Indian Economy - News & Discussion Oct 12 2013

[Prem]

I would have expected headlines in WSJ, Bloomburg, Economic Times, New York Times, Times etc such as "The elephant finally moves ahead of the dragon", "The silent rise of chaos", "Chaos prevails over discipline", "Worlds largest democracy is now its fastest", "The upcoming Indian decade in Asia" etc etc.

Basically invite all anti-Indian forces to come together. None from above is our friend & well wisher. Aam Khane Se Matlab Naaki Dhindora Peetne Mey 10 years from now when we have quadrupled our GDP, then numbers will speak for themselves. Current Economic-Geopoitic call for India to operate like Diesel Submarine with AIP i.e run silent, run deep and then resurface .

[panduranghari]

Why is there such a luke warm response from the international financial institutes about India growing at 8+% in the coming years ? India will be, for the first time, be world's fastest growing major economy ahead of China, the darling of the international investment community. Is this just a fluke due to accounting adjustments or is this growth for real on the ground? The silence seems international folks are not buying this growth story yet.

Because the Indian growth story is small and medium scale industry based. These industries cannot compete with multinationals. But multi nationals cant compete with the small scale industries without active collusion with the politicians. Why would a multinational bank be interested or go gaga over Indian growth story? They do not get to make money by acting like advisors like they do when big M&A activity is going on.

[Sanjay]

Apologies for this question, but if the current economy is US$2.2 trn or so, at present growth rates, would India not be poised to overtake Brazil or perhaps even the UK by the end of this fiscal ?

[panduranghari]

Sanjay saar,

Indian GDP is 3rd in the world in Purchasing power parity terms. This is the only measure in GDP terms that matters. It removes a lot of noise and also ingenious accounting used by many countries (like prostitution used in GDP measurement in UQ). It is not a complete measure of Indian economy as the unorganised sector (that dominates Indian economy) is not included in the measurement.

If we account for the unorganised sector, the Hindu rate of growth as it was denigrating stated by Friedman, was not paltry 2% but well in excess of 10% right from 1960's.

Wait until JDY and MUDRA banking permeates the nook and crannies of the economy. West or even China will never catch up with us.

[Sanjay]

I understand what you are saying and it is true enough.

However, I am looking at nominal GDP.

IIRC we should be at around US$2.2trn nominal as of end March 2015. That should already exceed Brazil shouldn't it ?

If growth is 6%+, then by end March 2016, Britain and possibly France could be surpassed. I am on the right track here ?

[Suraj]

It all depends on how exchange rates fluctuate.

[Suraj]

This article has a good summary of GoI's plan for steel output. Current capacity is 100 million tonnes per annum, with production of roughly 85-87mtpa, third largest output behind China and Japan, and just ahead of USA so far this year. The goal is to increase capacity to 300 mtpa by 2025:
PM may announce Rs 36k-cr expansion plan for Rourkela plant

During his maiden visit to the Odisha-based plant, where a Rs 12,000 crore modernisation and expansion programme has recently been completed to raise capacity to 4.5 million tonnes per annum from 2 mtpa earlier, Modi may also unleash SAIL’s “Vision-2025”.

Sources said SAIL has finalised its blueprint for future expansion which envisions raising the capacity of the company further to 50 mtpa by 2025 with an approximate investment of Rs 1.5 lakh crore in sync with the country’s plan to treble its installed capacity from 100 mtpa now.

This is over and above the ongoing Rs 72,000 crore investment that will take its capacity to 23.46 mtpa from 13.8 mtpa now. This phase will be completed by the middle of the next year.

As per Vision-2025, SAIL plans to enhance RSP’s capacity further to 10.8 mtpa entailing a Rs 36,000 crore investment in the plant in Odisha. After completion of this phase, RSP will be SAIL’s second largest after Bokaro. Work on the next phase of expansion will also immediately start.

The state-run steel maker also plans to undertake further expansion in its two other integrated steel-making facilities in the eastern region taking the cumulative capacity to 25.8 mtpa taking into account company’s plan to raise capacity of the Durgapur unit to 9.3 mtpa and IISCO at 5.7 mtpa.

SAIL also plans to enhance capacity of its Bokaro unit to 14.1 mtpa and Bhilai’s to 10.5 mtpa in its Vision-2025.

RSP is the country’s first integrated steel plant in the public sector.It was set up in 1960 with German collaboration. It is SAIL’s only plant that produces silicon steels for power sector, pipes for the oil and gas sector and tin plates for the packaging industry.

New foreign trade policy to stress manufacturing exports

The government is set to unveil the long-awaited new Foreign Trade Policy (FTP) for five years — from 2015 to 2020. The policy, poised to be “different” from previous such policies, will emphasise promotion of manufacturing and services exports and strive for greater use of free trade agreements (FTAs).

The FTP, set to be unveiled on April 1, seeks to offer an incentive package for the exporting community. Typically, it is typically released for five years, with annual supplements revising the sops offered to exporters, depending on domestic and global factors.

“The new Foreign Trade Policy will be for 2015-2020. This time, the policy is going to be different. We have taken a calibrated and open-ended approach to strengthen our exports,” Commerce and Industry Minister Nirmala Sitharaman told Business Standard.

[gakakkad]

w.r.t Nominal GDP growth rate , the absolute Nominal number increase rate might slow down a bit as inflation is going down...

assuming fixed exchange rate if gdp at end of fiscal is 2.2T real growth rate is 8% , inflation is 6% , than nominal increase would be 14%...

