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Oil prices may hit growth, says RBI Governor
No end to cycle industry’s woes
PNB hikes interest on NRE deposits
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NTPC to move into power distribution
Going may not be smooth for US airlines
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HUF cannot continue PPF account after maturity
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Oil prices may hit growth, says RBI Governor
Mumbai, November 5 In a speech released here for delivery in Paris, Dr Reddy said the government’s borrowing costs could rise if external factors pushed up domestic interest rates. But because most government borrowings were at fixed rates, the rise would be “incremental” providing “greater headroom for a flexible monetary policy to adjust policy rates, as and when warranted, without any excessive impact on the fiscal deficit,” he said. According to the RBI chief, the outlook for output growth in India had improved in recent months, particularly with momentum gained in manufacturing. “However, persistence of global imbalances and high oil prices with a significant permanent component do pose some risks,” he said. Dr Reddy noted that while India by itself hardly contributed to global financial imbalances, big changes in external conditions could indirectly impact the Indian economy. “It is clear that the impact on India would depend on the pace and extent of currency and current account readjustments, and changes in global interest rates,” he said. Apart from government borrowing, Indian corporate could be affected by deterioration in financing conditions if they had not hedged foreign exchange positions on overseas borrowings. Indian corporates have been borrowing extensively over the past two years from international markets to fuel their expansion and take advantage of low foreign interest rates. Dr Reddy said Indian banks had seen sharp growth in demand for loans and warned that credit growth in some sectors was being watched closely, especially in areas “related to assets which are experiencing price volatilities”. “There is a risk that a rise in interest rates in general could impact housing prices and expose the balance sheet of the households to interest rate risk, leading to some loan losses for banks,” he said but added banks’ overall exposure to housing loans was small and did not have systemic implications. Similarly, although banks’ exposure to the stock market was not large, it was increasing and any reversal of capital inflows could impact banks through loan losses.
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No end to cycle industry’s woes
Ludhiana, November 5 "Due to labour problems, production has been reduced by at least 25 per cent during the past two years. If the situation does not improve, we will be left with no other option but to stop manufacturing cycle components", said Mr Harminder Singh, Managing Director of the company. "We have already started outsourcing some components from China and plan to get chains also from there. At present, we are negotiating with the Chinese on price and are checking with them on the quality factor”, he confirmed. The 48-year-old-company that employs nearly 1,000 workers has "suffered two strikes" during the past two years. The company is also involved in several labour cases pending in the courts. While daily production of chains has declined from 9,000 to 6,000 during the past two years, that of hubs has reduced to 15,000 from around 19,000 and of handles to 6,000 from 8,000, Mr Singh said. He added that the company was currently working on 70 per cent of its total capacity. "Due to reduced productivity, costs have risen, rendering us uncompetitive in the global markets". He apprehended that the annual turnover of the company, which was Rs 45 crore last year, would witness a fall of at least Rs 10 crore this year. He held labour indiscipline responsible for the decline in productivity. While labour costs have gone up in Ludhiana, productivity has gone down, making many companies unviable, he added. The company also stopped production of sub-components of pedals around six months ago and started outsourcing the same from domestic markets. However, trade unions discounted the management’s theory. "Earlier, they forced the workers to put in 12 hours of work every day. Following our struggle two years ago, the working hours were reduced from to 8, which is in accordance with the law. Naturally, productivity has decreased," said Mr Jagdish Chand, joint secretary, CITU, Punjab.
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PNB hikes interest on NRE deposits
New Delhi/Chandigarh, November 5 In case of NRE term deposits, the rate of interest has been revised from 4.90 per cent to 5.20 per cent for maturities of 1year to less than 2 years and from 5 per cent to 5.30 per cent for maturities of 2 years to less than 3 years. For maturities of 3 years to 5 years, the rate of interest has been revised from 5.10 per cent to 5.40 per cent. Kotak Mahindra
Kotak Mahindra Bank opened its first retail banking branch in Chandigarh and two in Punjab, at Phagwara and Kapurthala, today taking up the total number of branches in the state to three. Speaking to mediapersons after inaugurating the branch here, Mr Uday Kotak, Executive Vice-Chairman and Managing Director of the bank said: "The bank will be opening 100 branches within the next year and a half to make the branch network larger than any foreign network bank." They would soon be opening branches at Panchkula, Mohali, Amritsar and Jalandhar.
