Electronically Yours

Bulletin No.18	February, 2006
Monthly News Update of IACC- H.O.
From President's Desk
B Prabhakar National President, IACC	The Indo- US economic and political relations are entering an exciting phase. There are many pointers like the ongoing debate on nuke, forthcoming visit of President Bush to India, groundswell of economic activities etc which have given a new direction and purpose to the relationship between the world's largest two democracies. IACC has been in the vanguard for cementing the economic relationship between the two countries. It is gratifying to note that most of the Fortune 500 companies based in US now have their operations in the India. Many of them, of late, are engaged in enhancing and diversifying their operations. In Information Technology, India and the US continue to be the trendsetters and breaking new ground in low and high end operations. The two countries are gearing up for co-operation in the field of airlines, retail trade, insurance and R&D in frontier areas like nano technology, pharma, biotech etc. Then the natural question that arises is where do we lag behind? One critical area that we have to focus more is SMEs. It is a fact that not many US small and medium enterprises have invested in India. Perhaps, this segment in both the countries has shied away from investing in each other's country because of logistics reasons. But SMEs contribute more than 40 per cent of exports of both countries and the exact figure of their imports, particularly capital equipment and machinery are not well documented. It could be a sizeable of total imports. That would mean that SMEs in both the countries are exporting to and importing from each other's country through intermediaries. That should end and there should be direct engagement and involvement.
IACC FOR ABOLITION OF LUXURY TAX ON HOTELS New Delhi Tuesday 31st January 2006 The Indo-American chamber of Commerce (IACC) has suggested abolition of State luxury taxes imposed on hotel rooms since that will give critical boost to the tourism industry in India. Presently, luxury tax on hotel rooms are imposed by different States and the rates vary from 5to 20 per cent. Some States charge on actual rates and others on the rack rates. The result is that the tourism industry suffers. Ideally, this tax has to be abolished. If by any consideration including from the point of view of revenue, it cannot be abolished, there should be a uniform tax of 5 per cent and that should be on the actual rate and not on the rack rate," says IACC A uniform policy on tourism can be pursued only if the Centre is empowered to legislate on the tourism related matters. Presently, tourism sector is under the State List. It is necessary that a statement of intent for bringing tourism under either Concurrent List or Central List is spelt out in the Budget 2006-07, to pave the way for the balanced growth of the tourism sector, maintains IACC. IACC has pointed out that dual tariff imposed on the hotel rooms should be abolished. Presently, despite Central Government's direction to have only a single tariff for both residents and non residents and all payments have to be transacted in Indian rupee, the airlines, hotels, restaurants and monuments under ASI are insisting that the foreigners should pay in dollars. This practice should be discontinued. IACC has also pitched for increasing the plan outlay for tourism sector. In the Budget 2005-06, tourism sector was allotted Rs 796 crore. This meager amount is inadequate for tourism promotion in the country. Taking into consideration the aggressive marketing that has to be pursued for packaging tourist destinations in the country, the allocation for tourism in the Budget 2006-07 should be enhanced to at least Rs 2000 crore. The domestic airfares in India are still very high due to excise duty and exorbitant rate of sales tax on the ATF. The average sales tax rate being charged is around 25 per cent. It is cheaper for an Indian tourist to travel abroad than traveling in his/her own country. This situation should change and air travel within India should be made cheaper. IACC Delegation In its continuing effort to give a new direction and purpose to the Indo-US economic relations, particularly for promoting trade, joint ventures and technical collaborations in various fields, the Indo-American Chamber of Commerce is sponsoring a business delegation to US. The 15- member delegation will visit US from 25th February to 10th March 2006 and will cover primarily four States viz Indiana, Washington, Oregon and Idaho. The focus areas of the delegation are Electronics Equipment, Financial services, Nano & Bio - technology, healthcare, medical and hospital equipment and services, infrastructure-ports, roads and airports, consumer and food products-wine, cheese etc and tourism and education. The delegation will have interface with the respective State and federal Government officials, industrialists, small and medium enterprises, professionals etc. For more information, please log on to www.indous.org
Policy framework
Legal Off shoring	India will receive 60 per cent of around 40,000 legal jobs outsourced by the US by 2010. When the quantum of these jobs is expected to nearly double by 2015, the country's share would go upto 70 per cent. Legal service is a US $200 billion industry in the US alone, while Europe's is of a similar nature. Even fresh lawyers there demand anything between US$ 250,000 to US$ 300,000 per annum compared to US$ 6,000 to US$ 15,000 in India. (Times of India, January 27, 2006)
US-India Tax Practitioners	At the first ever joint session of India and US branches of International Fiscal Association (IFA) held in New Delhi, there was a general consensus that a paper should be prepared for resolving tax disputes in a fast track. Setting up an ADR mechanism for resolving Income Tax disputes could address to this issue. He also pointed out that a number of US investors are concerned over the long drawn out litigation process in India. (Business Line, dated January 24, 2006)
Policy framework
Pirate case	The US has offered India full assistance to prosecute pirates who allegedly took over an Indian marked dhow (wooden ship) off the coast of Somalia on January 20,2006. the dhow was intercepted and boarded by US sailors on January 22, 2006 following a signal that it has taken over by pirates. (Indian Express, Mumbai, dated 4th February 2006)
Corporate Updates
TCS to Buy Life science Service firms in US	The life sciences and healthcare services division of Tata Consultancy Services is scouting for major acquisitions in US. The company is learnt to have initiated talks with a few leading US based software companies in the pharma and healthcare space and is likely to finalize a couple of deals in the coming days. The investment in such deals is going to be substantial. (Business Standard, New Delhi dated 24th January 2006)
Dabur to Tap US Personal Market	FMCG major Dabur India is eyeing the lucrative private label business in personal care products making a foray in the US market. The US$ 5 billion private label business will allow Dabur to manufacture toothpastes for global retail chains and foreign companies, which will e sold under the brand names. (Times of India, New Delhi, dated 4th February 2006)
US VC puts money in Info Edge India	Klerner Perkins Caufield and Byers (KPCB), a venture capital firm that has made investments in Amazon, Goggle, and Netscape etc completed a round of equity funding for Info-Edge, the company behind naukri.com (Internet)
People to People
Indian American Doctors in community service	Ten Indian American doctors are to establish ambulance service in Mumbai to provide crtitcal care to accident victims during the golden hour when most lives can be saved. The Hinduja Hospital will be the nerve center for the Rs 140 million project, which has an annual recurring cost of Rs 40 million. (Internet)
US Sees Ally in India	A new defence strategy document identifies India as an emerging great power and a key strategic partner and notes that the choices of three countries- China, Russia and India-will be key to global security environment in the 21st century. While the report treats China as a potential country to compete militarily with the US, India is treated as a strategic partner and Russia as a country in transition. (HT, New Delhi dated February 5,2006)
India Now testing center for Nurses	India has been finally been declared as a testing center for nurses going to the US. The US based National Council for State Boards of Nursing is likely to zero in on Kerala to hold the National Council Licensure Examination (NCLEX) for registered nurses as the State government has been vigorously presenting India's case. (Economic Times, New Delhi, dated 4th February 2006)