BTW , was not there a talk of removing the base year altogether ? ie do away with real GDP from official calculations and use only the absolute numbers ?

[Prem]

3% inflation and rest 8- 11% real growth is ideal but .. we can dream.
India to become world's 3rd largest automobile manufacturer by 2020, says Ford MD David Dubensky

http://economictimes.indiatimes.com/art ... aign=cppst

OIMBATORE: India's automotive industry is expected to reach 7 million vehicles milestone by 2020, making the country the third-largest auto manufacturer in the world, behind the US and China, a top official at Ford Motor has said.The automotive sector has a direct bearing on the economy with a near 7 per cent contribution to the GDP, playing an important role in the development of other crucial sectors as well, David Dubensky, President and Managing Director, Ford Motor

[Sanjay]

With Brazil slowing to a crawl and with exchange rates as they are, my calculations show that we should be ahead of them and near the UK even now.

Am I getting that wrong ?

What advantage would there be to removing the base year ? As a layman (got understanding economics lingo), the nominal values make sense as they are.

[Prem]

http://timesofindia.indiatimes.com/busi ... 727528.cms
India's forex reserves up $4.26bn

MUMBAI: India's foreign exchange reserves increased by $4.26 billion to $339.99 billion for the week ended March 20, Reserve Bank of India (RBI) data showed. According to analysts, the Indian reserves are being build-up by the Reserve Bank of India (RBI) to absorb any future global financial shock that was witnessed in June 2013. "The RBI is building up the reserves to counter any future financial shocks like the one which was witnessed at the time of the tapering announcements were made. Apart from that the reserves will also act as a support to the Indian rupee," Anindya Banerjee, senior manager, currency derivatives, Kotak Securities told IANS. ccording to the RBI's weekly statistical supplement, foreign currency assets, the biggest component of the forex reserves grew by $4.53 billion at $314.88 billion in the week under review.The foreign currency assets had declined by $1.97 billion at $310.34 billion in the week ended March 13. under review. However, for the week ended March 6, the foreign currency assets had risen by $122.4 million at $312.32 billion.
The RBI said the foreign currency assets, expressed in US dollar terms, include the effect of appreciation or depreciation of non-US currencies such as the pound sterling, euro and yen held in reserve.

[Suraj]

NG and oil depress core sector output:
Feb core growth slows to 1.4%; lowest in FY15

In February, the growth of core sectors came down mainly due to contraction in natural gas, steel and crude production that declined to 8.1 per cent, 4.4 per cent and 1.9 per cent, respectively, according to data released by the ministry of commerce and industry.

In cumulative terms, it was natural gas that witnessed maximum fall in the period April-February, declining 5.5 per cent followed by crude oil at 1.1 per cent.

Output of refinery products declined 1 per cent in February, though it increased by 0.5 per cent during April-February.

Fertiliser situation in the country also looked grim with production in February falling by 0.4 per cent. Total fertiliser production during April-February also plummeted by 0.5 per cent.

“Unseasonably heavy rainfall in recent weeks is expected to adversely impact the rabi harvest and constrain rural consumption demand over the next one-two quarters,” Nayar added.

Cement production increased by 2.7 per cent in February, while posing a healthy growth of 6.1 per cent for April-February.

[Melwyn]

BJP trolling AAP on April fool's day.

Petrol Prices Cut By 49 Paise/Litre.

http://profit.ndtv.com/news/economy/art ... -21-751320

[RamaY]

Suraj will be happy

Narendra Modi govt unveils its first trade policy, targets $900 bn in exports

Aiming to nearly double India’s exports of goods and services to US dollar 900 billion by 2020, Narendra Modi government announced several incentives in the five-year Foreign Trade Policy (FTP) for exporters and units in the Special Economic Zones.

Unveiling the first trade policy of the National Democratic Alliance (NDA) government, Commerce Minister Nirmala Sitharaman said the FTP (2015-20) will introduce Merchandise Exports from India Scheme (MEIS) and Services Exports from India Scheme (SEIS) to boost outward shipments.

Besides, higher level of incentives will be provided for export of agriculture products under the Foreign Trade Policy (FTP), which seeks to integrate with Make In India and Digital India initiatives of the government.

“FTP lays down a roadmap for India’s global trade engagement in the coming years…India (will become) a significant participant in world trade by 2020,” Sitharaman said.

“The government aims to increase India’s exports of merchandise and services from USD 465.9 billion in 2013-14 to approximately USD 900 billion by 2019-20 and to raise India’s share in world exports from 2 percent to 3.5 per cent,” Commerce Secretary Rajeev Kher said.

[Suraj]

It's doable. Actually exports are one thing where we've demonstrated great performance starting from NDA years, through most of UPA era as well. The problem was the UPA FTP did not attempt to keep a lid on imports. The result was huge imports, particularly capital goods, that cannibalized domestic industrial activity which is still to recover, and led to the current account deficit worsening. What's worse, the fall in industrial activity fed inflation that was worsened by the rising import bill driven by a weakening currency. Neither the 20% weaker currency since ~2011, nor low industrial growth, are fixed as yet, because it takes time to build up the momentum of an investment cycle. So, while the export growth targeting is good, what I find more pertinent is their efforts to focus on re-industrialization via Make in India, and the corresponding import substitution activity. That could help not only generate $900B worth of exports, but also make us current account surplus.

