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Falling inflation: Kamath for further rate cuts
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RBI likely to cut repo rate: Experts
Spectrum Issue
Market Update
Tax Advice
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Economy will rebound in 6-9 months: Chidambaram
Washington, November 16 “There will be some slowdown in every sector... but monetary measures, counter-cyclical measures and enlightened measures by the companies themselves can get over this painful period of adjustments and in about 6-9 months we should be back to the growth rate,” he told CNBC TV18 in an interview. India has been growing by 9 per cent and above for four straight years, but various estimates suggest that the impact of the economic crisis could shave off anywhere between 1 to 2 percentage points. “We are not revising it (GDP forecast) upwards or downwards. It could be anywhere between 7-8 per cent... The only other large country recording such growth will be China,” Chidambaram said. Commenting on the decline in inflation to single digit - 8.98 per cent - after five months, he said: “I don’t think we should get too excited about the single digit inflation as it is still close to 9 per cent, much above our tolerance level. We would like the inflation to come down. We hope it will happen in the next few weeks, so I think we are jumping the gun when we are talking about a rate cut.” As regards the impact of slowdown on India Inc, he said: “Bottom lines in the profit and loss account will indeed be affected but it doesn’t mean that something dramatic has happened in the Indian economy.” Stressing that India is still an attractive destination for foreign investors, he said the country’s policy stance has attracted significant foreign direct investment as well as portfolio investment in the last four years. On the robustness of the Indian economy, Chidambaram said: “When I say that the fundamentals of our economy are strong, I mean that companies like Tata Steel is basically a strong steel producing company and Infosys and Wipro are basically very strong player in the software market.” “Our agriculture is producing enough to feed 1.1 billion people of the country. They are not affected by what is happening in rest
of the world.” Referring to the outcome of the G-20 meeting, he said the troika of Brazil, the UK and other country has been asked to coordinate and they have promised to expand the financial stability forum and work on more governance reform of the International Monetary Fund. The minister said developing countries would be given greater representation and voice. However, he added: “We still think that developing countries are under represented and, therefore, they should be given more representation and more voice, which means some of other countries will have to have a hair cut.” As free trade is a powerful counter-cyclical measure in an economic downturn, he said, efforts should be made for successful conclusion of Doha development round
of the WTO. On convergence of the accounting standards, Chidambaram said there was a broad agreement on common accounting standards among different countries and the standard setting board would get together to work them out.
— PTI |
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Falling inflation: Kamath for further rate cuts
New Delhi, November 16 “Interest rates are still high. Inflation has fallen to single digit, I think that would give confidence (to the RBI) to roll back or signal drop in interest rate,” he said while speaking at the India Economic Summit organised by the World Economic Forum and industry body CII. The biggest challenge before the country, he said, was to keep the confidence level high amid global financial crisis, which has pushed the West into recession. “I think India is in a distinctly different position. Challenge we have is how do we keep confidence in this global situation,” said Kamath, who also heads ICICI Bank. India, he said, was different because despite global recession it would continue to grow by around 7 per cent in the current fiscal and the growth would not be less than 6 per cent during 2009-10. Noting that in the next few weeks Indian industry will have to work out strategies to meet the global challenges, he said: “What will drive the Indian economy will be the domestic market”. Referring to the mismatch between the rich and the poor, the Gujarat Chief Minister said things would not change by knee-jerk approach. When Prime Minister Manmohan Singh had called a meeting of the chief ministers for preparation of the 11th Plan, Modi had asked him to form a committee for assessing the achievements and the shortfalls of the 10 Five- Year Plans . Modi received accolades from industry leaders like CII chief K.V Kamath, whosaid Gujarat was attracting almost one-fifth of the new investments in the country.
