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Industry calls for cut in interest rates
Govt rules out raising 49% FDI cap in aviation
SBI to raise up to $2 bn through overseas bonds
India rejects S&P’s downgrade warning
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Tax Advice
Aviation Notes
Markets to remain extremely volatile
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Industry calls for cut in interest rates
New Delhi, June 17 “We are at a critical stage. One delayed step or any indecisive move is bound to wreck the industrial and services sector. There is a case for a big cut in the interest rates to revive demand for industrial products and investments. Several of the interest-sensitive segments like automobile and services sectors like banking and housing are in the grip of slowdown. RBI should use this opportunity for bold announcements,” Dhoot said. He said unlike the Wholesale Price Index (WPI) headline inflation of 7.55 per cent for April, the core inflation for the same month was 5.02, which is much lower than 7.43 per cent in the same month last year. It is the core inflation which gets impacted by the interest rates and not the prices of vegetables or foodgrains or even protein-based items. With the RBI set to review its monetary policy on Monday, CII has once again highlighted its concerns on growth and continued to advocate for a reduction in interest rates. “After the release of inflation data for May 2012, industry feels that there is enough room for the RBI to cut interest rates as warranted by the slowdown in industrial growth,” said Chandrajit Banerjee, Director-General, CII. In fact, an analysis of the inflation data reveals that it is being driven up almost entirely by food articles and fuel prices even as core inflation remains below 5%. The CII release further added that at a time when prices of commodities across the world are being driven down due to the concern about growth, India is still experiencing inflationary pressure. This is partly due to the fact that the rupee has depreciated significantly in the past few months. As a result, India has not been able to take advantage of the slide in global commodity prices. Thus, a better way to control inflation would be by preventing the rupee from depreciating further, CII said. With foreign exchange reserves in excess of $280 billion, the RBI should continue to intervene in the currency market. |
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Govt rules out raising 49% FDI cap in aviation
Hyderabad, July 17 "Now, they have all changed. See, it is a capital-intensive industry... even working capital they are not getting. It is only if you allow them to, airlines to invest 49 per cent. FDI is already allowed. We are not asking anybody to take it. It is not compulsory. Those who do not want it, fine," he said when it was pointed out that some airlines favoured raising the 49 per cent FDI cap. India allows FDI in domestic airlines up to 49 per cent but had been disallowing foreign airlines from investing in the sector. The government, however, is now planning to allow foreign airlines to pick up 49 per cent stake in their Indian counterparts. The ruling coalition partners are also being brought on board on the issue of FDI in aviation, Singh said on the sidelines of a book release function. — PTI |
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SBI to raise up to $2 bn through overseas bonds
Mumbai, June 17 He said although the bank is yet to decide on the exact size of the issue, it will not go for a smaller issue size, saying it does not help a bank of its size. The fund infusion will help the bank augment its tier-II capital adequacy. Its total capital adequacy had stood at 13.9 per cent in March 2012, with the core tier-I constituting for over 9 per cent. The bank, which was downgraded by the rating agency Moody's last year over fears of asset quality and lower capital adequacy ratio, has not decided the exact geography to raise the money. But, Chaudhuri sounded confident that it will not have trouble getting the commitments even in the present times which are filled with signs of gloom. He said the bank has written to Moody's recently to reconsider and upgrade its rating following the infusion of Rs 8,000 crore capital from the government late last fiscal and a "war against non performing assets" which it is winning. "We were not in a position to apply for a reversal of the action as our last quarter results were yet to come out and we did not have any numbers to show. Once the results were out, we have written to them," Chaudhuri explained, stating that it will take some time for the rating agency to take action. — PTI
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India rejects S&P’s downgrade warning