UPA policies weakening India and enriching China

[gakakkad]

I remember , back in 2006 we were anticipating a current account surplus by 2015 in this very thread..
But than con party de-industrialised the country...

I remember the SOPS given to chinese companies by UPA-1 to export electrical and power generating equipment to India in 2008-2010..CCP further pushed this and made exports to India tax free...so those companies had no effective tax or duties to pay anywhere , neither in India nor China.. L&T and other manufacturers condemned the move...but reliance wanted to import chinese junk and the government obliged..

it was discussed here as well..

PS-Phew..time does pass rapidly...close to a decade now..

[sooraj]

Foreign investors cry foul over Indian tax surprise
http://www.rediff.com/business/report/f ... 150402.htm

US and European investor groups have called for the Indian government to urgently clarify its tax regime for foreigners, following surprise attempts by tax inspectors to claw back money they say is owed on years of previously untaxed gains.


International funds and banks could face a bill of as much as $8 billion, said tax experts, just as many foreign investors are poised to pour money into India following the election of Prime Minister Narendra Modi, who has pledged to create a more business-friendly environment.

“This development has caught everyone by surprise and is extremely worrying for foreign investors," said Patrick Pang, a managing director at the Asia Securities Industry & Financial Markets Association (ASIFMA) in Hong Kong. "It suggests that the Indian government can come out at any time and re-clarify what was believed to be an established tax policy on foreign investments."

ASIFMA is one of several business groups, including London-headquartered ICI Global, the European Fund and Asset Management Association, and the Federation of Indian Chambers of Commerce and Industry, to have raised the alarm over attempts by the Indian tax department to levy minimum alternative tax (MAT) on foreign investors' profits, according to sources and letters seen by Reuters.

In many jurisdictions governments use a form of MAT to ensure that tax breaks don't pull domestic companies' effective tax rate below a minimum threshold. Foreigners without local operations are not typically covered by such provisions.

In India, foreign investors have hitherto paid 15 per cent on short-term listed equity gains, 5 per cent on gains from bonds, and nothing on long-term gains, but from late last year many firms received notices from tax inspectors requiring them to pay MAT, potentially bringing overall tax on these gains to as much as 20 per cent.

The following month Finance Minister Arun Jaitley intervened via the 2015 budget bill to state that capital gains made by foreign investors as of April 2015 were exempt from MAT, but that did not resolve the issue.

"The government’s clarification in February, though right in intent, has created unwanted confusion, and the view the tax office is taking is that, by implication, the past years' gains can be subject to MAT," said Keyur Shah, a partner in the India tax practice at EY.

Legal proceedings

A senior official from the tax department who declined to be identified confirmed that the tax office believed the exemption from MAT does not apply retroactively.

“There is nothing (in the budget) to suggest that it (the exemption) would apply to old cases," this person told Reuters.

He added that a 2012 decision by India's Authority for Advance Rulings, a body that mostly non-residents can apply to for tax rulings to avoid legal disputes, had set a precedent for levying MAT on foreign companies, and that the tax department was enforcing the ruling.

In recent weeks, many foreign investors have duly received notices requesting their MAT calculations for financial year 2011-2012. The tax office has said it would also apply the tax to previous years.

Tax inspectors could go back seven years, according to Indian law, and could also charge interest and penalties.

Two individuals said some foreign investors had begun legal proceedings against the government.

Investors say the change is at odds with Modi's desire to welcome investment, since it could hit private equity and venture capital transactions, not just portfolio investors.

Some investor groups are also concerned that the finance bill wording does not preclude MAT liability on other future income and are asking the Ministry of Finance to amend the bill to specify that the MAT exemption covers all future and past gains and income.

"An amendment which introduces a clarification embodying the principle that a foreign company which has no business presence ... is not liable to MAT is required to end unwarranted litigation on this aspect," said Rajiv Tyagi, a spokesman for the Federation of Indian Chambers of Commerce and Industry in a statement.

The senior official from the income tax department, which is part of the Finance Ministry's Department of Revenue, said he believed it was clear future gains would not be taxed. He added that Jaitley might provide further clarification in the parliamentary budget session starting on April 20.

[sooraj]

RBI cautions banks against excessive lending to infra projects
http://www.rediff.com/business/report/r ... 150402.htm

Cautioning banks against excessive lending to the infrastructure sector, RBI Governor Raghuram Rajan on Thursday said such loans should not override the overall financial stability, which is ‘key to national security’.

"The nation has enormous financing needs in infrastructure, and far too many of our banks already have too much exposure.

“Big corporate infrastructure players have also taken too much debt," Rajan said at a function to mark 80 years of RBI in the presence of Prime Minister Narendra Modi and Finance Minister Arun Jaitley.

"The required national push to finance infrastructure should not override financial stability, which is key to national security," he added.

The non-performing assets of banks in the country stood at over Rs 3 lakh crore (Rs 3 trillion) as on December 2014.

Banks had to tide over a tough time as the power sector faced troubles after the Supreme Court last fiscal cancelled the allocation of 204 coal mines by the previous government.

Pushing for investments in infrastructure, Jaitley in the Budget 2015-16 has proposed a sizeable Rs 70,000 crore (Rs 700 billion) increase for the sector besides a slew of steps to spur its growth.

