar, Singapore, Indonesia, Vietnam, Thailand and Laos.

Free Trade Pact with four European nations this yearSwitzerland will seek to improve access to Indian market

India and the Europe Free Trade Association (EFTA) are likely to conclude a free trade agreement entailing a comprehensive bilateral trade and investment agreement.

The EFTA comprising Switzerland, Iceland, Norway and Liechtenstein are likely to firm up an FTA this year after fast-tracking of the negotiations between the two groups.

These four countries are not part of the 27-nation European Union with which India is already negotiating an FTA.

Recognising the need for enhancing trade ties, a joint study group between India and EFTA was established in 2006 to explore the possibility of such an agreement.

With the FTA in place, Switzerland will primarily seek to improve access to the Indian market for its chemical and pharmaceutical products, machines and watches.

On its part, India has been pushing to obtain greater access to the Swiss market for its export services, including information technology and fewer immigration restrictions.

Another area of mutual cooperation has been vocational skills training modules that India strongly needs to meet the challenges that will emerge from the massive economic development taking place at present.

India is closely looking at replicating the industrial cluster approach module and also

skills training modules with the help from Swiss counterparts.

FTA with ASEAN will not harm agri sectorThe agreement provides for a safeguard mechanism to address sudden surge in imports:

Allaying fears in some quarters that the India-ASEAN Free Trade Agreement (FTA) will harm domestic agriculture, Commerce and Industry Minister informed the Rajya Sabha that majority of agriculture items had been protected by placing them in exclusion of the negative list where no tariff concessions were available to ASEAN countries.

Items in the negative list included vegetables, fruits/nuts, spices, cereals/grains, oilseeds/oil, natural rubber and tobacco. The agreement also provides for a safeguard mechanism to address sudden surge in imports on account of tariff concessions. When such a surge is likely to hurt the domestic market, safeguard measures including imposition of safeguard duties can be initiated to prevent or remedy serious injury and to facilitate adjustment for the domestic market he said.

Textiles sector gets Rs 7,400 cr more for modernisationThe Government enhanced subsidy allocation for modernisation of the textiles industry to Rs 15,404 crore from earlier sanction of Rs 8,000 crore for the current Plan ending 2012.

The decision to increase the outlay and re-structure the Technology Upgradation Fund (TUF) was taken by the Cabinet Committee on Economic Affairs.

Of the additional Rs 7,404 crore, Rs 1972 crore would be available for fresh sanctions while the remaining Rs 5,432 crore is meant for fulfilling the committed liabilities under the TUF scheme.

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ECONOMIC REVIEW

Food inflation back in single digits at 9.5 per centThe annual rate of inflation, based on monthly WPI, stood at 9.5 per cent for the week ended March 19, 2011 as compared to 10.05 per cent for the preceding week leading up to March 12, 2011. A development made possible by falling prices of pulses, though fruits and vegetables stayed dear during the week.

The major index for ‘Primary Articles’ group declined by 0.4 per cent from the previous week level.

The index for 'Food Articles' declined by 0.5 per cent from the previous week due to lower prices of egg, condiments & spices, wheat, mutton, fruits & vegetables, arhar and tea.

The index for ‘Non-Food Articles’ group declined by 0.2 per cent the previous week due to lower prices of raw rubber, soyabean, raw silk, gingelly seed (sesamum), sunflower, mesta and raw jute. However, the prices, of gaur seed, groundnut seed, rape & mustard seed,

castor seed, copra and flowers moved up.

The index for ‘Fuel, power, light & lubricants’ group rose by 0.5 per cent from the previous week due to higher prices of aviation turbine fuel, light diesel oil, naphtha, bitumen and furnace oil.

External debt jumps USD 1.7 billion in December quarterIndia's external debt rose USD 1.7 billon in the quarter to December 2010, taking the overall debt to USD 297.5 billion at the end of the month. The share of short-term debt, one of the important sustainability measures, in the total debt stock declined.

Overall the external debt stock increased by USD 36.3 billion since March 2010, growing by 13.9 per cent in the first nine months of fiscal year 2010.

Short term debt dropped to 21 per cent of the total external debt in the third quarter from 22.3 per cent in the previous quarter. The absolute amount

of short-term external debt stood at USD 62.6 billion at the end of the third quarter, down from USD 66 billion in the second quarter.

