The imposition of a floor price on steel imports, has had two impacts primarily on the level of imports and secondly on the price. With absolutely no bookings coming from importers in the past two months, the net steel imports fell below 500 tonnes in Feburary from an average monthly import of 15,000 to 20,000 tonnes. Presently the only people booking import orders are those who have advance export licenses. In addition the banks are not willing to open L/C accounts for steel imports below the floor price.

According to the traders, the imposition of a floor price on both prime grade and seconds--has also not affected prices significantly. While initially, the manufacturers hiked prices of the entire range of steel products by 5-10 per cent, the euphoria was short lived.

SAIL continues with the tender method of selling which acts as a major deterrent to any price hike by other manufacturers. Today, despite steel prices being 20 per cent to 30 per cent lower than the landed price,most manufacturers are reluctant to hike their selling price by more than 5 per cent to 10 per cent.

Thus while, the floor price has only managed to stop the imports of steel in India. It has been unable to substantially raise prices for steel products except for grades not adequately produced in India for electrical grade steel. Since imports contributed only 10 per cent of the total production such a scenario does not mean that the Indian steel industry is better off than it was a few months back.

Now with global steel prices on the rise, it is unlikely that the panic selling of last year (when traders had built in excess stock in anticipation of improving prices) would be repeated. On the contrary cuts in production by Japan, Korea and the increase in demand from the Europe and the US would only push steel prices further up--which again brings us back to the same question, as to why do we need a floor price at all?

Tata Chemicals

The Income-Tax Appellate Tribunal (ITAT) has allowed TataChemicals a deduction of Rs 86.42 crore, for payment of interest u/s 36(1)(iii) of the I-T Act for the financial year 1991-92. This has given rise to excited speculation about the company benefiting immensely, since it has a claim of Rs 350 crore, despite the matter still pending before CIT(A). However, this optimism, is misplaced.

First, if one reads the facts of the case, it is quite obvious that 36(1)(iii) was applicable. In CIT(A) v Mehta Soap Factory, the Pune bench of ITAT allowed a deduction of interest on the goodwill amount payable to retiring partner. In a Sutlej Cotton Mill's case (60 TTJ 1), the Delhi bench had allowed the deduction for loans advanced to subsidiaries for strengthening the financial position of subsidiaries, with which the business prospects of the holding company were inseperably linked.

One can also refer to the judgement of the Calcutta high court in the case of United Supply Agency, where it was held that unless it could be proved that the borrowings were completelyunrelated to the purpose of business, interest cannot be disallowed.

Thus, the decision of the ITAT may result in CIT(A) issuing an order in favour of the assessee. However, the department in the past has prefered appeals on matters on which Supreme Court judgements in favour of assessees is available. But even the decision of the tribunal will be appealed against in the high court. In any case, a refund is a distant dream. Very recently a foreign bank which had a due of Rs 120 crore (no appeal is preferred) was informed that payment will not be made before March 31, 1999. At least one more case is known where despite the judgment of tribunal going in favour of the assessee in a slump sale transaction (again not appealed against), a refund has not been given for two years. Which makes the possibility of a refund seem more bleak and this case will not be any different.

SmithKline Beecham Pharma

News reports suggests, that a result of the revision in the list of life saving drugs (that attractedzero per cent import duty in the recent budget), would be a 35 per cent increase in the import duty of the Hepatitis-B vaccine, with an additional surcharge of 10 per cent. If this is the case, SmithKline Beecham Pharmaceuticals, which is the largest player in the segment is likely to be the worst hit. SmithKline's product Energix-B with sales of Rs 68 crore contributed nearly 25 per cent of its turnover in 1998.

The other players in the industry Shanta Biotech with its product Shanvac-B and Bharat Biotech with its product Ranvac, manufacture the vaccine inhouse. Further, their products were priced much lower than that of the MNC. In addition to this Wockhardt is planning to launch its Hepatitis-B vaccine in April, which will further intensify competition. Industry sources say that if SmithKline increases the price of its product, most of the orders from the Government could in all probability be bagged by the two small existing players.

On the positive side for the sector, industry sources say thatcompanies which had entered into the fast growing Hepatitis-B segment (50 per cent growth rate), with plasma derived vaccines have now backed out. Largely because it was believed that a person who recieved plasma-derived Hepatitis-B vaccines, risked infection with other blood borne viruses carried by the vaccine. However, the market share of plasma derived players was very samll. Thus given this scenario, how SmithKline Pharma handles increasing competition and higher input cost without affecting its profitability would be of interest.

Emcee (With contributions from Manish Saxena, Urmik Chhaya and Shishir Asthana)