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Tuesday, July 22, 2014

FM: 4 PSUs to shut, more under watch

The government on Tuesday said four public sector companies which cannot be revived will be shut down. Finance minister Arun Jaitley asked others to shape up to deal with free competition in an era when state-run firms have lost monopoly rights and preference, marking a clear shift in the Centre's policy .

In the case of seven other PSUs, Jaitley told Parliament that the government was trying to revive them via disinvestment and the joint venture route. His stern statement means the government is ready to bite the bullet on controversial reforms to repair public finances and put the economy on a higher growth trajectory .

The minister said that 79 central public sector enterprises have incurred losses, of which 49 are sick. At the same time he said there are 19 that have turned around, indicating that there will be an effort to revive the viable ones that remain competitive.

Coming days after the finance minister said that being pro-business does not amount to being anti-poor, Tuesday's statement is being seen as a signal that it won't be business as usual in matters of economic policy.

For a decade, the Manmohan Singh government had dra gged its feet on shutt ing down even termi nally sick PSUs des pite it clearly stating it as a policy goal. As a result, the governme nt kept on pumping e money to pay salaries and keep these money-guzzling enti ties alive, all for the sake of po litical expediency .

The Union finance minis ter stated that over Rs 1.57 lakh crore has been pumped into these enterprises over the past few years alone. While there had been interest from the pri vate sector in some of the units of Cement Corporation, among others, the UPA government failed to decide on the issue.

On Tuesday , finance minister Arun Jaitley urged PSUs to learn to function like private business houses in a competitive environment.
"The PSUs must learn how to function like any other business organization in a competitive environment and should not be run like a government department," he said while replying to supplementaries in the Rajya Sabha. Management of lossmaking PSUs have to be part of market economy , the minister said.

The government has also lined up an ambitious asset sale programme and aims to raise over Rs 63,000 crore by selling stakes in state-run firms. It has also outlined the need to provide managerial autonomy to blue chip PSUs to compete globally .

Sunday, July 20, 2014

RELIEF LIKELY FOR GUCCI, LVMH, APPLE - 30% Rider on Single Brand may Go 100%

The government may completely unshackle foreign investment in singlebrand retail, a sector that has seen growing interest from the world's biggest brands that have been lobbying for the scrapping of a condition they regard as a deal breaker.

Their wish could come true. The department of Industrial policy and promotion (DIPP) is considering a move to scrap the 30% domestic sourcing clause, which could result in higher foreign direct investment (FDI) inflows.
This has been viewed by many luxury firms such as LVMH and Gucci as a stumbling block as they argue that it is difficult to source high-end goods locally.

"How can luxury brands source 30% from India? It is simply not possible. Single-brand retail policy needs to be eased to allow foreign brands to invest in the country . We are working on that right now," said a DIPP official. Such a move would also free up companies such as Ap nies such as Ap ple to open wholly owned stores in India.

More than . 300 crore has ` come into this segment from overseas in the last two years, s in a depressed generating jobs in a depressed economy . The previous government allowed 100% FDI in single-brand retail in 2011 with mandatory 30% sourcing from small and medium enterprises. However, in September 2012, the government tweaked the 30% mandatory sourcing norm for FDI in single-brand retail to accommodate Swedish furniture maker Ikea, changing it to something that was preferable rather than mandatory.

However, there is still a lack of policy clarity for many companies, with their applications having got stuck at DIPP for months.

The move to completely free up single-brand retail will ease entry for brands such as Swarovski, which have had applications rejected as they wanted to house both formats — cash and carry and single-brand retail — together. India allows 100% overseas investment in both, while restricting it to 51% in multi-brand retail with conditions attached.

DIPP asked the companies to apply separately for both. Otherwise the 30% sourcing rule would apply for the cash and carry operations as well. "Most single-brand retail companies that have applied have asked the government to do away with the 30% domestic sourcing requirement, saying this cannot be implemented. Even if they source domesti

cally, there is no supervision. So after five years they could be prosecuted for non-compliance, which will create a difficult situation," said Diljeet Titus of the law firm Titus and Co.

He said luxury brands make a limited number of pieces, maybe 100 or 1,000,

and change product lines often, which makes it impossible for them to comply with the domestic sourcing requirement. "In fact, a lot of Indian real estate companies, which would cater to singlebrand players, have also requested the government to do away with this hurdle of 30% domestic sourcing to let more FDI flow in," he added.

The government is also considering a plan to allow single-brand retailers to bring in sub-brands or sell under different trademarks.

The 30% sourcing condition has also been seen as impacting investments by technology companies such as Apple as any overseas company looking to own more than 51% of a single-brand retailing venture would have to comply with the norm.

"This (removing the 30% sourcing norm) would be a positive move as companies have been slowly and steadily increasing single-brand presence in India, especially in apparel and footwear brands," said Abhishek Malhotra, a partner with consulting firm Booz & Co.

"This should make it possible for companies like Apple to open stores. We should see more such companies coming in. This was a hurdle for such companies and luxury retailers."

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