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Monday,
May 6, 2002, Chandigarh, India
  
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Cut in
interest rates hits retirees
Soya
products demand crosses supply
Market
remains depressed |
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MIS
income
Quality control
laws must to protect consumers
Ask banks to
charge interest at PLR SC upholds
amendments in IT Act
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Cut in interest rates hits retirees Around 10 years ago when Mr Prakash Gupta started investment planning for his retirement, safety being his priority, he preferred to rely on banks and insurance. Investing in bank would fetch him regular and good returns, he had thought, then. Over the years, when interest rates kept declining, a re-thought on his previous financial planning started. A jolt, however, he received, when due to cardiac problem he had to undergo bypass surgery and shell out three-four lakh rupees for that. And today, he realises, that the softer interest rate regime and the government policies towards that might give a fillip to the economy, but definitely not to the returns he gets. At his point of time, he is trying to look in for fresh investment opportunities which can assure him safety plus attractive returns alongwith liquidity. But that is a tough task, he says. With the lowering of interest rates, similar problems are being faced by those who have relied mainly on banks for their
investments. Worse hit are the retirees and the middle class who constitute a major portion of this segment. “At this stage changing one’s investment pattern is almost impossible. Reduced interest rates have definitely harmed people”, says Mr Gupta. “For a retired person who puts in all his retirement money in banks, reducing interest rates on savings are a major cause of worry. Returns on which we are depended have gone down . At this stage while the cost of living and also the medical expenses are on the rise, a cut in interest rates are highly detrimental to the retirees”, says Wg Cdr (Retd) H.S. Sodhi, who retired more than 10 years ago. Agrees Mr Naveen Sharma, Branch Head, Investsmart. “When one nears his
retirement, going in for equities can not be called a wise decision. But given the present scenario, returns in other cases, especially banks are very low”, he says. Reportedly, last year’s cut in the interest rate on small savings reduced accretion to small savings drastically. The government might be claiming otherwise, but the falling interest rate regime has also shown that the investors are moving away even from small saving instruments lie Indira Vikas Patra (IVP), post office savings, public provident fund (PPF) and National Savings Scheme (NSS). Though the government has provided some relief to the retirees by extending the benefits available to retiring employees for investments in the tax-free “eight per cent Relief Bonds, 2002”, schemes or new options which offer more liquidity, security as well as good returns need to be introduced, feel the retirees. “Under existing circumstances, we have mutual funds where we can’t pose faith especially after what happened incase of UTI or, there is the share market which again is highly volatile. In the interest of investors especially retirees, the government needs to provide some special benefit or new schemes”, says Col (Retd) Balbir Singh. Investment advisers advise people to increase the sphere of investments, that is, go in for various options. “Especially for retirement planning one should be extra cautious as earning will only be the returns on one’s investments . While they must avail benefits like differential rates which they get in banks (an increased
interest rate for senior citizens), they now have to look in for other options like mutual funds”, says Mr Sharma, Investsmart. Liquid funds would be a good option and these will give returns between six per cent and eight per cent whereas time horizon for liquid funds is one to four months, say experts. Government securities are good for medium term investment (return between 7 per cent and 9 per cent), whereas income funds are helpful when the time horizon ranges between nine months and eighteen months. In case of retired people the disadvantage is mainly due to three
reasons — reduced returns with reduction of interest rates, increased cost of living and increased medical
expenses. So they must plan their investments in such a way that all these points are taken into
consideration, says Mr Sharma. While medical insurance is a must, say advisers, planning for retirement has to be done very cautiously, they say. Says Mr Iqbal Singh, Investment Adviser, HDFC Bank, “In case one has money to invest for slightly longer period, RBI Relief Bonds are a good option. In other case one can go in for a Systematic Withdrawal Plan (SWP) and other debt funds. Investment in equity market is not advised during the stage of retirement, say experts.