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NTPC to move into power distribution
New Delhi, November 5 NTPC has started a distribution subsidiary, NTPC Electric Supply Company Ltd, and has applied for a second license in the state of Chhattisgarh where it will supply power to the local area adjoining its upcoming 500 MW Korba thermal power station. It is also setting up plants in other region to supply power to other regions. It is also looking for business opportunities in Maharashtra, Gujarat, Karnataka and other states in power distribution business. According to NTPC CMD C.P. Jain: “The company will continue to play an important role under the Accelerated Power Development & Reform Programme and the Rajiv Gandhi Grameen Vidyutikaran Yojna. We believe that the success of these programmes will strengthen the performance and image of the power sector.” NTPC has already taken up electrification of remote villages through distributed generation where the extension of grid network is not economical in addition to contribute in the Rural Electricity Supply Technology (REST) mission. NTPC has set up two pilot projects with over 50 projects at implementation stage, mostly in Bihar, a first of its kind, to provide electricity to remote villages through distributed generation using renewable energy sources such as biomass, solar and bio-diesel, he said. s
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by K.R. Wadhwaney Going may not be smooth for US airlines
SINCE India became ‘free India’ in 1947, quite a few American airlines have made deep inroads into the Indian skies. During these 58 years, majority of them have either reduced operations or folded up for several reasons. PanAm, the initiator of ‘around the world’ flight, had the longest lease but even it folded up. Towards the end, it faced many problems, including customs troubles, and litigations.
Continental Airlines, the world’s sixth largest outfit, has now become the first carrier to operate destination-to-destination non-stop daily flight between New York/Newark and New Delhi. For a legion of travellers and business luminaries, it is an ideal flight. For an American, the fare of $ 1,000 sounds reasonable but Rs 45,000 for an average Indian commoner is not. Continental Airlines officialdom is convinced that daily operation will sustain. But Indian aviation experts are of firm belief that directional imbalances from India will arise as there will not be enough passenger-load ex-India. They argue that a sizable percentage of Indian travellers endeavour to combine Europe with the USA as they can afford to travel once or twice in their life-time. Whatever gains or otherwise, time alone will tell whether non-stop operations between two countries will effectively bridge the Indo-US divide or will there be alterations in the flight pattern with the passage of time. As Continental operations have already gone into history, American Airlines is planning to start daily non-stop flight between Chicago and New Delhi from November 15. With these two new daily flights, the IGIA will be bursting at seams. The infrastructure at the IGIA has got to be improved manifold to make international operations successful. Delhi is indeed safe to travel but security needs to be strengthened. The US airline officials are known to be whiners and they usually make mountain out of a molehill. Only a few years ago, some US airline officials insisted on having their own ‘army of security officials at the IGIA’. Stringent ‘bandobast’ is essential so that a similar situation does not arise. The Central Industrial Security Force (CISF) personnel were surprised last week when a private airline violated all norms of security concerns and transported two passengers in jeep from domestic terminal to international operational area. The passengers were questioned but the CISF allowed them to proceed since they were not to blame. But such violations are not unknown at the IGIA which is besieged with several ‘weak zones’, including innumerable number of touts and agents roaming about freely at sensitive areas.