— PTI |
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RBI likely to cut repo rate: Experts
New Delhi, November 16 “We see inflation at 5.5-6 per cent by March. The RBI can now more aggressively cut rates. I expect 100 basis points repo rate cut this year. There could also be a reverse repo rate cut of 50 basis points,” said Crisil principal economist D.K Joshi. For the week ended November 1, inflation slipped to single digit of 8.98 per cent for the first time in the last five months. The RBI has already reduced repo rate by 150 basis points to 7.5 per cent from earlier level of 9 per cent last month. Following reduction in the repo rate and other benchmark rates, several banks have reduced the benchmark lending rate by 75 basis points, leading to cheaper home, commercial, auto and personal loan. At the same time, the RBI in the last one month has infused liquidity to the tune of Rs 2,70,000 crore by cutting the cash reserve ratio by 350 basis points and statutory liquidity ratio by 100 basis points. Measures to inject liquidity as well as nudge interest rate lower in the near term is likely as inflation concerns rapidly recede, said Yes Bank chief economist Subhada Rao. “I expect repo rate cut of 50 bps in the near term. There could also be a possibility of 25 bps cut in the reverse repo as well,” she said. Even corporate India has stepped up its demand for cut in lending rates as the inflation dipped to single digit at 8.98 per cent for the week ended November 1. SBI for further lowering
of key rates
With inflation coming down to single digit of 8.98 per cent after a gap of five months, State Bank of India (SBI) today pitched for further lowering of key policy rates by the RBI to kick-start the economy. “Interest rates (by the RBI) should be lowered further otherwise the kick-start in economy won’t take place,” SBI chairman O.P Bhatt told reporters pointing out that the bank has already decided to cut the deposit rates by 50 basis points from December 1. “Since the commodities prices and inflation are going down and the efforts made by the regulatory authorities all over the world to lower the benchmark and repo rate, I expect interest rates will come down. But it would be difficult to say when it will go down,” he said when asked whether it was time for the RBI to cut policy rates.
— PTI |
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Spectrum Issue
New Delhi, November 16 A Department of Telecommunication (DoT) notification said spectrum charges (licence fee plus royalty) for microwave access and backbone network of GSM and CDMA operators beyond the sixth carrier (spectrum allocated for the sixth time for continuing operations) has been hiked with effect from November 3. Telecom commission has already approved the increase that comes on the heels of a rise in spectrum usage charges. The DoT has increased the revenue-share from as low as 0.40 per cent to almost four per cent for different slabs of spectrum requirement. Operators were paying 0.40 per cent of the of the AGR earlier that would now be 1.85 per cent for the seventh carrier of 28 MHz. Similarly for the eight carrier, telcos were charged at .45 per cent of the AGR. This is now increased to 2.30 per cent. The commission had earlier cleared a proposal to impose one per cent additional spectrum usage charges for radio waves below 8 MHz and two per cent above 8 MHz. This would come into effect from January, he said. The move is likely to generate an additional Rs 4,000 crore-Rs.5,000 crore for the exchequer as mobile operators such as Airtel, Vodafone Essar and Idea will have to shell out more. — PTI |
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Market Update
LAST week, the market failed to sustain the rally witnessed at the start of the week caused by China’s massive economic stimulus plan. Higher-than-expected industrial production growth in September and expectation further cut in interest rates triggered by reducing inflation to single digit, failed to avert the slide. Investor sentiment also remained jittery on political uncertainty ahead of state elections, uncertainty about a US treasury plan to forgo buying bad mortgage-related investments to buy stakes in US lenders and caution ahead of a meeting of G20 political leaders. A fall in India’s exports for the first time in five years also weighed on the investor sentiment.
The market may get support at lower level on expectations of a further cut in interest rates with inflation falling to single digit. Softening inflation will enable the Reserve Bank of India (RBI) to further cut interest rates to create more liquidity in a slowing economy. Lower interest rates boost stocks as they help rise in corporate bottom-line by way of lower borrowing costs. The RBI has already signalled an easier rate regime and cut a key short-term rate earlier this month along with cuts in bank reserve ratios to free up funds for lending. The RBI on Saturday further loosened its reins for realty sector lending by decreasing risk weightage for certain categories of loans for banks. State Bank of India (SBI)
SBI is the largest bank in the country having assets twice the size of its nearest competitor ICICI Bank. It is also an active trader in forex and is the leader in government business and cash management services. SBI has a network of over 10,000 branches and 8,500 ATMs across the country. After the merger of its associate State Bank of Saurashtra, SBI is looking at eventually merging all its associate banks with itself in the longer term to generate economies of scale and command a higher bargaining power vis-a-vis global players. At a time when most banks were scurrying to raise high cost term deposits in first half of the current financial year to fund their incremental off-takes, having a high proportion of low-cost deposits in its books puts SBI on a firm footing. More importantly, the historical trend of the bank’s CASA and net interest margins clearly shows a positive correlation. Stable revenues from government services and relationships with large Indian corporates have helped the bank grow and diversify its fee base making the same a strong contributor to its other income growth over the longer term. This should keep the bank in good stead during the current turmoil. Industry
The last six months have been testing times for Indian commercial banks as they operated in a situation of very tight liquidity and steep borrowing costs. The RBI’s recent measures of rate cuts (through CRR and repo rates) and special liquidity windows solved the problem of short-term liquidity for the time being. Also, with the upward re-pricing of loans, most banks reported higher margins in the second quarter of the current financial year. However, going forward, with the economic slump having a negative impact on credit growth and no upside in margins the banks are expected to rely heavily on their fee income-generating abilities in addition to their operating leverage. Also, most banks envisage higher slippage rates and provisioning costs in the latter half of this fiscal, which may eat into their profits. Having said this, the Indian banking sector continues to remain very healthy as compared to its global counterparts in terms of systemic risks and safety of depositors’ money. In nutshell
In addition to above, SBI, in preparation to competing with their foreign counterparts, has had a much desired transformation in their operating metrics. A change in the bank’s management has manoeuvred the evolution of the entity into a strong competitor for the best private sector and foreign banks in the country. Given the above facts, investors may start accumulating into this banking behemoth with a three years’ perspective around the current market price of Rs 1,170. Investors may also note that the stock has latent value in associates and subsidiaries that long-term investors would be able to eventually unlock value from. |
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Tax Advice
Q. I have received an exgratia amount from my employer on account of extraordinary effort put in by me for achieving success in respect of a particular tender. Is the amount so received taxable?
