The Tribune, Chandigarh, India

US loses S&P’s prized rating
Credit rating cut by one notch to AA-plus

Off Track

n The action is likely to raise borrowing costs for the American government, companies and consumers
n S&P said another downgrade is possible in the next 12 to 18 months
n US has a AAA credit rating from S&P since 1941
n It could have implications for the US dollar's reserve currency status
n The S&P 500 stock index fell 10.8 per cent in the past 10 trading days
n There are concerns that the US economy may be heading towards another recession
n The downgrade, 15 months before the next US presidential election, and debt will be top campaign issues
n US Treasury bonds are now rated lower than those issued by Britain, Germany, France and Canada

Set finances in order: Obama

Washington: President Barack Obama urged lawmakers on Saturday to set aside partisan politics after a fierce debt battle, saying they must work to put America's fiscal house in order and refocus on stimulating its stagnant economy.

Obama issued the appeal in his weekly radio address recorded just hours before the United States lost its top-notch AAA credit rating from Standard & Poor's on concerns about its deficit woes, a move that could have costly repercussions.

The President, whose 2012 re-election could hinge on his ability to reduce stubbornly high unemployment, called on Congress to back measures to give tax relief to the middle class, extend jobless benefits and pass long-delayed international trade pacts. — Reuters

New York, August 6
The US lost its top-tier AAA credit rating from Standard & Poor's (S&P) on Friday in an unprecedented blow to the world's largest economy in the wake of a political battle that took the country to the brink of default.

S&P cut the long-term US credit rating by one notch to AA-plus on concerns about the government's budget deficit and rising debt burden. The action is likely to eventually raise borrowing costs for the American government, companies and consumers.

"The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilise the government's medium-term debt dynamics," S&P said.

The outlook on the new US credit rating is "negative," S&P said in a statement, indicating another downgrade was possible in the next 12 to 18 months.

The move reflects the deterioration in the global economic standing of the US, which has had a AAA credit rating from S&P since 1941, and it could have implications for the US dollar's reserve currency status.

The decision follows a fierce political battle in Congress over cutting spending and raising taxes to reduce the government's debt burden and allow its statutory borrowing limit to be raised.

On August 2, President Barack Obama signed legislation designed to reduce the fiscal deficit by $2.1 trillion over 10 years. But that was well short of the $4 trillion in savings S&P had called for as a good "down payment" on fixing America's finances.

The S&P 500 stock index fell 10.8 per cent in the past 10 trading days on concerns that the US economy may be heading into another recession and because the European debt crisis has worsened.

US Treasury bonds, once indisputably seen as the safest security in the world, are now rated lower than bonds issued by countries such as Britain, Germany, France or Canada.

Late on Friday, the US Treasury said the rating agency's debt calculations were wrong by some $2 trillion.

S&P confirmed it changed its economic assumptions after discussion with the Treasury Department but said it did not affect its decision to downgrade.

"We take our responsibilities very seriously, and if at the end of our analysis the committee concludes that a rating isn't where we believe it should be, it's our duty to make that call," David Beers, head of sovereign ratings at S&P, told Reuters.

'Daunting’ implications

While the downgrade is a blow to the US prestige, it was largely expected and may not have a big impact on trading of the US Treasuries and other assets when markets reopen in Asia on Monday. — Reuters

No need to press panic button, says FM
Sanjeev Sharma
Tribune News Service

New Delhi, August 6
As the world gasped following first US sovereign downgrade, Finance Minister sought to soothe investor sentiments and said India would continue to achieve appreciable growth despite negative sentiments across the world.

The FM also clarified that there were no proposals for introducing dual pricing for diesel or increase in duties for bridging any perceived shortfalls in tax revenues, “as has been highlighted by a speculating media in the past couple of days”. Mukherjee said it is in that context that he has no hesitation in saying that the process of economic reforms in India is irreversible and that the economic stakeholders have no reason to fear introduction of any regressive policy measures at any point of time.

Speaking at a CII event on 20 years of reforms, Mukherjee said the S&P downgrade of the US has an adverse impact but there is no need to press the panic button.

The FM said negative sentiments in the developed nations affected Indian markets on Friday but there has been some recovery already and this is testimony to Indian economy’s capacity for resilience. He added that the growth story is intact and fundamentals are strong.

Seeking to address the financial markets which had plunged on Friday following a global meltdown he said that has confidence that the Indian markets have the capacity to withstand the negative sentiments affecting the external world.

The Finance Minister said we have taken several measures to make our markets attractive, robust and vibrant and would continue to do so making it an attractive investment destination for foreign capital. He said as global investors look for opportunities across the world, India’s attraction as an investment destination would continue to grow.

Investor Guidance
NRI can’t have PPF account
by A.N. Shanbhag

Q: I am an NRI for over 10 years. I have two savings bank accounts jointly with my father in Chandigarh. These were opened before I went abroad. I have also a PPF account in SBI, Chandigarh which was opened before I went abroad. I have regular agricultural income of Rs 25,000 per annum.

Last year, my mother gifted Rs 5,75,000 to me, which was deposited in an FDR and I intend to deposit the interest in my PPF account. The bank deducts TDS on the interest. I have not filled Form-15G. Please let me know:

1. Can I continue with the savings bank accounts?

2. Can I keep the PPF account?

3. Can I deposit my agricultural income and interest from FDR in my PPF account?

4. Can I claim refund of TDS from the I.T. authorities since I understand I cannot fill Form 15G?

— Pankaj Bharti Gupta

A: 1. It is illegal for an NRI to continue to hold his normal Resident bank account. It is necessary to inform the bank about the change in your residential status. The bank will redesignate same accounts as NRO. You can use this account the same way as you used it before becoming an NRI. A Resident can be a joint holder in this account.

2. Notification GSR 585(E) dt 25.7.03 prohibits NRIs from opening a PPF account or opt for post-maturity continuation. Therefore, you can continue to own the account unless its tenure of 15 years is over.

3. There is no restriction on the use of agricultural income and interest from FDR for any legal purpose. You can use this money for making the contributions to your PPF account. However, note that the maximum amount that can be contributed to PPF in any one year is Rs. 70,000.

4. Yes, you can file your returns to claim refunds.

Tax liability

Q: I am a retired principal and senior citizen. I have a query related to income tax. I have total Rs 12,000 bank interest and fixed deposit income from three different banks. But I have heard that up to Rs 10,000 bank interest is non-taxable. So in this case should I mention Rs 2,000 or Rs 12,000 bank interest? I am a retired senior citizen getting pension. My total pension is Rs 2.35 lakh. If I add pension plus Rs 2,000 interest, then total income becomes Rs 2.37 lakh and this is within Rs 2.40 lakh limit. But if I add pension plus 12K interest, then total income is Rs 2.47 lakh and it means Rs 7,000 is taxable income.

— R K Agarwal

A: It is not that the Rs 10,000 interest is not taxable - up to Rs 10,000 interest is not subjected to TDS. As you may be aware, TDS is just like tax paid in advance or at source. But just because the same is not applicable, it does not mean that the interest itself is free of tax. Therefore, in your case, the total income would be Rs 2.47 lakh and not Rs 2.37 lakh.

The authors may be contacted at wonderlandconsultants@yahoo.com