Outbound M&A deals valuation by 76% in April- Aug 08: ASSOCHAM

Global slowdown has not only cast its shadow on Its, telecom, power but also Parma as of 72 cross border outbound deals that these sectors concluded in April-August 2008, reduced their valuation by 76% as compared to 54 such outbound deals recorded in the same period in fiscal 2007, according to ASSOCHAM assessment.

The total number of outbound mergers and acquisitions during the first five months of current fiscal stood at 72 with a total value of US$ 3727.48 million against 54 deals worth US$ 15544.96 million during the same period in last year, points out the ASSOCHAM analysis adding that their was a decline in outbound M&A activities by 76.02%.

Releasing the Paper, the ASSOCHAM President, Mr. Cajon Jindal said that despite global slowdown which adversely affected IT and Its the most, a total 32 M&A activities happened between April-August 2008 of which 5 were inbound, 18 outbound and 9 domestic. This was followed by Pharmaceutical sector in which 5 inbound, 11 outbound and 5 domestic M&A took place.

In telecom, total 15 M&A activities happened of which 3 were inbound, 9 outbound and 3 domestic. In power sector, only 2 outbound and 1 domestic M&A happened. In other sectors, 21 inbound, 32 outbound and 27 domestic M&A took place. Interestingly, the pharmacy sector witnessed only 6 inbound and 5 outbound between April-August 2007 as against 4 in telecom. IT and IteS witnessed a total of 13 M&A activities between April-August 2008 of which 9 were outbound and4 domestic.

The major mergers and acquisitions occurred in pharmaceuticals, finance, telecom, IT & ITES and power sector. During the first five months of FY ’09, pharmaceutical sector topped the list with 38.69 per cent of the total valuation of M&A deals that took place in India, telecom sector accounted for 17.41 per cent, while IT and power sector accounted for 15 per cent and 8.44 per cent respectively.

Shut the ... Govt to Assocham

Taking strong exception to industry chamber Assocham's forecast that a quarter of people in certain key sectors will lose jobs in the next ten days, government on Friday said the economy is poised for the other way.

"The Deputy Chairman of the Planning Commission and my colleague Jairam Ramesh (Minister of State for Commerce) have taken serious exceptions to an Assocham report... The pace of job creation may slow down but that doesn't mean that jobs are being destroyed," Finance Minister P Chidambaram told reporters here.

The Minister further said another industry chamber FICCI too had contradicted the Assocham study, which had said that in the next ten days or so about 25 to 30 percent employees are likely to lose jobs in seven sectors including aviation, information technology, steel, financial services, real estate, cement and construction.

Chidambaram further said that 7 percent growth rate, the lowest projection made by experts, would "create more job than was done in entire NDA regime, when the growth was only 5.8 percent. Why this question was not raised when the economy was growing at 5.3 percent?"

Replying to questions on the recent report on slowing of the US economy, the Minister said, "when the world output slows down, the growth in developed countries slows down... it will have an indirect impact on India."

However, he added, "the India economy is domestic consumption and investment driven economy. Exports will play a significant role but not as much as they do in China."

Pointing out that at the moment it was difficult to estimate the impact of global economic slowdown on exports, Chidambaram said in April-August 2008-09 it grew by 35.1 percent though September showed a slight dip.

"We will see as we go along... but we are not happy that any country's economy should contract. We want all countries' economies to grow," the Minister said adding India was not happy with slowing down in the US economy. "But it is there... that's a reality," he said.

With regard to the inflation rate, which has come down to below 11 percent after four months, the Minister said, "let us hope the measures that we have taken will have an impact."

The annual rate of inflation has come down to 10.68 percent for the week ending October 18.

Replying questions on India's stand on G-20 meeting on global economy, Chidambaram said, "it is being formulated and hopefully we will be able to give some details in the next few days."

Finance Minister earlier in the week held a meeting of experts, including RBI Governor D Subbarao, SEBI Chairman C B Bhave and former RBI Governors C Rangarajan and Bimal Jalan among others, to formulate the views on global financial crisis that India would take at the G-20 meeting called by US President George Bush in Washington on November 15.

Six points to sustain high growth rate

To achieve high and sustained GDP growth rate, the Associated Chamber of Commerce (ASSOCHAM) has proposed making India a common economic market by implementing Goods and Services Tax (GST), reduction in the excise duties, rationalisation of taxes on key infrastructure, encouragement of indigenous R&D, corporatisation of agriculture and promotion of India as a global headquarter of business enterprises.

At the meeting with the officials of the Finance Ministry chaired by Revenue Secretary, P.V. Bhide, the industry chamber has stressed the need to implement GST at the earliest so that cascading effect of taxes is removed form indigenous manufacturing and services cost, transaction cost is reduced and trade and industry grow faster by taking advantage of scale economy and efficient supply chain.

The process of replacing existing complex indirect tax system by GST should be initiated in the forthcoming Union Budget by taking initial steps towards GST, according to ASSOCHAM. It has suggested that the CST rate should be reduced from 3% to 2% as a step towards creating Indian common market. Excise and service tax be integrated into Central GST during 2008-09 and sugar & textiles should be brought from special duty regime to VAT regime, ASSOCHAM adds.

The ASSOCHAM delegation says that the manufactured goods are still quite expensive. Therefore, a reduction in the excise duty rate to 12% will make them affordable to larger population and will boost their demand, accelerating the manufacturing sector’s growth with minimum impact on revenue. Such reduction will also align the tax rates under excise and service tax, facilitating their integration under Central GST. The excise duty rate on automobiles should also be moderated by removing the special excise duty on this sector, the chamber says.

To upgrade the country's infrastructure significantly to sustain economic growth, ASSOCHAM President Venugopal N. Dhoot says that service tax and excise duty on inputs during the investment phase should be exempted from tax or refunded. Tax may be collected once the projects are put to use and start earning revenue, he adds.

At present, a large number of Indian companies are investing overseas for profitable growth and strategic advantage. Any dividend remittance by such foreign companies to India attracts full tax even where such profit from which dividend is remitted has suffered tax in the host country. This has led to Indian companies setting up head offices abroad or parking funds overseas.

Many countries exempt such dividend where the shareholding is substantial (20% to 40%), ASSOCHAM says. India should promote itself as a headquarter of business enterprises and retain long term capital in India by exempting dividend remitted by foreign subsidiaries or associates with 40% or more investment, it adds. Alternatively the tax paid on profit from which dividend is declared should be given credit.

ASSOCHAM suggests the creation of an Agriculture Economic Zone on the line of SEZ, in order to achieve the agriculture growth of at least 4% on the sustainable basis. The Government will have to ensure adequate investments in the areas like pre & post harvest management, food processing, export promotion related activities, specific crop related activities and application of the R&D to the agricultural production, the chamber adds.

In order to ensure that there is adequate quality produce, investment in irrigation, transport, rural electrification and telecom will be required apart from pre and post harvesting activities, feels ASSOCHAM. This will help develop rural infrastructure as well as provide employment to people engaged in agriculture, it adds.

For a strong research base and pool of intellectual properties, ASSOCHAM proposes that scientific research in emerging sectors like bio-technology, nanotechnology, industrial deigns, IT, telecom, food processing, medicines and engineering should be given favourable tax treatment under direct and indirect taxes to encourage such activities and the double taxation of intellectual properties under service tax and VAT regime should be discontinued.