The Tribune, Chandigarh, India

	RBI likely to cut rates, may ease liquidity Mumbai, June 16 The Reserve Bank of India releases its midquarter monetary policy review on June 18, and weakening domestic and global economic conditions have added to the likelihood it will take action to boost growth, despite lingering inflation worries. On Thursday, India reported headline inflation at 7.55% in May, in line with expectations, which however, under ordinary circumstances would keep the RBI focused squarely on controlling prices. However, Indian GDP growth slipped to a nine-year low of 5.3% in the March quarter, and industrial production was flat in May, data this week showed, adding to a sense of urgency about the deteriorating state of the Indian economy. A Reuters poll last week showed most economists expect a repo rate cut, but few expected a cut in the cash reserve ratio, the share of deposits that banks keep with RBI. Expectations have grown since then for a CRR cut. The RBI will release its midquarter monetary policy review on Monday, and there is a broader-than-usual range of expected outcomes, according to the predictions of traders and economists. Possible scenarios: 25 BPS CUT, BOTH IN REPO RATE & CRR: Probability: One of two most likely outcomes. Many market participants are betting on a modest reduction in both the repo rate and CRR because the combination of interest rate and liquidity easing would send a signal that the RBI is keen to prop up growth by providing liquidity to banks while ensuring inflation is under control. An easing in core inflation to around 4.85% in May may give the central bank comfort to cut rates. Such an action would compel banks to cut lending rates. 25 BPS CUT IN REPO RATE, NO CRR CUT: Probability: One of two most likely outcomes The RBI may decide only to reduce rates but refrain from infusing more market liquidity, as it is already injecting cash into the system through bond purchases and may prefer to save the CRR tool for when liquidity tightens sharply. However, only a repo rate cut may not be enough to spur banks to cut lending rates, or to improve sentiment sufficiently to bolster growth. NO REPO RATE CUT, 50 BPS CUT IN CRR: Probability: Less likely To improve monetary policy transmission, the RBI could choose only to reduce the CRR, which would release liquidity and bring down banks' cost of funds immediately, enabling them to reduce lending rates. Many view a reduction in CRR as a more effective tool than a rate cut. The RBI may be reluctant to cut CRR by such a big margin, however, that could fuel inflationary pressures. 25 BPS CUT IN REPO RATE, 50 BPS CUT IN CRR: Probability: Less likely. Some investors hope the RBI turns actively dovish, betting that a big CRR cut accompanied by a rate cut ensures effective monetary policy transmission. With mounting pressure on the RBI from the government, some in the market believe the RBI may take the plunge and release an aggressively pro-growth policy. NO CHANGE IN RATES OR CRR: Probability: Unlikely With a sagging economic growth, moderate core inflation, and rising pressure from the government, it is unlikely that the RBI does nothing, as a downturn in domestic and global economic conditions has spurred calls for central bank action. — Reuters
	Indian diamond traders seek direct access to Pak market Tribune News Service Mumbai, June 16 After years of exporting to Pakistan via Dubai and Hong Kong, Indian diamond merchants are now looking to make a direct entry into the Pakistani market. A twelve-member delegation from the Gems & Jewellery Export Promotion Council (GJEPC) visited Pakistan earlier this month to explore possibilities of deepening trade relations with its neighbour. According to members of the delegation, they were encouraged by the response from the Pakistani government. The prime minister had promised to liberalize granting of visas for Indian diamond merchants, which, the members of the delegation said, would help India increase exports of gems and jewellery to Pakistan. Members of the council felt that exports to Pakistan could commence in the next few months. "The gems and jewellery market in Pakistan is estimated at US $10 billion. India's exports went up sharply in fiscal 2011-12 to $17.69 million," GJEPC vice-chairman Sanjay Kothari said. He added the Indian delegation that visited the Pakistan gems and jewellery trade show had an opportunity to present Indian talent and business potential to its South Asian neighbour. The Indian delegation also explored the possibility of importing coloured gem stones from Pakistan for value addition by Indian craftsmen. According to the Gems & Jewellery Export Promotion Council, the Indian delegation visited associations of their counterparts in Pakistan in addition to key retailers for a better understanding of that country’s market.
