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Finance Minister P. Chidambaram is finding it harder and harder to meet the government's budget promises and may sweep as much as $15 billion in subsidy costs into next year's accounts to ensure he hits fiscal targets ahead of national elections, ministry officials say.Chidambaram insists that the fiscal deficit target of 4.8 per cent of GDP for the year to 31 March 2014, is a red line that will not be breached. The worst economic downturn since 1991 and a fall in the rupee to a record low have undermined budget assumptions for some months.But finance ministry officials said the window to raise domestic fuel prices sharply, which would cut subsidies, is closing with state and national elections drawing closer, so shifting some costs into the 2014/15 budget is inevitable. "It's a given," said one official, who declined to be identified.The worst-case scenario as of now is that $15 billion in costs will have to be rolled over into next year's budget, the ministry officials said. This assumes that there will be no substantial increase in domestic fuel prices to offset the ballooning subsidies.By rolling over some costs, Chidambaram can tell voters in the run up to the elections, which must be held by May, that the government met its deficit target. But equally, he will be shackling the next government with costs that could blunt its ability to stimulate an economic recovery."Whatever we need to do, we will do. But the fiscal deficit target will be met," said a finance ministry official. "No one should be in doubt about that."Meeting the target is important also to stave off the ire of ratings agencies as India's credit status sits just one notch above junk. A loss of its investment grade rating would probably increase the government's borrowing costs.Last year, Chidambaram narrowed the budget deficit by 1 percentage point to 4.9 per cent of GDP by pushing nearly $15 billion in subsidy costs into this year's budget and cutting more than $16 billion in planned spending, two ministry officials said.This year, he could rollover a similar amount in subsidies, the officials said. This will be in addition to spending cuts of $3.2 billion or more that officials are already predicting for the year.The amount will be partly determined by the success of an auction of telecom spectrum, expected in January. The budget had pencilled in $2 billion for the sale.But the most critical factor will be whether Chidambaram can gather government support to raise domestic fuel prices to offset ballooning subsidy costs. Some policymakers see that as politically unpalatable ahead of state elections in December, leaving a small window after those votes before the country moves into national elections.A finance ministry spokesman, D.S. Malik, said it was "too early to say anything at this stage" on how much the rollover would be.Chidambaram had planned to cap the subsidies for the likes of fuel and food at 2 per cent of GDP, or about $38 billion. But finance ministry officials said it could cost as much as 2.9 per cent of GDP, or $55 billion, this fiscal year.Chidambaram had said earlier this month that the jump in subsidy spending must be tackled sooner rather than later to help stabilise an economy shaken this year by the rupee's slump and a record current account deficit. India imports nearly 80 per cent of its oil needs and the rupee drop made government fuel subsidies more costly.Soaring Subsidy Bill Finance ministry officials in September called for an increase in diesel prices of close to 10 per cent to offset the pressure on the subsidy bill.But Prime Minister Manmohan Singh has shied away from raising fuel prices for fear it could upset voters and cost his Congress party the elections.At the same time, international oil prices have remained stubbornly high and although the rupee has climbed up from its record low, it remains historically weak.A new law to provide cheap grains to millions of people has increased procurement and storage costs, inflating food subsidies by around 10 per cent. Adding to Chidambaram's headache, the fertiliser ministry has asked for a 50 per cent hike in its budgeted subsidy."The budget will simply collapse, if we continue to provide subsidies on this scale," said a finance ministry official. "There is no alternative to a 3-5 rupees increase in diesel prices."AssumptionsIt is not unusual for the government to rollover some costs into the following year's budget, although they are not publicly revealed. However, subsidy spending has massively overshot budgeted estimates for the last three fiscal years forcing up the amount of cost that the government rolls over.If the economy was booming, Chidambaram would have easily absorbed higher subsidy costs. But GDP rose 5 per cent in 2012-13, the weakest pace in a decade. Most analysts expect growth to weaken further this fiscal year, although the budget assumed a rebound to around 6.5 per cent.Ministry officials say the rollover is the result of India's cash-basis accounting, in which income is recorded when cash is received and expenses are recorded when cash is paid out. Many advanced economies follow accrual accounting, in which income and expenses are recorded as they occur regardless of whether cash has actually changed hands.India's accounting method "never gives you the real picture of your finances," said Devendra Kumar Pant, chief economist at India Ratings & Research. "You start the year on the back foot as you have so much backlog to clear." (Reuters)