Growth rate of short-term debt slowed to 19.7 per cent for April-December, from 25.8 per cent till the second quarter. Long-term debt increased by USD 5.1 billion in the third quarter and accounted for the major share of the USD 26 billion increase in the external debt in the first nine months of the year.

The interest rates in India are much higher than in the developed world, creating conditions for Indian companies to borrow easily. Accordingly, share of commercial borrowings were the highest at 28.5 per cent of the total external debt.

Government debt increased marginally to USD 74.5 billion, 25 per cent of the total debt, up from USD 72.3 billion in the second quarter. Share of US dollar denominated debt reduced marginally by 0.2 per cent to 53.7 per cent in the third quarter, but still had the largest share.

Banks in India report 22.8 per cent growth in February credit flows.Bank credit comprising loans and advances to the productive sectors of the economy, except perhaps the agriculture sector, grew at a faster pace of 22.8 per cent in February 2011 against a 15.9 per cent growth recorded in February last year.

During the current financial year, up to February 2011, non-food gross bank credit grew 16.8 per cent against 11.1 per cent during the corresponding period of the previous year.

SectionECONOMY 4Food inflation back in single digits at 9.5 per cent4 External debt jumps USD 1.7 billion in December quarter4 Banks in India report 22.8 per cent growth in February credit flows

CORPORATE Corporate India raised USD 1.44 billion overseas in February

POLICY Service tax on forex transactions capped at `5,000

REPORT 4 Census of India 2011: Shocking gender bias among 17.5 per cent humanity 4 Gold demand in India to rise 33per cent by 2020: WGC Electronics, IT sector to need 3.2 million workforce by 2022: NSDC

(as on April 3, 2011)

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ECONOMIC REVIEW

All major sectors, except agriculture, recorded accelerated credit growth in February 2011, both on an year-on-year basis and financial year basis, data released by the Reserve Bank of India showed.

Credit to industry grew 26.5 per cent (y-o-y) in February 2011 compared with an increase of 20.1 per cent in the previous year.

The flow of credit to industry was more visible in sectors such as infrastructure, metals, engineering, food processing, rubber, plastics and plastic products and cement and cement products.

On a financial year basis (up to February 2011), credit flow to industry grew 20.4 per cent against 18.4 per cent during the corresponding period of the previous year.

Credit to the service sector grew 24.2 per cent (y-o-y) in February 2011 against 15.4 per cent in the previous year. On a financial year basis, credit flow to service sector grew 18.3 per cent against 7.1 per cent during the corresponding period of the previous year.

Credit to agriculture sector grew at a lower rate of 18.3 per cent year-on-year in February 2011 against a growth of 24.4 per cent in the previous year. During the financial year, up to February 2011, credit to agriculture grew 5.3 per cent against 9.4 per cent during the corresponding period of the previous year.

Credit flow to NBFCs, at 46.4 per cent on a y-o-y basis in February 2011, was significantly higher than the growth of 19.8 per cent reported during the corresponding period of the previous year. On a financial year basis, credit to NBFCs increased by 39.9 per

cent against 9.7 per cent during the corresponding period of the previous year.

Credit offtake by the commercial real estate (CRE) sector grew at a faster pace of 17.8 per cent (y-o-y) in February 2011 against a slow 0.9 per cent growth reported during the corresponding period of the previous year. On a financial year basis, credit to the CRE sector grew 17.1 per cent as against a decline of 0.9 per cent during the corresponding period of the previous year.

Personal loans grew 16.2 per cent on an year-on-year basis in February 2011, which was substantially higher than the 4.1 per cent growth recorded during the corresponding period of the previous year. Almost all components of personal loans, such as housing, advances against fixed deposits, vehicle loans and education showed accelerated growth during the month. On a financial year basis, growth in personal loans accelerated to 14.8 per cent from 2.8 per cent during the corresponding period of previous year.

The RBI report on sectoral deployment of credit is based on data collected on a monthly basis from 47 select scheduled commercial banks, which accounted for about 95 per cent of the total non-food credit deployed by all scheduled commercial banks in February 2011.

POLICY

Service tax on forex transactions capped at `5,000 The service tax on foreign exchange transactions would be capped at `5,000. The announcement will provide

relief to market participants who feared high tax incidence would lead to a sharp decline in foreign exchange transaction volumes.