	Whatever euro’s fate, Europe’s reputation savaged London, June 16 Whether the euro lives or dies, the chaotic way Europe has tackled the crisis could undermine the region's geopolitical clout for years to come and leave it at a distinct disadvantage in a rapidly changing world. With an apparently never-ending series of last-minute summits and telephone calls, Europe's leaders and finance ministers have held the bloc together in the face of growing strains between states, a rising political backlash and market alarm. But with hindsight, outsiders say each measure proved too little, too late. US officials in particular complain European leaders have either failed to grasp the scale of the problem or proved unwilling to countenance the awkward political decisions necessary to fix it. As a result, they say, what should have been one of the most stable parts of the world has now become one of the most unpredictable. At one extreme, the euro area might be about to embark on a journey towards further fiscal and political union as an almost totally unitary "super state". At the other, it could unravel and collapse into an unstable mess of regional rivalry. "From almost every conversation I've had in the last year — with Chinese, with Indians, with just about anybody - the message is always the same," says Fiona Hill, a former senior officer for the US National Intelligence Council and now head of the Europe programme at Washington think tank the Brookings Institute. "Europe can no longer be trusted. It seems to be moving from being a source of stability to a driver of instability" Long-held certainties were being challenged, she said. Even non-euro member Britain suddenly appeared at risk of breaking up, with Scotland due to hold a referendum on independence that experts say could yet go either way. — Reuters
	Central bank will adjust monetary policy to spur growth: FM TNS & Agencies Mumbai, June 16 Faced with a slowing economy, Finance Minister Pranab Mukherjee said Saturday the government was confident that the Reserve Bank of India would factor in the need for accelerating growth during its midquarter review of the annual monetary policy on Monday. “Keeping in view all current factors, I’m confident the RBI will adjust monetary policy as we’re adjusting the fiscal policy,” he said during his address at the National Banking & Insurance Conference organized by industry apex chamber Assocham here. In his first public address after being nominated as the UPA candidate for the presidential elections due next month, Mukherjee listed slow growth, high fiscal and current account deficits, inflation and negative sentiments as challenges facing the economy. Conceding the central bank had limited room to tackle food inflation, the said the government would do its bit. “The supply side constraints have to be removed… the government is taking steps... (it is) ...not sitting idle. If federal finances become weak, nobody will be able to bail out the Indian economy", he added. The government, he said, is taking fiscal measures to ensure that the central finances remain strong in wake of "difficult times" and expects the RBI to take monetary steps. On the eurozone crisis, Mukherjee said India was as concerned as others whether Greece will remain part of the currency union, as the developments are also impacting the rupee’s value.
	Investor Guidance Saving long-term capital gains tax on property sale By A.N. Shanbhag Q: I'm shifting my residence and, though I've found a house to buy, I don't yet have a buyer for the apartment I'm currently living in. If I take out a loan to purchase the new property and pay it off when I sell my present flat, will the sale still be considered long-term capital gains and can I offset the two against each other to save tax? And, what is the time limit for selling my flat if I buy another property before doing that? — Vrushali A: To save tax on long-term gains on sale of property, the amount of capital gains has to be invested in a new residential property — either two years after the sale or one year before making the purchase. In your case you'll be buying a new property within one year before selling your old one. Secondly, the exemption is available upon investing the amount realized as capital gains - it need not be the capital gains amount itself. In other words, taking out a loan to buy a new property will still qualify for tax exemption as long as the cost of the new property is equal to or more than the amount of capital gains. The fact that you've used funds from the loan to buy this new property is immaterial. Q: I've been residing in the United States for the past ten years. I took up American citizenship a couple of years back and have recently applied for an Overseas Citizen of India (OCI) card. Are the Indian tax regulations for OCI card holders the same as those for nonresident Indians (NRIs)? And, is the percentage of tax paid by an Indian resident and an OCI card holder the same? — Datta A: According to Indian laws, there are two kinds of status — nonresident Indian (NRI) and Person of Indian Origin (PIO). An NRI is an Indian citizen who has not been in India for 182 days or more in the financial year. On the other hand, a Person of Indian Origin means an individual who at any time held an Indian passport, or whose father or mother or grandfather or grandmother were citizens of India by virtue of the Indian constitution or the Citizenship Act, 1955. An Overseas Citizen of India card holder, on the other hand, is a facility granted to Persons of Indian Origin for visa free travel etc.—its not an official residency status. To that extent, your question can be restated as whether the tax rules are the same for nonresident Indians and Persons of Indian Origin? And the answer to that is in the affirmative. Indian tax regulations are the same; there are minor differences so far as permissions in relation to transactions in land and property, etc. As regards your other question, note that Indian income (income generated in India) is largely taxed similarly in the hands of a resident Indian, a nonresident Indian and a Person of Indian Origin alike. However, the foreign income of an nonresident Indian or a Person of Indian Origin is tax-free in India, whereas it is taxable in the case of an Indian resident.