Indian Economy - News & Discussion Oct 12 2013

hanumadu · Post by **hanumadu** » 21 May 2015 21:31

Suraj wrote: Electricity output: There are various factors affecting idle power generation, including the fact that we have functionally excess capacity today, because while we've addressed the question of generation to a great extent, the T&D companies are still insolvent, and cannot buy the electricity. Penniless power sector yet to act on govt initiatives

That's another one lakh crore in red by the distribution companies. Jeez, just too many things need fixing.

Theo_Fidel · Post by **Theo_Fidel** » 21 May 2015 21:38

Supratik wrote:Per my understanding a market economy is where production and services are determined by the market and not the govt. The govt generously decided that Indians can now buy maruti but only maruti 800. That is not a market economy. You can at best say there was restricted private sector activity. Market socialism is what they say China is today which IMO is an oxymoron. China has a hotch-potch but it is working for them.

IME the Indian economy was a functional market economy even before 1991. Prices were very much set by the market for majority of the products the people used but for a few large items like Electricity/Fuel/Public Transport were set by government, which situation continues today. And of course that was the Forex/Import regime rigidity back then which largely continues today.

What we had was supply based restrictions on growth, some of which were quite severe. With the bureaucrats deciding what was to be supplied and they decided cars were not to be supplied. Luxury item. Even private producers like Premier were not allowed to increase supply but the pricing was very much market based. Market Socialism with bureaucratic control is still a good description. The majority of the economy did not involve PSU/PSE even back then.

nawabs · Post by **nawabs** » 21 May 2015 21:41

Government relaxes FDI norms for NRIs, PIOs, OCIs

http://www.business-standard.com/articl ... 202_1.html

Last year, the government had formed a committee to look into the possibility of treating non-repatriable NRI funds as domestic investment. This was done to further push the Make in India campaign. The basic idea is to channelize those funds by NRIs, who own largescale business ventures abroad and give them domestic investment treatment.

Presently, under Schedule 4 of FEMA, NRI investments are made on non-repatriation basis though it has not been provided that these are domestic investments. As per the FDI policy, definition of NRIs includes PIOs, and OCIs are not specifically mentioned. Besides, the ambiguity has now removed and both policies owing investment by overseas residents have been aligned.

During April-February 2014-15, FDI equity inflow was $28.81 billion, marking an increase of 38.75% over the same period in 2013-14.

Supratik · Post by **Supratik** » 21 May 2015 21:43

I think you are confusing restricted private sector activity with market economy. If prices were set on soaps that would be a Communist country. Thankfully we didn't go that far.

Theo_Fidel · Post by **Theo_Fidel** » 21 May 2015 21:49

Which would have happened in a socialistic economy. Which is why I said the majority of India was private sector market based even back in 1991. It is a misreading to say that India was a socialistic economy back then and that was the problem. It was not.... ..in fact even now this is not the problem...

hanumadu · Post by **hanumadu** » 21 May 2015 21:50

Suraj wrote:
Bank NPA data: Is available from RBI data. Private sector banks are not 'fine'. They're in variously deep holes themselves. It would help the purpose of this thread if posters keep their politics to the politics thread and discuss data driven matters with pretty easily accessible data like this.

Suraj, your link is not wokring. Is this the correct link?

Suraj · Post by **Suraj** » 21 May 2015 21:54

Yes, thanks for providing the correct link! I made a mistake cutting and pasting from different tabs.

nawabs · Post by **nawabs** » 21 May 2015 22:24

40 firms account for 50% of bank bad loans, House panel told

http://www.thehindubusinessline.com/eco ... yndication

Prem · Post by **Prem** » 21 May 2015 23:07

http://www.dnaindia.com/analysis/editor ... ee-2087274
Reign of the Rupee

The use of Rupee in global transactions is tied up with the issue of capital account convertibility (CAC), though they are two distinct issues as Padmanabhan had admitted. The free flow of capital into and from the country will have to be formalised. Is India in a position to go for CAC? It is a question that has been coming up ever since India adopted economic reforms in 1991. In the 1990s, it was seen as a distant but desirable goal of the Indian free market economy. But even hardened free-market economists are not too sure that it is an ideal way of boosting economic growth. Jagdish Bhagwati, the Columbia University professor of economics, who has been vocal about economic reforms, is not so sanguine about CAC. Experts cite his influential paper where he argued that Japan and China had attained the heights of economic growth despite controls on capital being in place.
The question of CAC is back in the news because two top Reserve Bank of India officials have broached it in a non-official context. RBI Governor Raghuram Rajan was apparently responding to a question from a student and said that there is no escaping from CAC in the long term. RBI executive director G Padmanabhan delivering a lecture at a management institute dwelt at length on the subject and came to the tentative conclusion that CAC is good and inevitable in the long term, but its materialisation would depends on macroeconomic criteria like “fiscal prudence and low inflation”.It would not be surprising if Prime Minister Narendra Modi and finance minister Arun Jaitley want to take the bold decision of allowing CAC. This could be a way of fulfilling the government’s promise of improving “ease of doing business” in India. But as of now, it is going to be some time before a serious move can be made on CAC. This will not prevent India from raising rupee loans abroad to the extent that it can. If India is considered as an attractive investment destination, the strength of the rupee as a currency will improve as well. The internationalising of the rupee as well as capital account convertibility will be possible only if the Indian economy performs well and consistently. India is at the take-off point, but it is yet to reach the sustained growth stage. Quite clearly, the goals of rupee as a global currency and CAC are not on the immediate anvil.

Theo_Fidel · Post by **Theo_Fidel** » 21 May 2015 23:12

WRT the chart that Suraj/Hanumandu posted, am I misreading this?

2014 Private Banks
Amount in Billion Rs
Gross Advances : 13,117
Gross NPA’s : 227

Ergo 227/13,117 = 0.0173x100 = 1.73%.

