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Comfortable reserves, new worries FII net buyers in equity, debt market
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| You can invest 6 lakh in PO scheme Q : My father, aged 57, voluntarily retired from MTNL on July 8, 2003. He received the funds lying in his GPF account on September, 02, 2003. He expected to receive the other retirement benefits i.e commuted pension, gratuity and leave encashment in a couple of months. Indian Airlines cuts losses
by 20 pc
Turnaround of A-I, IA likely
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Comfortable reserves, new worries
New Delhi, December 27 While few will dispute that the build-up has been the most significant macro-economic development over the past decade, profoundly impacting monetary exchange rate and trade policy, there are voices which speak of cost and risks involved in managing such a pile-up. When the balance of payments crisis that triggered economic reforms in the country struck in 1991, India’s reserves had dipped below $ 1 billion, insufficient to fund even a fortnight’s imports. Reserves have soared since then to a historic high, a symbol of both domestic economic health and international confidence in the country. But even as the Finance Ministry mandarins toast this achievement, the economists in the RBI have gone into a huddle to figure out the cost of sterilising these reserves and work out how to manage the rising money stocks because of the ever-increasing forex inflows into the country’s bullish bourses. Dr Jay Dubashi, an eminent economist, who expects the reserves to double to $ 200 billion five to six years down the line, says the country is on ‘’the right path adopting the right policies of high growth and opening up.’’ There are, however, some risks and costs associated with such stockpiling. Allocation of reserves is an issue which often crops up. At present these reserves are unyielding asssets, Dr Agarwal says. The RBI needs to develop a strategy to channelise these for investment purposes, which will lead to growth. Estimates of hot money range between 30 and 35 per cent of the $ 100 billion foreign exchange reserves — short-term loans on investment by FIIs and non resident deposits. Dr Dubashi warns that any untoward political event can lead to withdrawal of money by NRIs and FIIs. The flight of capital can be triggered by diverse events ranging from a failed monsoon to another war in the region. In the long run, accumulating reserves on a sustainable basis hinges on a substantial step up in exports and attracting higher levels of foreign investment. India is probably the only country that has managed to build an impressive foreign currency chest on the back of less than 10 per cent annual growth of exports since 1990-91. This creates serious problems of sustainability, an economist says. FDI flows, which are considered more stable than FII inflows as these are invested in land and machinery, have come down substatially. In the first half of this fiscal, it was just over $ 1 billion — a far cry from the automobile sector-led FDI boom in 1997 when inflows topped $ 3.5 billion. That is why the managers of India’s economy at North Block are keen to hike caps on FDI limits. Equally worrying is the fact that India’s export growth has been sluggish in the past few months at 5.6 per cent compared to the double digit growth just six months ago. Dollars are pouring in from several sources. These include NRIs, foreign portfolio investment inflows, trade flows, re-negotiated debts and revaluation gains from the dollar’s weaknesses against currencies. From the start of this calendar year, India’s reserves have surged by $ 28.207 billion or 39.87 per cent. The entire rise of $ 100 billion is not attributable to money flows, part of it is due to revaluation as the dollar has been depreciating against other currencies. What is the outlook relating to the Forex front? Economists from Crisil Centre for Economic Research project said the rupee would retain its upward momentum, especially if portfolio inflows remained strong. However, given that yuan is being held at a fixed peg against the dollar, further appreciation of the
rupee would lead to reduced competitiveness of the exporters against their Asian counterparts. Thus the rupee is expected to strengthen in measured steps. In the medium term, Crisil economists visualise certain risk factors. These are:
Taking these factors into consideration, Crisil expects the rupee to remain at current levels at the end of the year, in the range of $ 45 to 46.