What do investment advisers say? *
Retired people should avail the benefit of differential rate of interest on savings in banks, that is increased rate of interest banks are providing these days for senior citizens. *
Government securities and income funds are a good option as they are a good combination of liquidity, safety as well as returns. *
RBI Relief Bond |
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Soya products demand crosses supply
LUDHIANA: When the entrepreneurs in each sector are complaining of stiff competition and declining demand, Mr Devinder Singh Sahota, a pioneer in manufacturing and selling of soya products in Punjab in small scale sector, claims that he is unable to meet the growing demand. A matriculate from Dhandra village, near here, he has set up a soya processing plant, a selling counter and a supply chain in the neighbouring towns. Mr Devinder Singh Sahota, (48), maintains that food experts have found that soya milk, Tofu (soya paneer) and other soya products contain high level of protein, fibre, calcium and anti-cancerous chemicals, so they recommend them as highly nutritious food, especially for the people having sedentary life style. He says, ‘‘The demand from health conscious customers and health clubs is so high that I am unable to meet.’’ About seven years ago, he used to sell soya paneer in weekly vegetable
markets. Now he is selling these products under Soya Foods Rouble 007 brand name, with an annual turnover of more than Rs one crore. Sharing his rich experiences, he says:
How I started career? Ours was a small farming family. After doing matriculation, I studied in local Khalsa College for some time, but left the college in 1974 to start my own business. For next eight years or so I worked as a truck operator and liquor contractor. Later I got a permit to run a mini bus, and for the next 6-7 years, I used to run that bus, besides giving three-wheelers on rent. However, due to lack of adequate profit, especially because of frequent bandh calls given during those days, I found it extremely difficult to run the business, and decided to try my luck elsewhere.
Present career During these days, I read an article on a training programme to be held at Bhopal, on manufacturing of soya
products. I encouraged one of my relatives, Kuldeep Singh Cheema, to attend the training programme. After that, we established the plant by taking a loan of Rs one lakh from the Land Mortgage Bank. I started looking after the sale of products. The raw soya is brought from Madhya Pradesh.
Any setbacks Initially I faced lot of problems in selling, as the people were not ready to accept soya paneer, due to lack of awareness about its properties and a difference in taste. The friends and relatives would laugh at me, and even avoided the road where I sold my products. At a time, even the family members asked to leave that business because of low profit. I faced lot of problems to get suitable land to sell my products despite recommendations from state Chief Minister and Ms Maneka Gandhi. The officials of the health and other departments created lot of problems when I declined to grease their palms.
Achievements Despite initial setbacks, I stayed in the business especially after getting encouragement from Ms Maneka Gandhi, PAU scientists and various doctors. The media also created awareness about the benefits of soya products. Through our own efforts, we developed methods to prepare flavoured soya milk, lassi, plain and salted soya paneer, namkeen, biscuits, halwa and other products, which have been well-taken by the market. I am now supplying packed soya milk and other products to Ludhiana, Khanna, Bathinda and other towns.
Future plans The American Soya Association, which has already mentioned our venture on its website, is calling me to attend an international exhibition on soya products and processing machinery. After attending that I want to establish a chain of soya products in all the major towns of Punjab and to introduce new products. I am sure that with the increase in consumer awareness, the demand for soya products would expand exponentially.
(As told to Manoj Kumar)
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by J.C. Anand Market remains depressed During the last fortnight, the Corporate Sector reported relatively better results than the low Industrial Growth Index had made the analysts expect them. According to one analysis of the corporate results up to 274 major companies which have reported their 4th quarter results, the net profit of these companies is up by 19.4 per cent, though sales were only marginally higher. According to another analysis done earlier, aggregate net profit of 86 companies was up by 13.2 per cent for their accounting year 2001-2002. In spite of the good result declared by many of these companies, the Sensex was more or less unchanged during the last fortnight. When the market closed on April 22, Sensex stood at 3390 points and on May 3, it closed at 3380.61 points. The market has simply refused to take congnisance of very good results by some companies. For instance, Moser Baer reported 60 per cent higher net profit with an EPS of Rs 45.54 (as against EPS Rs 29.42). But the market price of the scrip declined by about Rs 3 when the market closed on May 3. Likewise, the pharmaceutical sector reported very good results. Ranbaxy’s first quarter result