The Tribune, Chandigarh, India

BUDGET 2012
Income tax exemption limit may be raised to Rs 2 lakh

New Delhi, February 6
The government is likely to provide some relief to individual income tax payers in the forthcoming budget for fiscal 2012-13 by raising the exemption limit to Rs 2 lakh, as provided in the Direct Taxes Code (DTC), and hiking the slabs for different tax brackets.

The possibility of lowering the tax rates, however, is remote in view of the fiscal constraints being faced by the government, sources said, adding that the government will take on board some of the key recommendations of the DTC.

The Direct Taxes Code, which is currently being scrutinised by the parliamentary standing committee, has suggested that the income tax exemption limit be hiked to Rs 200,000 from Rs 180,000 at present. It also proposes that the highest personal income tax rate of 30 per cent should apply to annual income above Rs 10 lakh, as against Rs 8 lakh.

Finance Minister Pranab Mukherjee will be unveiling the budget proposals for fiscal 2012-13 sometime around mid-March. The industry too is demanding that in view of high inflation, the income tax slab should be increased although the government may retain the existing tax rates.

Confederation of Indian Industry (CII) director general Chandrajit Banerjee suggested that basic exemption limit should be increased from Rs 1.8 lakh to Rs 2.5 lakh for individuals.

"We have suggested that the income in the range of Rs 2.5 lakh to Rs 6 lakh should be taxed at the rate of 10 per cent, whereas that in the next slab up to Rs 10 lakh can be taxed at the rate of 20 per cent. Above Rs 10 lakh, it should be taxed at 30 per cent," Banerjee said.

Federation of Indian Chambers of Commerce & Industry (FICCI) secretary general Rajiv Kumar said the government should incentivize people to come into tax bracket.

"Given the revenue constraints, the income tax rates for individuals may not be reduced. It is, however, imperative that the peak rate of 30 per cent for such assesses be made applicable over an income of Rs 10 lakh, against Rs 8 lakh at present," Kumar said.

Associated Chambers of Commerce & Industry of India (Assocham) president Dilip Modi said the upcoming budget should provide basic exemption limit of Rs 2 lakh and the tax rate of 10 per cent should apply to persons having income above Rs 2 lakh and up to Rs 5 lakh.

Calling for raising the tax exemption limit, PHD Chamber of Commerce & Industry (PHDCCI) secretary general Sushmita Shekhar argued that it is necessary to increase disposable income and boost demand in the economy.

"India is a consumption led economy. The role of the private sector consumption in boosting overall economic growth is immense," she added. — PTI

‘India’s gold imports unsustainable’
Boost financial instruments, says Assocham
Sanjeev Sharma/TNS

New Delhi, February 6
There are growing concerns over gold imports and the consequent impact on ballooning current account deficit and locking up savings in unproductive avenues.

The Associated Chambers of Commerce & Industry of India (Assocham) in a study has pointed out that gold imports are unsustainable and savings need to be diverted to other financial instruments.

The finance ministry recently raised import duties on gold and silver to make them more expensive but, given India's love affair with gold and as a time tested instrument of savings, especially in rural areas, deterring gold consumption is neither a popular move nor easy.

The new rates on ad valorem basis – 2 per cent on 10 grams of gold and 6 per cent on one kilogram of silver – mean importers will have to pay double the duty.

Being the world’s largest gold importer, India accounts for nearly one-third of annual demand with import bill rising from US $4.1 billion in fiscal 2001-02 to $33.8 billion in 2010-11.

The Assocham study says at these levels, gold imports are a huge burden on the balance of payments and accentuates the current account deficit. On the other hand, it represents a massive strain on investable resources and weaning away domestic savings from gold assume importance as gold does not add much to the productive capacity of an economy.

The total import value of gold last fiscal was higher than the gross state domestic product of 12 states and budgeted estimated expenditure on fertilizers and food subsidy. India imported more gold than the annual budgeted estimated expenditure outlay on water supply, urban development and sanitation, the study says.

India has one of the highest savings rate in the world to the tune of 30% but even with the launch and spread of several financial instruments, gold continues to grow in demand partley because of India’s distinct social and cultural landscape.

The other reason is that despite all the fancy financial analysis, given the economic turmoil all over the world in the last 4-5 years, gold has been steadily rising and given good returns. So, in a sense the home grown financial acumen of people buying gold has been rewarded with gold touching record highs last September.

