ICAI begins scanning books of cos seeing director resignations

ICAI begins scanning books of cos seeing director resignations
The Hindu Business Line, April 7, 2009, Page 5

Eye on ‘intention’ behind quitting; to seek more powers for auditors.

Shashi Ashiwal

Mr Uttam Prakash Agarwal, President, Institute of Chartered Accountants of India, addressing a press meet in Mumbai on Monday. —

Our Bureau

Mumbai, April 6 The Institute of Chartered Accountants of India (ICAI) has initiated the process of scrutinising the accounts of companies that have seen an exodus of independent directors post-Satyam.

“More than anything else, the intention behind the quitting of the independent directors would be looked into,” the ICAI President, Mr Uttam Prakash Agarwal, told newspersons on the sidelines of a press meet here on Monday.

If the ICAI finds faults in the company’s numbers, it will write to the regulator, Mr Agarwal said, adding that the entire process will be financed by the institution itself.

ICAI was set up by an Act of Parliament; it is the apex body of chartered accountants in India.

After the Rs 7,000-crore fraud at Satyam came to light, more than 75 companies had reported the resignation of their directors, many of them independent ones. Separately, the ICAI is planning to seek more powers for auditors.

If the auditors find serious discrepancy in a company’s financial numbers, they should be empowered to call for restatement of accounts (by the company management), said Mr Agarwal.

Auditors’ notes

As per existing stipulations, auditors capture their observations about a company’s financials under ‘auditors notes’; they do not have powers to ask the company management to restate the accounts. A committee set up by the ICAI had recently interrogated Satyam’s ex-Chief Financial Officer, Mr Vadlamani Srinivasa, ex-Price Waterhouse auditors, Mr S. Gopalakrishnan and Mr Srinivas Talluri.

Satyam’s ex-chairman, Mr Ramalinga Raju, was forced to confess the fraud after investment banker DSP Merrill Lynch — which was hired by the Hyderabad-based company to evaluate various stake sale opportunities — found discrepancies in the company’s financials, Mr Vadlamani had told the committee.

Satyam had hired DSP Meril Lynch after the company had announced the possible dilution of stake by Mr Raju, following the failed bid to acquire Maytas Infrastructure and Maytas Properties.

Mr Vadlamani has said that neither the auditors nor the independent directors were aware of the scam, according to Mr Agarwal. “The ex-CFO also mentioned that no pecuniary benefits were derived by the auditors and that it was not true that the auditors had confessed to their alleged role, as was reported earlier in the media,” said Mr Agarwal.

Real Estate Intelligence Report, April 06, 2009

G – 20 pledges $1 trillion & concerted fiscal steps

G – 20 pledges $1 trillion & concerted fiscal steps
The Financial Express, April 3, 2009, Page 1

Agencies

LondonG-20 leaders agreed a trillion-dollar deal on Thursday to combat the deepest economic downturn since the Great Depression. At their summit, they also signed off on plans to commission blacklists of tax havens, tighten financial norms to bring hedge funds and credit rating agencies under closer supervision, as well as institute new rules on linking executive pay to performance. US stocks jumped on the G-20 news, along with a decision by Washington to loosen accounting rules for toxic assets.

“Concerted measures taken by the G-20 economies will raise world output by 4% by the end of next year,” a final communiqué said. “We are undertaking an unprecedented and concerted fiscal expansion, which will save or create millions of jobs that would otherwise have been destroyed, and that will, by the end of next year, amount to $5 trillion, raise output by 4% and accelerate the transition to a green economy,” the communiqué added.

“We are committed to deliver the scale of sustained fiscal effort necessary to restore growth,” it said. The statement also said G-20 central banks had pledged to maintain expansionary policies as long as necessary and to use all available policy tools.

“This is the day that the world came together, to fight back against the global recession. Not with words, but a plan for global recovery and for reform and with a clear timetable,” British Prime Minister and summit host Gordon Brown said. He said that while there were no quick fixes, the decisions meant that “we can shorten the recession and we can save jobs”.

“For the first time we have a common approach to cleaning up banks around the world, to restructuring of the world financial system. We have maintained our commitment to help the world’s poorest,” Brown said. “This is a collective action of people around the world working at their best.”

