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XXII No. 2 August 3, 2004

NEWS ON INDIA IS AVAILABLE ON THE FOLLOWING WEBSITES ON THE INTERNET http: www.meaindia.nic.in http: www.samachar.com (contain links to all Indian newspapers/ magazines)

ALLOCATION OF PORTFOLIOS AMONG THE MEMBERS OF THE COUNCIL OF MINISTERS

CABINET MINISTERS Shri Pranab Mukherjee Defence Shri Arjun Singh Human Resource Development Agriculture, Food & Civil Supplies, Consumer Affairs and Shri Public Distribution Shri Lalu Prasad Railways Shri Home Shri Chemicals & Fertilizers; Steel Shri Parliamentary Affairs; Urban Development Shri Information & Broadcasting; Culture Shri Labour & Employment Shri P. Chidambaram Finance Shri Mahavir Prasad Small scale, Agro & Rural Industries Shri P.R. Kyndiah Tribal Affairs; Development of North East Shri T.R. Baalu Road Transport & Highways Shri S. Vaghela Textiles Shri Natwar Singh External Affairs Shri Commerce & Industry Shri H.R. Bhardwaj Law & Justice Shri P.M. Sayeed Power Dr. Raghuvansh Prasad Singh Rural Development Shri P.R. Dashmunsi Water Resources Shri Petroleum & Natural Gas; Panchayati Raj Shri Youth Affairs & Sports Smt. Meira Kumar Social Justice & Empowerment Shri K. Rao Shipping Shri A. Raja Environment & Forests Shri Dayanidhi Maran Communication & Information Technology Dr. Anbumani Ramdoss Health & Family Welfare MINISTERS OF STATE (INDEPENDENT

CHARGE) Shri Santosh Mohan Dev Heavy Industries & Public Enterprises Shri Non-Resident Affairs India News, Vol. XXII , Nr. 1, January 13, 2004

Shri Statistics & Programme Implementation Smt. Renuka Choudhury Tourism Shri Subodh Kant Sahai Food Processing Shri Science & Technology; Ocean Development Shri Non-Conventional Energy Sources Kumari Selja Urban Employment & Poverty Alleviation Shri Civil Aviation Shri Prem Chand Gupta Company Affairs MINISTERS OF STATE Shri E. Ahamed External Affairs Shri Suresh Pachauri Personnel; Parliamentary Affairs Shri B.K. Handique Defence; Parliamentary Affairs Smt. Health & Family Welfare Dr. Dasari Narayan Rao Coal & Mines Shri Shaqeel Ahmed Communications & Information Technology Shri Rao Inderjit Singh External Affairs Shri Naranbhai Rathwa Railways Road Transport & Highways Shri K.H. Muniappa

Shri M.V. Rajashekharan Planning

Agriculture, Food & Civil Supplies, Consumer Affairs & Public Shri Kantilal Bhuria Distribution Shri Manik Rao Gavit Home Affairs Shri Sri Prakash Jaiswal Home Affairs Shri Prithviraj Chavan Prime Minister’s Office Shri Taslimuddin Heavy Industries & Public Enterprises Smt. Suryakanta Patil Rural Development; Parliamentary Affairs Shri Md. Ali Ashraf Fatmi Human Resource Development Shri A. Narendra Rural Development Shri R. Velu Railways Shri S.S. Palanimanikkam Commerce & Industry Shri S. Regupathy Home Affairs Shri K. Venkatapathy Law & Justice Smt. Subbulakshmi Jegadeesan Social Justice & Empowerment Shri E.V.K. Elangovan Petroleum & Natural Gas Smt. Human Resource Development Shri Namo Narayan Meena Environment & Forests Shri Jay Prakash Narayan Yadav Water Resources Agriculture, Food & Civil Supplies, Consumer Affairs & Public Shri Akhilesh Singh Distribution Ministries that have remained unallocated will be looked after by the Prime Minister.

NEW FOREIGN SECRETARY

Mr. Shyam Saran has taken over as the new Foreign Secretary in the from 2nd August 2004.