This is a very acceptable healthy level for annual advances.

Maybe it is cumulative NPA’s over the years that become a problem.

For public sector 2014 banks.
Gross Advances : 45,905
Gross NPA’s : 2,167

2,167/45,905 = 0.047x100 = 4.7% which is quite high and unhealthy.

What am I missing.

Prem · Post by **Prem** » 21 May 2015 23:16

http://www.dnaindia.com/money/report-low-interest-rates-important-but-consumer-demand-key-rbi-guv-rajan-2087379Low interest rates important, but consumer demand key: RBI guv Rajan[/url]

Raising concern over central banks globally being pushed into "competitive monetary easing", RBI Governor Raghuram Rajan today said lower interest rates and tax incentives can boost investments, but it is consumer demand that holds the key for pushing economic growth.He also advocated stronger and well-capitalised multilateral institutions, as also better international safety nets.Speaking on the issue of 'Going Bust for Growth' at the Economic Club of New York, Rajan said: "The current non-system in international monetary policy is, in my view, a source of substantial risk, both to sustainable growth as well as to the financial sector."It is not an industrial country problem, nor an emerging market problem, it is a problem of collective action. We are being pushed towards competitive monetary easing and musical crises," he said.Speaking about the reasons for why it is so hard for the world to restore pre-Great Recession growth rates, Rajan said, "How does one offset weak household and government demand if debt write-downs are off the table?"Ideally, the response would be to incentives investment and job creation through low interest rates and tax incentives. But if final demand from consumers is likely to be very weak for a considerable period of time because of debt overhang, the real return on new investment may collapse." Noting that policy rates cannot be reduced significantly below zero, though a number of European countries are testing these limits, Rajan said equilibrium long term interest rates may stay higher than levels necessary to incentivise investments."Hence, central banks have embarked on unconventional monetary policy (UMP), which would directly lower long rates.
The RBI Governor, who has earlier served as Chief Economist at the IMF, said that emerging economies have to work to reduce vulnerabilities in their economies, to get to the point where, like Australia or Canada, they can allow exchange rate flexibility."Even while resisting the temptation of absorbing flows, emerging markets will look to safety nets. So another way to prevent a repeat of substantial emerging market reserve accumulation, this time for precautionary rather than competitive purposes, is to build stronger international safety nets."Rajan said that a big factor persuading authorities in industrial countries to push for higher growth is the fear of deflation. He gave the example of Japan, saying "the key mistake it made was to slip into deflation, which has persisted and held back growth."He further said that deflation increases the real burden of existing debt, thus exacerbating debt overhang, while admitting that "the spectre of deflation haunts central bankers"."When coupled with the other political concerns raised by slow and unequal growth... it is no wonder that the authorities in developed countries do not want to settle for low growth, even if that is indeed their economy’s potential," he said.Rajan said that emerging markets have a clear need for infrastructure investment, as well as growing populations that can be a source of final demand."Why cannot industrial countries export to emerging markets as a way to bolster growth? After all, they have done so in the past. Emerging markets have no less of an imperative for growth than industrial countries."Ideally, emerging markets would invest for the future, funded by the rich world, thus bolstering aggregate world demand," he said. Later taking questions from the organisers, Rajan said the Narendra Modi government had come with tremendous expectations and "I think the kind of expectations were probably unrealistic for any government." He saidModi had the image of a "Ronald Regan coming on a white horse" to slay the unfavorable market forces. Such expectations were "probably not appropriate," he added.He, however, said that the government has taken steps to create the environment for investment, including labour reforms.On taxes, he said the government has announced that it will not do retrospective taxation again."The Government is sensitive to the concerns of the investors," he said, adding that going forward corporate taxes will come down one per cent every year.The other areas where the government has taken "serious and significant" measures include doing away with petrol and diesel subsidies.

VinodTK · Post by **VinodTK** » 21 May 2015 23:43

India's Economic Revival Confirmed By New Harvard University Study

The rise of India as an Asian economic powerhouse is getting harder to ignore with a research team at Harvard University predicting that India could soon be growing at close to twice the annual rate of its arch-rival, China.

Unusual in its method the Center for International Development (CID) uses “economic complexity,” as found in a country’s mix of exports, as a tool for tipping future growth.

In India’s case the export-complexity test, using 2013 data, points to the country enjoying an average annual growth rate of 7.9% to the year 2013. China, over the same period, using the same measuring system, is forecast to grow by 4.6% a year.

Impressive as it sounds for India the country is starting at lower base so it is easy to post relatively fast growth rates. China, after two decades of hectic growth, is hitting a statistical ceiling.

The CID study covers 128 countries and is designed to measure productive knowledge by assessing the range of goods and services exported with diversity pointing to an ability make products of increasing economic complexity with a workforce able to transfer its skills from one industry to another.

The director CID, Ricardo Hausmann, said the Center’s Atlas of Economic Complexity showed remarkable accuracy in predicting future economic growth.

“The Atlas’ Economic Complexity measures are found to best forecast growth rates, with 10-times greater accuracy than the World Economic Forum’s Global Competitiveness Index,” Professor Hausmann said.

If the latest report from the CID is accurate it also points to two other trends, one obvious and the other not so obvious.

The obvious trend is that countries with greater economic complexity, which essentially means a broader mix of industries, should grow faster than mono-dimensional countries such as those overly dependent on raw material exports, such as oil-exporting countries.

The less obvious is the identification of East Africa as one of the world’s next economic hot spots with countries that face the Indian Ocean, such as Kenya and Tanzania, as well as the Indian Ocean island of Madagascar, in the CID’s top 10 for the next decade.