According to a notification, tax for foreign exchange transactions will be calculated at 0.1 per cent of the gross amount of currency exchanged for up to `1 lakh. The minimum tax will be `25.

For `1- 10 lakh transactions, the tax rate will `100, plus 0.5 per cent of the gross amount exchanged.

For transactions above `10 lakh, the service tax rate has been fixed at `550, plus 0.01 per cent of the gross amount of currency exchanged. But the maximum amount of service tax will not exceed `5,000.

Since May 2008, all foreign exchange transactions have been subjected to service tax. So far, bankers used to charge a service fee of `100 per transaction, on which service tax was levied at 12.36 per cent. So, effectively a person doing foreign exchange trade was paying `112.36 as service charge (including tax) on each transaction.

CORPORATE

Corporate India raised USD 1.44 billion overseas in FebruaryIndian entities have raised over USD 1.44 billion overseas by way of external commercial borrowings and foreign currency convertible bonds, according to the Reserve Bank of India.

Around 45 companies raised over USD 1.41 billion through the automatic route, which does not require approval of the RBI or the government, while

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ECONOMIC REVIEW

four firms raised around USD 26.96 million under the approval route.

State-run Power Finance Corporation Ltd raised USD 260 million in external commercial borrowings (ECB) through the automatic route.

Bharat Petroleum Corporation Ltd raised USD 200 million, while Bharat Oman Refineries Ltd raised USD 125 million and HPCL Mittal Energy raised USD 100 million by way of external commercial borrowings.

Companies registered under the Companies Act, 1956, are allowed to raise up to a maximum USD 500 million in external commercial borrowings in a financial year, through the automatic route.

ECBs are used as an additional source of funding by Indian corporates to augment the resources available domestically. Foreign currency convertible bonds (FCCBs) are also governed by norms similar to ECBs.

REPORTS

Census of India 2011: Shocking gender bias among 17.5 per cent humanityIndia is now home to 17.5 per cent of humanity, as the population touched 1.21 billion, up 17.4 per cent from 2001, according to the provisional figures of the 2011 Census. The rate of growth of population showed a sharp downward trend, and fell 3.9 percentage points from 2001.

The country posted its worst child sex ratio since independence, as the ugly preference for the male child in many

parts of the country zoomed alongside India's much-feted economic growth.

According to the provisional census figures released on Thursday, the sex ratio (the number of females per 1,000 males) for the 0-6 age group, has dramatically dropped to 914 in 2011, from 927 in 2001. This means in a decade when the country enjoyed unprecedented economic growth, it also became a terrifyingly hostile place to be conceived or born as a girl.

The sheer scale of the country comes through in the Census exercise. During 2001-2011, India added nearly as many people as there are in Brazil. If Uttar Pradesh was a country, it would be the fifth most populous country in the world.

The overall sex ratio in the country improved from 933 to 940, the highest recorded sex ratio since the 1971 census. Three states - J&K, Gujarat and Bihar, showed a decline in the sex ratio.

There was good news on the literacy front as the effective literacy rate rose to 74.04, up from 64.83 in 2001. Male literacy rate, at 82.14 is ahead of the female literacy rate of 65.46. The female literacy rate, however, posted greater gains, at 11.8 points increase between 2001 and 2011, compared with the male literacy rate, which only grew by 6.9 points. More females came into the fold of the literate than males. Ten States and union territories achieved a literacy rate of above 85 per cent.

Population density rose at almost the same rate as absolute population-at 17.5 per cent from 325 persons per square km in 2001, to 382 in 2011. The massive decadal census exercise covered 6.41 lakh villages deploying 2.7 million officials. The cost of the exercise worked

out to be ` 18.19 per person. The census figures are critical for policy making and captures a country in transition.

Gold demand in India to rise 33 per cent by 2020: WGCGold demand in India will continue to be robust in the next decade. The cumulative annual demand will be in excess of 1,200 tonnes by 2020, valued at about ` 2,50,000 crore at current price levels, registering a growth of 33 per cent.

According to the World Gold Council (WGC), the demand for gold in India would be driven by rapid GDP growth, urbanisation and rise in income and savings levels of the consumer. The gold purchasing would increase by almost three per cent per annum over the next decade.