— Nirmal Sahni A. Voluntary payments made by an employer to his employee are taxable in the hands of the recipient (employee) as salary, if such payment accrues to the employee by virtue of his employment, irrespective of the fact whether or not there is any legal obligation on the employer to make the payment. In case of voluntary payment, one must take into consideration all relevant circumstances under which the payment is made to decide whether or not that payment is taxable as salary. Rent income
Q. I obtained a loan from a nationalised bank for the construction of a shop-cum-flat (shop was constructed about 15 years ago) in Chandigarh and reconstructed the same during 2008-09. Now, my rent income from this SCF is Rs 4,83,500 during the year 2008-09. I have no other income. Are my calculations — Keshav Sachdev A. The facts given in the query are not complete. It is not indicated whether the flat constructed over the shop is a residential flat and has been let out for residential purpose. This is because the deduction permissible for the payment of amount towards the repayment of loan obtained for construction of the flat is available in case the flat has been constructed for residential purpose. Presuming that the flat has been constructed and let out for residential purpose, the following corrections should be made in the calculations of total income made by you: (i) The amount of taxes levied by local authority in respect of the property should be deducted in the first instance from the total amount of rent receivable from the property. (ii) The amount of maintenance charges at the rate of 30 per cent should be computed with reference to the amount arrived at after deducting the amount of such taxes from the amount of rent receivable. It is also presumed that a deduction of Rs. 15,500 claimed as interest component with the caption 'Pre-EMI' represents 1/5 of the interest payable for the previous year in which the flat was under construction. As indicated above, the deduction of Rs 1 lakh under Section 80C of the Income-tax Act, 1961, would be available only if the amount has been borrowed for the construction of a residential house and the re-payment claimed as deduction under aforesaid section is in respect of such a loan. Medical reimbursement
Q. I retired on March 31, 2008. Till that time, reimbursement of up to Rs 15000 per annum of medical expenses were deducted from my taxable income. I now have no income and am living mainly on the interest I receive from bank FDs. Am I still eligible for a deduction of up to Rs 15,000 against the purchase of medicines, etc. from my total income at the time of paying my advance tax? — Ankush Goyal A. There is no provision under the Act that allows an assessee to deduct an amount incurred by him towards meeting such medical expenses. You are, thus, not entitled to claim a deduction of Rs 15,000 incurred for the purchase of medicines from your total income at the time of payment of advance tax. I may add that you can get a deduction from your total income in respect of the amount paid towards medical insurance premium to the extent of Rs 15,000 subject to the fulfilment of the conditions laid down in Section 80D of the Act. A higher amount of deduction is available in case the assessee is a senior citizen i.e. a person who is aged 65 or more years. Free domestic help
Q. The company has provided me domestic servants who are being paid by the employer. Will the amount paid by the company in respect of such domestic servants be added to my salary? If so, the amount so includible. —
Raghubir Singh A. In accordance with the provisions of the Act, the provision of free domestic help will be considered a perquisite and value, thereof, shall be the actual cost to the employer. The actual cost would be the total amount of salary paid or payable by the employer or any other person on his behalf for such services as reduced by any amount paid by the employee for such services. Thus, in your case the amount includible in salary would be the actual cost to the employer. |
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Gujarat Chief Minister Narendra Modi with World Economic Forum founder and executive chairman, World Economic Forum, Klaus Schwab, and K.V Kamath, MD and CEO, ICICI Bank and president, Confederation of Indian Industry, at the India
Economic Summit in New Delhi on Sunday. Tribune photo: Manas Ranjan Bhui