New Delhi, June 17 "They (S&P) have their own prism. But we remain a robust and a growing economy. That cannot be taken away," said a senior official ahead of Prime Minister Manmohan Singh's participation in the G-20 Summit in Mexico. "The S&P does not determine what we at BRICS think about each other," the official said. The global rating agency in its recent report said that India could be the first BRIC nation to falter and fall below investment grade in the ratings. Besides India, the other members of the five-nation bloc that have been the new growth poles of the global economy are Brazil, Russia, China and South Africa. It is highly unlikely for the G-20 to point out that the Indian economic growth is losing steam and that it should take necessary measures to restore the economy on the growth path, the sources said. The rating agency, which had lowered India's rating outlook to 'negative' from 'stable' in April, said the Congress party is divided on economic policies and there is substantial opposition within the party to any serious liberalisation of the economy. Finance Minister Pranab Mukherjee had dismissed the S&P's contention and expressed confidence that there will be a turnaround in the country's growth prospects in the coming months. "This (S&P report) is not based on a fresh rating action ... Between April 2012 and now there are no significant events to indicate that the economy's vulnerability to shocks has increased, though the growth numbers for the fourth quarter 2011-12 have come below the expectations," he had said. — PTI
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No tax on gift to grandson
By S.C. Vasudeva Q. I want to gift Rs 1 lakh to my grandson aged 11 years by way of depositing the amount in his bank account (through cheque). The account is solely in his name under the guardianship of his father. My queries are:- (a) Will there be any gift tax liability? If yes, then in whose hands? (b) In whose income, the interest received on this amount will be clubbed, in mine or in his father’s. (c) Whether the exemption of Rs 1,500 under Section 64(1)A will be admissible from the interest income? — S. Chand A: (a) There will not be any gift tax liability in respect of gift made to your grandson. (b) The amount of interest earned on the gifted amount would be clubbed with the income of your son in accordance with the provisions under Section 64(1A) of the Income Tax Act 1961 (The Act). (c) Your son would be able to claim an exemption of Rs 1,500 from the income so clubbed in view of the provisions of Section 10(32) of the Act. Q. For the financial year 2011-12 (Assessment Year 2012-13) what will be the tax liability of a senior citizen (76 years). The details of income is as under: Total income: Rs 8 lakh approx. (from all sources) Savings u/s 80C: Rs 1.20 lakh — A senior citizen A. Your total income on the basis of figures given in the query would work out Rs 7 lakh as you would be entitled to claim deduction of Rs 1 lakh only under Section 80C of the Act. The tax computation on the above income is worked out as under: Up to Rs 3 lakh (after giving exemption of Rs 2.50 lakh): Rs 5,000 On next Rs 2 lakh @ 10%: Rs 20,000 On next Rs 2 lakh @ 20%: Rs 40,000 Education cess @3% thereon: Rs 1,950 Total: Rs 66,950 Q. a) Can any HUF out of fund of HUF contribute Rs 1 lakh in a PPF account of any member of HUF (son of Karta of HUF). b) Can a father put Rs 1 lakh in a PPF account of his minor son and get rebate u/s 80C. — Ramesh A: (a) At present, it is not possible to open a PPF account in the name of an HUF. Therefore, it may not be possible to deposit a sum of Rs 1 lakh in a PPF account of an HUF. (b) Your father can open a PPF account in the name of his minor child and due deduction would be allowed under the provisions of Section 80C of the Act. Q. I have an annual interest income of more than Rs 10,000 on savings bank account. a) My query is whether entire amount of interest is exempt from income tax? If so, under which section of the I-T Act. c) Whether interest up to Rs 10,000 is exempted and remaining amount is taxable? Please clarify. — Mohinder Singh A: The Finance Act, 2012 has introduced a new Section 80TTA applicable for assessment year 2012-14 and onwards. This section provides that where an assessee (individual or HUF) receives interest for deposits (not being time deposits) with a bank or post office, such amount shall be eligible for deduction from the total income subject to a ceiling of Rs 10,000. You will, therefore, be able to claim such deduction to the extent of Rs 10,000 in respect of interest earned in savings bank account for the year ended 31st March, 2013. The Finance Bill provides that in case of senior citizens tax deduction provisions would not apply if the amount of interest exceeds Rs 10,000. The senior citizen assessee would also not be liable to advance tax thereon and would discharge their tax liability at the time of filing the tax return under Self-Assessment Scheme.