However, in the near term, gold consumption in India is likely to increase marginally by 1.7 per cent during the year 2011 to touch around 980 tonnes compared to 963.1 tonnes consumed in 2010.

Gold jewellery represented around 75 per cent of the total Indian gold demand in 2010, the remainder being accounted for by investment and technology.

Kerala, Maharashtra, Gujarat and Uttar Pradesh are some of the major demand centres of India. The southern states like Kerala, Andhra Pradesh, Tamil Nadu and Karnataka account for over 40 per cent of the country’s gold demand. The western (25-30 per cent) and eastern (10-15 per cent) regions are the next in consumption, the research paper added.

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ECONOMIC REVIEW

Electronics, IT sector to need 3.2 million workforce by 2022: NSDCThe National Skill Development Corporation (NSDC) has estimated that the electronics and IT hardware industry will require an additional 3-3.2 million skilled employees till 2022 and 70 per cent of them will be absorbed into manufacturing and servicing support.

Production of electronics and IT hardware, during this period will increase from 84,400 crore in 2008 to 7,52,000 crore by 2022. Consumer electronics, computers, telecom equipment, and industrial electronics will contribute to a large portion of the size of the industry.

The overall employment in the industry increased from the current level of 0.9 million to over 4 million by 2022 requiring incremental human resource requirement of about 3 million to 3.2 million.

About 1.5 million additional workforce will be required for manufacturing while another 0.6 to 0.7 million will be required for servicing and repairs.

The consumer electronics industry will require an incremental 4,82,000 employees, while the industrial electronics industry will require another 4,61,000 by 2022. The computer segment will require 6,17,000, telecom equipment 5,75,000, strategic electronics 4,05,000 and components will require another 6,85,000 employees.

PRESS RELEASE System failure causes Heavy loss to Import-Export Trade

The Madras Chamber of Commerce & Industry supports any initiative that would improve the efficiency of a system or process and enhances trade facilitation. One such initiative which has won many laurels is the introduction of EDI by the Central Board of Excise and Customs for the Exim Trade.

We appreciate the effort of the Ministry of Finance to improve this facility that was appreciated by the users, trade and industry by an upgraded Version 1.5. While we stand by the Government for the effort, it is a matter of great concern that the new facility has crippled the Exim trade due to glitches in the EDI system especially during the financial year end.

Right from the day of introduction of this new facility, Version 1.5, there have

been problems – some rectified within a day or two and many yet to be sorted out. Trade and Industry are in the dark with no knowledge of the real problems faced, time line for redressal of the problems and standby arrangement during the interim period. We have neither been invited for a discussion nor informed of the problems and possible solutions. For over two weeks now, the entire import-export trade is affected very badly - companies are unable to process the documents due to the failure of the system be it at local or national level.

At a time when the Exim trade is concerned about reaching its targets by the 31st March, taking up the work of conversion of IT systems to Version 1.5 at the Sea Customs during March is hard to comprehend. The Department could have very well undertaken this task in the month of April with due notice to the trade.

The Chamber is deeply concerned with

the failure of the system and feels that better efforts could have been taken before implementation of the new version which would have helped both the Department and the Industry.

The Chamber urges the Ministry of Finance to address the genuine needs and aspirations of the Trade and Industry in a dynamic and highly competitive global business environment, where delays are unacceptable. The Chamber is confident that other Ministries - Ministry of Shipping, Commerce will support our stand that the Exim Trade at this crucial period of the year should not be crippled.

T T Srinivasaraghavan President

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DTC Further representation sent to the Standing Parliamentary Committee on Finance.

The revised Direct Tax Code should address key cornerstones for the next generation (20-25 yrs). In order to do that it should address some key macro issues as below:

1. Social sector needs- jobs/ social mobility & human capital building (education, affirmative action, skill development). 2. The infra needs (incentivised funding, tax exemptions through investment credits, removal of procedural irritants like DDT on inter- corporate dividends etc) 3. Tax payer rights to be secured through system of ombudsman and redressal mechanisms 4. Capital formation in industry and fillip for R&D 5. Promotion of long term savings and removal of tax bias between different avenues 6. Re- look at procedural irritants ( reopening, TDs credits, Govt. promoted litigation etc) 7. Effectively check and curb Inflation and Black money.