There are expectations that import duties on gold and silver may be hiked further in the budget to mop up revenues to contain the fiscal deficit and deter more imports to cushion the current account deficit. However, though it may make sense as a policy formulation given gold’s emotional quotient in Indian families, it may not be very popular.

Assocham has suggested introducing more financial saving instruments through post offices and extensive education campaigns should be undertaken particularly in rural areas to minimize the propensity towards gold.

Riddisiddhi Bullions director Prithviraj Kothari says traditionally, gold has been known as a safe-haven asset and a hedge against inflation. In countries such as India, it also has mythological, historical, economic, social and cultural significance.

“Because gold is a safe haven asset, continued uncertainty over global economic growth, geopolitical instabilities, concerns over long-term inflationary pressures and financial market worries can create a climate conducive for investors to flock back to the yellow metal”, Kothari added.

S&P threatens negative rating for India?

New Delhi, February 6
Global rating agency Standard and Poor's on Monday warned that "the balance of risk factors" for India's sovereign credit rating could tilt towards 'negative' zone this year, given the headwinds being faced by the country on domestic and global fronts.

However, S&P maintained that it does not expect to downgrade or revise its 'stable' outlook on the investment grade 'BBB-' long-term sovereign credit rating on India in the near future.

At the same time, S&P said, India is battling with high inflation, a weak government fiscal position, and slower economic growth on domestic front, while European sovereign debt problems could add to the pressures for the country.

"Like many countries, India is facing some challenges on a few fronts, and the balance of risk factors for the sovereign credit rating may be shifting slightly toward the negative," S&P Ratings Services said in a report.

"Standard & Poor's doesn't expect to downgrade or revise the outlook on the long-term rating in the near future. However, the negative factors, combined with the government's weak policy formulation and implementation, may lead us to a tipping point," S&P credit analyst Takahira Ogawa said.

"India has been grappling with a political gridlock and the government's ability to implement measures to improve economic growth and fiscal prudence will be vital to boosting confidence," Ogawa said.

According to the report titled Several Factors Could Weigh On India's Current Stable Sovereign Rating In 2012, high inflation, a weak government fiscal position, and slower economic growth have hurt investor confidence in the rupee, triggered a capital outflow, and weighed on the stable sovereign outlook on India in 2012.

"Our stable outlook on the 'BBB-' long-term rating on India currently reflects our expectation of strong economic growth in the medium term and gradually improving fiscal performances," Ogawa said. He further noted S&P has "factored in inflation and political uncertainty, which may lead to higher government subsidies and stalled reform efforts."

At the recently held World Economic Forum annual meeting in Davos, S&P President Douglas Peterson had said they have an investment grade rating with a stable outlook on India and the country is more likely to improve further on this. — Agencies

Greece debt level spikes, Italy's dips

Brussels, February 6
The EU's statistics office says Greece's debt spiked to 159.1% of GDP in the third quarter of 2011. That's up from 138.8% a year earlier, 154.7% in the second quarter and by far the highest level in the eurozone.

Monday's figures underline how Greece's debt continues to spiral up despite massive spending cuts.

Eurostat says Italy, which has the second highest debt, managed to bring its borrowings down to 119.6% of GDP from 121.2% in Q2. That is up only marginally from 119.1% a year earlier. — AP

Autos, software, services threaten
EU-India free trade deal

Brussels/New Delhi, February 6
Hopes of India and the European Union striking a free trade deal at a summit this week are fading fast, with differences over duties on cars and market access for software and service companies standing in the way of an accord. At stake is an agreement that would create one of the world's largest free trade zones by population — covering 1.8 billion, or more than a quarter, of the world's people.

Disagreement over duties on car imports, India's tariff on European cars is nearly 10 times greater than Europe's on Indian vehicles, and a dispute over access for Indian software companies to the EU market are set to scupper an agreement, with time running out on negotiations.

EU leaders will meet their Indian counterparts in New Delhi on February 10, having declared at a summit last year that they hoped to sign a free-trade deal before the meeting. Publicly, officials in both Brussels and New Delhi are remaining upbeat.

"We're trying to wrap things up, see what you can close, see what you can't close," said one senior Indian government official, speaking on condition of anonymity. "Things are slowly but surely falling into place."