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DGCA, a mere paper tiger now
By K.R. Wadhwaney All kinds of irregularities, incidents, offences and sharp rise in fares on domestic routes have been taking place only because the Directorate-General of Civil Aviation (DGCA) has not been exercising its control. From the regulatory authority, it has turned into a ‘paper tiger’, who barks without awarding punishment to the defaulters. In a recent incident, as an Air India aircraft became fully air-borne and the woman pilot, Urmila Yadav, was retracting under-carriage on the Silchar-Guwahati route, with 48 passengers on board, the Air Traffic Control (ATC) informed her that her aircraft had lost a wheel. With an experience of 4,000 flying hours and immense self-belief, Urmila landed ATR-42 safely without any passenger suffering even minor injury. The passengers complimented her for her presence of mind and ability. While this augured well for the troubled airline, the news came that the fallen landing gear was changed only four days earlier. This showed that the engineers had not done their job properly and serious lapse could have been suicidal for 48 passengers and four crew members. Recently, on the Leh-Jammu route, in utter violation of safety rules, a private aircraft carried two senior Army officers in the cockpit. This is a gross violation, according to the rules of the International Civil Aviation Organisation (ICAO). Following a complaint by the passengers, the DGCA is conducting a probe. According to reports, the DGCA has also found some errors and omissions in the TRIM sheet, which carries stipulated details about the passengers. This dangerous incident took place on June 7, but it is not known what action has been taken against the defaulting commander and co-pilot and what action the Army has taken against officers for illegally flying while sitting in the cockpit. The fare structure on domestic routes is shockingly changing from minute-to-minute with authorities being no more than mute observers. This is because of DGCA’s laxity. What is shocking is that even international fares have become unstable and the International Air Transport Association (IATA) is doing nothing to regularise the fare structure. Despite the pilots’ continued strike, there was no justification for suspending the Amritsar-Delhi-Toronto flight. The discontinuation of operation has caused an enormous inconvenience to NRIs, who are on vacations in Punjab.
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How to plan your savings
Andrew Cartwright or many people, saving is great in theory but difficult in practice. When you start your first job, there are often study loans to be cleared. After that there are immediate needs and wants that eat into income, like buying your own two-wheeler. Once you are married, there is a cost of bigger and better accommodation. Then soon after that costs rise again with the arrival of children. Reality is that many of us struggle to get into a saving routine. So, the best place to start is with a budget (what is your income and what are your expenses). Then classify your expenses as either essentials (like rent, basic food stuffs, commuting costs, healthcare, life and disability cover, basic clothing, education costs etc.), and luxuries (like entertainment, excessive mobile usage, fancy shoes, holidays etc.). You may need to cap the amount spent on luxuries, but don't try to remove all these costs - we all need to reward ourselves occasionally. Now, you can assess what your surplus income is (take-home pay minus expenses). If your surplus income is less than 5% of take-home pay, you cannot afford to enter into any contractual savings. Relook at your costs, and see if you can increase the surplus. If you can't, try to get into the habit of putting the surplus into your bank account, and avoid the temptation to empty your bank account to pay for luxuries. Only use your savings in an emergency. If your surplus income is between 5% and 10% of take-home pay, I recommend that you consider setting aside up to 5% for contractual savings, and keep the balance in your bank account. The best vehicle for contractual savings depends on your savings horizon. 1. If you want to save up a deposit for a house or motor vehicle (over the next 1 to 5 years) you should probably opt for a recurring deposit with a bank (you can also consider debt mutual funds or even equity mutual funds if you are not risk averse). 2.If you want to start saving for your children's higher education (over the next 10 to 15 years) you should probably consider a traditional child education policy (which will typically come with extra protection). There are also unit-linked investment products if you want more choice regarding the investment linkage. 3.If you want to start saving for your retirement (over the next 10 to 40 years) you should consider contributing to your employer's superannuation scheme (if available), to the National Pension Scheme, to the Public Provident Fund, a long-term ULIP or traditional endowment plan/pension plan. Some endowment plans provide regular tax-free benefits over many years. The tax payable on an annuity may not be a major concern if your post-retirement income isn't likely to be heavily taxed. If your surplus income is more than 10% of take-home pay, I recommend that you put around 5% of this into a savings account, until you have accumulated sufficient to cover 3 months' expenses (this is your emergency fund to help you in the event that you cannot work or if the family incurs major medical costs). The rest can be saved in the vehicles mentioned above according to your savings horizon. I have not tried to cover the mix of investments, as this is really a matter of personal risk profile. Traditional wisdom recommends that you have a third of your assets in property (typically your own home), a third of your assets in shares and a third of your assets in debt instruments. However, in