Kenya is forecast to grow at an annual average of 6.7% in the period to 2023. Tanzania at 6.5% and Madagascar at 5.9%. Other East African countries will do just as well, or better, with Uganda said to be heading for a growth rate of 7%, Malawi at 6.5% and Zambia at 5.8%.

All of the countries mentioned have relatively small economies, but all also share a proximity to India which is emerging as South Asia’s economic driver, adding to an argument that countries around the edge of Indian Ocean are poised to replicate the rapid growth of Pacific rim countries of the past 50 years.

“Our economic complexity predictions find India’s disputed upper hand in growth will expand into a widening gap in the medium term,” Professor Hausmann said, “with growth projections to 2023 predicted to be at 7.9% annually, well ahead of the 4.6% projected for China.”

Tipping India to comfortable outstrip China over the next decade is only one aspect of the CID’s forecast, another aspect is that the 4.6% growth rate is well below the 6% predicted by the International Monetary Fund and the Chinese Government.

Top of the CID projected growth rates are the usual suspects, Japan, Switzerland and Germany, being countries with the greatest diversity in productive knowledge.

The U.S. ranks 12th in the latest set of forecast, down four places. South Korea is the fastest rising, jumping 13 places to fourth overall.

RamaY · Post by **RamaY** » 21 May 2015 23:50

hanumadu wrote:
RamaY wrote:
Why should we allow a $23B networth Ambani to file for bankruptcy on a $1B project? This is the Crony Capitalism RR was questioning earlier.
Because when the started the business, he did not put his 23 billion $ as collateral. He put his share of the investment and may be some collateral, could be the company itself. Banks lend him the money in the expectation of making a profit. The banks can't have the cake and eat it too - get interest on the loan with out any risk of losing the principle. If you go after individual's wealth then people will be risk averse and business averse. And banks will not have any body to lend the money. They will be out of business too and there will be no need for the banks. Common you are an MBA. How would you finance a business?

I doubt it will be this simple.

1/ How is Ambani's wealth growing while (some of) his companies are sick? Should the bankruptcy law take each individual entity as separate or make the promoters personally liable? I know for a fact that when you give a "personal" guarantee to a bank loan (even if it is for a business entity), you are personally liable.

2/ Mortgage loan is one example where your logic fails. I bought my house for 1Cr loan and now the asset is Rs80L. But at the same time my net-worth increased by 10Crs. I can get rid of my bad loan by dropping the house on the bank. But it doesn't end there. The banks can/will go against my other assets/income to recover their loan amount. Its part of standard loan procedure.

3/ The personal bankruptcy law (at least in the US) can be very invasive. I gave a personal guarantee to a corp loan that went bust. The bank applied for SBA insurance and got their money. The FED reached out to me demanding the money. I setup a payment plan because they can even put a stop payment on my paycheck. They take all my annual tax refunds even if I pay my monthly installments, because they can.

I think RR and Modi must work towards this invasive.

It sounds funny and shallow when we demand banks to be responsible for their loan (default risk) but we demand a TARP for businessmen, whose net worth increased exponentially during this very decade.

I Rs2 that this is all corp pressure to get TARP like program supported by the govt so corporate world can wash-away their crony projects before its too late and economy picks up. Once economy is visibly picked up no one will believe corporate demand for TARP.

Suraj · Post by **Suraj** » 22 May 2015 00:06

Private sector bank NPA figures aren't better because they're immune to defaults or have vastly better standards, but because they're mostly too small to lend to the more default prone sectors (as opposed to private consumers who are generally good credit risks), and also because they're better at restructuring debt:
How India’s Private Banks Duck NPAs

Looking at other publicly available information, it would appear that private sector banks do a better job of managing loans, which may turn bad. But the reason in some ways is simple. They have been more pro-active with tools like debt restructuring.

Indeed, the situation could be much worse if not for the corporate debt restructuring (CDR) mechanism, which allow payment terms and interest rates on an outstanding loan to be renegotiated before it turns into an NPA.

CDR packages also involve fresh working capital loans to the distressed borrower and fresh equity infusion by the promoters. Lenders representing 75% of the outstanding loan amount must agree to the CDR package. Loans worth Rs 330,444 crore had been approved by the CDR cell till March 2014. Else, the NPA figure could have been even higher. The total value of loans under CDR stood at Rs 229,013 crore in March 2013, indicating the sharp increase here as well.

Once restructured, the debt no longer categorizes as non-performing, at least for a period of time. In other words, this is an accounting difference between private and public-secotor bank NPAs. Of course, restructuring debt can reduce the debt load, but that does not necessarily guarantee that it will not go bad again.

Suraj · Post by **Suraj** » 22 May 2015 00:11

RamaY wrote:I doubt it will be this simple.

1/ How is Ambani's wealth growing while (some of) his companies are sick? Should the bankruptcy law take each individual entity as separate or make the promoters personally liable? I know for a fact that when you give a "personal" guarantee to a bank loan (even if it is for a business entity), you are personally liable.

2/ Mortgage loan is one example where your logic fails. I bought my house for 1Cr loan and now the asset is Rs80L. But at the same time my net-worth increased by 10Crs. I can get rid of my bad loan by dropping the house on the bank. But it doesn't end there. The banks can/will go against my other assets/income to recover their loan amount. Its part of standard loan procedure.

You are confusing personal and corporate bankruptcy. What Ambani's corporate assets are registered as a corporation, LLC or otherwise. His wealth is partly his own ownership stakeholding within that corporation. When the corporation defaults, the notional paper wealth in the form of the stakeholding within than limited liability company alone is at risk, not his other personal wealth. The wealthy protect their wealth using LLCs, trusts or other options.

In the case of your own example, it's possible to buy a home using a trust or shell entity, rather than sign for the mortgage as an individual borrower. If you subsequently default and file bankruptcy, whether or not your personal assets will be targeted, depends on how your mortgage and title were registered. If it was a personal title, your personal assets will be targeted. If you used a shell entity or trust, they can't come after your other personal assets.

