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The rupee sliped to 60.4550/46 from previous close of 60.4335/4450.Dollar index, a basket of currencies traded against the greenback, hits 13-month high.But rupee supported as FIIs bought a net $105 million of debt on Monday and $60.4 million (provisionally) in shares on Tuesday.The Nifty is trading up 0.38 per cent, nearing record highs.(Reuters)
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India's fiscal situation is worse than it appears, Prime Minister Narendra Modi's government said in an economic report on Wednesday (9 July) that called for tough measures to shore up public finances and reduce inflation.The finance ministry delivered the annual economic survey - prepared by senior economic advisor Ila Patnaik - on the state of Asia's third-largest economy a day before Modi's new government presents its first budget.Following are highlights of the report:Fiscal DeficitIndia needs sharp fiscal correctionFiscal situation of the central government is worse than it appearsNeed for subsidy reforms for fiscal consolidationRecommends raising tax-to-GDP ratio for fiscal consolidationShortfall in revenues can be contained through better mobilisation and reformsGrowthGDP growth seen at 5.4-5.9 percent in 2014/15Economic growth of 7-8 percent not seen before 2016/17Downward risk to economic growth due to poor monsoon, external factorsInflationGovernment needs to move towards low and stable inflation through fiscal consolidationWholesale Price Index (WPI) inflation expected to moderate by end-2014Consumer Price Index (CPI) inflation showing signs of moderationNeeds to create a competitive national market for foodCurrent Account Deficit2014/15 current account deficit may be contained to around $45 billion or to 2.1 percent of GDPExternal debt remains within manageable limitsBalance Of PaymentsImprovement in balance of payments position during late 2013-14 was swift thanks to import restrictions and economic slowdownNeed to adjust to advanced economies' eventual exit from accommodative monetary policy stanceSubsidies Rationalization of subsidies such as fertilizer and food essentialNeed to shift subsidy programme from price subsidies to income supportTaxationGovernment needs to move towards simple tax regime, fewer tax exemptions and single rate of goods and services tax (GST)GST to play vital role in indirect tax reformDirect Taxes Code (DTC) required to replace existing income tax laws; will reduce compliance costs and boost tax collectionForex Market*Intervention in forex market by Reserve Bank of India is behind accumulation of reserves "generally"Report Comments"India needs sharp fiscal correction ... Improvements on both tax and expenditure are needed to obtain high quality fiscal adjustment." "It is better to achieve fiscal consolidation partly through a higher tax-GDP ratio than merely through reduction in the expenditure to GDP ratio, in view of the large unmet development needs.""Restoring economic freedom of farmers and allowing them to be part of a competitive national market is essential for controlling food inflation."(Reuters)
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With the BJP government firmly in the saddle, things are already beginning to look better, and indeed, even in the short time that the government has been in place, the feel clearly is that the government is decisive.With the Union Budget round the corner, there are a whole host of expectations and one aspect which has been relatively 'under the radar' is relating to corporate restructuring. In the context of corporate restructuring, often generated by the need for a subsequent transaction (e.g. hiving of a division from a company into another company, to facilitate a JV) or changing the form of a business entity (e.g. conversion from company to LLP) to avoid the over burdensome requirements under the Companies Act 2013, or indeed merging two companies in similar businesses, there is an urgent need to look at the overall framework to make corporate restructuring less painful, primarily from a tax standpoint.An example is the cumbersome provisions u/s 2 (19) (AA) of the Income Tax Act, which requires, as an example, demerger at a book value. One fails to understand the need for this, because depreciation is anyway permitted on the WDV of the block in the hands of the transferor company (in demergers, incidentally, the Companies Act also contains this provision which makes the situation even worse, in the sense that even if one is willing to pay the tax, one cannot do a demerger at other than book value). Similarly, there are several restrictive conditions on setting off of losses in the context of company amalgamation. A large number of companies want to convert into an LLP, not just, (as the tax department believes) for avoiding dividend distribution tax (the actual quantum of dividends distributed are often quite small, even if the profits are large), but often to avoid overly cumbersome compliance requirements under the Companies Act (even, under the earlier Companies act) as, the flexibility of funding by infusion and extraction of capital, which is not really a tax issue. However, the condition of a 60L limit for tax neutrality on conversion is a major deterrent.To sum up, very often, corporate restructuring does not involve any change of economic interest and it would be worthwhile for the government for considering making such conversions tax neutral without providing too many needless conditions and fetters.The author is senior tax partner of PwC India