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Efforts to launch prosecution against officials of a Swiss bank for allegedly abetting Pune businessman Hassan Ali Khan in filing false tax returns have been shot down by the Attorney General on grounds that authorities have failed to provide enough evidence.Khan, accused in cases of money laundering, was arrested by the Enforcement Directorate in March, 2011 and has been asked to pay thousands of crores of rupees as unpaid taxes. He is accused of holding $8 billion in the Union Bank of Switzerland (UBS).The Central Board of Direct Taxes (CBDT) had sought the opinion of the Attorney General as to whether prosecution under various sections of the Income Tax Act can be launched in the case of the bank based on evidence gathered on its role in abetting Khan in filing false tax returns and for falsification of his books.Khan's links with Swiss banks first came to the fore in 2007 when certain documents were recovered.After repeated reminders, the country's top law officer G.E. Vahanvati opined that he did not find any material in the file referred to him suggesting such abetment or inducement on part of the officials of UBS.He also cautioned that any decision to launch prosecution must only be taken after enough material is gathered that prima facie suggests abatement or inducement by officials of the bank.Vahanvati also pointed out that UBS officials have maintained that Khan did not hold any account with it except three accounts opened in July 2001 and closed in October, 2011.He said that to prove that bank officials were not telling the truth and is intended to help Khan evade tax, the tax authorities here should have enough evidence to proceed.Last year, the Finance Ministry had informed Parliament's Public Accounts Committee (PAC) that recovery of tax arrears from Khan is not possible despite attaching his known movable and immovable assets.The Department of Revenue had said that as per existing guidelines, recovery through sale of attached properties can be made only after the decision of appeal filed before the Income Tax Appellate Tribunal.(PTI)
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Finance Minister P Chidambaram on Thursday (24 October) asked financial sector regulators, including RBI and Sebi, to take preventive steps to neutralise the impact of US Federal Reserve's monetary stimulus tapering that is likely early next year.Chidambaram, according to sources, asked regulators at FSDC meeting to work out preventive measures. The Financial Stability and Development Council (FSDC) members include heads of regulatory bodies like RBI, Sebi and IRDA.The meeting was attended by RBI Governor Raghuram Rajan, Sebi chief U K Sinha, among others. Former Reserve Bank of India (RBI) head D Subbarao was a special invitee. The Forward Markets Commission (FMC) was included in the FSDC and its Chairman Ramesh Abhishek was also present.The Minister, sources said, "asked different regulators to work on preventive measures to counter the impact of tapering which is likely to take place early next year".Tapering, which refers to gradual withdrawal of the USD 85 billion a month bond purchase programme, was deferred by the US Federal Reserve in September.The tapering, whenever it takes place, will have a bearing on global economy. It will impact fund flows to emerging economies, including India.Chidambaram also expressed the confidence that current account deficit (CAD), the difference between outflow and inflow of foreign exchange, will remain within the earlier estimate of USD 70 billion of 3.7 per cent of the GDP in the current fiscal.It had touched an all time high of USD 88.2 billion, or 4.8 per cent, in 2012-13. .Chidambaram said all efforts would be made to bring down the fiscal deficit to 4.8 per cent of the GDP in the current fiscal from 4.9 per cent in the previous fiscal.Earlier this month, the Finance Minister at an IMF committee meeting in Washington had said the government was committed to the path of fiscal consolidation and had drawn red lines for fiscal and current account deficits."We shall not allow the red lines to be breached under any circumstances and we shall remain within the red lines. We are prepared to take difficult decisions in this regard, should the need