RamaY · Post by **RamaY** » 22 May 2015 00:16

^ Yes, I agree with that.

That's why I said we need to see how these corps are registered and their by laws are defined. We also need to study if the banks took personal guarantees from the promoters on these loans (in case of small industrialists they do).

But I am not sure if for example RamaY can have one power project that is shown as bad loans and have another projects in profits and pass only the loss making project risk to the banks. I have a feeling that lot of major NPA-holders fall in this category.

I think RR might be asking for personal gaurantees in return for debt restructuring deals.

Suraj · Post by **Suraj** » 22 May 2015 01:12

Ambani's personal assets are unlikely to be even remotely in danger. One doesn't get that rich without having enough accounting help to shield their wealth through a network of protective entities firewalling different stake holdings so that even if one business venture fails, it hardly affects him. And you're unlikely to get any sort of detail on how his wealth is structured, short of a subpoena based on broad criminal activity, which is not in question.

LLCs or personal stake holders of an LLC don't have to offer personal guarantees, by the very nature of the entity. You don't risk all your personal wealth into it; that's why it's called a limited liability company.

hanumadu · Post by **hanumadu** » 22 May 2015 01:12

Suraj wrote:
Indeed, the situation could be much worse if not for the corporate debt restructuring (CDR) mechanism, which allow payment terms and interest rates on an outstanding loan to be renegotiated before it turns into an NPA.

Both private and public sector banks have restructured debts. I think even taking that into account, private banks will be better than public sector banks, though that is not really any consolation.

hanumadu · Post by **hanumadu** » 22 May 2015 01:22

RamaY wrote:^ Yes, I agree with that.

That's why I said we need to see how these corps are registered and their by laws are defined. We also need to study if the banks took personal guarantees from the promoters on these loans (in case of small industrialists they do).

But I am not sure if for example RamaY can have one power project that is shown as bad loans and have another projects in profits and pass only the loss making project risk to the banks. I have a feeling that lot of major NPA-holders fall in this category.

I think RR might be asking for personal gaurantees in return for debt restructuring deals.

Most big projects are their own entities with various parent companies holding stake in them. For example, airports, large express ways are structured that way. Special Purpose Vehicles they are called, I presume. Some of them may even be listed on the stock market. In short, the parent company and its other subsidiaries are shielded from failure of any one subsidiary.

Suraj · Post by **Suraj** » 22 May 2015 01:41

hanumadu wrote:
Suraj wrote:
Indeed, the situation could be much worse if not for the corporate debt restructuring (CDR) mechanism, which allow payment terms and interest rates on an outstanding loan to be renegotiated before it turns into an NPA.
Both private and public sector banks have restructured debts. I think even taking that into account, private banks will be better than public sector banks, though that is not really any consolation.

The article states that private banks are more proactive with restructuring debt, and as a result, report lower NPAs as a fraction of their total loan advances.

hanumadu · Post by **hanumadu** » 22 May 2015 02:00

^^^ This article gives some figures after including restructured loans for private and public sector banks.

http://seekingalpha.com/article/3156556 ... -woods-yet

Further, adding restructured assets to the NPA numbers, stressed assets ratio (Gross NPA+ Restructured Advances as % of Gross Advances) for the system as a whole stood at 10.9% as of the end of March 2015. This level of stressed assets is too high for comfort. The level of distress is not uniform across the bank groups and is more pronounced in respect of public sector (PSBs or government-owned) banks. The Gross NPAs for PSBs as on March 2015, stood at 5.17% while the stressed assets ratio stood at 13.2%, which is ~230 bps more than that for the system.

Even after including restructured loans, the total stressed loans for HDFC bank was just 1%, much lower than ICICI's 6% and system's 11%

Suraj · Post by **Suraj** » 22 May 2015 02:16

This was a suggestion Modi proposed last year: states attempt to specialize in certain export items and the center accords them support to boost production and exports of those items:
Export strategies: 14 states select products, send plans to Centre

Egged on by the Centre to participate actively in boosting country’s exports, 14 states including Madhya Pradesh, Gujarat, and Jharkhand have sent their export strategies to the Centre, identifying the potential products for exports, potential markets, and their global competitors among others.

Official sources told The Indian Express that some of the states have also prepared the blueprint for infrastructure projects which need to be ramped up for boosting exports. The development comes amid exports contracting by around 14 per cent in April on the back of decline in global demand and softening prices of crude, metal and commodities. As the government targets to double the export of both goods and services to $900 billion by 2020, the outbound shipment for April stood at $22.05 billion compared to $25.63 billion during the same period in 2014-15.

“The commerce and industry minister will take up the issue with all chief ministers while the commerce secretary will write to chief secretaries of all states to ensure adequate allocation of funds for building export infrastructure in view of the increased allocation in recent Budget. The states have identified the products, possible markets, technical standards they have to conform too in the international market, their competition in the relevant product and the branding strategies,” the official said.

States need to improve road connectivity to ports, rail, and airports, ensure faster movement of rakes by railways and quicker air cargo movement while building on supportive infrastructure like laboratories for testing, more tool rooms and plant quarantine facilities, larger trade facilitation centres and land customs stations to contribute to exports’ growth.

vina · Post by **vina** » 22 May 2015 04:32

Suraj wrote:Rs.40,000 cr in *aggregate* claims is chickenfeed. Does anyone know how much the aggregate turnover is on a daily, weekly or monthly basis ? Well, here it is. The daily turnover just from FPIs is around Rs.15K crore. Monthly turnover is around Rs.300,000 cr, or $50 billion. The annual turnover just by FIIs is ~$600 billion. The total MAT claim is 1% of that.

