New Delhi, November 19
As if the economic policy managers did not have enough problems coping with the Indian economy in dire straits, the sharp rupee depreciation this week comes as the latest one.

Key policy makers over the last couple of days have expressed concern over the developments but a consensus seems to be lacking within the policy establishment over how to deal with this phenomenon.

Chairman of the PM’s economic advisory council and former RBI governor C Rangarajan said Saturday the central bank should intervene to check the depreciation of the of rupee that has fallen to Rs 51.30 against the US dollar, the lowest in 32 months. “The RBI should intervene when volatility in exchange rates is high”, he added.

This comment was in contrast to the view expressed by RBI deputy governor Subir Gokarn, who said it might be risky for the RBI to use forex reserves to defend the rupee given the volatile global economic situation. Some analysts have criticized the RBI stance on the grounds that by not giving any signals to defend the rupee it was fuelling the fall of the rupee.

Meanwhike, Finance Minister Pranab Mukherjee said Saturday the RBI was “keeping an eye” on the situation. “The RBI is keeping an eye on it (depreciation of rupee). They are watching the situation at the appropriate level,” he said.

On the question about what would be a comfortable rate of exchange and the likelihood of intervention by the central bank, Mukherjee said, “I’m not guessing anything and I’m not finding what is a comfortable level”.

There has been speculation that the RBI has asked public sector banks to release dollars to arrest the fall of the rupee.

Although several emerging market currencies have fallen, the rupee is the worst performing currency in Asia falling by 14% this year and from its high in July. Analysts are predicting that the rupee may fall further to test its lows of Rs 52 hit in 2008.

The rupee depreciation is being exacerbated by the drying up of inflows into India, both in the stock markets through FIIs and in projects via FDI. This will have an adverse impact on oil prices in India by pushing them up further. Moreove, all imports will become costlier.

According to government norms, private operators — be it airlines, airport developers and whoever deduct, in accordance to the laid down procedure, income tax, provident fund and several other fees and levies at source from the salaries of pilots, cabin crews and other staff — are required to deposit the money collected in the scheduled departments. But they defer deposits and quietly and pocket interest and secure other advantages at the cost of the employees. These and several other malpractices have plagued many industries, particularly civil aviation in the country.

These defaulting operators shrewdly divert this money to other avenues like the Indian Premier League and other extravaganzas for maintaining their high-flying lifestyles and hobnob with celebrities. Such errant operators should be prosecuted for violating fundamental rules.

These same operators are apparently hand in glove with some politicians for raising this kind of ploy to prevent government from bailing out and granting equity to the National Aviation Co (NAC-Air India). They first engineered amalgamation of the two national carriers — Air India and Indian Airlines —and are now gunning for the demise of the national carrier. They feel in the death of Air India lies hope for them to survive and sustain their operations.

The candid observation of experts on civil aviation is that Indian skies are overcrowded with too many carriers. It is an industry meant for the fit and healthy operators and not already diseased functionaries.

The existence of Air India is essential as, in emergent situations and calamities, the national carrier is the only one to rescue and transport stranded Indians abroad. No private carrier undertakes as many tasks faithfully as Air India does in such situations.

Ever since the Indian government introduced the "open sky" policy, several airlines have mushroomed. Some others have closed down. Some are losing money because of their needless "extravagance" and some others are making money.

The government should undertake a survey as to why some carriers are making profits and why others are incurring losses.

The study also highlights some of the nasty problems plaguing the industry are manmade and there is urgency for discipline and professionalism in the trade. The study further shows regulatory bodies like the International Air Transport Association (IATA) and the directorate-general of civil aviation have become toothless.

Similarly, Delhi International Airport Ltd (DIAL) was authorized by the regulatory body to levy development levy from passengers flying on national and international routes. The fee, chargeable from December 1, 2011 is heavy and will further compound problems for passengers, who are already paying high fares and taxes. The levy, according to civil aviation analysts, should not be levied and, if charged, should be nominal.

Q: Once the direct tax code comes into effect from April 1, 2012, will the dividend received by an investor on equity mutual funds be added to his taxable income? If I had purchased the units of an equity mutual fund in 2009, will the dividend declared in 2012 still be added to my taxable income?

Also, what about systematic investment plans (SIPs)? I have a SIP in an equity mutual fund, which commenced in November 2011 and will end in October 2012. Will the dividend earned on such units be fully taxable, although part of them would have been purchased before the direct tax code comes into effect? — Shravan

A: The direct tax code as it stands in its present state, does not contemplate to eliminate either securities transaction tax or the structure of the dividend distribution tax. Hence, the concessions related with capital gains on capital gains and freedom from tax on dividends, as is available under the income tax Act, has not been disturbed. However, remember the direct tax code is still in its formative stage and taking any action on its present status is fraught with danger.

Q: I stay with my parents in their house. Recently one of my friends advised me to pay rent to my father to claim exemption on house rent allowance. Is this allowed under the income tax rules? Is there any restriction on giving money to your parents and living under the same roof? — Rahul

A: There is a deduction available from the house rent allowance amount if the taxpayer pays rent for the premises he or she resides in. The reason your friend asked you to pay rent to your father was because then you’d be able to claim house rent allowance deduction. If no rent is paid then there’s no deduction available. However, this transaction shouldn’t be entered into to evade tax. It should be a genuine agreement between you and your father. Also, note your father would have to include the rent you pay in his taxable income.

Mumbai, November 19
Struggling Kingfisher Airlines slipped in market share to the third position in October, from second in September, ceding ground to budget airline IndiGo, government data showed.

Kingfisher is unlikely to recover lost ground in coming months because the loss-making carrier has cancelled scores of flights in November, catching both customers and government authorities by surprise and spooking investors.

Chairman Vijay Mallya said earlier this week Kingfisher cancelled the flights to stop flying on heavily loss-making routes. Kingfisher has also said some aircraft were grounded for fleet reconfiguration after the airline decided to leave its low-cost business.

Kingfisher recorded a market share of 16.7% for October, a busy season for the airline industry, trailing IndiGo at 19.6%. Kingfisher was almost neck-and-neck with state-run Air India, which had a share of 16.6%, while Jet Airways remained the dominant carrier with a market share of 24.8%, which included its subsidiary JetLite. — Reuters