arise," he had said.Elaborating on the tapering at the FSDC meeting here, Chidambaram said it was likely to take place sooner or later and as such regulators "must take all possible action to avoid any adverse impact on the Indian economy".Among other things, the FSDC also discussed the possibility of implementation of the Financial Sector Legislative Reforms Commission (FSLRC).It was decided in the meeting that all regulators, including FMC, would finalise the principles relating to regulatory governance, transparency and operational efficiency for implementation of the FSLRC recommendations.The Commission, headed by former Justice B N Srikrishna, had presented its report to the government in March suggested merging of financial sector regulators such as Sebi and Irda into a Unified Financial Agency (UFA) and the role of RBI be restricted to regulating banks and managing monetary policy.Under the regulatory architecture proposed by the Commission, Sebi, FMC, Insurance Regulatory and Development Authority (Irda) and Pension Fund Regulatory and Development Authority (PFRDA) should be merged into a UFA.The Commission had proposed setting up of seven agencies -- RBI, UFA, Financial Sector Appellate Tribunal (FSAT), FSDC, Resolution Corporation, Financial Redressal Agency and Public Debt Management Agency --- for managing the financial sector.(PTI)
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The Enforcement Directorate (ED) on 23 October got custody of Sudipto Sen, chairman of Saradha Group and the main accused in a multi-crore chitfund scam, in connection with a money laundering case filed by it. The vacation Judge of City Sessions Court in Kolkata granted custody of Sen to the ED till 1 November.This is the first time that a central agency has taken custody of Sen, who had been arrested by Bidhannagar Police of West Bengal in April from Sonmarg in Jammu and Kashmir.A case of money laundering was registered before the court and a production warrant had been sought of Sen and his close associate Debjani Mukherjee in September.While the ED interrogated Mukherjee earlier, it could not get the custody of Sen so far owing to investigations by other agencies in connection with several cases lodged against him.The city sessions court, known as the Bankshall Court, granted the custody of Sen to ED for interrogation.A special money laundering court in New Delhi had on 21 October ordered freezing of bank accounts of Sen, to allow probe agencies complete investigations against the firm.Two banks' accounts were placed under attachment by the ED sometime back. The accounts, under Sen's name in a private bank in Odisha's Balasore, hold a total amount of Rs 27,752.80.The ED, which is investigating the case for alleged money laundering criminalities in the alleged chit fund scheme, suspects this to be "proceeds of crime" and wants these accounts to be kept frozen till the probe is complete.(PTI)
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Onion prices touched Rs 100 per kg in some major cities as supplies remained tight and there appears to be little respite, with Agriculture Minister Sharad Pawar saying that rates will remain high for 2-3 weeks.Refusing to ban onion exports, the Centre asked states to invoke Essential Commodities Act to crackdown on hoarders.It, however, started the process of importing onion -- via co-operative NAFED -- from Pakistan, Iran, Egypt and China to cool rates. It also relaxed the conditions for imports to augment domestic supply.According to the data compiled by the Consumer Affairs Ministry, the average price in the major 57 cities stood at Rs 70 per kg with Jammu recording highest at Rs 90 per kg.However, as per the data available from centres, onion is being sold at Rs 100/kg in north Indian cities of Patna and Jammu in retail markets.In the national capital, Jaipur, Chandigarh and south Indian city Bangalore, retail prices are ruling at Rs 80-90 per kg. Onions are available in the range of Rs 60-80 in Mumbai, Bhopal, Lucknow, Chennai, Guwahati, Srinagar, Imphal and eastern Indian city of Kolkata."...next two to three weeks will be tough and ultimately we have to find a solution," Pawar said in south Indian city of Bangalore replying to a query on onion prices that reached all-time high.Asked whether he meant that the prices would come down in the next 2-3 weeks, he said: "No, no. I am not an astrologer.But I know something about crops. On my own assessment, this situation will continue for the next two to three weeks."Pawar asked the chief ministers of all states to invoke the Essential Commodities Act against hoarders. He said the NAFED is ready to import some quantity of the kitchen staple.Stating that extensive rainfall has hit supply, Pawar said: "We have to import as early as possible. I have instructed the Managing Director of National Agricultural Cooperative Marketing Federation of India Ltd (NAFED) that if there is a request from any state, we should be ready." "Fortunately, there is ample onion (stock) available in China, Egypt and neighbouring countries and (I) have collected figures and prices yesterday. The prices in these countries are cheaper compared to India," Pawar added.(PTI)