The 12th five year plan (2012-17) envisions $1 trillion investment in the infrastructure sector, of which 50 per cent is expected to come from private sector.

Jaitley had also stressed on the need to revitalise the public private partnership mode of infrastructure development.

Listing infrastructure among five major challenges he has to reckon with, Jaitley had said that it is a challenge for government to increase investment in the sector.

With private investment in infrastructure via the public private partnership model still weak, public investment needs to step in, to catalyse investment, he had said.

Stating that there has always been a ‘constructive dialogue’ between RBI and the government, Rajan underscored the need to nurture strong institutions like the central bank.

"Strong national institutions are hard to build.

“Therefore existing ones should be nurtured from the outside, and constantly rejuvenated from the inside, for there are precious few of them," he said.

The comments from the Governor come in wake of a new set of reports indicating differences between the Mint Street and the North Block following certain budget proposals indicating moving away certain functions from RBI including regulation of government debt and public debt management.

"There has always been a constructive dialogue between the government and the Bank, informed by their respective time horizons and attitudes towards risk.

“And history records that successive governments have invariably appreciated the wisdom of the Reserve Bank's counsel," Rajan said.

Asserting that no one can raise a question mark over RBI's integrity, Rajan said the only currency someone has while lobbying in RBI offices is the depth of the argument and not money.

Rajan said the Reserve Bank has achieved successes on a slew of fronts, the most important of them being tackling inflation despite food shortages, oil prices and wars.

Alluding to the introduction of differentiated banking, Rajan said the next year will see newer players like payments banks, small finance banks and possibly a postal bank competing with existing universal banks.

The RBI's aim "is to create an ownership neutral, institution neutral, technology agnostic level competitive arena", he said.

[sooraj]

Be considerate in giving loans to poor: Modi to banks
http://www.rediff.com/business/report/b ... 150402.htm

Concerned over rising incidents of farmer suicide, Prime Minister Narendra Modi on Thursday nudged banks to be considerate in giving and recovering loans from poor saying banks would not shut by helping them.

"As RBI celebrates 80 years, can we think within ourselves that we will expand our banking sector so much that farmers would not have to commit suicide because of huge debt burden.

“Can we not dream of this?. . . I do not believe that by helping poor a bank will become insolvent," he said.

Farmers' plight should ‘shake the conscience’ of the banking sector, he said, addressing the 80th anniversary celebrations of the RBI where Finance Minister Arun Jaitley, Maharashtra Chief Minister Devendra Fadnavis and RBI Governor Raghuram Rajan were also present.

"Our farmers commit suicide. The pain of this should not only be restricted to newspapers and TV screens.

“When farmer dies, does it shake the heart of banking sector? Because of taking loan from money lender, he has to face death," Modi said.

He also asked the Reserve Bank to prepare a 20-year road map for financial inclusion and suggested that the Indian currency should be printed using indigenous paper and ink.

Lauding the efforts of Reserve Bank in improving macroeconomic conditions in the last eight decades, Jaitley said that the central bank's professionalism has served the country well.

Speaking on the occasion, Rajan cautioned the banks against excessive lending to infrastructure sector projects as it may impact their financial stability.

Appreciating the role played by RBI over the last 80 years, the Prime Minister complimented Rajan for his grasp and clarity on economic issues.

"There is lot of similarity between the thinking of RBI and the government," he said while referring to bi-monthly meetings with the Rajan.

"Rajan is a good teacher who explains the issues in just three-four slides," Modi added.

Elaborating on the issue of financial inclusion, Modi urged banks to come up with creative financial inclusion instruments to help prevent farmer suicides, adding that providing assistance to farmers would also help in promoting environment friendly initiatives.

The Prime Minister also called upon the bankers to extend credit to resource rich eastern states.

The banks, which take pride in funding green initiatives, should also provide funds to farmers for planting trees which is as important as reducing carbon emission by factories, he said, adding: "I come as a representative of the poor, underprivileged, marginalised and tribals. . . I seek on their behalf and trust you will not disappoint me."

Modi further said that RBI, which will be completing 100 years in 2035, should work on the theme of financial inclusion and prepare a road map for achieving it.

The milestones for achieving financial inclusion could be 150th birth anniversary of Mahatma Gandhi in 2019, 75th year of Independence in 2022, 90th anniversary of RBI in 2025 and 100 years of RBI in 2035, he said.

"These are four important dates. . . We can create a road map for financial inclusion," Modi said, adding that it should not remain a government programme but should become ‘an article of faith’.

He said the success of the Pradhan Mantri Jan Dhan Yojana and the Direct Benefit Transfer of LPG subsidy had shown the potential of the enormous role that the banking sector can play in ensuring financial inclusion.

Along with economic and social parameters, there is also a need to think of a geographical parameter as well for financial inclusion, he said, adding that eastern India had immense economic potential, and the banking sector should recognise and plan for this.

As part of his 'Make in India' initiative, Modi urged RBI to take the lead in ensuring that India starts to manufacture the paper and ink that are used to print currency notes.

[sooraj]

RBI should use Indian paper, ink to print currency: Modi
http://www.rediff.com/business/report/r ... 150402.htm

Prime Minister Narendra Modi wants the Reserve Bank to use Indian paper and ink to print currency notes and set a target date for achieving the objective as part of the 'Make In India' campaign.

"Today we are celebrating 80 years of RBI. Can we not fix a date...that on any specific date, whatever currency is being printed, paper will be Indian and ink will also be Indian," he said at the 80th anniversary celebrations of the Reserve Bank.