reported 70.4 per cent higher net profit. Wockhardt’s 4th quarter results indicated 37 per cent higher net profit. Glaxo SmithKline’s net profit in the first quarter was higher by 49 per cent. Novartis also declared excellent results with a higher net profit of 56 per cent and raised its dividend to 150 per cent. Yet, there was not much movement in the market price of these pharma shares. Many other companies like Nestle have declared excellent results (Ist quarter net profit higher by 55 per cent), but the market did not take much notice of it. There are a number of factors responsible for the depressed market. Political distempers, events in Gujarat, sales by UTI, are some of the factors. FIIs were not sellers in April. The market is largely driven by speculative business. There is not much of delivery-based activity in the stock market. Generally, the operators make purchases in the morning and sell them at close of the market the same day. A deeper analysis of corporate results reported so far indicates that a large part of higher net profit reported by many companies is due to higher “other income”. According to one analysis, there has been 28.3 per cent growth in the “other income” and decline in interest cost in a sample drawn from 302 companies by a leading economic daily. In fact, Reliance Industries, which reported 56 per cent decline in gross revenues for its accounting year 2001-2002, though its net profit was higher by 17 per cent. Aggressive cost-cutting in costs and smart management helped it to declare presentable results. The market, however, was not impressed. In general IT sector has reported good results but its future projections are lower. The automobile sector manufacturing motor cycles and other two wheelers have also done very well. Paper products and other packaging companies have also done well. There are also indications that there may be a revival in the steel industry. Tisco may jump up by at least 20 per cent during the next six months. Aluminium manufacturing companies have generally done well. One reason for the depressed market condition is that the roll-back in the Budget proposals was disappointing. Though, dividend income has been included in the relief package under Section 80 L but the ceiling of Rs 9000 has not been changed. It is doubtful if any investor will gain much from this change because an average investor will opt for relief in interest income than in the dividend income. A majority of tax payers in the low income group do not invest in the stock market at all. TVS Electronics has reported very poor Ist quarter results with its net profit down by 56 per cent from Rs 1.08 crore to Rs 48.54 lakh. Yet, this scrip is still quoting at around Rs 120 per share, though it was quoting around at Rs 174 a week back. Profit-taking is indicated in this share. NIIT’s 2nd quarter results are also disappointing and the net profit is lower by 96 per cent. Aksh Optifibre has just maintained its results while Sterlite Opt has also declared lower net profit for the ending March 31, 2002 with its EPS lower at Rs 23.55 (against Rs 45.69 last year) but it has declared a dividend of 80 per cent GTL has also suffered a decline in net profit. But both Sterlite Opt and GTL may be retained for the present. |
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by R. N. Lakhotia MIS income i) The income under M.I.S. in Post Office due in the month of February, March 2002 if not taken/ drawn can be accounted in the next Finance year? ii) NSC maturable in the month of March 2002 if Payment/ Matured amount not drawn in March 2002 can be accounted in next Financial year. If not then how to account for the interest amount almost equal to the principal amount in the year of Matured Financial Year for the purpose of Income-tax calculation. (iii) When or in which case under Section 88 rebate more than 20 per cent is applicable? — B.N. Gupta, Patiala Ans: Generally speaking, for the purposes of income-tax computation of your income, the income which is accrued in the month of March, 2002 either on account of MIS Income or a NSC income, the same should be reflected in the income-tax return for the year ending on March, 31, 2002. If, however, you are following cash system of accounting for income from other sources, then you can show the said income in the accounting year in which you actually receive the income. Thus, in your case you will be withdrawing the money in the F.Y. 2002-2003 relevant to the Assessment Year 2003-04. Hence, the income would be treated as your income for this F.Y. Presently the tax rebate u/s 88 or more than 20 per cent is applicable only for persons having salary income upto Rs 1 lakh only.
Standard deduction Q: I am a pensioner of Punjab Government. I also receive pension of my deceased wife. Kindly let me know if I am allowed to claim standard deduction on both pensions for A.Y. 2002-2003. How much & under which u/s of I.T. rules of 1961? — Ranjit Sagar, Rajpura Ans: You are eligible to claim standard deduction from your pension income as per section 16 (1) of the Income-tax Act. With regard to Family pension received by you pertaining to your deceased wife you will be eligible to claim standard deduction as per section 57 of the Income-tax Act, 1961, the standard deduction for family pension would be @ 33 1/3 rds of the pension amount subject to a maximum of Rs 15,000.