MAJOR ECONOMIC NEWS:-

BUDGET HIGHLIGHTS 2004

• Service tax raised from eight to ten per cent • Centvat on powerlooms and handlooms withdrawn

Page 2 / 7 India News, Vol. XXII , Nr. 1, January 13, 2004 • Gift tax loopholes plugged • More services brought under tax net • 20% tax on corporate unit holders of MFs • Equity related Mutual Fund will continue to be exempt from Dividend Tax. • Companies doing R&D in biotech to enjoy duty exemption for 10 years • 0.15% tax on transaction on securities will be levied • Full duty exemption on computers • Tax on transaction at 0.15% • Duty on CVD, typewriters, crutches lifted • Excise duty on meat, poultry items down • Customs duty on tractors, dairy items lifted • Customs duty on non-alloy steel down, excise duty on steel up • Customs duty on minerals like mica, graphite to come down • Peak rate of customs duty to be maintained • No fresh dividend tax. But corporates to pay more for MF incomes • Short-term capital gains tax down to 10% • 150% tax exemption for auto R&D • New agro processing units to pay no tax for 5 years • No interest income on NRE bank accounts • No change in other tax slabs • No income tax for those earning up to Rs 1 lakh a year • Defence allocation raised to Rs 77,000 cr • Plan expenditure estimated at Rs 1,47,590 cr • Defence allocation raised to Rs 77,000 cr • A fund for backward states with Rs 25,000-cr corpus • Special economic package for Bihar, J&K and NE states • Bill to regulate Special Economic Zones soon • No change in small savings rates • Savings scheme for senior citizens offering 9% interest • 85 more items taken off the SSI list • Rs 10,000 cr hike in plan allocation over Interim Budget • Government to set up board for revamping PSUs • Funds to be provided to restructure Hind Antibiotic, ITI • FII investment cap in debt market raised to $1.75 bn • Govt to provide support of Rs 14,194 cr to PSUs • FDI in civil aviation, insurance hiked to 49% • FDI in telecom hiked to 74% • To establish Investment Commission • Airports, sea ports and tourism to be growth areas • FIPB to be made a one-stop service centre • Rs 8,000 cr for Rural Infrastructure Development fund • Rs 1,000 cr provided for use of biotech for farm sector • Foodgrain production to touch 300 mn tonnes by '11-12 • Students can borrow up to Rs 7.5 lakh without collateral • To wipe out revenue deficit by 2008-09 • Revive Rural Infrastructure Development Fund • Aims at doubling agriculture credit in three years • To hike subsidy under the Health Insurance Scheme • Minor irrigation, water harvesting for people • Food subsidy at Rs 25,800 cr • Education cess to yield Rs 4000-5000 cr a year • Electricity for all, more housing for the poor • Govt to set up 500 ITIs. • 2% education cess introduced • Work started on National Employment Guarantee Act. • Micro finance to be stepped up • Government to ensure a child has 8 years of school Five-year road-map for implementing CMP • Improve industrial production • To wipe out revenue deficit by 2008-09 • Planning Commission to reorient its approach to planned development • Gross budgetary support raised to Rs 10,000 cr • Budget to ensure 100 days employment. • To create jobs for poor through higher investment • Cabinet clears budget minutes before its presentation • Aims to maintain growth rate of 7-8% • Budget to ensure 100 days employment

Page 3 / 7 India News, Vol. XXII , Nr. 1, January 13, 2004 WAY PAVED FOR ANOTHER GREEN REVOLUTION

Finance Minister P. Chidambaram has kicked off the promised second green revolution, with a big boost to rural capital formation, focus on completion of last mile irrigation schemes, R&D and incentives for forward linkages such as agro-processing. The strategy to boost agri growth is many-faceted. Rural credit is being planned to double within the next three years through active and pointed delivery by public sector and private sector banks, RRBS and cooperative banks. Nabard, the IBA and others have already been harnessed towards lowering interest and changing the NPA schedules for the farm sector and the Task Force to reform the cooperative banking system will submit its report by October 31. Irrigation (AIBP) has been restructured and got Rs 2,800 crore to complete possible projects by March 2005. The LNJPN rural infrastructure fund has been wound up and the RIDF, guidelines revived, will now get a corpus of Rs 8,000 crore for this year. An already getting-revamped Farm Insurance Income Programme (FIIP) will now be extended to 19 districts even in Kharif 2004 but farm insurance as a whole is set for a good overhaul, with economic viability as the cornerstone. Another key area, agri research including the bio-tech frontier espoused by noted agronomist Dr Swaminathan, has received a long pending bounty of Rs 1000 crore.