Brown said the G-20 also agreed to create a new supervisory body to flag potential problems in the global financial system. He said the G-20 will create a new financial stability board to ensure cooperation across frontiers, to spot risks to the world economy and—together with the IMF—provide “the early warning mechanism that this new global economy needs.”

Brown said it is essential that the world does everything necessary to “rebuild trust” and make sure “a crisis such as this” never happens again.

The sweeping G-20 communiqué bridged a gap between the US and European countries led by France and Germany over how far to push changes on regulation to curb the market excesses that led to the current crisis.

French President Nicolas Sarkozy said the results were beyond what could have been imagined. Addressing a key demand from France and Germany, Brown said the leaders agreed there will be an end to tax havens that do not transfer information on request. “The banking secrecy of the past must come to an end.”

He said leaders agreed to commit new resources of $1 trillion that are available to the world economy through the International Monetary Fund and other institutions. This included $250 billion of IMF reserve units called Special Drawing Rights. This is available to all IMF members, Brown said. In addition, the IMF would see its own resources tripled, with up to $500 billion of new funds.

The G-20 nations also agreed to renounce protectionism and pledged $250 billion in trade finance over the next two years—a key measure to help struggling developing countries, whom they promised to give a greater say in world economic affairs. The G-20 will hold a third summit on the financial crisis by the end of autumn in Japan to follow up the world leaders’ meetings in London this week and in Washington in November, Italy’s Silvio Berlusconi said on Thursday.

G-20 summit a turning point in economic recovery

G-20 summit a turning point in economic recovery
The Hindu Business Line, April 5, 2009, Page 4

Washington (PTI): US President Barack Obama on Saturday praised the agreement of the G-20 nations to act together in this financial crisis and said it is a turning point in this global economic slump.

"I'm pleased that after two days of careful negotiation, the G20 nations have agreed on a series of unprecedented steps that I believe will be a turning point in our pursuit of a global economic recovery," Mr. Obama said in his weekly radio address.

Observing that the only way out of a recession, which is global in scope, is with a response that is global in coordination, Mr. Obama said, following the G-20 summit: "All of us are now moving aggressively to get our banks lending again.

All of us are working to spur growth and create jobs."

He said: "And all of us have agreed on the most sweeping reform of our financial regulatory framework in a generation -– (a) reform that will help end the risky speculation and market abuses that have cost so many people so much."

With the American economy inextricably linked to the global economy, worldwide coordination is needed to restore lending, spur job growth, reform financial regulation and ultimately fix our economy, he said.

"If people in other countries cannot spend that means they cannot buy the goods we produce here in America, which means more lost jobs and more families hurting," he said.

Referring to the latest unemployment figures, Mr. Obama said it has gone up to millions after the onset of recession.

"If we continue to let banks and other financial institutions around the world act recklessly and irresponsibly, that affects institutions here at home as credit dries up, and people can't get loans to buy a home or car, to run a small business or pay for college," he said.

Fiscal, monetary measures likely

Fiscal, monetary measures likely
The Financial Express, April 4, 2009, Page 1

Economy Bureau, New Delhi

RBI’s next round of rate cuts, and another fiscal stimulus, could come sooner than the calendar of the general elections may allow for. That’s the most likely fallout of the commitment made by India as well as other leaders in the G-20 communiqué issued in London on Thursday, which US President Barack Obama described as “not a panacea, but a critical step” to help world economies rebound.

The document clearly says expansionary government spending will continue: “We are committed to deliver the scale of sustained fiscal effort necessary to restore growth.” On the prospects for a rate cut, the G-20 says, “Interest rates have been cut aggressively in most countries, and our central banks have pledged to maintain expansionary policies for as long as needed and to use the full range of monetary policy instruments, including unconventional instruments, consistent with price stability.”

RBI is slated to announce its monetary policy review on April 21. The central bank has already cut its short-term lending, or repo, rate by 400 basis points since October. The fall in inflation to 0.31% gives RBI greater room to cut key rates, although bankers expect it to maintain status quo in the near term.

Underscoring the role of countries like India, China and Brazil with that of the developed world to tackle the economic crisis, Obama said at his news conference on Thursday evening at the conclusion of the summit: “We felt that it was very important to strengthen our international financial institutions because developing countries, emerging markets are threatened—even though they may not have been the cause of this crisis—they are threatened by capital flight; they’re threatened by reduced trade finance, drops in consumer demand in developed countries that were their export markets.”