Initiatives to Curb The Generation and Accumulation of Black Money

Amendments In The Direct Tax Code

Agricultural income The exemption provided in respect of agricultural income needs to be withdrawn. This would reduce unaccounted cash being offered as agricultural income. Necessary threshold limits in terms of size of the land can be kept to protect small individual owners of land. It is not as if agriculture was never taxed and in fact

was taxed even in the Chandra Gupta Maurya period.

Agricultural land The exclusion provided to ‘agricultural land’ in the definition of capital asset needs to be removed since in any event every major agricultural land transaction is being questioned by the Department on the ground that there is future development in that area.

Political parties When charitable trusts can be taxed and when SEZ exemptions are to be withdrawn, the DTC can withdraw the exemption for political parties. This will ensure that there is transparency and income gets accounted and reflected.

Tax policy Uniform tax policy is the need of the hour and the Government should come out with a long term fiscal policy.

Infrastructure Unless and until there is significant investment and actual creation of infrastructure, India will have serious problems. As a one time measure a major tax incentive should be given with a specified sunset clause and a commitment that no amendment would be made to withdraw the benefit during the tenure of the project.

Tax payer The tax payer is slowly getting the impression that he is completely neglected and immediate measures are required to ensure that the tax payers’ rights are secured and there are better and effective redressal mechanisms including an Ombudsman.

Discretionary powers Wherever discretionary powers are available to tax administration, there

exists a significant potential for corruption and by ensuring that the decision making powers are through specific legislative provision and not through discretion, major reforms can be achieved.

Tax Administration There should be a system in the tax administration to review the assessment orders passed by the assessing officers demanding additional tax without any basis or strong evidence. Assessing officers’ performance review should be based on how successful his assessments are at Appeal stage or at Tribunal stage. All the assessments which are getting turned out by Appeal Commissioners and Tribunal should be reviewed and tracked back to the assessing officers and he should be held responsible for passing incorrect orders. This will help to reduce corruption and coercion faced by assessees.

Also Tax refunds seldom come on time. There is large corruption on this as well. Government should refund the excess immediately after assessments are over.

Green wealth tax There can be a green wealth tax levied on every second or subsequent car owned by an individual assessee

Presumptive tax There are a number of small size and medium size business and trading outfits which can be brought into the tax net through an attractive presumptive tax scheme.

Policy Level Initiatives

Direct Tax Code should be viewed only as a tax legislation and should not be considered as a tool for implementing economic policy or social policy initiatives. If the intention is to curb

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OTHERS

the menace of black money and to mount a battle against corruption, the solution lies elsewhere. The following are the steps which can in the long run eradicate corruption:

Government / Administration Governance is the order of the day and the potential which India as a country has can be completely eroded if efforts are not taken to eradicate corruption. The following is the list of Departments where corruption is rampant; affects the society and contributes to the black money generation and spending:-

(i) Sub-Registrar (ii) Road Transport Office (iii) City Development Authorities (iv) Tehsildar and Village Administration Authorities (v) Income Tax Department (vi) Excise Department (vii) Customs Department (viii) Service Tax Department (ix) Commercial Tax Department (x) Check-post (xi) Corporation (xii) Pollution Control Board (xiii) Labour Department (xiv) Police (xv) Electricity Boards

Reserve Bank – Money Circulation The thousand rupee note (Rs.1000/-)should be slowly withdrawn from circulation with a clear sunset date.

Stamp Duty Real estate sector shows significant potential for black money generation. While capital gains tax could be one of the reasons for under reporting sale consideration, the stamp duty payable by the purchaser plays a very major role. Some States tax sale of immovable property in the range of 9% to 14%. The Central Government can persuade

all States to have a uniform stamp duty at a lower rate of 2% to 3%. It is well established that lower rates lead to increase in compliance.

Gold

Gold is the most preferred mode of investment and attracts cash transactions in a very casual manner. Since over a period of time the households have accumulated gold, the Government can think of Gold Disclosure Immunity Scheme. Under this scheme,

(i) The gold can be offered to the Government (ii) Government will issue bonds representing the value of the gold as on the date of issue of bond; (iii) The bonds can be surrendered at any point of time to the Government for payment. The monies received would be subjected to capital gains tax. (iv) The bonds can be encashed for jewellery at any outlet and the outlet can present the bond to the Government for encashment. The bonds so encashed as jewellery will have to be declared by both the outlet and the individual and encashment into jewellery should be permissible only after three years. Unless proof of payment by cheque and encashment of cheque is established by the outlet, the bond would not be encashed by the Government. (v) Encashment into money (only by account payee

cheque) is permissible at any point of time. Encashment of bond into cash by the outlet would not be carried out by the outlet since the bond would be a mere paper in the absence of proof of payment by cheque to the individual. Therefore, jewelers would ensure compliance. (v) The Government would now be in a position to have a huge stock of gold which is a valuable asset from a country perspective. (vi) The declaration of gold will not have any tax consequences for the individual declaring the gold.