Rent receipt Q:
(1) Whether the producing of Rent receipt is necessary to claim exemption for reducing the HRA from Gross Salary from the employer. (2) Whether leave encashment is taxable or not when the employee actually avail LTC. — Manmohan Singh, Panipat Ans: As per the CBDT Circular, the employer is not supposed to insist on production of rent receipt when the rent paid is upto Rs 3,000 per month. However, if the Income-tax Officer during the course of assessment proceedings insists on production of the rent receipt, then you are duty bound to submit the same. Leave encashment would be taxable as income of the employee. |
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by Pushpa Girimaji Quality control laws must to protect consumers Whether it’s processed food or pharmaceuticals, medical devices or electrical goods, stringent quality control laws and their strict enforcement are a must to protect consumers. And with the opening up of the markets and lifting of quantitative restrictions, it has become imperative that such measures be extended to imports too. A case in point is the Self-ballasted Lamps For General Lighting Services, known commonly as Compact Fluorescent Lamps or energy efficient lamps. You may find this difficult to believe, but an Ahmedabad-based consumer group picked up as many as 23 brands of imported CFLs in the market. And in-house testing of these products at the Consumer Education and Research Centre’s (CERC) laboratory against international standards and label claims on the products shed ample light on their quality or rather lack of it. The tests in fact revealed that the Indian consumer is kept in the dark about the actual efficiency, performance and life of these lamps because either the labels did not give the required information at all or where given, the performance did not match the label claim. . All brands (price ranging from Rs 35 to Rs 250) checked, for example, failed in the test for lumen output. Or to put it differently, they shed much less light than promised. And barring three brands, all others failed in the efficiency test too. The lamps claimed a life of 3000 to 12000 hours, but CERC found two lamps failing even before completion of 100 hours. The results so shocked CERC that it decided to share it with consumers without waiting to complete the tests on their longevity. CERC also did not test them for safety parameters. Of course when CERC published the results in its magazine ‘Insight’ in January this year, Indian Standards for CFL had not yet been published. Subsequently in February, the national standards making body, Bureau of Indian Standards (BIS), came out with two standards-one on safety requirements and the other on performance requirements. And the other positive news is that the Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce and Industry now intends to bring CFLs under mandatory ISI certification, the next step being extension of the mandatory certification to imports too. Once these are brought under mandatory quality control, nobody can manufacture, import, store, distribute or sell CFLs that are not certified by BIS. And the lamps have to carry information such as the country of manufacture, mark of origin ( trade make or manufacturer’s name ), rated voltage or the voltage range, rated wattage, rated frequency, rated luminous flux, besides of course the ISI mark in a manner that is clear and durable. And mandatory third party certification will guarantee not just efficiency in the performance of these lamps, but also their safety. The DIPP hopes to notify the order bringing CFLs under mandatory certification as soon as it is cleared by the law ministry- which could be within a week. In fact the Quality Control Order drafted by the DIPP proposes to bring 22 other electrical items besides CFL under mandatory certification. These include switches, plugs and sockets, immersion water heaters, electric iron, stoves, radiators and incandescent lamps which were earlier under mandatory ISI certification under the Essential Commodities Act (subsequently removed from the purview of the EC Act) besides certain new items such as circuit breakers, fuses, switchgear and control gear, energy meters and cables. One only hopes that consumers will not have to wait too long for the much-awaited quality control order. Many of these electrical protection devices as well CFLs have been included in the Quality Control Order at the instance of Indian Electrical and Electronic Manufacturers Association, which hopes that mandatory quality control would ensure that domestic manufacturers are not subject to unfair competition from cheap imports of doubtful value or quality. The manufacturers also fear that sub-standard imports may well bring a bad name to CFLs and discourage consumers from buying them. A good quality CFL is four times more energy efficient than ordinary bulbs and lasts six to twelve times longer, depending on the rated life of the lamp. Replacement of ordinary incandescent bulbs with CFLs can therefore bring about considerable saving in energy consumption, which in turn would mean reduced power bills. Substandard CFL imports is just an example of what lies ahead if we do not put in place adequate quality control measures vis-à-vis imports. Last year, the Ministry of Commerce and Industry had to issue a notification making it mandatory for processed foods coming into the country to have not less than 60 per cent of it’s declared shelf life. And this was found necessary to prevent foreign manufacturers from ‘exporting’ to India products that remained unsold in their countries. But even today, you can see violations of the notification. Similarly, a survey of imported processed foods by a Delhi-based consumer group, VOICE, had found flagrant violations of Weights and Measures (Packaged Commodities) Rules as well as Prevention of Food Adulteration Rules. Absence of adequate laws and poor enforcement of existing laws could well expose consumers to not just sub-standard, but unsafe imports. |