So even as the buck flows in, the government will have to buck the resistance from within the government to second generation reforms to ensure that the greenbacks continue to flow into the country. —
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FII net buyers in equity, debt market
Mumbai, December 27 According to data available with the SEBI, FIIs purchased equities worth Rs 2,716.1 crore during the week against their sales of Rs 1,283.7 crore, showing a net investment of Rs 1,432.5 crore. In the debt markets also, the FIIs were net buyers for Rs 145 crore during the week with their purchases worth Rs 280.3 crore surpassing their sales of Rs 135.3 crore. Both in the equity and debt markets, the FIIs remained net buyers on all the four trading sessions, while the market remained closed on Thursday on account of Christmas holiday. The FIIs have pumped Rs 5,947.1 crore in December so far, taking their total investment to a whopping Rs 34,729 crore since January 1 this year, about nine times higher than their net investment of Rs 3,677.7 in the whole year 2002, and the highest in any single year since local markets were opened to foreign portfolio investments a decade ago. —
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Nirula’s outlets for Punjab, Chandigarh New Delhi, December 27 The expansion plan, based on the franchisee business model, will initially focus on the North India, especially in Punjab, Haryana, Chandigarh and Himachal Pradesh. “In the initial phase of our expansion, we will be appointing growth partners in four zones. Zones one, two and three will encompass Punjab, Haryana, Chandigarh, Himachal Pradesh, Uttar Pradesh, Uttaranchal, Rajasthan and Madhya Pradesh, whereas Zone four will comprise Maharashtra and Gujarat”, Business Head and Technical Adviser of Nirula’s Vikas Attri told The Tribune in an interview. The fast food chain plans to be present in 15 cities of the North within one year and should cover about 75 per cent of the market of the North geographically. In Punjab, Haryana and Chandigarh, the company plans to open as many as 21 restaurants within this period. “We have already signed up for real estate in Ludhiana and are looking out in Chandigarh, Patiala and other cities”, he said. Mr Attri said focus will be on family style restaurants (FSRs) and quick service restaurants “having a wide menu ranging from pizzas, burgers, footlongs, chops to many Indian curries”. “The franchised restaurants will feature a menu of mix of product offerings that will suit the lifestyles and taste palates of the local consumer”, he said. “Based on specific local tastes and cuisines, the menus in the new FSRs will have about 200 items and we do not want to pitch ourselves as a specialist”, he added. Explaining the franchisee model he said the it would be a zonal franchisee granted for a “geographical zone comprising one or more states”. “The franchisee will be given the rights to open a fixed number of stores within a specified period without granting any exclusivity. We will not appoint anyone else in the zone unless we deem it essential based on the performance or on the request to give part or whole of the Zone to someone else”, Mr Attri said. The franchisee will have to invest in and manage restaurants in his assigned territory or zone as per the prescribed guidelines and standards. Nirula’s will charge a brand/knowhow fee for lending its brand and operational success. The company was looking at opening up anywhere between 25 to 40 restaurants under each zonal franchisee. He said that the management would also “support their growth partners with advertising and marketing activities. The initiatives would be primarily aimed at escalating the awareness of the brand in all untapped new regions”. The initiative involves a total capital outlay of Rs 90 crore and the company was seeking to generate sales revenue of about Rs 150 crore over the next three years. Presently the company has 64 outlets, all in the national capital region (NCR), out of which 20 outlets were opened in the last two years. “We do not plan to open up any more restaurants in the NCR region, apart from Ghaziabad where we do not have a presence as of now”, Mr Attri said. Besides, the company was also talking extensively to Bharat Petroleum Corporation Limited (BPCL) and Reliance for setting up eating establishments in specific petrol stations. “We have initiated discussions with state tourism departments for setting up restaurants in resorts and other properties. In fact discussions are at a very advanced stage with a particular state government”, he said. While extensive plans had been laid out for the North and Western parts of the country, the fast-food major also planned to penetrate into the Southern market in the medium term. “We plan to be present down the South by 2005 and hope to have outlets in Chennai, Bangalore and Hyderabad initially”, Mr Attri said. The company would enter the Eastern market in a limited way by the end of phase one of its expansion plans, he added. Mr Attri, who was previously with the McDonalds, said the company was making a “conscious effort” to position itself into a professionally managed company and that it was why professionals are undertaking the growth plan. “From a modest beginning with 12-room hotel opening in 1934, which was followed by a brief but successful stint with India Coffee House, the company has decided on its national roll out plan”, he said.
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You can invest 6 lakh in PO scheme Q : My father, aged 57, voluntarily retired from MTNL on July 8, 2003. He received the funds lying in his GPF account on September, 02, 2003. He expected to receive the other retirement benefits i.e commuted pension, gratuity and leave encashment in a couple of months. I recently read about the deposit scheme for PSU and government employees and want to know more about the same. Is this scheme available to MTNL employees?