It is ironic that the photograph of Mahatma Gandhi, who fought for swadeshi, appears on currency printed on imported paper, Modi said.

'Make In India', the Prime Minister said, "should start from here.

I believe we can do this".

Later, RBI Deputy Governor S S Mundra said work on a factory manufacturing currency paper was in advanced stages and the country would soon have notes printed on Indian paper.

"The factory construction is in advance stages and we are confident that in the next few months, RBI will start producing bank notes," Mundra said.

India imports the paper and ink, and then prints the notes at dedicated facilities.

According to experts, use of indigenous paper and currency would also help in curbing counterfeiting of the notes.

According to the information provided by RBI, India prints 2,000 crore currency notes every year and 40 per cent of the cost goes towards import of paper and ink.

It mainly imports paper from countries like Germany, Japan and the UK

[sooraj]

India may delay oil company share sales, threatening fund-raising target
http://www.rediff.com/business/report/i ... 150402.htm

India is likely to delay share sales in state-run oil firms ONGC and Indian Oil Corp by up to six months as low crude oil prices have hit their value, denting the chances of raising about $11 billion from such sales this financial year, two government sources said.


The government hopes to sell shares in these companies to raise nearly $3.5 billion, roughly one-third of the total annual share-sales target of about $11 billion, which is crucial to meet a fiscal deficit target of 3.9 per cent of GDP in the 2015-16 fiscal year that started on April 1.

New Delhi has missed its target for partial privatisations for the past five years and now wants to break with the usual practice of bunching up sales towards the year-end.

A shortfall in receipts from stake sales and taxes has led to cuts in public spending of about $48 billion in the past three years, which has slowed economic recovery.

The government had originally intended to sell off part of state refiner IOC and oil and gas explorer ONGC in the financial year that ended on Tuesday but it ran into opposition from the oil ministry.

"It is not the right time to divest shares," said A K Sharma, IOC's finance director.

IOC incurred inventory losses of about $2.5 billion between April and December because it did not hedge against falling crude prices, down by half since June last year.

ONGC is hurting because, to help meet the federal fiscal deficit target, the finance ministry is making it pay for a high level of subsidies, despite the low oil price.

The subsidy burden on oil companies has hurt valuations, oil ministry officials say.

IOC's share price has rallied about 10 per cent this year following a fall in inventory losses but it is still 7 per cent lower than in September last year.

"Indian Oil Corp is not in a good shape. We will have to wait for at least six months before shares could be sold in the market," a senior government official with knowledge of the matter told Reuters.

Sharma said the deregulation of diesel prices and lower borrowing costs had trimmed IOC's losses in part, and it planned to diversify in other sectors to cushion against volatile prices.

ONGC's share price has fallen more than 11 per cent this year, while the benchmark BSE Sensex has risen 3.4 per cent.

Analysts said waiting for a rally in the stock markets before selling big-ticket stakes could be a mistake, since investors are likely to remain cautious for some time about developments in the Middle East and worries over US rate rises.

"It might be an uphill task for the domestic stock market to do a replay of the scale of gains seen last year," said Radhika Rao, an economist with DBS Bank in Singapore.

"In the absence of another strong bull run, achieving the divestment target might prove to be a challenge if more big-ticket sales are not brought forward," she said.

Merchant bankers engaged by the government said a recent decision to lower domestic gas prices and the slump in crude prices will have a bearing on potential receipts if the government decides to go ahead.

April stake sale?

Another official said the government may kick-start the process with the sale of shares in a smaller company such as Power Finance Corp or engineering equipment maker Bharat Heavy Electricals.

"If market conditions remain stable, we may sell a stake in a small company in April," the official said.

So far, Finance Minister Arun Jaitley has cabinet approval to sell shares in 10 companies, including a 10 per cent stake in IOC and 5 per cent in ONGC.

Other companies on the list include National Minerals Development Corp and National Aluminium Co Ltd (NALCO).

[rsingh]

In Europe value of your property becomes zero when it is transferred to your grandchildren. Inherent tax and property taxes are the main reason. How it is in other parts of world and in India?

[gakakkad]

In us upto 5.5million usd worth of property can be transferred tax free as an inheritance. There after it is taxed..trust funds are a way if circumventing this.

There is no inheritance tax in india though there has been talk of intraducing one. Just like us it would be fir big inheritance.

[srin]

In us upto 5.5million usd worth of property can be transferred tax free as an inheritance. There after it is taxed..trust funds are a way if circumventing this.

There is no inheritance tax in india though there has been talk of intraducing one. Just like us it would be fir big inheritance.

Unless there is a way to tax transfer to trusts, it would only make the lawyers richer and burden everybody.

[Sanjay]

Sanjay saar,

Indian GDP is 3rd in the world in Purchasing power parity terms. This is the only measure in GDP terms that matters. It removes a lot of noise and also ingenious accounting used by many countries (like prostitution used in GDP measurement in UQ). It is not a complete measure of Indian economy as the unorganised sector (that dominates Indian economy) is not included in the measurement.

If we account for the unorganised sector, the Hindu rate of growth as it was denigrating stated by Friedman, was not paltry 2% but well in excess of 10% right from 1960's.

Wait until JDY and MUDRA banking permeates the nook and crannies of the economy. West or even China will never catch up with us.