You are confused between market turnover/traded volume and profits. For instance, daily profits wouldn't be 1% of volumes on average! The MAT is bad in law,not applicable to FPIs, is based on bad faith, is a classic bait and switch story and will not get a single paisa for the govt, and is at best an idiotic litigation and exercise with the only guys making any money out of it being lawyers and leaving bad blood all around.

Suraj wrote:We're in a falling rate regime, and any bond manager with any sense would buy, and buy now, if he could

If only the world was as simple as that. I bought 3 months ago , a pretty substantial amount, 2 days, before the RBI did a surprise 25bps rate drop. The day of the surprise, the market sold off, the yield when I entered was 7.75 on the the 8.40% Coupon 10 year bench mark. At the beginning of the this month (May 2015), the yield had RISEN to just shy of 8%, yesterday it closed at 7.85% , still close to 10 to 15 bps above where it was 3 months ago, sitting on substantial losses . New supply is coming in to the market with new benchmark with yield at 7.7% (when issued prices yesterday) on May 22. Now if rupee drops as it is expected to, and dollar strengthens, even if RBI drops interest rates, which way will the yield go ? If oil is back above 70, where will the yields go ?

After 3 months, I dont feel very "sensible" and if I go pick up more bonds today or the new 10 year benchmark on 22 May, I am not sure I will look very sensible either after June 3rd , the day after the RBI policy.

Welcome to the real world.

Bankruptcy laws: Despite all the moaning about lack of one, there's no mention of the fact that one was announced in the Union Budget in Feb 2015. What's more, a detailed report of the Bankruptcy Law Reform Committee of Fin Min is already out since February too. Why is this a problem ? In this case, GoI is avoiding the mistake of MAT - not getting the groundwork set up properly. In the near future, there'll be a bill out, and being a money bill, it will pass without an issue

OH. This is EXACTLY what gives me the creeps. The Finance Ministry monkeys applying brains and trying to come up with a law from scratch. They will make an absolute dog's meal of it, unworkable, shot with contradictions, full of loopholes and still born. Those guys have no clue of these things, live in some alternate reality and in many cases just plainly dumb. The idiotic media will push that lump of turd as a rose.

What the ministry SHOULD do is just copy and paste the US chapter 11 and chapter 9 bankruptcy code and the case laws and get it stamped by Pranab Mukherjee and laminated, triplicated and gazetted. Will save everyone a lot of trouble, effort, and you will get a well working law that strikes a good balance between liquidating the enterprise and a decent chance of a turn around.

But guess what, our Finance Minstiry will pick up the Brit version of it which is skewed towards liquidation and we know how Britain is industry wise, draft it in some incomprehensible pose filled with "WhereAs" and kind of idiotic nonsense which they think is English (the Americans and even the Brits these days draft in plain simple English which everyone can understand) and sounds "legal" , with grammar, prose and tense shot and you need to get a local guy to read it and translate it in to spoken Kannada/Tamil from Indian Babu/Lawyer English so that you understand WTF is it they are trying to say.

vina · Post by **vina** » 22 May 2015 04:49

RamaY wrote:> And in all this the promoters take no "personal" responsibility and want bankruptcy laws that suits their interests.

In bankruptcy, equity is wiped out . The promoter is dead.

Suraj · Post by **Suraj** » 22 May 2015 05:31

vina wrote:You are confused between market turnover/traded volume and profits.

No there's no confusion here. I'm simply using gross traded volume to underline the fact that there's not going to be a stampede for the exits over a total tax demand for a period of 5+ years, that equals 1% of annual turnover, and a fraction of a percent of the total turnover of that entire period. The 'MAT will make FIIs run for the exits' is just fearmongering.

vina wrote:For instance, daily profits wouldn't be 1% of volumes on average! The MAT is bad in law,not applicable to FPIs, is based on bad faith, is a classic bait and switch story

None of that is accurate. Technically, the exact definition is:

Code: Select all

MAT is applicable to a foreign company having a permanent establishment (PE) in India.

FPIs worked within the grey area that they are not a PE. The government makes its claim on the basis that they are. There's no bad faith, bait&switch or anything of the kind involved here. FPIs were happy to work within the grey area of a definition they were not legally challenged on. Until now. That doesn't make it bad faith. It means they didn't cover their bases before rushing in to make money. Having a shell company as a tax dodge, while being a permanent participant in the market for years, while simultaneously claiming no PE, is all too convenient. I have no sympathy for sophisticated corporate tax dodges. They've no particular entitlement to it, nor a sound legal position.

vina wrote:This is EXACTLY what gives me the creeps. The Finance Ministry monkeys applying brains and trying to come up with a law from scratch. They will make an absolute dog's meal of it, unworkable, shot with contradictions, full of loopholes and still born.

Maybe you don't realize it, but on two separate matters, you're demanding opposite things of the government.
MAT: why did GoI hurriedly make a demand that bad/bait&switch/etc ?
BK law: why doesn't GoI hurry and make a law, even cut and paste if needed ?

"Cut and paste US Ch.7/Ch.11" sounds great as rhetoric on a web forum, but betrays complete lack of familiarity with financial lawmaking procedure.

One cannot debate against another person's own opinion about a potential future event, as opposed to fact. My opinion is that they'll come up with a very good bankruptcy law, and there's really nothing you can say to disprove it, because it's technically impossible for either of us to disprove each other.

As for your bond buying experience, the yield history more or less follows the debt inflow data. the debt inflows have petered out as the $30 billion limit on FPIs is reached. You were late to the party, and further, you're looking at a very short time horizon. If you bought last summer/fall with the peak FPI buying, as rates topped out, you'd have made more money.

vina · Post by **vina** » 22 May 2015 05:47

Suraj wrote:FPIs worked within the grey area that they are not a PE. The government makes its claim on the basis that they are. There's no bad faith, bait&switch or anything of the kind involved here. FPIs were happy to work within the grey area of a definition they were not legally challenged on. Until now. That doesn't make it bad faith. It means they didn't cover their bases before rushing in to make money.