However, Manmohan Singh said in London that India had no plans to approach the IMF for support. “We do not visualise any need in the near future to go to the IMF,” Singh said, adding that India would, instead, consider raising its contribution to the fund in proportion to the enhanced quota.

In its quarterly research on emerging economies issued on Friday, Barclays Capital projected the Indian GDP to grow by 4% in 2009-10. The IMF has estimated that world growth in real terms would resume and rise to over 2% by the end of 2010. ADB too expects a recovery in 2010. The Barclays report also expects RBI to let the rupee depreciate by another 10% to support growth. The rupee is currently at 50.30 to a dollar.

The Centre is also widely expected to enhance its borrowings going forward, though some experts and institutions argue India has no more fiscal headroom. ADB said in its 2009 outlook that India has no scope for another fiscal stimulus. But Planning Commission deputy chairman Montek Singh Ahluwalia said last week that the economy might need “some more stimulus”.

Following the G-20 pledge, India may also have to rewrite its company laws to ensure that pay for senior company executives relate to their performance. At present, companies only need to mention the salary of key executives in their annual reports, but don’t ask shareholders to vote on them.

Norms for GIS-based land records soon

Norms for GIS-based land records soon
The Financial Express, April 4, 2009, Page 3

Sandip Das, New Delhi

One of the ambitious programme to modernise the land records in rural India , the government is in the process of formulating guidelines in consultation with the Indian Space Research Organisation and other technical bodies prior to its formal launch across the country.

According to a senior official with the department of land resources (DRI), under the ministry of rural development, the nodal ministry to implement the programme, the guidelines would be finalised over the next few months prior to its formal launch at the state levels. Initially 19 states are expected to launch the programme aims at ‘creating a single window to handle land records’.

After the Cabinet approval, the government last year had announced a new scheme — the National Land Records Modernisation Programme (NLRMP) replacing the then existing centrally sponsored schemes of Computerisation of Land Records (CLR) and Strengthening of Revenue Administration & Updating of Land Records (SRA & ULR).

The NLRMP aims at using modern technologies such as Geographic Information System (GIS) and Global Positioning System (GPS) for updating records and conclusive titles in the rural areas of the country.

To be completed by the end of the 12th Five Year Plan (2012-2017), the programme cost is estimated to be Rs 5,656 crore, of which the Centre’s share would be Rs 3,098 crore while the states would contribute Rs 2,558 crore.

“We are now simplifying the technical guidelines provided by ISRO so that it would be easier for the states to adopt and implement them,” DRI secretary Rita Sinha said.

The scheme envisaged by the DLR is expected to provide land titles to more than 700 million rural population, relying on high-resolution satellite imagery. The ministry plans to work with the state governments to replace the present system of registration of land deeds and documents as provided for in the Registration Act. However, under the NLRMP, the land involving litigation will not be surveyed. It is also expected to make land acquisition easier for industrial activities.

NLRMP is an important measure as presently in rural India , presumptive titles are given which are not certified by the states. So they remain private documents and do not get the status of public records that have evidentiary value under provisions of the Evidence Act. This renders the right of the owner to the land title, presumptive at best.

The Registration Act, 1908 provides for registration of deeds and documents but not registration of titles. Even though the Transfer of Property Act, 1882, mandates compulsory registration of transfer of immovable property, lack of state guarantee of title to land contributes to the unsatisfactory state of affairs in conveyancing in the country.

According to the draft guidelines for implementation of NLRMP, aims to develop a modern, comprehensive and transparent land records system in the country. The programme also envisage activities such as data entry or re-entry and data conversion of all the textual records including mutation records, update of all survey & settlement records including creation of original cadastral records wherever needed.

“The programme will modernise land records management, minimise scope of land disputes, enhance transparency in the land records maintenance system,” Sinha said. However, she said the training of Potawari or a land record clerk at Tehsil level is key to the success of the programme. Thus under the NLRMP, the training of Potawaries will be given key importance.

The rural development ministry, through CLR & SRA & ULR, have supported efforts of states for land records update and computerisation. But in the absence of the system of conclusive titles with title guarantee which is essential for security of property rights, large number of lands remain locked under litigation.

