New Delhi, September 18
India Inc is looking forward to 'out-of-the-box solutions' from new RBI Governor Raghuram Rajan in his maiden monetary policy announcement on Friday to boost investment cycle and revive economic growth.

"Given that growth in the economy is at a low point, business confidence is weak and the investment cycle has come to a grinding halt, we expect the new RBI governor to initiate measures that would enthuse the market participants, boost investor sentiment and bring confidence back in the economy," industry body Ficci's senior vice-president Sidharth Birla said.

Rajan, who took over as RBI Governor on September 4, is scheduled to unveil on Friday mid-quarter monetary policy review, an event keenly awaited by industry and banks.

Birla said the RBI should take steps to remove 'apprehensions' which continue to grip members of Indian industry despite consistent efforts by both the central bank and the government.

Assocham president Rana Kapoor said: "We expect some out-of-the-box solutions to ensure adequate credit at low rates so that India can revert to the growth trajectory".

RBI, he said, needs to cut rates to boost investor confidence notwithstanding several constraints such as rising inflation and volatile rupee.

Suman Jyoti Khaitan, president of PHDCCI, said at this juncture, a repo rate cut was needed to facilitate industrial production process and to gain in the international markets by enhancing exports scenario.

"It will not only contain current account deficit (CAD) but also help fiscal consolidation through increased revenue earnings of the government," he said.

Prime Minister's Economic Advisory Council (PMEAC) chairman C Rangarajan recently said inflation and forex market conditions are expected to weigh on the RBI decision when it reviews the monetary policy.

The wholesale price based inflation rose to six-month high of 6.1 per cent in August. The rupee had touched a historic low of 68.85 against the US dollar last month, but has strengthened since then.

Industry has been blaming high interest rate regime for slump in growth, which in the April-June quarter of this fiscal slipped to 4.4 per cent from 5.4 per cent in the same period last year. — PTI

New Delhi, September 18
With little headroom to cut interest rates, the Finance Ministry and the RBI are considering a plan to give cheaper funds to banks to lend to the auto and housing sectors as the festive season approaches.

"The Finance Ministry is evaluating a scheme launched by the Bank of England wherein it provides funding to banks and building societies at lower rates," a ministry official said.

RBI Governor Raghuram Rajan, who will present his maiden policy on September 20, held discussions yesterday with Prime Minister Manmohan Singh and Finance Minister P Chidambaram on the macro-economic situation.

"The RBI has constant consultations with the Finance Ministry. This meeting was part of that. We discussed the whole gamut of issues," Rajan told reporters after meeting Chidambaram.

The Bank of England launched the Funding for Lending Scheme in 2012, providing incentives for banks and building societies to boost their lending. Both the price and the quantity of funding provided are linked to their lending performance, according to the Bank of England website.

A similar scheme by the RBI and the government would allow consumers to access funds at lower rates to buy vehicles and houses and possibly boost the automobile and real estate sectors, which are bearing the brunt of slowing economic growth and demand compression.

At its previous policy review in July, the RBI kept key interest rates unchanged on account of a weak rupee. The repo rate stands at 7.25 per cent, the reverse repo rate at 6.25 per cent and the cash reserve ratio (CRR) is at 4 per cent.

This time, the RBI's options may be limited by the high rate of inflation and a volatile rupee. Wholesale prices in August climbed 6.1 per cent, the fastest pace in six months.

The rupee, which depreciated to a record low of 68.85 against the dollar on August 28, has recovered some ground and closed yesterday at 63.37.

Industry has clamoured for a reduction, blaming the high interest rate regime for the slowdown. With the peak festival season round the corner, bankers are pressing for a cut in the CRR and policy rates to help boost demand for manufactured goods and revive sagging economic growth.

"We have recommended a cut in CRR, repo rate and asked the RBI not to restrict the MSF (marginal standing facility) to a particular number," State Bank of India chairman Pratip Chaudhuri said yesterday. — PTI

New Delhi, September 18
Notwithstanding a sharp rebound in equities, Goldman Sachs today said it stays ‘underweight’ on Indian shares and has a Nifty 12-month target of 5,700 as the country's macro fundamentals are still ‘challenged’.

According to the global financial services major, the domestic growth outlook for the Indian economy remains challenged, which coupled with tighter financial conditions may lead to lower valuations.