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Precious gold spiked to near one-and -a half months high and reclaimed the key psychological Rs 31,000 per 10/gm mark at the bullion market here today owing to heavy jewellery stockists demand supported by robust seasonal offtake. Silver also surged on the back of aggressive speculative as well as industrial buying. Standard gold of 99.5 per cent purity climbed by Rs 165 to finish at Rs 31,130 per 10 grams from Saturday's closing level of Rs 30,965. Pure gold of 99.9 per cent purity also spurted by a similar margin to end at Rs 31,280 per 10 grams from Rs 31,115 previously. Silver ready (.999 fineness) jumped by Rs 700 to conclude at Rs 49,750 per kg as compared to Rs 49,050 last weekend. Globally, the shiny metal continued its momentum on easing concerns over an imminent withdrawal of the Fed's bullion friendly quantitative-easing measures amid sliding dollar value. Spot gold was bid higher at $1,320 an ounce in early European trade and silver was up at USD 22.18 an ounce. (PTI)
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Prime Minister Manmohan Singh and Russian President Vladimir Putin on Monday, 21 October, showered accolades on each other for pushing the bilateral relationship as they held talks on ways to bolster the strategic ties further. "India is our strategic partner. Most of our mutual achievements have been achieved under your leadership and I am grateful to you," Putin said in his opening remarks at his meeting with Singh. He noted that the two countries have cooperation in different areas, including military and technological areas and are diversifying the economic relationship. "Even at present we are having joint counter terrorism exercises going on in India," the Russian President said. The two countries also have cooperation in political areas and are working together in the UN and BRICS, he pointed out. In his opening remarks, Singh credited Putin with being instrumental in promoting and strengthening the bilateral partnership. "We are grateful to you for your sustained personal interest and commitment." He told Putin that India's relationship with the Russian Federation occupies a very privileged place in its foreign policy. "We cherish our true and time-tested friendship with Russia, which has remained strong and relevant despite changes in the world at large," Singh said. "The level of trust and confidence that we have in our relations with Russia is unmatched by any of our other relationship. I would like to reaffirm that our relations with Russia remain a strategic priority for us and will continue to grow, not only bilaterally but also on the global and regional issues," he said. Singh expressed happiness over the fact that good progress is taking place in bilateral cooperation in the fields of defence, energy, science and high technology as well as in tourism, trade and investment. He observed that coordination between India and Russia in multilateral fora, such as BRICS (comprising of Brazil, Russia, India, China and South Africa), G-20 and the East Asia Summit, has also deepened. "Ours is truly a special and privileged strategic partnership to which Mr President you have contributed a lot during past years," Singh said. The Prime Minister also lauded Putin's role in seeking a political settlement in Syria and welcomed the framework agreement worked out by Russia and the US for a time-bound elimination of chemical weapons in Syria.(PTI)
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India's state-owned oil company ONGC is interested in exploring for oil and gas in the Arctic offshore with Russian partners, leaders of the two countries said after holding talks in Moscow on Monday, 21 October. The two sides will study the possibility of pumping Russian hydrocarbons by pipeline to India, while agreeing on the significance of supplying Russian liquefied natural gas (LNG) to India. A joint statement, issued after President Vladimir Putin hosted Prime Minister Manmohan Singh in the Kremlin, contained no energy breakthroughs. India has long sought to expand its upstream foothold in Russia, with little success. ONGC's overseas arm is a partner in the Sakhalin-1 oil and gas project, which is operated by a unit of Exxon Mobil State oil major Rosneft, another Sakhalin-1 partner, is lobbying for the right to export LNG to Asia-Pacific buyers. Rosneft and Exxon have announced plans to build a $15 billion LNG plant to process Sakhalin-1 gas, to be launched in 2018 with an initial capacity of 5 million tonnes per year. Russia estimates its offshore oil resources at 100 billion tonnes, which would be enough to satisfy global demand for 25 years at current levels of consumption. Rosneft already has agreements with ExxonMobil, Eni and Statoil to explore for Arctic deposits. These projects are unlikely to produce any oil or gas before the 2020s.(Reuters)