Welcome to reality again. The Indian system is all about "wink and nod" and grey areas by design. That is because they are fundametnally incomeptent, lazy and rather than own up, try do do sneaky things in terms of policy. What do you think is happening with FlipKart and Amazon? What do you think is happening with my business. I go to Dilli and Mumbai and ask the babus for clarity, you get all sympathy , understanding, but nothing on PAPER. You ask them for a written opinion, you wont get it. As my tax advisor said, you will get lot of lip sympathy , but no pen sympathy.

The babus you meet tell you, just go ahead and do what you think is right, we will not be a nuisance and come and put a spoke in your wheels. Which is a change from the past, but what happens 3 years down the line when a regulator's auditor shows up ? I cant tell him, your babu did a wink and nod 3 years ago, what if you decide to do otherwise ?

The grey areas are for Baboons to do snatch and grab and do law writing on the fly. ALl he has to do is issue a "Circular" and then it becomes law. The CBDT is notorious for this kind of thing.

The MAT is drafted terribly, applied sporadically and mercifully was not applied for all these years. It blew up PRECISELY because now the mechanism for clarity is now available, someone went and asked for clarity and the babus could no longer do wink and nod.

As for your bond buying experience, the yield history more or less follows the debt inflow data. the debt inflows have petered out as the $30 billion limit on FPIs is reached. You were late to the party, and further, you're looking at a very short time horizon. If you bought last summer/fall with the peak FPI buying, as rates topped out, you'd have made more money.

The FII bond buying is a very small part of the Indian debt market. They are not a big factor, unlike equity markets.This is by design. Sure, this story about "if you had bought one year back" , ie, the bottom of the market when the rupee crashed to Rs 70, Subbarao had to do an emergency 3% rate increase and you pick the bottom of the market, you would have made some 30% returns. Sure that is the snake oil which every bond manager is pushing to the buy side, showing the last 1 year returns. But the more important part is the NEXT one year returns. I just pointed out my experience out to you in terms of your statement of "Sensible fund manager will buy bonds in a falling interest rate regime" . Just showed to you, that it might not be really that sensible.

Suraj · Post by **Suraj** » 22 May 2015 05:57

vina wrote:The MAT is drafted terribly, applied sporadically and mercifully was not applied for all these years. It blew up PRECISELY because now the mechanism for clarity is now available, someone went and asked for clarity and the babus could no longer do wink and nod.

No, actually that's not the problem. Your own quote describes how the current MAT demand clarifies a prior grey area. The problem is that FPIs don't like the final judgment - that they are in fact PEs. That is the problem. They'd rather not pay. They'd rather perpetuate the very system you moan about. Clarity in the wrong direction does not suit them.

MAT is by no means a bad law. It's always been on the books. In fact, the PE requirement has always been there, for a decade or more. It's just being effectively enforced now. That is a problem to those who ran their businesses expecting the wink and nod treatment. When you run a busiess in such an environment, you always run the risk that some administration will firm up the prior nebulous treatment. That doesn't make the law bad by consequence. In fact, MAT is nothing special - pretty much every major economy has such a law on gains accrued by foreign investors.

vina wrote:But the more important part is the NEXT one year returns. I just pointed out my experience out to you in terms of your statement of "Sensible fund manager will buy bonds in a falling interest rate regime" . Just showed to you, that it might not be really that sensible.

But you counter-argued with a 2 month horizon of yields. That doesn't provide any sort of conclusive argument either. Arguably, the US is demonstrating the converse of what you're seeing - 10 and 30 year yields are soft despite the potential for a rising rate regime in the near future. Gross bet on rising rates. Gundlach bet on stable or falling rates. So far the latter has been right. But the larger point remains that buying bonds when rates peak is a smart thing to do, even if a 2 month horizon has noise.

vina · Post by **vina** » 22 May 2015 06:56

Suraj wrote:The problem is that FPIs don't like the final judgment - that they are in fact PEs.

They are NOT PEs. Ever. Jaitley "clarified" that applying it going forward, but kept the grey area retrospectively, hoping to do a smash and grab on what he thought would be easy money. Only taxation is retrospective , however, sensible, worldwide settled jurisprudence is not

! In fact, one can argue that if the govt had not applied that for 18 years,it is a dead law. But no "the makers of law by circular" think otherwise and do some idiotic litigation.

That is the problem. They'd rather not pay. They'd rather perpetuate the very system you moan about. Clarity in the wrong direction does not suit them.

Oh, you have it backwards. Everyone would rather PAY, than put up with this gray area business. But the trouble is, if for 18 years, you applied it one way, you cannot go back and apply it retrospectively the other way and open the claim for the previous years! Which is exactly what happened.

MAT is by no means a bad law. It's always been on the booksIn fact, the PE requirement has always been there, for a decade or more. It's just being effectively enforced now.

It is a poor law, illogically drafted, meant to target Reliance alone in the previous years who had massive depreciation cover against tax payouts and the money grubbing govt wanted cash. It is being enforced now RETROSPECTIVELY against the practice of the previous years. Going forward the "clarification" (again circularbaazi) has been issued that it wont apply! Dont have cash, so try doing some smash and grab. Arun Jaitley = = Pranab Mukherjee. One tries it with Vodafone, other tries it with FPI.
.

But the larger point remains that buying bonds when rates peak is a smart thing to do, even if a 2 month horizon has noise.