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Retirement fund body EPFO on Tuesday (26 August) announced 8.75 per cent rate of interest on provident fund deposits for the current fiscal, a move which would benefit its over five crore subscribers across the country.The decision to retain interest rate of 8.75 per cent was taken at a meeting of EPFO's apex decision making body the Central Board of Trustees chaired by Labour Minister Narendra Singh Tomar here in the capital."EPFO will provide 8.75 per cent rate of interest on PF deposits for 2014-15," Tomar told reporters after CBT meeting.As per practice, now the Employees' Provident Fund Organisation's (EPFO) trustees' decision would be implemented after the concurrence of the finance ministry.EPFO's Central Provident Fund Commissioner K K Jalan said, "The benefit under the Employees' Deposit Linked Insurance (EDLI) Scheme would be increased to a maximum sum assured of Rs 3.6 lakh from existing Rs 1.56 lakh."The sum assured under EDLI is provided in proportion to monthly wage ceiling which is Rs 6,500 at present. It would be enhanced to Rs 15,000 per month soon.Senior Labour Ministry officials present in the meeting apprised the board that the notification regarding enhancement of wage ceiling has been sent to press after Law Ministry's clearance and will be reality soon.They also told that the notification providing minimum monthly pension entitlement of Rs 1,000 under the Employees' Pension Scheme run by EPFO will also be notified simultaneously. After notification, around 28 lakh pensioners getting less than Rs 1,000 per month would immediately benefit.At present all those employees with basic wages of up to Rs 6,500 per month at time of joining, can become member of EPFO schemes. Now with increase in wage ceiling around 50 lakh more workers are expected to come under the ambit of EPFO.The minister also revealed that the board has decided to appoint credit rating agency CRISIL as consultant for the third time to engage new fund managers and evaluate their performance for three-year term beginning April 1, 2015. (PTI)
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Farmer Ranganath Watpade made a killing last year by putting off selling his onions until four months after he harvested them. This year, the same trick has backfired.The country has produced a record harvest, but many farmers in the onion bowl of Maharashtra have lost a large share of their crop damaged in storage, adding to the country's inflation woes.A doubling in retail prices across major cities is especially troubling for staples such as onions, an ingredient that is present in just about every Indian meal.Unseasonal weather, hoarding and price manipulation have in the past led to dramatic price rises, and the new administration of Prime Minister Narendra Modi is anxious to avoid the political fallout that has hit other governments over the cost of the food.Supply shocks like these complicate the government's task of battling weak growth and inflation. It also underlines the irony of high food costs in India, which after China is the world's biggest fruit and vegetable producer.Finance Minister Arun Jaitley's budget on Thursday (10 July) will have to navigate through these issues as he must address inflation while steering away from populist measures such as food and fuel subsidies. Annual wholesale prices in May rose to a 5-month high of 6.01 percent.Importing onions would be the only effective way to curb soaring prices, agriculture experts say, but similar steps in the past have failed to ease supplies."The only solution is imports, but that can't be done overnight," said R.P. Gupta, director at the National Horticultural Research and Development Foundation (NHRDF).Prices are unlikely to calm before December. Planting of the new season crop has been delayed by scorching heat and subdued rainfall, blunting the affect of emergency measures by the government aimed at getting supplies to market and keeping a lid on prices."At the time of storage the bulbs looked good, but as I started pulling them out last week I realised that the ones at the bottom of the heap were rotten," said Watpade, 62.On a recent visit, most farmers from this tiny village 200 km (125 miles) north of Mumbai were busy picking rotten onions from stocks piled up in fields or in makeshift sheds.In spite of the experience in Watpade's village, India's onion production was estimated at a record 19.3 million tonnes in the year ending June 30, up nearly 15 percent from the previous year. But that has been too little to calm prices.No Quick FixHeavy rains in March also hit the crop grown for seeds, making quality seeds scarce for planting in the current season."Last year the seed price was Rs 400 ($6.70) per kg. This year the price has jumped to Rs 1,700 per kg. And even at this price, we are not getting quality seed," says Sampat Watpade, another local farmer who has cultivated onions for four decades. The two farmers are not related but, as is often the case in Maharashtran villages, they share the same family name.Higher seed prices and now a subdued rainfall during the monsoon season are likely to reduce the area under summer-sown crops, says Gupta of the horticultural foundation. Even crops that are planted will have lower yields, he said.Rains have been 42 percent lower than normal since the June 1 start of monsoon season, but in Maharashtra the shortfall has been 72 percent. The lack of water has sharply reduced the amount of seedlings grown in nurseries for transplanting.The planting delay will cause severe onion shortages from August to November, a festival period in the South Asian country when demand will rise, said Changdev Holkar, a director at the National Agricultural Cooperative Marketing Federation (NAFED).Trade MeasuresThe government has curbed exports, urged state governments to crack down on hoarding and let farmers sell onions directly to consumers. Such moves may curb speculation, but will not increase supplies, said Holkar."Since the crop has been lost and planting has been delayed, supplies will remain tight until December."Indians eat 15 million tonnes of onions a year. The country exported 1.36 million tonnes of onions in the year through March 31.Last year, India imported a few cargoes of onions from Iran, Afghanistan and China. But large-scale imports are not possible as few producers have big enough surpluses to meet India's demand."India is considered to be an exporter. If it starts large-scale imports, then prices will gallop in the world market and imports would become uncompetitive," said Holkar of NAFED.(Reuters)