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The rupee fell for a second session on Monday, 21 October, on dollar demand from private oil firms with the currency finding some support from continued strong inflows into local stocks. A large private oil company was a major dollar buyer in early session, dealers said, pulling the rupee further away from an over two-month high hit on Friday. Still, the partially convertible currency found some support from continued strong foreign fund inflows into local stocks which has propelled the shares to a near three-year high. "The market looks broadly stuck in a range. However, 60.90 seems like a good support for the pair. The dollar may see some more gains from here," said Hemal Doshi, currency strategist at Geojit Financial. Technically, the rupee is finding support from its 14-day moving average. The rupee closed at 61.52/53 per dollar compared with 61.27/28 on Friday. Foreigners bought shares worth 17.24 billion rupees on Friday, marking their biggest single-day buying since September 19 and bringing their total purchase over 11 sessions to 92.82 billion rupees. The rupee has recovered 12 percent from its life low of 68.85 to the dollar hit on August 28, largely helped by a return of risk appetite to global assets and the central bank's move to attract inflows from overseas Indians. While the market drew comfort on Friday from the fact that the central bank's oil window remains open, the Reserve Bank of India said it will taper it in a calibrated manner as and when it happens. The RBI has already reduced its marginal standing facility rate by 125 basis points to 9 percent as it unwinds the extraordinary measures taken since mid-July to stabilise the rupee. Dealers are now focused on the September U.S. jobs report, due Tuesday, which was delayed due to the shutdown. If the data beats expectations, then speculation over whether the Fed can taper this year or not is likely to return, injecting some volatility in the currency market. In the offshore non-deliverable forwards, the one-month contract was at 62 while the three-month was at 63. In the currency futures market, the most-traded near-month dollar/rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange all closed at around 61.63 with a total traded volume of $1.65 billion. (Reuters)
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The alleged chit fund scam in West Bengal involving the Saradha Group revolves around a total sum of Rs 2.46 billion with 80 per cent of the depositors' monies still remaining unpaid, a latest investigation report has revealed.The report also states that the arrested Saradha chairman Sudipta Sen was in "total control" of all deposits made by his group companies, which are under the scanner for having perpetrated the alleged fraud.Four companies of the Saradha Group, the report said, used to mobilise money through three schemes ? 'fixed deposit', 'recurring deposit' and 'monthly income deposit' which lured innocent depositors with promises of either "landed property or a foreign tour" as incentive returns.A joint investigation report of West Bengal police and Enforcement Directorate (ED), in possession of PTI, stated that, "the summary report (of the group) for the years 2008-12 revealed that the four companies of Saradha Group had mobilised an amount of Rs 2.46 billion through issuance of their policies."The investors were paid an amount of Rs 476.57 million."As of April 16, 2013, the principal amount to be paid to the investors stood at Rs 1.98 billion," the report added.The statistics, prepared by the probe agencies after analysing the companies' business sheets and recording the statements of investors, show that 80 per cent of the depositors' money was still held up.Sleuths found that the four Saradha Group companies, namely, Saradha Realty India Ltd, Saradha Tours and Travels Pvt Ltd, Saradha Housing Pvt Ltd and Saradha Garden Resort and Hotels Pvt Ltd were in the business of mobilising money from gullible investors."Investors were also given the option of encashing their investment after the specified period along with very high returns," the report said.A total of 560 complaints have so far been filed with West Bengal police by duped investors, the report stated.Describing the working of the scam, which broke early this year, the classified report stated that the "investigation so far carried out revealed that Sen had floated various companies, through numerous branch offices in West Bengal as also in Odisha, Assam, Jharkhand and other states to mobilise deposits from the public".(PTI)
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