HIKES IN FDI IN KEY SECTORS

The Government has announced hikes in foreign direct investment (FDI) limits in telecom, civil aviation and insurance. The FDI cap on the telecom sector has risen from 49% to 74%; in civil aviation from 40% to 49% with overseas companies now allowed 49% stake in an Indian venture instead of 26%; in insurance from 26% to 49%. This move is aimed to attract long-term funds to invest in India and permit Indian players to raise finances through the equity route. According to industry experts, by hiking FDI limits, India’s money-guzzling telecom sector is expected to consolidate as domestic players sell their majority stakes at a premium to global telecom players.

IT NEWS

NASSCOM TO ORGANISE IT SUMMIT IN MUMBAI

Industry body Nasscom will organise the second 'IT User Awards and CIO Summit' in Mumbai on August 31 as part of its efforts to promote the domestic IT industry and boost demand for software products and services. According to Nasscom President Kiran Karnik, the IT User Awards are aimed at rewarding IT excellence for promoting usage of information technology for driving maximum business value across processes, people and projects. The summit is an initiative to boost the domestic demand for IT software and services, which is expected to grow by 25 per cent to 4.2 billion dollar in 2004-05. The theme for this year's summit is 'Technology as a Differentiator: Evaluation and Integration'.

BIGGER EU MAY BLOCK INDIAN IT PROS

The question is being debated as to whether the enlargement of the EU , which came into effect from May 1, will affect the fortunes of Indian IT professionals. While employment policies in the EU will continue to be a deterrent, the fact that Indian professionals are not keen on moving to non-English speaking countries will also be a factor. The relative lack of interest has meant that the supply of interested Indian professionals is still lower than demand. However, to ensure the movement of professionals who wish to work in EU countries, the Indian government plans to keep up the pressure to ensure that protectionism doesn’t take root. According to leading consultants working with the EU, each state in the Union has its own policies for work permits, which are stringent. What makes matters worse for India is the language gap. This has prevented Indian professionals from taking full advantage of the work permits being offered by countries like Germany. However, industry bodies like the Federation of the Indian Chamber of Commerce & Industry (FICCI) feel that the language barrier is an exaggerated one. The more pressing problem is the tough employment policies practised by all EU countries. A company hiring outside the EU must provide proof that no EU national is available or qualified for the position. In other words, an Italian company will have to prove that no Italian or German, French or a national of any one of the 25 EU member states is eligible for the post. Given the high unemployment rates in the EU, that seems tough. The problem gets compounded with the new visa measures adopted by EU countries. According to FICCI, one of the concerns is that temporary work permits will take longer to obtain.

Page 4 / 7 India News, Vol. XXII , Nr. 1, January 13, 2004 THIRTY FOREIGN IT COMPANIES SHIFTING BASE TO BANGALORE

Thirty foreign IT and BPO firms have committed an investment of Rs 670 crore in Bangalore during the first quarter of the current financial year. According to the Director of Software Technology Parks of India (STPI) Mr. BV Naidu, the foreign investment was Rs 670 crore, and an additional Rs 200 crore might be invested by Indian firms in setting up base here during the first three months. Of the 30 foreign firms, 12 were technology-focussed companies and 11 BPO companies, aiming to leverage cost-advantage Bangalore offers with its skilled labour. The trend in new firms setting shop in Bangalore has been driven by US-based VC firms insisting on having an offshore base in India for funding new technology start-ups in America, besides the English-speaking talent available here for BPO firms. The government-owned STPI witnessed setting up of 168 units in Karnataka last fiscal with a total investment of Rs 1,970 crore, taking the total number of software and BPO companies to 1,322 in the state. Karnataka's software exports grew by 46 per cent last fiscal at Rs 18,100 Crore including a 135 per cent jump in BPO exports at Rs 2,237 crore.