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India's economy likely grew at its fastest in two years between April and June, according to a Reuters poll, as improved sentiment after Narendra Modi's election victory in the middle of the quarter coincided with a rebound in investment, manufacturing and construction.Prime Minister Modi is expected to deliver major reforms, but the lack of progress on that front, along with poor monsoon rains is expected to hamper the recovery in growth from worryingly low levels.Asia's third largest economy likely grew 5.3 per cent in the first quarter of this fiscal year (April-March), up from 4.6 per cent in January-March, according to the median consensus of over 40 economists surveyed by Reuters last week.That would be the fastest since the quarter that ended in March 2012 and reflects the upturn in factory activity during recent months. Official gross domestic product data is due to be released on Friday."Capital goods, a leading indicator for investment activity, logged a significant 13.9 per cent rise in output in the first quarter of FY15," said Aditi Nayar, Senior Economist at ICRA.Indian manufacturing activity grew at its quickest pace in 17 months in July as order books swelled, marking the ninth consecutive month of expansion according to the HSBC Purchasing Managers' Index (PMI) survey, compiled by Markit.And factory production grew for the third straight month in June.Economists however did not significantly change their growth forecast for the 2014-15 fiscal year, with the average at 5.4 per cent.For all the hopes invested in Modi's government, economists cautioned that the economy's momentum depended on reforms that could prove difficult to pass through parliament.Despite is massive majority in the lower house, the government lacks a majority in the upper house and it has so far failed to initiate major reforms, and has been confined to taking minor steps to encourage saving and investment."Additional reforms are required to ensure that a sustained and broad-based recovery takes root," said ICRA's Nayar.The poll also showed India's current account deficit likely widened to $7.1 billion in the April-June quarter, compared to a deficit of $1.2 billion in the previous three months, after restrictions on gold imports were lifted.In percentage terms, the current account deficit probably widened to 1.50 per cent of gross domestic product against 0.20 per cent in Jan-March quarter.India's Finance Secretary Arvind Mayaram said last monththat India needs to keep its current account deficit between 2.0-2.5 per cent for 2014/15.(Reuters)
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Not long ago, in a small town, there lived three men who had no names. The first one was a dreamer. He followed his heart and chased his dreams. No matter how hard the struggle, he never gave up and always emerged stronger than before, and passed away in content that he had lived his dreams to the fullest. He was known for what he did and the people of the town were full of respect for him and engraved this on his gravestone: Somebody. The second one too had his own dreams, but he didn't muster the courage to follow his heart. Soon he gave up his dreams to live a compromised dream. He had his ups and downs but it only made him tired and weak as he could not be enthusiastic about a dream that had not been entirely his. There were so many people like him in that town, so the people of the town wrote this on his gravestone: Anybody. The third one had no dreams for he was not told that he could in fact dream. He had to borrow others' dreams and call it his. Eventually, he was crumpled in the twists and turns of these dreams he couldn't fully understand. He died too, along with the countless other dreams he had taken upon himself. People could not come to an agreement on his contribution and they simply scratched Nobody on his gravestone.I stumbled upon animation as a career option in the early 2000s. I decided to become an animator, not knowing anything about animation. It was exactly like what had happened to my parents and their parents when their marriages were arranged-a blind date in both cases, with pleasant surprises all along the way! Let me tell you the whole story.I went to a residential school where the system made all the choices. As cliché is it may sound all of us had unanimously aspired to become engineers, if not doctors. None of us ever wanted to become an evolutionary biologist or an adventurous underwater camera person. Most of my extra ordinary friends became ordinary engineers and camouflaged in the crowd-to be just another brick in the wall. There must have been a somebody among us, a potential genius; only if we were encouraged to find our own calling. I was terribly lost when I said no to engineering. It was more frightening to take that dream of being an engineer, a Nobody.A few years later I was accepted to the National Institute of Design, an education system that focuses on bringing out individual expression. Students were exposed to mandatory module called 'Science and Liberal Arts' along with a chosen trade (mine being Animation). Subjects discussed in that module struck a chord in me. I was glad for the first time of having shown a direction. I felt my life had much more to offer, without which even animation would have been just a mundane exercise. The choice of consciously selecting what to communicate became more important. This liberal system of education helped me understand that one can go beyond being a Anybody. In 2011 I came across the Young India Fellowship, a complete science and liberal-arts-based experience that encourages reading, writing and participating in debates with diverse set of people with fire in their bellies. It brought clarity in me by presenting conflicting ideas, encouraged independent thinking and enabled better self-evaluation. This bridged the gap created during my school education and plays a vital role in my career. The persuasive power of films can make dramatic changes in the way the world functions hence it shouts out the importance of a holistic and liberal education among filmmakers. It provided me the necessary conditions to intellectually and creatively stimulate to be a better filmmaker. Great knowledge can possibly create a successful corporate leader, but true geniuses are born out of liberated thinking fueled with creativity and imagination. There will always be room to be Anybody or Somebody or Nobody in any society. Moreover, it is a designation that others give one in the end. However, it surely reflects the choices we have made through till that end. I am glad about those tough days at high school, for they made me independent and I took my own decisions- which triggered a journey into animation at the first place. I was at NID in pursuit of a meaningful career, and grew to redefine myself, learning from peers and the past, and cultivating promises of the future. And from those days in YIF, I have come to be comfortable with the fact that sometimes things go wrong, no matter what I do. I just need the conviction to be somebody.