Election

All expenses in connection with election must be met only through banking channels so that the limit on expenses mandated through legislation is adhered to. Enforcement of the legislation on expenses pertaining to election must be strict. If there is no other choice but to have election expenses at these levels, then India should explore whether the US model for election campaign and fund raising events can be adopted in India.

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OTHERS

Office of the Commissioner of Central Excise Chennai - I Commissionerate, Chennai 600034

Trade Notice No. 07/2011 22/2/2011

Sd/……………. (M Senthamil Selvan) Addl. Commissioner

Sub: To implement a system for monitoring and evaluating performance of Government Departments and Ministries – Formation of Help Desk/Help Line:As a part of the Sevottam scheme to improve the quality of service rendered to the assessees and as per the guidelines prescribed under the Result Framework Document (RFD), Help Desk/Help Lines have been formed in Commissionerate/Divisional Office level, the details of which are given below:

The trade is requested to contact the nominated officers for any clarifications or redressal of their grievances.

EXPORT - IMPORT STATISTICS - COCHIN PORTThe Chamber has received from the Cochin Chamber of Commerce & Industry the following publications containing statistics of various commodities.

4Spices Exports4Tea Exports4Cashew Exports4Cotton Exports4Coir Products Exports4Seafood Exports4Coffee Exports4Miscellaneous

Imports (all items) Imports - Top 100 performers 2010

These are available in the Chamber library for reference by members. Please contact Chamber secretariat at Tel: 24349452/24349871 or Email: jessie.edwards@madraschamber.in

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Trade Fairs & ExhibitionsNational:

Mumbai26-28 May 2011 Resource India Expo 2011Ahmedabad 17-19 Sept.2011 Pharmac India 2011 – Pharma & HealthcareInternational:

Singapore30-31 May 2011 Interphex Asia – Pharmaceutical Industry Sri Lanka 3-5 June 2011 Bridging Business in Batti 2011 (www.bdccia.com)27-29 Oct.2011 Hotel, Hospitality and Food Sri Lanka 2011 South Asia’s International Hotel, Hospitality & Tourism EventSweden 17-19 May 2011 SPCI – Pulp & PaperGermany 10-14 May 2011 Met Pack 2011 – Metal Packaging12-18 May 2011 Interpack – Processes & PackagingChina 13-15 July 2011 Propak China 2011 – Packaging, Food Processing and Supplies ExhibitionTurkey 18-22 May 2011 Evteks –Home Textiles14-17 June 2011 Shanghaitex – Textile IndustryFrance20-22 September 2011 PremierVision World's Premier fabric show29 Nov - 1st Dec.2011 FI Europe - Food Ingredient Product DevelopmentUAE Dubai21-24 Nov. 2011 The Big 5 Show - Building, Water Treatment, Environ, A/C and Refrigeration maintenance, Glass & Metal Riyadh 21-24 Nov. 2011 Saudi Pack 2011 - Packaging Material, Supplies & MachinesMexico4-7 Oct. 2011 PlastImagen, PlasticsSpain Barcelona14-18 Nov. 2011 EquiPlast, Plastics & Rubber

New MembersA warm welcome to our new member - ETA Engineering Pvt Ltd., Chennai.

OTHERS

Workshop on Post - Union Budget Analysis

S. Ramachandran addressing Madhri Guruswamy addressing

Management Development Programme on Central Excise & Service Tax

C. Rajendiran, IAS., Commissioner of Central Excise & Service Tax, Coimbatore, delivering a special address.

K.K. Sekar addressing

K. Vaitheeswaran addressing

ASSOCHAM Banking & Finance Council meeting

Chairman and Executive Director of IOB welcoming T.T. Srinivasaraghavan T.T. Srinivasaraghavan and K. Saraswathi at the meeting