GOLDSTONE TO HIRE 250 IT PROS

Goldstone Technologies has identified technical support and migration services as focus areas for growth during 2004-05 in addition to general IT outsourcing activities. The company has projected an annual growth of 25% for 2004-05 and plans to hire 250 professionals during the current year. The company had achieved 17.46% growth in its sales at Rs 57.26 crore and posted net profit of Rs 4.13 crore for the year ended March 31, 2004 compared to sales income of Rs 48.75 crore and net profit of Rs 50 lakh in the previous year. During the current fiscal, Goldstone plans to hire 200 to 250 professionals for technical support and migration services. The company has 515 employees, with almost 170 engineers working for onsite projects. Sun Microsystems has identified Goldstone as a preferred partner for Forte Migration initiatives worldwide, as support to Forte would be discontinued by Sun from September 2006. Currently, Goldstone is engaged in Forte migration initiatives in North America, Europe and Asia-Pacific.

INTEL ON A HIGH, DESIGNS INDIA GROWTH PLAN

Buoyed by three consecutive successful quarters in South Asia, Intel India is planning to expand its presence in the country by extending footprint in 60 more cities by the end of the current year. Company’s current dealer network is spread across 120 cities. The expansion will largely be in the southern region, as the company sees a huge growth potential emerging from sectors like education, small-and-medium businesses, infotech and state governments. According to the Sales Director of Intel, Mr Kumar, South India is the fastest growing region for Intel Technology India. According to him, with 60% research labs set up by multinational companies, they consider the IT & ITES sector as a big market for the company. In case of small-and-medium enterprises, they will focus on the textile belt of Tirupur and automobile auxiliary units in Hosur. Intel had a very successful first quarter in 2004 mainly because of the good take off of the SMB initiative in India, where SMBs account for about 45% of the overall consumption of personal computers. In the first quarter, laptop sales also increased 100% over the corresponding quarter of the previous year.

IT EXPORTS TO UAE SET TO GO UP 25% IN FINANCIAL YEAR 2004

Indian exports of Information Technology products to UAE is expected to go up by 25 per cent in the year 2003-2004, buoyed by increasing demand from the region, Africa and Russia. The exports to the UAE, a major re-export centre for IT products, which stood at $ 102 million in 2002-2003 is expected to touch $ 125 million in the current financial year, according to Mr S. Lakshminarayanan, Additional Secretary to the Government of India, Ministry of Communications and Information Technology, Department of IT. The total export of IT products is projected to go up to $1.38 billion during 2003-2004, up from $ 1.08 billion in the previous year. A Memorandum of Understanding (MOU) was signed in Dubai between Indian Business and Professional Council, Dubai (IBPC) and Electronics & Computer Software Export Promotion Council (ESC).

NRI NEWS

NRI DEPOSITS TAXABLE

The recent budget has withdrawn tax exemption on income earned by way of interest on non-resident (external) deposits. Earlier, all interest earned on NRE deposits in banks in India was tax-free. This, however, will no longer be the case from 2005-06. Interest income from these deposits will be clubbed

Page 5 / 7 India News, Vol. XXII , Nr. 1, January 13, 2004 with the other income of NRIs earned in India, and be subject to income tax. Over the last few years, NRE deposits were hugely popular investment options with NRIs. Not only did the deposits earn substantial interests, but were also tax-free and fully repatriable. Moreover, since they were rupee denominated, they had the opportunity to gain on conversion to dollar in the case of dollar depreciation against the rupee. The rates available now on NRE term deposits are now on par with those available in global markets. In fact, RBI linked the rates on NRE accounts to LIBOR/SWAP rates with a view to provide global consistency in returns. In addition, it also cut down the rates on NRE savings account deposits too, which so far had been earning 3.5% linked with the domestic savings deposit rate.

FLOATING TO FIXED: BORROWERS HAVE TO PAY CHARGES After the budget, there has been extreme volatility in interest rates and predictions of rates further rising are giving many consumers’ sleepless nights. A primary group consists of those with loans, more specifically, housing loans with floating interest rates. Consumers are worried about the extent of burden they will have to bear in case interest rates change. In case of a floating rate loan, the interest rate will change in keeping with the change in the benchmark rate fixed by the bank or the housing finance institution. When interest rates are rising, most experts would advise going in for loans with fixed interest rates. However, this has two problems. One, existing borrowers have to pay a charge when the transfer is made. Second, the fixed rate loan may not be fixed for the entire period of the loan outstanding.