India many people want to invest in gold (a wise investment in recent times, but a poor investment over most periods). The exact split is not critical, but it is critical that you diversify: * Don't put all your savings into property, especially not one property * Don't put all your savings into long-dated bonds * Don't put all your savings into shares, especially not one share * Don't put all your savings into one bank account * Don't put all your savings into one insurance policy I have just scraped the surface of this topic - there is so much more you can consider. However, remember that: * You need to start with a budget * You may need to restrict spending on luxuries * You then need to stick to your plan and save on a regular basis * You need a range of investments (diversify). The author is Chief Actuary at Kotak Mahindra Old Mutual Life Insurance. The views expressed are his own
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Markets to remain extremely volatile
The week gone by was choppy, volatile and extremely confusing. Poor IIP numbers should have seen the market falling but comments by the SBI CMD that RBI should cut rates by 100 basis points saw markets gaining. With three days of net 200 point moves on the Sensex, the net change was much smaller compared to the net change on the indices. The BSE Sensex gained 230.96 points or 1.38% to close at 16,949.83 points. The Nifty gained 70.70 points or 1.39% to close at 5,139.05 points. The broader indices like the BSE500, BSE200 and BSE100 gained significantly lesser with gains of 0.90%, 1.02% and 1.14%. The BSE Midcap lost 0.50% while BSE Smallcap gained 0.40%. Among sectoral indices, the biggest gainer was BSE FMCG up 3.38% at 4,838.87 points. This, incidentally, is the lifetime high of this index. The other significant gainer was BSEIT, up 2.64%. The loser was BSE Realty, which was down 1.70%. In individual stocks, PFC was the top gainer, up 8.81%. Hindustan Unilever gained Rs 21.75 or 5.08% to close at Rs 450.10, a lifetime high. It is more than mere coincidence that HUL and BSE FMCG are both at lifetime highs. Other gainers included Infosys up 4.18%, Coal India up 4.09% and ITC up 3.5%. Losers in individual stocks included Axis Bank down 1.62%, Maruti down 1.51% and Sesa Goa down 1.52%. FIIs were net buyers of shares worth Rs 939 crore while domestic institutions sold shares worth Rs 533 crore. The rupee appreciated marginally to Rs 55.40. Global markets gained but are keenly watching the outcome of Greece elections. It may also be mentioned that the concern that Greece may leave the Euro willingly or be asked to leave, is not an event that will happen within days of the election result. Secondly, in the end, the decision of Greece may be a blessing in disguise in keeping the remaining Euro countries together. The week gone by was action packed. Tuesday had disappointing IIP numbers, Thursday saw inflation numbers, which refuse to go down and finally on Friday we saw advance tax numbers which has higher tax outflows of about 10% from the top 100 companies. In election results from Andhra Pradesh, Jagan Reddy won 15 of the 18 assembly seats and the lone Lok Sabha seat, which would open up another front against the ruling Congress. The week ahead would begin with Greece election results and by mid-afternoon RBI would have announced the new rates. It is widely expected that rates would be cut this time around and with pressure being exerted by the government for a bigger cut, one may expect a 25 basis points cut in CRR and repo rate. If only the repo rates are cut by 25 points, the market would react adversely while a combined 50 points would be reason for rally. There is also expectation that after the nomination of the present FM for the post of President, the PM would retain the portfolio of finance with himself. With troublesome ally TMC out of the picture, the reforms which have been stalled could see the light of day. If diesel prices are raised in the next 10 days, it would raise expectations and see markets rallying further. The markets in the coming week will be extremely volatile and depend largely on the way RBI behaves. The BSE Sensex has support at 16,778, then at 16,511, then at 16,265 and finally at 16,065 points. It has resistance at 17,044, then at 17,093, then at 17,311 and finally at 17,508 points. The NSE Nifty has support at 5,090 points, then at 5,054, then at 5,013, then at 4,965 and finally at 4,923 points. It has resistance at 5,167, then at 5,185, then at 5,244, then at 5,284 and finally at 5,316 points. key pointers * Key market indices closed higher for the second week in a row on expectations that RBI will cut interest rates at mid-quarter monetary policy review. The BSE Sensex gained 230.96 points or 1.38% to settle at 16,949.83 for the week ended June 15 while the Nifty rose 70.70 points or 1.39% to close at 5,139.05. The market rose for three out of five trading sessions * In the coming week, RBI policy and Greece election will dominate the trading sentiments. Also, progress of the monsoon, a two-day meeting of the Federal Open Market Committee on US interest rates and G20 summit will decide the near-term trend on the stock markets * The RBI is seen cutting its key policy rate viz. the repo rate by 25 basis points on Monday (June 18). Easing of core inflation, falling crude oil prices, weak industrial production data for April 2012 have raised expectations that RBI will cut interest rates to revive growth * The poll in Greece on Sunday (June 17) could potentially decide whether the nation will remain in the euro zone The writer is founder of KRIS, an investment advisory firm. The views expressed are his own
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personal finance
Assocham has made a strong case for RBI going in for at least 50-100 basis point cut in repo rate and a CRR cut of 100 bps so that a strong message is sent to help revive the sagging Indian economy.