I was thinking about your reply. Why do you say that the unorganized sector "dominates" the Indian economy ? I mean we know is exists but is there any guesstimation of the size of the unorganized sector ? Of course it can't be included in the GDP figures but it would be interesting if there was ballpark figure of size.

[arshyam]

Sanjay sir, you'd be surprised:

http://www.rediff.com/business/column/c ... id=twshare

First, some facts about our economy. Nearly 50 per cent of our GDP comes from unincorporated (Uninc) enterprises comprising proprietorship and partnership firms. The corporate sector constitutes only 12 to 14 per cent of the GDP. Agriculture and government each constitute around 18 per cent.

Uninc constitutes nearly 50 per cent of the value addition in the manufacturing sector. Their role in service sector is significant. The service sector, consisting of construction/ trade/transport/hotels and restaurants/real estate and dwellings/ other professional services like plumber; electrician; carpenter; chartered accountants; lawyers has nearly two-third of the GDP and, in that, Uninc constitutes more than 70 per cent in various sectors.

http://www.thehindubusinessline.com/opi ... 959622.ece

Led by the western economic thinking based on size, for decades Indian policymakers did not think much of the tiny sector. Even now they don’t. But recently the West seems to have begun changing its view on micro businesses in India. In July 2013, the Credit Suisse Asia Pacific Equity Division put out a study of the non-formal sector in India titled ‘India’s better half: the informal economy’. It noted that nine out of ten jobs in India and half of its GDP originated in the non-formal sector including the 57.7 million micro businesses.

The study estimated the corporate contribution to India’s GDP at just 15 per cent and that of the listed ones at 5 per cent.

If you'd like know more about India's economy, please watch either of these 2 speeches by the gentlemen who wrote the articles quoted above:

[member_22733]

The entire time I lived in India (about 25+ years), I NEVER used a "credit card" or "debit card" for 24 odd years. The transactions were always cash, bills rarely ever given, records rarely kept.

I was a member of the "unorganized" sector for a large part of my life. The "organized" sector was setup by the administration system put into place around the time the Brishits left India. It was there only to serve the educated elites, it is largely like that to this day.

[panduranghari]

Thanks Arshyam ji.

I have AGAIN lost the link to an economist article from a few years back about Indian unorganised sector and its contribution to economy. I searched but cant find it.

Roughly, around the same time when that article is dated, we also see a simultaneous promotion of Mohammed Yunus of Grameen Bank BD. Grameen bank was promoted a shariah compliant Islamic banking. He won a NOBEL economics prize for this. That happened as Billary was a big supporter of him. They completely disregarded that Grameen bank is nothing more than glorified money lender who lends money at high interest rates. The only difference was Grameen bank initially lent only to groups of individuals. Never to Individuals. India always has had much maligned money lenders. Shivaji Maharaj even had a primitive social security apparatus in place. Surely, there must be more information of this in Arthashastra- which I have not yet read. (any recommendations?)

Of course now Billary, Yunus, Khaleda Zia, TMC, Saradha Chit scam, Mamata Banerjee etc. are directly connected.

The GDP measurement is purely a 'dick measurement' contest. Its meaningless. We need to deracinate our thinking. Another pet peeve is to measure Indian or a national economy based on US dollar strength. Look at Chinese. Tools. Treating US dollar anything more than just a unit of account is still a senseless exercise. Just like currencies rise and fall, so will USD.

I did like the idea Hari Seldon wrote about elsewhere - Indian Ahimsa Index. Let the great US of A start measuring their economy in such an index. Look at the Chinese. They did everything asked to be permitted to be accepted into SDR basket, when USA changed the rules.

India was small scale industry based economy which JLN tried to change by setting up white elephants. Look where it lead us for 60 years. Modi ji doing it right. Finally.

[pankajs]

Here are both Dr Vaidyanathan and Mr. Gurumurthy in the same program (Very good presentations along the same lines)

NATIONAL ECONOMIC DEBATE - BSE 11th December 2009 (1st 11 in the list)
https://www.youtube.com/watch?v=V9gjofs ... 5lh391Mfr7

[Sanjay]

I appreciate the comments and the info. So all this unorganized sector is completely absent from GDP figures ? If included what would that do to GDP and more importantly what does it do to the whole poverty debate ? Would make for some interesting calculations.

[RamaY]

I appreciate the comments and the info. So all this unorganized sector is completely absent from GDP figures ? If included what would that do to GDP and more importantly what does it do to the whole poverty debate ? Would make for some interesting calculations.

I don't think not ALL unrecognized sector is missing from GDP calculations. One or the other way majority of this sector is counted in GDP. I would put the unorganized GDP at max $0.5 to $1T. Not more than that.

[Sanjay]

Interesting viewpoint. Any other views in support or against ?

[Suraj]

Petroleum ministry targets 10 mn LPG customers to give up subsidy in a year

The Ministry of Petroleum and Natural Gas on Saturday urged liquefied petroleum gas (LPG) consumers to give up their LPG subsidy and join the ‘GiveItUP’ movement. The ambitious programme announced by Prime Minister Narendra Modi has seen 290,000 consumers give up their subsidy till now.

“When the subsidy is given up, the money so saved will be used for the upliftment of the poor in the country which will be the reason for joy and satisfaction and go a long way in replacing traditional fuel with LPG in rural areas,” Dharmendra Pradhan, minister of state, independent charge, ministry of petroleum and natural gas said.