Ah, so your POINT is, you should replace your argument about "sensible fund managers as thus"

Code: Select all

Just because the interest rates are dropping, it doesnt mean that you should try to buy bonds.The timing of your decision will decide if you make money or lose money. So what you should do, is wait for a collapse of the the rupee and price of  bonds , ie. in short a crisis,  and then pick the bottom of the crisis. If you go by the path laid out by the govt and it's words and buy bonds, you will probably end up losing money

Yagnasri · Post by **Yagnasri** » 22 May 2015 08:30

People here asked me for solutions for NPAs- Where can I start? The rot is huge.

1. Banks - PSU or Private- Most of the top people either do not know or care. PSU top boses are mainly politicos calling themselves as bankers. PSU Banks need serious admin changes.
2. Courts - The less said the better. Huge mess and takes some 200-300 pages minimum for problems.
3. Laws - The people wrote many laws including the Companies Act 2013 should to hanged to the nearest power pole. Lot need to change.
4. Political class - This is where the fundamental problem is. This class has huge stake in NPAs. Crony capitalist structure. Then can change things, but wont as it will not be their interest.

One solution - There are DRTs ( Debt Recovery Tribunals) wherein cases are to disposed off in a time period. Just change law to say that if any case crosses more than 150% of the time period prescribed then the same will be considered as Serious Misconduct on the part of the Judge and result in automatic dismissal and see the fun. Similar provisions in DRAT, Tax tribunals etc. May be amendment to constitution on Art 226,227, 32 fixing timelines for final disposal and automatic dismissal of the judge involved if there is failure to adhere to the timelines. Then see the fun.

vina · Post by **vina** » 22 May 2015 09:06

Yagnasri wrote:People here asked me for solutions for NPAs- Where can I start? The rot is huge.

1. Banks - PSU or Private- Most of the top people either do not know or care. PSU top boses are mainly politicos calling themselves as bankers. PSU Banks need serious admin changes.
2. Courts - The less said the better. Huge mess and takes some 200-300 pages minimum for problems.
3. Laws - The people wrote many laws including the Companies Act 2013 should to hanged to the nearest power pole. Lot need to change.
4. Political class - This is where the fundamental problem is. This class has huge stake in NPAs. Crony capitalist structure. Then can change things, but wont as it will not be their interest. .

You say all this in Inglees, I say in Yindee .. Do the following.

1. Copy & paste Chapter 11 and Chapter 9 of US Bankruptcy code. Have that stamped by rubber stamp Pranab Da, have it laminated, triplicated, gazetted etc and you are done.

So what you say in Inglees , is Indian Govmit /Babu/Ingless speaking trying to make "socialism" work solooshun. Wont work . What I say is Yindee speaking, cowardly, dhoti bania, market way of capitalism cleaning up the kakkoose while trying to make a rupee. You say 4 steps, I say 1 step.

History always proves that 1 works better than 4.

gakakkad · Post by **gakakkad** » 22 May 2015 09:08

can we have a thread about NPA and bankrupcy laws?

there would be many who would be interested in understanding the topic better..We have yagnasari who is a lawyer working in the field...and we have economist and entrepreneurs...the thread could form a valuable resource to baccha logs studying law , management and finance and early career professionals in related field...

vina · Post by **vina** » 22 May 2015 09:32

How timely. Example of Kakoose cleanup .. ICICI sells Rs 250 crore of Lavasa NCD to Arcil

Now Lavasa the much ballyhooed, TOI(let) front paged massive ad "First Hill ishtaashun of Yindipendent Yindia" , smelt bad right from the beginning, huge MH politico backing and stake in the background, massive environmental violations, a giant Dubaiesque Palms Al Jumairah thing, now in the toilet.

ICICI exits with a big haircut (oh, we dint make any loss would include the previous interest on coupons received, take that with bucketfuls of salt) , and ARCIL picks up the sh*t.

In other places, the NCD holders would have made Lavasa file chapter 11, kicked out HCC, dropped the liabilities, made changes, redone this thing and turned the project around.

Now with this ARCIL /Govmint/Socialist/Pappi Jhappi businesss , HCC (and the politico backers) remain in control of Lavasa and their equity is not wiped out and the tax payer is left holding the can. Long Live Indian Socialism!

With these in background, let us take a bet on the kind of bankruptcy law that will come to India, if at all . Trying to "fix" Arcil nonsense or the true creative capitalist way ?

Suraj · Post by **Suraj** » 22 May 2015 09:58

vina wrote:They are NOT PEs. Ever.

They are if GoI deems they are, or that some of them are. The designation of a PE is something the GoI defines, and they decide whether or not an FPI is a PE or not. Not something FPIs can themselves assert, and definitely not something you're in any way competent to assert, simply because you don't define the term.

vina wrote:Oh, you have it backwards. Everyone would rather PAY, than put up with this gray area business. But the trouble is, if for 18 years, you applied it one way, you cannot go back and apply it retrospectively the other way

Your argument makes no sense. You assert that the PE definition and MAT application was not clear. In other words, no one conclusively argued that they are not PEs, just that no one challenged the matter. This is not a case of trademark violation, where one is obligated to actively defend their TM or risk loss. GoI can ignore the law for 18 years and then define it, and then can apply the tax retroactively too, provided they address legal challenges appropriately. Undefined->defined is not analogous to defined one way -> defined another way.

It's not merely GoI who has laws on the books it doesn't enforce unless it feels like it. GOTUS has plenty of the sort too, tax law included. Whether and when it chooses to emphasize enforcement is the privilege of the legislature and the executive.

vina wrote:Ah, so your POINT is, you should replace your argument about "sensible fund managers as thus"

No, my position quite simply is: you didn't buy when you should have. You bought too late. You bought at a time when you should have sold, if you were making a short term bond trade. You're using a bad trade to argue pointlessly that bonds don't rise in value when in a falling rate regime.

gakakkad · Post by **gakakkad** » 22 May 2015 10:04

the question is do we want tax inversion? ie Injun companies incorporating in tax havens to avoid paying Indian tax?

other question is that do we want FIIs to profit from Indian equities market without paying a dime of tax ? ie an investor putting in 1 million in equities , selling the equity when its value is 1,4 million and not paying a dime on the 400k hence earned. What is in it for India in such an arrangement ?