But not everyone is hopeful. The EU ambassador to India suggested in January that the best that could be expected from the summit was a "political framework" for a deal further down the road, without a timeline being set.

With the Doha round of global trade talks effectively dead, the world's major economies are looking more to bilateral trade agreements. The European Union, the world's largest trading bloc by value, struck a deal with South Korea last year and is in negotiations with Japan, Canada, Malaysia and others.

For India, an Free Trade Agreement (FTA) would help its rapidly growing companies expand into the EU, the country's biggest trade partner, the buyer of more than 40 billion euros worth of Indian goods and services in 2010. Europe, large parts of which probably sank into another recession last quarter, wants access to a vast, young, vibrant market of 1.3 billion potential customers.

Trade between the two is growing - the total value of EU-India goods and services exchanged was 86 billion euros in 2010. While trade with India represented just 2.4 percent of the EU's total, the percentage has been gradually increasing.

India, Asia's third-largest economy after China and Japan, has enjoyed two decades of rapid growth powered by IT and outsourcing, even if manufacturing has lagged, weighed down by red tape and creaky infrastructure.

Autos are a core export for Europe. Premium brands such as BMW AG and Volkswagen Group's Audi would like to sell more to India's newly wealthy. But Indian places tariffs of 60% on imported EU cars, while the EU takes just 6.5% of the price of cars imported from India, according to the European Automobile Manufacturers' Association (ACEA). — Reuters

Lamborghini to follow Porsche with SUV

Paris/Berlin, February 6
Lamborghini, the maker of low-slung supercars once advertised as "closer to the road", is planning a new model that will be further from the tarmac than ever: an SUV. The Italian brand, owned by Volkswagen, aims to announce the vehicle at April's Beijing auto show for a 2016 launch, according to two people with knowledge of the strategy.

At the risk of alienating purist fans of its 313,000 euro Aventador carbon-fibre sports car, Lamborghini hopes to repeat the Porsche Cayenne's success in the fast-growing market for luxury four-by-fours.

"An SUV could be cool, but it would have to be the fastest on the planet and look extreme," said Andrew Romanowski, president of the world's biggest Lamborghini owners' club, based in Los Angeles. "If it turned out like a run-of-the-mill BMW X5, it would be a betrayal," Romanowski said. "People would be very upset."

The planned vehicle reflects a push to increase profitability at Lamborghini and VW stablemate Bentley, with new models to meet upscale demand for all-wheel-drives. Britain's Bentley last year announced tentative plans for its own SUV.

"Porsche proved it works, to the industry's great surprise, and now everyone is flocking in," said Christoph Stuermer, Frankfurt-based research director at IHS Automotive. By 2015, sales of the plushest SUVs will rise about 20% in Western Europe, 30% in the US and 50% in China, the consulting firm predicts. —Reuters

Hind Unilever Q3 net spurts 18%

Mumbai, February 6
Hindustan Unilever Ltd , India's largest consumer goods maker, warned of growing competitive and cost pressures, raising concerns about its ability to maintain the volume growth that helped it report a higher-than-expected 18 percent rise in third-quarter net profit.

A surprisingly large 7% drop in advertising and promotional spending costs also unsettled investors, who knocked the stock down as much as 4.2% on Monday .

The Indian unit of Anglo-Dutch conglomerate Unilever Plc said its net profit rose to Rs 7.54 billion ($154.86 million) for the fiscal third quarter ended Dec 31 from Rs 6.38 billion a year earlier.

The company, whose earnings were led by a mix of robust volume growth and price increases, highlighted a slowing pace of growth in the consumer goods market during the quarter.

"The competitive intensity in an attractive market like India will continue to grow," chief financial officer R. Sridhar said in an earnings conference call. "Also, the inflationary pressures which we have been witnessing will rise and the volatility in commodity costs front will remain."

HUL, which the market values at $17.7 billion, makes popular brands such as skin fairness cream Fair and Lovely, Clinic Plus shampoo, and soap brands such as Dove.

Net sales for Q3 rose 16% to Rs 58.5 billion, with a 9% underlying volume growth, which was in line with market estimates. Analysts on an average had estimated a profit of Rs 7.1 billion on sales of Rs 58.8 billion, according to Thomson Reuters I/B/E/S. — Reuters