The campaign, launched by Prime Minister Narendra Modi on March 27 at the annual energy-focussed summit Urja Sangam 2015, is aimed at encouraging people, who can afford to, to give up liquefied petroleum gas (LPG) subsidy. The prime minister asked companies and banks to encourage their employees to give up the subsidy on LPG.

[RamaY]

Look How Rich India's Become Under New Prime Minister Modi

The “Modi Magic” continues in India. Ever since last May’s election of new Prime Minister Narendra Modi, India has been showered with good fortune.

Here’s one way to measure India’s new found flow of money: India’s foreign exchange reserves rose $1.39 billion in the last week of March alone, putting the Reserve Bank of India's (RBI) rainy day fund at $341.37 billion. India is no longer far behind its other BRIC peers. Russia’s Central Bank has $360 billion. Brazil has $371 billion.

This is the second time in a two week period the reserves have risen as the RBI gets busy buying dollars from the open market to prevent the rupee from strengthening too much. Yes…strengthening. The rupee closed Friday at 62.09 to the dollar. The Indian currency has gained 2% against the dollar this year, which is not easy. Russia’s currency, the ruble, has gained too but that is because it was sent to the slaughterhouse in December when it hit an all-time low of 70 to 1. The rupee has been as stable as the Chinese yuan, actually. Much of that is due to foreign investors buying Indian stocks and bonds.

[panduranghari]

I appreciate the comments and the info. So all this unorganized sector is completely absent from GDP figures ? If included what would that do to GDP and more importantly what does it do to the whole poverty debate ? Would make for some interesting calculations.

According to the western economists, in 1991 India became a market economy.

What is a market economy?

Wikipedia explains it this way

A market economy is an economy in which decisions regarding investment, production, and distribution are based on supply and demand, and prices of goods and services are determined in a free price system.

According to R Vaidyanathan who is Professor of Finance, Indian Institute of Management-Bangalore, the three most popular electives offered in economics during his college days were European economic "history"; American economic "systems" and Indian economic "problems". It tells us how much TT is embedded in our genes and how much we have internalised the same.

So in the opinion of the west, India always has problems because we don't measure things the way they do, we don't have things organised to be counted by a bean counter. The unorganised sector is what we live. We may employ someone to clean our house, do the dishes not through an agency but through word of mouth. We buy our groceries from the vendor by the roadside. It's in her or his interest to have fresh produce which is sold by the end of the working day. They source it from another person who does the same. We buy goods from Kirana stores, the shopkeeper knows us individually, knows what we buy, extends credit if needed, delivers goods for free direct to your home. He has no flashy website. He can take order via telephone and is happy to accept cash. He prefers cash as the unnecessary bank expenditure with card machine is reduced. That's the case with dhobi and many others.

I am not saying it's all good. There could be improvements that could be incorporated. But these issues are unique to us and only we can solve them. Western models have been debunked in 2008 crash. The next one will bury them into the ground.

Indian unorganised sector is massive. The western models can't measure them as they can't make sense our 'organised chaos'.

If you want me to take a guess at the value of indian unorganised sector- I would claim its at least as big as the organised sector that western models have measured.

My 2 paisa worth of opinion.

[TSJones]

They know. They know to a remarkable degree of certainty what the percentages and ratios are for the regular economy and the underground economy of India. They use quantitative research methods couple with detailed random sampling analysis. I have worked with insurance actuaries not only in easily identifiable big data life insurance but also property and casualty lines where you would never think anyone could predict the likelihood of such off the wall random events. All mathematically based and proven, coupled with representative detailed research analysis. I have seen it work.

Are you seriously trying to say that the GOI does not use these methods? Are you saying that the representatives of GOI are deliberately ignoring mathematical and research science in measuring the economy? This, from a nation that prides itself on its keen mathematical abilities? I hope not.

BTW, this message is pointed at the collective you" not the singular "you". It appears to me that a large number of "you" do not believe that India has these capabilities. JMT, I expect no particular reply.

[arshyam]

^^ TSJ-ji, one request: non-formal economy != underground economy. I know it is not easy to think in those terms when even wings of the GoI has been doing so for a past decades and largely ignored this large sector, and western economies don't have an equivalent, but let's start somewhere, eh?

The non-formal economy (I would prefer to use a better word, unincorporated economy, as Prof Vaidya says) is not necessarily operating illegally, it is just operating on traditional lines which doesn't fit into the modern western-inspired economic discourse as we know it: using cash transactions, word of mouth agreements, borrowing capital from friends, relatives and non-formal moneylenders, etc. In fact, the last part is the most problematic, as the interest rates tend to be higher than what a bank would give, but they are still doing a valuable service of making funds available locally. In fact, in some places in India, banks lend to local moneylenders who in turn finance these enterprises simply because the banks are unable to scale up and reach each and every one of these enterprises, and the local moneylenders have a better grasp of individual credit worthiness! S Gurumurthy mentions this in one of his lectures giving the example of the textile cluster of Tiruppur that generates more than $2B exports a year.

I tend to agree with you on the 'they know' part. GoI has had some estimates of this sector, though it had offered nothing more than benign neglect all these years. I had posted two sources by eminent economists/professors in the previous page, where they said this sector accounts for 50% of the Indian GDP, consists of 50-60 million non-farming and non-corporate enterprises, and employs close to 110 million people. What I am currently unsure about is, how does GoI include this 50% in the current GDP estimates: is it $1T in the current $2T nominal GDP, or is this $1T outside of the $2T?