Sure they can invoke treaties and other evasive maneuvers ..But we too can seize their assets...

vina · Post by **vina** » 22 May 2015 10:07

Suraj wrote:They are if GoI deems they are, or that some of them are. The designation of a PE is something the GoI defines, and they decide whether or not an FPI is a PE or not. Not something FPIs can themselves assert, and definitely not something you're in any way competent to assert, simply because you don't define the term.

The GOI can do it's King Canute act of ordering back the waves. But facts are facts. The FPIs don't fit the term of PE anywhere in the world.

The govt does idiotic things. What is classified as biz income for me is universally classified as capital gains everywhere else. Why even in India, for FPIs ALONE, it is classified as capital gains !

Talk about income being classified differently for two people doing exact same thing, Biz Income if you have brown skin , but Capital Gains if you have white/yellow skin or even brown skin if you speak with a Londonistan Accent or New Yawk accent.. Maybe I should start talking New Yawk again!

Suraj wrote:No, my position quite simply is: you didn't buy when you should have. You bought too late. You bought at a time when you should have sold, if you were making a short term bond trade. You're using a bad trade to argue pointlessly that bonds don't rise in value when in a falling rate regime.

Oh, my timing was perfect. I bought it 2 days before the surprise rate cut. I will continue to hold it probably for another 50 to 75 bps cut. Am I going to see money ? You say YES. I say, well, I am not so sure.

gakakkad · Post by **gakakkad** » 22 May 2015 10:08

one of the reason why I am against a draconian black money bill is that it will prevent India from being a tax heaven that it should aspire to be ...other thing is that it may prevent repatriation of foreign wealth... Hopefully an ill conceived moralistic stand would not be taken on that issue...

vina · Post by **vina** » 22 May 2015 10:10

gakakkad wrote:the question is do we want tax inversion? ie Injun companies incorporating in tax havens to avoid paying Indian tax?

other question is that do we want FIIs to profit from Indian equities market without paying a dime of tax ? ie an investor putting in 1 million in equities , selling the equity when its value is 1,4 million and not paying a dime on the 400k hence earned. What is in it for India in such an arrangement ?

Sure they can invoke treaties and other evasive maneuvers ..But we too can seize their assets...

You are actively PROMOTING Tax Inversion.

You DO want the FIIs to profit without paying a dime of tax. On the other hand, you tax the Indian investors at max marginal rates in instances where FIIs pay zero tax!

Now , even in case of MAT, you bend backward, grovel and go crawling to the might feet of the FPIs. You whittled down the Rs 40K crore demand to Rs 40L and that too got into litigation.

This is the govt policy of Modi Sarkar AND previous Sarkars. These are FACTs , whether you like it or not, that is true. You are actively engaged in exporting the capital markets and forex markets themesleves out to Singapore and Dubai.

gakakkad · Post by **gakakkad** » 22 May 2015 10:14

i assure you vina , that I have never been a fin-min ,nor a IAS aphsar or an FII or anything crony...

>> You are actively engaged in exporting the capital markets and forex markets themesleves out to Singapore and Dubai.

i am that rich? thanks for telling me...i must buy a rolls roys ASAP...

vina · Post by **vina** » 22 May 2015 10:22

i am that rich? thanks for telling me...i must buy a rolls roys ASAP...

Oh, I thought you were, when you said that "we" can seize the assets of FPIs ! You must actually go buy a Dassault Falcon in addition to the Rolls right away ..

Suraj · Post by **Suraj** » 22 May 2015 10:26

vina wrote:The GOI can do it's King Canute act of ordering back the waves. But facts are facts. The FPIs don't fit the term of PE anywhere in the world.

There's no 'fact' here. PE is something GoI defines for foreign companies. Whether anyone else chooses to do so elsewhere or not is irrelevant. This isn't a case of someone trying to make the sun rise in the west, as you portray it. I would not be surprised if GoI seeks to push for DTAAs or totalization agreements by forcing the MAT on FPIs issue, compelling other governments to work with them.

vina wrote:The govt does idiotic things. What is classified as biz income for me is universally classified as capital gains everywhere else. Why even in India, for FPIs ALONE, it is classified as capital gains ! Talk about income being classified differently for two people doing exact same thing, Biz Income if you have brown skin , but Capital Gains if you have white/yellow skin or even brown skin if you speak with a Londonistan Accent or New Yawk accent.. Maybe I should start talking New Yawk again!

How is that any different from LT and ST capital gains ? Or any other such arbitrary differential treatment ? Just because I held an instrument for 364 days instead of 366, I've to be penalized with a higher ST gain ? Why is LT 1 year and not 3 month, 6 months or even one week ? They say a week is a long time in politics after all. Ditto for any number of other arbitary designations - qualified dividends, NQSOs vs ISOs...

Tax law is idiotic, wherever it might be. You portray tax law elsewhere as some kind of logical system, while GoI supposedly doesn't know the difference between income and capital gains. On the contrary, all tax law is self serving. You can definitely say you don't like it, but it doesn't automatically make the law 'wrong'. All tax law everywhere is the government's privilege to define. The US for example, has absurdities ranging from FATCA to tax law that results in corporates shielding their overseas profits and not repatriating it.

vina wrote:Oh, my timing was perfect. I bought it 2 days before the surprise rate cut. I will continue to hold it probably for another 50 to 75 bps cut. Am I going to see money ? You say YES. I say, well, I am not so sure.

Ok, you're timing is perfect but you not being sure about any gains ? That's like saying "I did perfectly in the exam, but I'm not sure if I'll pass".