Under the till now existing schemes of SRA & ULR, states like Andhra Pradesh, Gujarat, Madhya Pradesh, Rajasthan among others have already completed their revenue records data entries, while states like Gujarat , Madhya Pradesh, Tamil Nadu and Uttar Pradesh among others have stopped manual issue of their revenue records.

How it works

• The NLRMP aims at using modern technologies such as Geographic Information System and Global Positioning System for updating records and conclusive titles in the rural areas of the country

• To be completed by the end of the 12th Plan, the programme cost is estimated to be Rs 5,656 crore

• The scheme envisaged by DLR is expected to provide land titles to more than 700 million rural population

Cement industry may bow to govt pressure

Cement industry may bow to govt pressure
Business Standard, April 5, 2009, Page 5

Chandan Kishore Kant / Mumbai

Stung by the government’s response to the recent price hikes, the cement industry has hinted that they would not increase the prices further.

The department of industrial policy and promotion (DIPP) had said that the price hike by the cement industry was unacceptable in the face of excise reliefs given to the players.

Since February, there has been three rounds of price rises, taking the average price up by around Rs 10-15 for a 50-kg bag.

In 2007, the government announced several measures to keep cement prices under check. But the last few months saw the government taking several favourable decisions for the cement industry such as excise duty cuts, re-imposition of countervailing duty on cement imports from Pakistan and opening of the export route.

However, top cement makers told Business Standard that they were unhappy with the government’s reaction on “something which is purely market-driven.” They further added that on an year-on-year basis, cement prices were ruling only marginally higher.

Hari Mohan Bangur, president, Cement Manufacturers’ Association (CMA), said, “Raising the price is a company’s individual decision and CMA does not have the power to ask the players to reduce prices.”

Bangur is also the chairman and managing director of the North-based Shree Cement.

“The government is harping on a wrong thing. In a free market economy, why does the government provide us (the cement industry) coal linkages at a controlled price? Cement prices are ruled by the market dynamics and there is no collective decision of hiking prices,” said an executive of a company who did not wish to be named.

Amrit Lal Kapur, managing director of Ambuja Cements, said, “Any further rise in prices seems unlikely and we have no intention to hike prices. Cement prices will remain stable and as demand will slow down in the next couple of months, prices will be under pressure as incremental capacities will outpace the demand.”

According to Bangur, cement prices already had declined during the later part of the last year. So, looking at today’s prices and comparing them the last year’s price in the same period, it is up only 4-5 per cent, added Bangur. “This is not as high as it is being made out to be,” added Bangur.

Vinod Juneja, managing director, Binani Cement, said that price rise was purely a demand and supply game. “It is not a continuous scenario. In near future, prices will be rationalised. For the time being, we have no plans to raise the prices,” added Juneja.

Industry sources told Business Standard that over a month back, the DIPP secretary had convened a meeting of cement makers. They added that Uttar Pradesh witnessed a sharp rise in demand, resulting in shortages. This has led players operating in UP to go for specific price rise.

A K Saraogi, chief financial officer of the Kanpur-based J K Cement, said, “The maximum retail price (MRP) has not seen much change. It is about 3-5 per cent. It is not the companies but the dealers who are raising prices.”

Rising cement prices to hit affordable housing projects

Rising cement prices to hit affordable housing projects
The Financial Express, April 4, 2009, Page 9

Mona Mehta, Mumbai

The real estate segment, especially affordable housing projects in certain metros, is taking a hit due to repeated rise in cement prices. For, top builders have started witnessing 10% dip in margins and 5-8% hike in construction costs.

Cement prices have increased almost four times since January 2009, by Rs 3-5 per bag each time. Currently, the real estate sector accounts for about 65% of total cement consumption. Experts, meanwhile, believe that cement prices will rise further.

Nayan Shah, chief executive officer, Mayfair Housing Private Ltd, told FE, “Construction costs for our affordable housing projects in Virar and Thane have shot up by 5-7%. Such projects usually allow us builders margins up to 10%. But, now, we feel that we will be left with no margins; that is a worrisome scenario.”