In late July, Goldman Sachs had downgraded Indian equities to 'underweight' saying domestic growth outlook looked weak. "Since then, the overall micro outlook has not changed much", it said.

"We expect earnings to grow 8 per cent in CY14 expected, 5 percentage points below consensus estimate of 13 per cent," Goldman Sachs said adding "we stay UW (underweight) on India with Nifty 12-month target at 5,700".

After correcting 13 per cent from its July highs, the wide-based NSE benchmark index Nifty posted a 10 per cent snapback rally in less than a week following the new RBI governor Raghuram Rajan's announcements and is currently hovering around 5,800 level.

"Equities may extend their rally in the near term as markets worry less about the 'Fed tapering', but we would expect such a rally to fade and for markets to move lower in-line with the deteriorating fundamentals," it said. — PTI

New Delhi, September 18
In a bid to ensure that there would be no legal tangles with regard to creating a tariff authority which would periodically review the conditions under which the Indian Railways works and whether there was a need to alter the fares and freight, the government has sought legal view for setting up the Rail Tariff Authority (RTA).

Reports said the Railway Ministry has written to the Law Ministry seeking its views on the setting up of the authority through an executive order without taking the due course of legislation.

The government wants to know whether the methodology adopted would stand constitutionally. Besides, the proposal, given an in-principle clearance by the Union Cabinet, has a clause that the government must seek a legal view from the Ministry of Law before setting up the tariff authority.

The Railway Ministry wants to be sure that setting up such an authority would stand in the court of law and is constitutionally sound.

Further move on the setting up of the authority would only be made after a clearance is received from the Law Ministry.

The Rail Tariff authority would be a five-member body. The four members would be employees of the Central Government and the chairman cannot be from the central government unless he has served at the Secretary level.

The selection committee for the Rail Tariff Authority would consist of Cabinet Secretary, Chairman, Railway Board, Finance Secretary and one expert by Railways.

Setting up of the tariff authority became essential for the government due to the falling financial health of the Indian Railways in the wake of successive Railway Ministers toeing the populist agenda refrained from raising the passenger fare even though the 'full coffers' of the public sector organisation continued to bleed.

For almost a decade, the successive Railway Ministers did not raise the passenger fares leading to a skewed operating ratio for the railways.

The main job of the RTA would be to frame tariffs considering the Central Government projection of plan and non-plan requirement of funds. 

New Delhi, September 18
The Union Cabinet could approve a proposal to hike dearness allowance to 90 per cent from existing 80 per cent, a move that would benefit about 50 lakh central employees and 30 lakh pensioners.

"The Union Cabinet will take up for discussion and approval a proposal to increase dearness allowance to 90 per cent at its meeting scheduled on September 20. The hike would be effective from July 1, this year," a source said.

The increase in DA to 90 per cent would result in additional annual expenditure of Rs 10,879 crore. There would be additional burden of Rs 6,297 crore on exchequer during 2013-14 on account of this hike in DA.

There would be a double-digit hike in DA after about three years. It was last in September, 2010, that the government had announced a hike of 10 per cent to be given with effect from July 1, 2010.

DA was hiked to 80 per cent from 72 per cent in April, 2013, effective from January 1, this year.

As per the practice, the government uses CPI-IW data for past 12 months to arrive at a number for the purpose of any DA hike. The retail inflation for industrial workers between July 2012 and June 2013 was used to compute the increase in DA. — PTI 

New Delhi, September 18
In a bid to reduce disputes over transfer pricing by multinational corporations (MNCs), the government today notified new norms after consultations with stakeholders.

According to a Finance Ministry statement, the draft safe harbour rules were placed in public domain along with Central Board of Direct Taxes (CBDT) statement seeking comments of various stakeholders. The comments received from various stakeholders have been considered and necessary modifications have been made to the draft rules.

The safe harbour rules shall be applicable for five assessment years beginning from assessment year 2013-14.

A company can opt for the safe harbour regime for a period of his choice but not exceeding five assessment years.

In case of transactions in the nature of routine ITES and ITS activities, the earlier ceiling of Rs 100 crore has been removed.

Transfer pricing is used by MNCs to reduce their tax liability by paying for services across their different units.