1. Economy
As a countermeasure, India hikes import duty on 29 US
products
A
Finance Ministry notification said the duty hike would come into effect
immediately for 28 products, while for the marine product, artemia, the
increased duty would be effective from August 4.
In a
retaliatory move against the recent US import duty hikes, India on 21 June 2018
raised customs duty on 29 products, including on iron and steel products
imported from the US.
In
March, US President Donald Trump slapped import tariffs of 25 per cent on steel
and 10 per cent on aluminium, unfolding the prospect of an all-out global trade
war. China retaliated in April, imposing tariffs as high as 25 per cent on 128
American products.
India
has sought an exemption from the US tariffs along the lines the US has allowed
to the European Union, Argentina, Australia, Brazil, Canada, Mexico and South
Korea.
In
Thursday’s hike by India, duty on flat rolled products on iron has been raised
to 27.50 per cent from 15 per cent earlier, while certain flat rolled products
on stainless steel will now attract 22.50 per cent duty as against 15 per cent
earlier.
Import
duty on chickpeas, Bengal gram (chana) and masur dal has been increased to 70
per cent, from 30 per cent earlier, while that on lentils has been raised to 40
per cent from 30 per cent.
Shelled
almonds from the US will now attract import duty at Rs 120 per kg, as compared
to Rs 100 earlier. Almonds in shell will now be levied import duty at Rs 42 per
kg as against Rs 35 earlier.
Shelled
walnut will now attract customs duty at the rate of 120 per cent, as against 30
per cent earlier.
Apples
will attract import duty of 75 per cent as compared to 50 per cent earlier.
Import
duty on American phosphoric acid has been raised to 20 per cent, from 10 per
cent each earlier, while the duty on diagnostic reagents has also been doubled
to 20 per cent.
Customs
duty on artemia, a type of shrimp, has been hiked to 30 per cent with effect
from August 4.
For
automobiles and earth moving equipment, SIM sockets and other metallic
mechanical items for use in manufacture of mobile phones, the duty has been
hiked to 25 per cent, from 15 per cent previously.
During
his official visit to Washington last week, Commerce Minister Suresh Prabhu
said that India and the US had agreed to hold official talks soon to address
the trade and economic irritants between both nations.
This
decision was taken during a series of meetings Prabhu had with US Commerce
Secretary Wilbur Ross and US Trade Representative Robert Lighthizer in
Washington during the Indian Minister’s visit from June 10 to 12.
(Source: International Business Times dated 21.06.2018)
Sistema exits Reliance Communications; sells its 10
percent stake
Russia’s
Sistema JSFC has become the latest foreign operator to exit the troubled Indian
telecom market, by selling its 10 percent stake in Reliance Communications in
multiple tranches over the past few months. The Russian conglomerate has
reportedly lost $ 4 billion on its investments.
Sistema
JSFC is believed to have decided against the idea of buying RCom’s remaining
telecom assets, comprising subsea cables, enterprise business and data centres,
following the divergence of opinion with the Anil Ambani-led telco.
Sistema
JSFC decided to exit RCom after the struggling telco recently got entrapped in
insolvency proceedings. It decided against making ambitious investments in
India’s brutally competitive and fast consolidating telecom market, having
already burnt its fingers.
In
October 2017, Sistema Shyam Teleservices (SSTL) was sold to Reliance
Communications in return for a 10 percent stake. RCom has also since closed
down its wireless business amid plunging revenue and mounting losses due to
intense competition, and operates only an enterprise business, besides running
data centres and sub-sea cables.
At the
time of the merger of RCom-SSTL, RCom shares were hovering at Rs 80 apiece in
early November 2015 but collapsed to around Rs 17 when the deal was finally
completed in late October 2017.
On
Wednesday, it gained over 4.8 percent over the previous close to end at Rs
15.30 apiece on the Bombay Stock Exchange. In past months, Sistema has
gradually reduced its stake in RCom. It lowered its stake to 7.09 percent by
letting minority shareholders swap their shares with those of RCom in March.
In
April and May, it sold off a further 2.1 percent and 0.55 percent respectively
in the open market, lowering its equity holding in RCom to 4.43 percent. The
development was seen on the expected lines as the telecom sector in the country
is witnessing a huge consolidation and stiff competition.
The
entry of Reliance Jio by offering attractive discounts on calls and data has
violently disrupted the entire telecom markets. The competition is expected to
become stiffer in the upcoming days.
(Source: International Business Times dated 21.06.2018)
2.
Regulation
Auditor Exodus: When the regulator does its job, it
cleans the system!
Even
as investment experts are busy totting up the number of auditors that have
resigned this financial year (37 at latest count, according to Prime Database),
the big audit firm that triggered such an exodus, is facing the whiplash of
regulatory action around the world. On 13th June this year,
PricewaterhouseCoopers (PwC) was fined £6.5 million and severely reprimanded
for admitted misconduct, by the Financial Reporting Council (FRC), UK’s (United
Kingdom’s) accounting regulator.