— Jaishankar M. Talreja A:
This scheme, launched on 1.7.89, is under the wings of NSO. It has tenure of 3 years and the current rate of interest is 7 per cent p.a., payable half-yearly. Only a retired central/state government or public sector employee or retired judges of high court and Supreme Court can open an account in his own name or jointly with his spouse, within 3 months from the date of receiving the retirement benefits. MTNL is a PSU and its employees are covered by this scheme. Yes, this scheme appears to be slightly better than the tax-free savings bonds of the RBI with tenure of 6 years and interest of 6.5per cent. I feel that your father should not opt for the scheme. There are better options available. He should invest in POMIS up to its limit of Rs. 6 lakh and earn an average of 9.66 per cent interest covered by Sec. 80L. Another Rs. 2.66 can be parked in Varishtha Bima Yojana to earn 9.38pc. Thereafter, he should invest enough amount in the 8pc RBI Savings Bonds and raise his taxable income to Rs. 1,30,000 after taking deduction u/s 80L. The entire tax can be saved by contributing Rs. 1 lakh to Sec. 88. Any excess funds can be invested in pure-growth, open-ended, debt-based schemes (POD)of UTI/MFS. Instead of paying tax on normal income at 10pc, 20 or 30, depending upon the size of the income, it is good to pay it at10pc, which is the rate applicable to long-term capital gains. Now suppose you invest Rs. 80 lakh in a POD and at the end of one year, it grows to 86.4 lakh (= growth rate of 8 pc p.a.). You decide to strip the grown by withdrawing Rs. 6.4 lakh. The capital portion of this withdrawal is Rs. 5,92,593 (= (80 / 86.4) x 6.4 lakh), the rest Rs. 47,407 being capital gain. The tax on this growth is Rs. 4,701 (= 10 pc of 47407). This implies that you have got Rs. 6.4 lakh in hand but tax thereon is only Rs. 4,701. This works out at 0.73 pc tax and not 10, as is the general impression. Finally, if you have no other income, your total income is Rs. 47,407 and this being lower than the tax threshold of Rs. 50,000, you do not have to pay any tax. This facility is not available to NRIs, who have to pay tax on capital gains irrespective of the tax threshold.
VRS amount
Q : My wife got voluntary retirement from State Bank Of India and got certain amount as compensation apart from other retirement dues. She claimed Rs.5 lakh of exemption under Section 10(10C) of the ITA and for the rest of amount, she claimed relief u/s 89(1). The assessing officer has sent a notice u/s 142(1) & 143(2) stating that in view of Rule 21A of IT Rules 1962, the relief u/s 89(1) is not available. Please advise whether the action initiated
by the officer is correct or not. — Shyam Lal Singla A: The Madras High Court in the case of CIT vs M. Raman, Abdul Hadi and N. V. Balasubramanian JJ, (ITR vol 245, 2000) decided on 4.3.1997 that— The amount received by the employee at the time of voluntary retirement will be regarded as salary and the relief under section 89 of the Income-Tax Act, 1961, will be admissible in respect of such sum. "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the voluntary retirement would fall under the term "termination of employment" within the meaning of section 17(3)(i) of the Income Tax Act, 1961, and that the relief under section 89(1) is admissible in respect of the amount received by the assessee-employee from the employer at the time of voluntary retirement ?" The assessee has taken voluntary retirement from the service and received compensation at the time of his voluntary retirement. The question that arises is whether the compensation received by the assessee at the time of voluntary retirement will fall within the provisions of section 17(3)(i) of the Income Tax Act, 1961, that is, whether it can be regarded as salary and the assessee will be entitled to the relief provided u/s 89 of the Income Tax Act, 1961. This court in the case reported in CIT v. J. Visalakshi (1994) 206 ITR 531, held that if an employee receives at the time of resignation, the amount could be regarded as salary and the assessee would be entitled to the relief provided u/s 89 of the Income Tax Act, 1961. The said principle rendered by this court in the case of resignation would equally apply to the case of voluntary retirement of an employee from service. Accordingly, the Appellate Tribunal was right in holding that the amount received by the employee at the time of voluntary retirement of service would be regarded as salary, and the relief u/s 89 of the Income Tax Act, 1961, would be admissible in respect of the amount received by the assessee from his employer at the time of voluntary retirement. However, this decision of the high court is valid in only in Madras. Other states seem to be adopting the stand that since the Rs 5,00,000 exemption is available, applying Sec. 89(1) will not be feasible. It requires data on the additional salary received on year-to-year basis. The exemption of Rs. 5 lakh presents a difficulty since it is not clear how to set this off against which year. Hence the said section would not be available for the amount per year. |
Indian Airlines cuts losses
by 20 pc New Delhi, December 27 The shareholders were informed that there were over 20 per cent fall in the net losses of the airlines. Indian Airlines in the last fiscal reduced its net losses from Rs 246.75 crore to Rs 196.56 crore. The airlines’ officials pointed out that the reduction in the net losses could be achieved mainly because of the improved physical performance and strict cost control measures undertaken by the company. Shareholders were informed that due to these efforts while there had been a 5.41 per cent increase in the operating expenses, the company could achieve 8 per cent increase in the operating revenue resulting in reduction in operating loss by 38.94 per cent. Foreign exchange earnings constituted 34.62 per cent of the total operating revenue and during the year foreign exchange earning of Indian Airlines amounted to Rs 1,409.74 crore and the company had contributed Rs 232.94 crore to the government exchequer. |
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New SBI scheme for NRI Plan for women Verka milk Package for co-op HDFC plan US business team |
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