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Government issues draft guidelines on GAAR
Rupee gains; PM comments spark reform hopes
Despite risks, financial system robust: RBI
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Rating downgrade could hit banks’ overseas funding: RBI
News Corp confirms plan
to split in two
SBI cuts interest rate
for exporters by 0.5%
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Government issues draft guidelines on GAAR New Delhi, June 28 The GAAR regime, announced in the Union Budget this year by Finance Minister Pranab Mukherjee, has been embroiled in controversy as foreign portfolio investors have been uncomfortable with it. A committee was set up by the Central Board of Direct Taxes (CBDT) to identify the norms to implement it and also suggest safeguards. The committee feels that in order to avoid indiscriminate application of GAAR provisions and to provide relief to small taxpayers, there should be monetary threshold for invoking these provisions. Certain apprehensions have been raised regarding the retrospective/prospective operation of these provisions. It has been clarified that the provisions will apply to the income accruing or arising to the taxpayers on or after April 1, 2013. Foreign Institutional Investors (FIIs) have expressed concerns over these provisions. The committee met representatives of the Asia Securities Industry & Finance Markets Association and the Capital Markets Tax Committee of Asia. The panel has recommended that a safe harbour could be provided to the FIIs subject to the payment of taxes as per domestic laws. It said if an FII chose not to take any benefit of a tax treaty and subjected itself to taxes in accordance with the domestic laws, the GAAR provisions should not apply to it or to the non-resident investors of the FII. If an FII chooses to take benefit of a treaty, GAAR provisions may be invoked in its case. However, these won't be invoked in case of non-resident investors of the FII. This also clears the air over the treatment of participatory note holders. The committee feels the consistency of approach is essential in procedures for invoking GAAR provisions. It also feels adequate safeguards should be provided to ensure that principles of natural justice are not violated and there is transparency in the procedures. Therefore, the committee is of the opinion that there should be prescribed statutory forms. PM to clarify on tax policy in 2-3 weeks Prime Minister Manmohan Singh will seek within the next two to three weeks to clear up confusion over tax policy that has rattled investor confidence in Asia's third-largest economy, a government official said on Thursday. Singh plans to issue an "explanatory note" on portfolio investments, an official in his office told Reuters, without giving details about what the statement would say or which tax issues it would address.
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Rupee gains; PM comments spark reform hopes
Mumbai, June 28
"It’s good for sentiment. Now we’ve to see what measures are actually announced going forward," said Agam Gupta, head of forex, rates & credit trading at Standard Chartered Bank in Mumbai. He said the rupee may remain ranged till announcements emerge from the European Union summit and any measures are actually announced by the government.
A move to retroactively tax foreign investors in the budget was also widely criticized as retrogressive. Singh will seek within the next two to three weeks to clear up confusion over tax policy that has rattled investor confidence in Asia's third-largest economy, a government official said on Thursday. Most analysts are now waiting for actual moves on the ground. "In the near term this is not going to be a factor, but any structural reforms to address India's current and fiscal deficits are necessary to support the rupee," said Sacha Tihanyi, senior currency strategist at Scotia Bank in Hong Kong. — Reuters
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Despite risks, financial system robust: RBI
Mumbai, June 28 It said that risks to domestic growth were accentuated by fiscal and external sector imbalances and added that though inflationary pressures had moderated risks remained. The central bank’s report also said banks remained resilient to credit, market and liquidity risks and would be able to withstand macroeconomic shocks, given their comfortable capital adequacy positions. Asset quality concerns, however, persist and liquidity pressures have intensified, it added. "Credit deposit growth in the banking sector have decelerated while banks' reliance on borrowed funds has increased. Banks in India will migrate to Basel III from a position of relative strength but there could be challenges in the form of higher cost of capital," the RBI said, suggesting a closer monitoring of the banks. — IANS
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Rating downgrade could hit banks’ overseas funding: RBI
Mumbai, June 28 "A change in India’s current external rating could have 'cliff effects', impacting both, the availability and the cost of foreign currency borrowing for Indian banks and firms," the RBI said in a report on financial stability. The central bank said a large part of foreign currency borrowings by Indian companies are in loans not debt. Global rating agencies Fitch and S&P have cut their credit outlook for India to negative from stable, citing a slowing economy, policy inaction and worsening fiscal, and current account deficits. S&P said there is a one-in-three likelihood of a sovereign credit rating downgrade if the situation remained unchanged. S&P has a sovereign rating of BBB- on India — the lowest investment grade. The downside risks to growth remain in the 2012/13 fiscal year that started in April, while inflation risks also persist, the RBI said. "While falling global commodity prices could aid in checking inflationary trends in the coming months, the potential impact of the lagged pass-through of rupee depreciation, suppressed inflation in energy and fertilisers and possible fiscal slippage continue to pose a threat," the report said. Prime Minister Manmohan Singh, who has taken charge of the finance ministry, summoned officials on Wednesday to formulate an economic revival plan and said he wanted to revive the "animal spirit" of conomic growth. — Reuters
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News Corp confirms plan
to split in two
New York City, June 28 News Corp's board, overseen by Murdoch, met on Wednesday and authorized management to move ahead with the separation, the company said. — Reuters |
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SBI cuts interest rate
for exporters by 0.5%
Mumbai, June 28 "SBI has cut interest rates for exporters by 50 basis points effective last Saturday (June 23, 2012). The decision was taken at the asset liability committee meeting last Saturday," SBI chairman Pratip Chaudhuri said. Export credit is linked to the bank's base rate and varies from 2.5% to 6% above that depending on various factors including credit rating of the exporter. SBI base rate is 10%. While leaving the key interest rates and cash reserve requirements of banks unchanged at its mid-quarter review last week, RBI had enhanced liquidity to exporters by increasing the refinancing limits of the outstanding rupee export credit for banks — called export credit refinance (ECR) — to 50% from 15%. The move, which the central bank claimed was a 0.50 per cent indirect cash reserve ratio (CRR) cut, will release Rs 30,000 crore into the system, thereby increasing the overall liquidity conditions. — PTI |
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Singh, who has taken over the finance portfolio after Pranab Mukherjee's resignation, specifically said the government's immediate emphasis was to manage its balance of payments.
India's Congress party-led coalition, hobbled by pressure from its key allies, has put many much awaited reforms by foreign investors like opening up the multibrand retail sector as well as the financial services sector on ice.