PwC’s
audit partner, Steven Denison, was fined £325,000 and was banned from audit
work for 15 years. This was over the audit of BHS, a department store chain,
which collapsed a year after the PwC signed off on the audit in 2016. PwC, on
its website, accepts and apologises for “serious shortcomings with this audit
work,” but says that its “failings did not contribute to the collapse of BHS
over one year later…” The regulator has also asked PwC to ensure that all
audits of non-listed or high-profile companies are subject to ‘engagement
quality control review’.
PwC,
as expected, has contested the order and its global chairman, Robert E Moritz,
has complained to the media about our slow legal processes, and how the firm
has moved on after the Satyam scam and made amends. But, it is in for another
long battle, while the damage to its business is immediate. The SEBI action has
been a body blow, because it has come at a time when all major consulting firms
have seen their business boom in the past four years. The impact of SEBI’s
order is so huge that industry sources say some senior partners are looking to
exit the firm. No wonder, getting rid of shady accounts is clearly the first step, for PwC as well as other accounting
firms.
The
lesson from this widespread reaction to SEBI’s action is not unique. It is a
well-accepted principle of law that exemplary financial punishment has a
salutary impact on the entire system. The effect of SEBI’s action across
corporate India only proves this. On the other hand, reputational damage
doesn’t bother large companies as much. They have become adept at countering it
through image and media management. Their large advertising and PR budgets and
ability to sponsor media events makes this a cakewalk. If SEBI sticks to its
tough stand, chairman Ajay Tyagi would have triggered the biggest clean-up of
corporate balance sheets in decades. If he succeeds in his fight to get banks
to report corporate defaults immediately to stock exchanges, he would create
history in terms of improving corporate governance and accounts.
Ironically,
the Ministry of Corporate Affairs (MCA) has, finally, woken up to its own role
in regulating audit firms and has constituted an inquiry into the reasons for
the flood of resignations in June. Meanwhile, media reports attribute the exits
of auditors to three other factors apart from the SEBI’s order against PwC.
They are: 1) the possibility of forensic audits being ordered under the
Insolvency and Bankruptcy Code; 2) auditors having to explain exits following
recommendations of the Kotak Committee on Corporate Governance; and 3) the fear
that the National Financial Authority of India (NFAI), as a brand new
independent auditor, will be much tougher than the Institute of Chartered
Accountants of India (ICAI).
But
these reasons are too vague to even trigger a renunciation of business by any
audit firm. My own feedback from industry experts is that the SEBI order
against PwC is the single biggest reason for the so many auditors ditching
companies that they are not comfortable with. Ameet Patel, a well-known chartered
accountant, points out that many audits were taken up without proper due
diligence and the companies have now started waking up to the risks involved.
R.
Balakrishnan, former fund manager, investment analyst and Moneylife columnist,
also agrees that fear is the key. “Finally there is punishment. Auditors who
were friends with companies and signed first and read the accounts later have
turned cautions,” he says. Nikhil Vadia, another reputed tax expert, has an
additional point. He says, “Rule 9 of the Companies Audit and Auditors Rules
2014 has been dropped on 7 May 2018. Under this rule, the liability for an
audit (including criminal liability) would devolve only on the specific partner
who acted in a fraudulent manner. After the rule has been dropped, the
liability devolves on the entire firm and all partners are liable.” This, along
with the SEBI action in PwC, had triggered the auditor exits.
Top
Auditor Exits: 37 and Counting in 2017-18
– Price
Waterhouse & Company (PwC) resigned from Vakrangee Limited citing
inadequate information on several matters provided by management.
– Deloitte Haskins & Sells resigned as auditor of Manpasand Beverages also
saying ‘significant information’ sought by it was not provided.
– PwC
resigned from Atlanta Ltd, a
construction and infrastructure company.
– Sai
Kanwar and Associates resigned from Fourth Dimension Solutions citing health
reasons.
– V.
Shivkumar and Associates were disqualified by ICAI.
– Ravindra Sharma and Associates quit Hanung Toys due to “preoccupation with
other assignments”.
– Patankar & Associates quit as auditors of Inox Wind on 9 June saying it was
‘logistically difficult’ to continue
the audit.
A top
international consultant says, after SEBI’s action, most big audit firms have
begun to believe that it is best to resign even if there is a whiff of an issue
with a company. He also points out how this is bad for companies because if the
auditor resigns they are “presumed guilty and have to prove their innocence.”
In fact, there is another lesson here.
SEBI’s
order in the PwC-Satyam case has had a bigger impact than all the mindless
red-tape and form-filling that it has introduced after three corporate
governance committee reports that it commissioned over the past two decades. In
fact, SEBI’s corporate governance rules have placed such onerous
responsibilities on independent directors and audit committees (although it is
a open secret that they have no real truck with the actual working and
management of a company) that it has only created more business for more audit
and compliance experts that the board relies on. This imposes additional costs
on listed companies.
Finally,
there is the issue of timing. A new round of discussions on corporate
governance, action against PwC in India and UK, and the changed regulatory
oversight on Indian auditors — all have come in the space of a few months,
leading to a significant impact. It could well be the beginning of a
much-needed strong oversight on companies that statutory auditors get paid to
perform on behalf of shareholders, but have rarely done.
(Source:
Moneylife News & Views dated 15.06.2018)