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Ask banks to charge interest at PLR It is for the first time that any credit policy has recognised the plight of SSI sector. RBI in its slack season policy has castigated banks though in a slanting manner for charging higher interest rates from SSI sector. Banks have been directed to disclose interest charged above PLR for transparency. Apart from higher interest banks charges processing and other fees which have no relevance. Credit policy states that RBI will monitor this aspect in the next credit policy. SSI sector is getting badly beaten up by banks. While charging any thing upto 4 per cent above PLR from SSI units banks charge as low as 4 per cent from larger units. Banks are also lending to government at dirt cheap rate. On the deposit side interest rates are going down to hit the common man’s savings. In simple terms the entire lending and borrowing transactions of banks means that they are impoverishing the already poor man and enriching the already rich. On charging higher interest from SSI sector banks plead that this is high risk sector. Though argument is not tenable but the very premises is also wrong. List of bad borrowers runs like this (rupees in crore). Public Sector Units owe Rs 1334.05 (2.44%); large industries 11498.10 (20.99%); medium industries Rs 8658.69 (15.81%); other non priority sector Rs 9516.62 (17.37%); agriculture Rs 7311.40 (13.35%); SSI Sector Rs 10284.97 (18.78%) and other priority sector Rs 6169.33 (11.26%). Banks are in general charging 3 to 4 per cent less than PLR from larger units mainly through commercial paper route. Large companies with bank credit above Rs 25 crore have interest to gross profit ratio of as low as 38.7 per cent against 101.4 per cent from unit with bank credit less than Rs 1 crore. Above facts show that amount involved in bad debts in much higher in borrowers other than those in SSI sector. What is then banking business? Lend money at a loss to the bad borrowers and at a undeserved higher profit to those having less share in bad borrowings. The remaining money is lent to government at still lower rates. Surprisingly real rate of interest on ten year government paper in India is now lower than in the USA. Banks are squeezing lending to SSI sector. Last year out of a non food gross banks credit of Rs 4,29,621 crore; SSI share was only Rs 53,241 crore. Former Finance Minister Mr Chidambaram had observed that less lending means lowering GDP growth by at least 1 per cent. Credit policy has also pointed out the exorbitant charges of banks. Take SBI: It charges Rs 10,000 as recital charge whenever any fresh documentation is to be done, how-so-ever small it may be. Then it charges Rs 250 per one lakh of rupees as annual processing charges. What for? If any unit in a family falls sick due to genuine reasons entire family is debarred from bank finance. It is rational? Members of a family may be running independent business and if one fails the others are forced to fail. Will this boost the growth? RBI should not wait till the next credit policy and direct the banks to charge interest from SSI sector at PLR and nothing more. Families may not be debarred from bank finance on whimsical
grounds.
P.D. SHARMA |
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SC upholds amendments
in IT Act New Delhi, May 5 “We do not think that Section 269-SS is, in any way, violative of Article 14 of the Constitution,” a division Bench comprising Justice R. P. Sethi and Justice K. G. Balakrishnan said, quashing the Madras High Court’s order giving a contrary finding on the constitutional validity of the section. The object of introducing Section 269-SS in the Income Tax Act by an amendment in 1984, was to prevent a tax payer from giving false explanation for unaccounted money. It ensures that a person, if he has given some false entries in his accounts, should not escape prosecution under law. The amendment was brought in the Act after the tax authorities were found handicapped in taking action against false declaration by a tax payer that the unaccounted money recovered from him during raids, was taken as loan and his manipulating the accounts accordingly. “If any legislation, which intends to achieve the collection of income tax and to make it easier and systematic, is enacted, it would certainly be within the competence of the legislature,” the Court ruled. To enact a law including that on tax related issues “is a policy matter, and it is for the Parliament to decide in which manner the legislation should be made. The Section permits a person receiving loan or deposits by account payee cheque or bank draft, if the amount of such loan is up to Rs 20,000.
PTI
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Inflation rises Philips Fiat Siena |
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LUDHIANA:
When the entrepreneurs in each sector are complaining of stiff
competition and declining demand, Mr Devinder Singh Sahota, a pioneer in
manufacturing and selling of soya products in Punjab in small scale
sector, claims that he is unable to meet the growing demand. A
matriculate from Dhandra village, near here, he has set up a soya
processing plant, a selling counter and a supply chain in the
neighbouring towns.