Often, there is another aspect. This pertains to the cost side of the borrower. This stems from the fact that fixed rates are usually slightly higher than their floating counterparts. The difference is 0.5-0.75%. This means that till there is a change in the floating rate loan to this extent there is no additional benefit to the loan taken. In fact, till the entire difference is covered the borrower is actually paying more than before. Experts suggest that when the difference between a floating rate loan and fixed rate loan is large, it doesn’t make sense to change to fixed rates unless the borrower expects interest rates to surge significantly. Usually, over a longer time frame there are several ups and downs in the interest rate cycle, and hence predictions on this front are difficult. Already, many borrowers have gone in for floating rate loans, which are 1.5-2% below the fixed rate due to concessions given under several categories.

OTHER NEWS

FOLLOW INDIA: CADENCE TELLS THE WORLD India is proving to be a boon in many ways. The EDA (electronic design automation) tool vendor, which recently decided that the Indian operations would report directly to US headquarters and not to a regional Asia centre, has now decided that India can be a model for others to follow. Especially for up and coming new centres in developing countries. Mr Lavi Lev, executive VP & GM, implementation division, Cadence Design Systems, told ET, "Our India R&D centre has done a great job of taking over ownership of entire products. In fact, we are constantly moving ownership of products to India, so much so that we want our new sites in Russia and China to follow the India model." Apart from the technology, it's the management of the centre that Cadence wants emulated. Said Mr Lavi, "The way new employees are inducted into the values of the company is done much better here than in the US. Since we are hiring about 40 people every quarter here, there is a lot of induction to be done! We would like the India centre to share their knowledge about how to adapt technically and culturally. DOMESTIC COMMODITY FIRMS IN FOR A MAJOR BLOW The Indian commodities sector is now seeing the flip side of globalisation. Steel and aluminium blue-chip industries especially, have been put on a close watch after Chinese Premier Wen Jiabao recently announced that Beijing will take forceful measures to cool its red-hot economy and keep inflation in check. The development has the potential of seriously hurting companies such as Tisco, SAIL, Hindalco and Nalco as it has already sent global prices tumbling. These companies had benefited immensely from the huge surge in the Chinese demand for base metal and the resultant escalation in global prices over the past 12 months. Around 75% of the incremental world demand for steel last year had originated in China . The impact has been so tremendous, that Hindustan Copper, a public sector company, turned around and stepped into the black after a gap of several years on the back of the international price rise. Tisco, Nalco, Hindalco and SAIL and even shipping stocks such as SCI and Varun Shipping, are being hit hard over these concerns. CARTEL TO OPEN BPO UNIT IN CHENNAI As part of its expansion strategy within the Indian subcontinent, UK-based Cartel Group Holdings Plc has entered into a joint venture with call centre services firm Supersight Ceequence for establishing its BPO and call centre operations in Chennai. "The joint venture builds on an outsourcing relationship that was established between the companies last year. Supersight Ceequence has been managing Cartel's mortgage business lead generation from its centre in Chennai.

Page 6 / 7 India News, Vol. XXII , Nr. 1, January 13, 2004

FORTHCOMING CULTURAL EVENTS

(A) Locarno Film Festival August 6-17, 2004 at Locarno. Screening of 17 Indian film titles. Visit website:- www.pardo.ch

(B) ArtIndia’s Workshops on Bharatnatyam & Odissi by Rohita & Rashmi, Raasavrunda School, Mysore in August-September 2004 and Kuchupudi with Vyjayathi Kashi, Bangalore in October 2004. Contact:- Ms Prabitha Urwyler at [email protected]

(C ) Music for healing & Meditation on August 28, 2004, 1930 hrs at Franzosische Kirche, Zeughausgasse, Berne. Contact:- 031-311 42 42

(D) “Indian Colours” from July 2 till 7th November 2004 organised by Haus zum Kiel at Hirschengraben 20, 8001 Zurich. Contact:- 01 261 9650.

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