Competitor Kanakia Spaces, meanwhile, is witnessing a dip in sales. Vishal Doshi, the company’s assistant business manager, business development and marketing, said, “The increase in cement prices will surely have a negative effect, not only on builders developing affordable homes, but also overall. Margins in affordable housing projects are anyway very conservative; hence, increases in costs will surely give way to a dip in margins.”

Lalit Kumar Jain, president, Promoters Builders Association of Pune (PBAP) and VP, Credai, said, “It is not only price rise; basic cement price at Rs 265 per 50 kg itself is very high; such prices are not sustainable for affordable housing.”

He argued that 50 kg cement bags should be priced at Rs 125.

“Cartelisation among cement companies is the cause for the high prices; it allows them to raise prices at their own will,” said Jain.

Anand Gupta, general secretary, Builders' Association of India (BAI), too said that cartelisation by cement manufacturers is the root cause for frequent hikes in cement prices. “The hike is creating a lot of uncertainty in deciding construction costs and is leading to unnecessary and multiple disputes between owners and contractors," he said.

Gagan Singh, managing director, project development services, Jones Lang LaSalle Meghraj (JLLM), however, feels that while there have been fluctuations in cement prices, these have had only an insignificant bearing on developers' overall ability to carry on business.

“Judging the market as it stands now, we would rather say that developers' ongoing lack of realism regarding expectations of margins will have a far greater impact on their bottomlines. Their ability to source right-priced land for affordable housing schemes will be of pertinence in this respect. Flux in construction costs is always factored into the project; it is realism in expectations and strategy that will help developers derive real value in a changing world.”

BJP promises low-tax, low-interest regime; silent on disinvestment

BJP promises low-tax, low-interest regime; silent on disinvestment
The Financial Express, April 4, 2009, Page 1

fe Bureau, New Delhi

US companies with Indian operations are in for a shock if the BJP wins the upcoming Lok Sabha polls. The party’s strategy to put the slowing domestic economy back on a high-growth path envisages imposing restrictions on the local operations of foreign firms if their home countries restrict the hiring of Indian workers with valid work visas—as the Obama administration has done for US companies receiving federal aid.

Significantly, the party’s election manifesto unveiled on Ramnavami, Friday, ostensibly to reiterate its Hindutva commitment, outlines 16 steps to revive the economy “from recession to job-generating growth”. Terming the incumbent UPA’s recent attempts to backtrack from its inflation-obsessed monetary policies as “half-hearted”, the BJP has promised “determined, direct and visible” interventions to revitalise growth.

Mooting a low-tax, low-interest regime that puts more money in the hands of the people, the BJP promises to double the threshold for personal income-tax exemption to Rs 3 lakh, as well as exempt interest on bank deposits by individuals. Pension receipts will be made tax-free as well. “Good governance, development and security, these summarise our promises,” said the BJP’s prime ministerial candidate, LK Advani.

Competing with the Congress in poll pledges, the BJP promises an array of populist measures including 35 kg of foodgrain for the poor at Rs 2 a kg, farm loans at 4% and an income-tax-free regime for soldiers and paramilitary forces. However, for a party that made a strong case for disinvestment, the document is conspicuously silent on the subject.

Like the Congress, the BJP also promises a goods & services tax, but has specified a rate of 12%-14%, which economists say point to a hike in service tax, excise and Vat. For India Inc, it has promised to scrap the fringe-benefit tax and rationalise the minimum alternate tax. As a fiscal stimulus, the party vowed to put infrastructure projects on the fast track, with at least 15-20 km of new highways every day.

Taking a pot shot at the Congress’ handling of the Satyam Computer Services scam, the BJP manifesto says: “Regulatory bodies, which are supposed to monitor the performance and balance sheets of companies, will be strengthened to prevent corporate fraud that dents India’s image and has a direct impact on the market and investors.”

The manifesto does not say how these sops would be financed, except for promising to repatriate back black money stashed away in overseas tax havens. Advani has already raked up the issue of illegal money in foreign banks, saying that its retrieval could result in funds of Rs 4 crore for each village in the country for infrastructure projects.

“While the BJP’s economic agenda is more specific than that of the Congress, there shouldn’t be too much difference between the two parties on actual implementation. The UPA was leaning more towards social sector projects to revive the economy and the BJP seems to be making up for it,” said Sonal Varma, economist at Nomura.

Poll dance

Poll dance
The Financial Express, April 4, 2009, Page 4