[pankajs]

Bhell .... on the face of it sounds confused and incoherent policy making .. yes?

http://economictimes.indiatimes.com/new ... 812737.cms
100 foreign funds get tax demands; total bill may hit $10-bn

NEW DELHI/MUMBAI: In the biggest-ever tax demand slapped on them, nearly 100 foreign funds have been asked to cough up an estimated $5-6 billion for 'untaxed gains' made by them in the Indian markets over the past years.

The number of affected investors can rise substantially as assessments are still in progress and notices could be served in many more cases, taking the overall tax demand from them to well over USD 10 billion, sources said.

Spooked by these "retrospective" notices and assessment orders, the foreign investors have begun lobbying intensely with the policy makers and regulators, while stating that the move goes against the government's stated position of providing a 'non-adversarial and stable tax regime'.
...........
Among others, the issue has been raised by FIIs with Finance Minister Arun Jaitley, Minister of State for Finance Jayant Sinha, capital markets regulator Sebi, the Central Board of Direct Taxes and the top Finance Ministry officials, while they are now planning to approach Prime Minister Narendra Modi to intervene in the matter.

When contacted, a top official said that the government is looking into the matter to allay any 'genuine concern' such investors might have, but added that no assurance can be given as of now to nullify the notices.
..............
Interestingly, this is the first time since 1993, when FIIs were allowed to invest in the Indian markets, that such investors have been asked to pay MAT.

Amid concerns that investor sentiment can take a bigger hit as similar demands may be slapped on foreign companies, many international bodies have red-flagged the latest move of the Tax Department, saying "this may act as strong deterrent for foreign investment in India".
.............
However, these "amendments will take effect from April, 1, 2016 and will, accordingly, apply in relation to the assessment year 2016-17 and subsequent assessment years".

It is this 'prospective' nature of the clarificatory amendment that has led to the Tax Department continuing with its notices and assessment orders for MAT demand from the FIIs for the past years.
...............
Indian tax laws allow such notices and assessments to be issued for up to seven previous years.

Experts, however, said that such tax demands would also override benefits enjoyed by foreign entities under India's bilateral tax treaties with Mauritius and Singapore -- two jurisdictions that account for a major chunk of overseas inflows.
................
"In the absence of a favourable clarificatory retro amendment, needless chaos has been created, and significant litigation will be inevitable," he said.

On ways to address the concerns, experts opined that the government needs to amend the law and clarify that MAT would not be applicable on any FPIs or foreign companies.

[arshyam]

According to the western economists, in 1991 India became a market economy.

What is a market economy?

Wikipedia explains it this way

A market economy is an economy in which decisions regarding investment, production, and distribution are based on supply and demand, and prices of goods and services are determined in a free price system.

According to R Vaidyanathan who is Professor of Finance, Indian Institute of Management-Bangalore, <snip>

Sir, after listening to the good Professor, I think calling India a market economy is just plain wrong (not saying you are using it, but calling out the Wiki quote). I think the Prof uses the term 'bank-driven' economy or some such, going by the amount of money people place in banks, which makes available most of the funding needed in the formal economy. I believe he (or was S. Gurumurthy?) says that the net worth of all the companies listed in the BSE don't amount to more 5-6% of GDP. I would say we are a mixed economy, with a mixture of bank-driven formal economy and a large number of SMEs, but we need a more descriptive term that better captures the different nature of the Indian economy.

[pankajs]

http://economictimes.indiatimes.com/art ... 812758.cms
Swiss banks up black money vigil as India threatens criminal action

BERNE/NEW DELHI: With India and some other nations threatening criminal proceedings over suspected black money in Swiss banks, the European nation has stepped up its supervisory and enforcement efforts to keep away the illicit funds from its banking system.

This comes at a time when a number of Swiss institutions have seen "asset outflows" and the tax status of many of their clients have been found to be "inappropriate", as per the Swiss Financial Market Supervisory Authority (FINMA), which also has the mandate to combat money laundering activities.

Switzerland has been making efforts to strengthen its bilateral cooperation with India and some other countries on tax matters, as many Swiss banks are finding themselves in regulatory crosshairs in multiple jurisdictions.
.............
"Germany, France, Belgium and Argentina have followed the US in launching high-profile criminal investigations, while Israel and India are threatening to do so," the supervisory authority said, while adding that it is keeping a close watch on such proceedings.
............
The regulator said that a number of institutions recorded asset outflows as they parted with clients whose tax status was inappropriate or who had filed voluntary declarations in their countries of origin.

"This trend will intensify in the run-up to the planned automatic exchange of information scheduled to begin in 2017/2018," it noted.

Sources recently said that Swiss banks are asking their Indian clients to provide fresh undertakings to ensure that untaxed money is not stashed in their accounts.

Besides, they have also sought auditor certificates from high net worth individuals and corporate clients to vouch for the "clean status" of their money.

Last month, a Swiss Finance Ministry spokesperson had said that talks with India on automatic exchange of tax information would begin at the "earliest" once the domestic procedures are in place.

Re-read my pastlast post along with this information. The major countries of concern for Indian remains Mauritius, Singapore, Dubai and the assorted money laundering empire being run out of the city of Londonisthan.

Sooner or later the GOI will have to go after all these jurisdiction in one way or another.