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by A.N. Shanbhag HUF cannot continue PPF account after maturity Q: I am giving below my query for your expert advice: 1. “The PPF account of my HUF has completed 15 years in June, 2005; therefore it is due for closing or extension on 31-03-2006 at end of the financial year. 2. I understand that now the government has ordered that extension of PPF accounts of HUFs is not allowed. 3. PPF rules state that: “Subscribers can retain the balance in the account after 15 years without making any subscription and can do so without sending any intimation to that effect. They are allowed to make one withdrawal up to 100 pc of the balance to their credit in a year in instalments not exceeding one in a year till the entire balance is withdrawn”. My query is: Can I retain the balance in the PPF account of HUF after 31-03-2006 so that it continues to earn 8 pc interest and make withdrawals in instalments not exceeding one in a year till the entire balance is withdrawn? — Prem Kumar A: At maturity, the PPF account can normally be extended in two modes — with or without contributions. In other words, the non-closure of the account is considered as continuation. The new rule states that HUF cannot continue the account beyond maturity. Therefore, the account will not be eligible for any interest beyond the maturity. Investment options
Q: What are the investments eligible for saving income tax after the new Budget? Are investments made in infrastructure tax saving bonds (like in ICICI, IDBI, Power Finance Corporation) still eligible for exemption from income for calculation of income tax? Till last year we used to get rebate from income tax @ 15 pc from the amount so invested up to Rs 70,000 — Dhruv Pandey A: Yes, investments made in infrastructure tax saving bonds (of ICICI, IDBI, etc) were eligible for rebate u/s 88 and now are eligible for deduction u/s 80C. FA05 has replaced Section 88 with Section 80C. Till last year you were eligible to the rebate up to Rs 70,000 on investments made in the general category. The infrastructure bonds commanded additional rebate up to Rs 30,000 besides the rebate under the general category. Now, Section 80C has replaced Section 88 whereby you can get a deduction from your income on the entire amount of investments. The avenues for such investments are the same as were available under the erstwhile Section 88. Also, the sectoral limits have been scrapped.
PPF account
Q: I am a gazetted officer of the Punjab Irrigation Department. I opened a PPF a/c in SBI in my name during February 1991. Kindly advise me how and when I can extend my PPF a/c beyond 15 years so that I can enjoy benefit of tax-free interest up to 10-15 years more. Can I deposit Rs 50,000 in this year to get tax benefit? May I open another PPF a/c after maturity? — Gurnam Singh, Talwara A:
You have opened the account in FY 90-91. The PPF rules ignore the year of opening the account. It claims to be an of a term of 15 years but the account matures after 16 years and the account holder can contribute to the account during the 16th financial year, even on the last day. So is the case for withdrawals and loans. This creates confusion. The following is an attempt to clear the confusion. Maturity date: Add 15 to the financial year end => 1991 + 15 = 2006. Account matures on 1.4.06. You may extend the account for a block of 5 years. You may extend similarly for further block of 5 years on maturity of the extended period. You may keep on extending for any number of times. You can deposit up to Rs 70,000 every year in your PPF account.
NRE account
Q: I am employed in India and have a PAN no. and pay my taxes regularly. My company has recently acquired a company in the USA & in addition to my work in India, I have a work permit for the company abroad & visit there on work periodically. I would possibly be in the US for a total of about four months in a year. During my stay abroad I am entitled to a deputation allowance in addition to my normal salary in India for covering costs abroad. While no tax is payable abroad I do have savings in foreign exchange. The company treats this as travelling expenses & fringe benefit tax (started recently) would be payable as applicable. I am told that I can open an NRI savings a/c & the amount so transferred is not taxable. Is this correct? If no, what is the best possible planning to keep tax as low as possible? — Ramakant A: Since you are a Resident by virtue of your stay in India being over 182 days, your deputation allowance is taxable in India to the extent you have not spent it necessarily, essentially and wholly on the expenses incurred in performance of your duties. The savings,
there from, less the part on which the company pays FBT will be taxable in your hands. Yes, you can open and operate NRI-related bank accounts because though you are a Resident for income tax authorities, you are an NRI for FEMA. However, there will be no tax advantage on NRE accounts since your status is Resident Indian for income tax authorities.
Tuition fee & tax
Q: I am an Army officer. I had sent my son to the USA for higher studies (MS). As he was not on scholarship and had no other financial aid, I had paid for his tuition fee after taking withdrawal from my provident fund. Fee was $ 10,240.00 (Rs 4.5 lakh approx). Now, after reaching there he has been granted Research Assistantship and waiver of part of tuition fee (approx $ 7,000). My son wants to return this money to me. I would like to know if I have to pay any taxes on this. — Lt Col H.K. Khandelwal A:
There will be no tax involved on either party when your son repays you the amount. Though you have not posed the query, allow me to point out that you have the right to claim the deduction u/s 80C(xviib) for the balance $3,240 you have actually spent.
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