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The rupee rises to 60.54 vs previous close of 60.5650/5750.Asian currencies inch up as investors expect the ECB to expand liquidity.Index of the dollar vs six majors down 0.09 per cent.Nifty flat after the Supreme Court rules government coal allocations as illegal.Finance Minister Arun Jaitley will not hold a news conference on Tuesday as originally announced.(Reuters)
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The most ambitious effort to revive manufacturing was made in 2005, with passing of the Special Economic Zones Act (SEZs). The Scheme envisaged reviving our manufacturing output, attracting investments, creating jobs and providing a world-class infrastructure for businesses -- by adopting a 'Single Window Clearance' approach. However, abrupt policy flip-flops, lack of clear policy guidance and substantially vittled down tax benefits have killed its initial charm and attractiveness. As a result -- manufacturing sector remains the Achilles' heel of our economy. Customs duty on DTA salesTo encourage India to become a global manufacturing hub for various items, particularly automobiles, DTA sales are inevitable. However, high customs duty levied on such domestic sales is a big deterrent. This custom duty on DTA sales gets levied even on value added in India - labour, material, etc. and is at a rate higher than FTA rates on certain items. Customs duty should be levied on 'Duty Foregone Basis' on domestic sales from SEZ's and 'no customs duty' should be levied on valued added in India. Also the rate on such custom duty needs to be brought down to the level of lowest prevailing FTA rates.Other Issues: With a view to allow consolidation of various existing units under one roof for efficient growth, the SEZ policy permitted transfer of second hand capital goods from existing DTA unit to SEZs. However, the income tax department created a deterrent by withdrawing the exemption if the quantum exceeds 20% of the total value of plant & machinery. Hence consolidation and growth have suffered.The final nail in the coffin was the levy of MAT and DDT in the budget of 2011-12 which further undermined the Scheme and its very stability.The Way forward…There is a clear need for convergence of SEZs and the manufacturing policy and reinstatement of tax benefits. The future of SEZs will now be dependent on how the new Government rides this elephant. The views expressed in this article are personal.The author is M&A Tax Leader of PwC India
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The benchmark BSE Sensex retreated from record highs by falling 202 points to dip below the 26,000 mark in mid-session trade on Tuesday (8 July) after the rail budget failed to impress investors.Besides a weak Asian trend and lower opening in Europe further influenced the trading sentiment, brokers said.The BSE 30-share Sensex after hitting a new record high of 26,190.44 points in opening trade, retreated to 25,897.33, showing a fall of 202.75 points, or 0.77 per cent.Similarly, the broad-based National Stock Exchange index Nifty lost 42.25 points, or 0.54 per cent, to 7,744.90 after hitting its life-time high of 7,808.85.Share prices of companies that cater to the railway sector came under pressure and tanked up to 12.15 per cent despite important announcements made by Railway Minister Sadananda Gowda in his maiden rail budget.Major losers were Texmaco Rail, Titagarh Wagons, Kalindee Rail Nirman, Kernex Micro, Commercial Eng., BEML, Stone India and Bartronics.The government proposed in the rail budget to attract investment from domestic and foreign players in infrastructure.Among BSE-30 shares, Sesa Sterlite fell 3.89 per cent, Tata Steel by 1.31 per cent, Hindalco by 0.95 per cent, Larsen and Toubro by 1.29 per cent, SBI 1.15 per cent and Reliance Industries 1.31 per cent, dragged down the Sensex.Globally Hong Kong's Hang Seng index was down 0.10 per cent, while Japan's Nikkei shed 0.14 per cent. European markets opened in negative territory.(PTI)
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