Indian Economy: News and Discussion (June 8 2008)

[ArmenT]

On CNBC now (Pacific Standard Time): India Rising: The New Empire

[Suraj]

Purchasing Managers Index steady in July, expands for 4th month

The Markit Purchasing Managers’ Index (PMI) for the month of July remained stationary at the previous month’s level of 55.3 mainly driven by strong growth in the domestic market while demand from abroad also picked up slightly.

Production of new businesses continued to grow considerably while employment levels remained broadly unchanged.

A reading of 50 in the seasonally adjusted index, which gets responses from purchasing managers from 500 industrial companies, indicates expansion of the particular variable while a figure below 50, an overall decrease. The overall index saw an expansion for the fourth consecutive month.

“Business conditions in India’s manufacturing economy continued to strengthen in July. The domestic market remained the primary impetus to growth, although the export market also played a part as its recovery gained pace,” said Gemma Wallace, economist at Markit.

New order index saw a significant rise to 59.7 in July from 58.6 in June. Respondents linked new order and output growth to a combination of better global economic conditions, successful promotional activities and government expenditure, particularly in infrastructure and water projects.

The new export order index, which has been in the negative territory before June, saw a marginal expansion to 52.5 from 52.1. This indicates that even though overseas demand remained subdued compared to domestic demand , it is showing recovery.

Exports down 27.7%, Imports by 29.3% in June

Imports, largely influenced by a whopping decline of 50.6 per cent in oil imports, showed a faster pace of contraction than exports, the trade deficit was $6.16 billion in June 2009-10 from $9.12 billion in the same month last fiscal.

Exports dropped to $12.81 billion in June from $17.73 billion in the same month last year, according to the government data released today.

Exports during the April-June period dipped by 31.3 per cent to $35.43 billion from the cumulative shipments of $51.54 billion in the first three months of 2008-09.

Imports dipped to $18.97 billion in June from $26.85 billion over the year-ago period. Imports during the first quarter of 2009-10 dipped by 36.5 per cent to $50.92 billion from $80.18 billion.

The trade deficit during April-June 2009-10 was $15.50 billion against $28.64 billion.

Trade data analysis from Business Std:
Continuing decline

The one small saving grace in this is that the June decline is slightly smaller than that for the April-June quarter, which was 31.3 per cent in dollar terms and 19.6 per cent in rupee terms. The bottom line is that, even as the rest of the economy is showing some signs of revival, exports continue to plunge. With the major destination economies still in recession and expected to remain that way for most, if not all, of 2009, there isn’t much prospect of a turnaround in the near future.

There is clearly no threat to balance of payments stability emerging from the dismal export performance as long as commodity prices remain subdued. Of course, they have shown signs, even if fleeting, of surging again. This combined with the impact of a strengthening domestic market may widen the trade deficit in the coming quarters; but the persistence of capital inflows at current levels should provide adequate cover.

Looking ahead, there are two indicators to watch out for. One, the base effect should kick in from October 2009, at which point the year-on-year growth rate should approach zero. Even if it turns mildly positive, that should be a source of relief for the export community. Two, the US economy, though still in recession, is doing a little better than expected. This could indicate a revival in consumer demand by the end of 2009, which in turn will mean better prospects for exports to that very significant market. But, for a large number of very small exporters, this could well be too little, too late. The financial impact of several months of volume declines will inevitably knock several of them out of the arena.

Economy to grow at 6.5-7% this fiscal year: Montek Singh Ahluwalia

"I think (economic growth during 2009-10)... Between 6.5 and 7 per cent will be quite a good outcome," Planning Commission Deputy Chairman Montek Singh Ahuwalia told reporters today.

Noting that the recent pick-up in the industrial sector will have positive implications for growth in the current fiscal, he said, "On the agriculture side, the news is less good than what we hoped."

Replying to questions on the impact of the bad monsoon on farm sector growth, Ahluwalia said, "There is still deficiency in different parts of the country. It is too early to tell its effect on the country as a whole... But of course individual states can have problems."

Noting that growth projections of various think tanks vary between 6.7 and 7 per cent, while some indicating more than 7 per cent economic expansion, he said that this would not be bad under current circumstances.

Addition to bank non-performing assets slows in Q1

With signs of improvement in the economic climate and support to stressed sectors, the pace of addition to gross non-performing assets (NPAs) has slowed down in the quarter ended June 2009.

The trend of gross NPA formation for BSE-listed banks indicates that the additions peaked in the January-March 2009 quarter at Rs 3,280 crore, 89 per cent up from Rs 1,734 crore in October 2008. The quantum of addition declined to Rs 2,611 crore in April-June 2009.

The main reasons behind the rise in NPAs would be inadequate demand, lack of funding, lengthy working capital process and a significant movement in forex rates.

[Suraj]

A long, detailed article about what needs to be done to get GST going. I'll keep excerpts short. Those who are interested should read it in full:
GST by 2010: Prepare Well Before Plunge

The finance minister in his Budget speech has promised to achieve systemic improvements in the fiscal regime over the next five years. He has endorsed Kautilya’s dictum that taxes should be collected like one collects ripened fruits from the trees or the way bees collect nectar from flowers and spread their pollen without damaging them. In modern parlance, a good tax system should minimise the three costs — the cost of collection, the compliance cost and the cost in terms of distortions in the economy. The cost of distortions is equivalent to the square of the tax rate and, therefore, in order to evolve an efficient tax system it is necessary to broaden the base, reduce the rate, minimise rate differences and have a simple and transparent tax system. Furthermore, for both efficiency and equity reasons, it is necessary to strengthen the tax administration and evolve a strong computer-based information system.

Financial reforms not derailed, but recalibrated: Subbarao

Setting at rest fears that the global crisis could derail India's financial sector reforms, Reserve Bank of India (RBI) Governor D Subbarao today said the roadmap is being recalibrated but there was no slowing down the process.

Noting that the crisis has thrown up a large number of questions on financial sector reforms, Subbarao said effective financial intermediation has played a key role to support India's high growth.

RBI shouldn't play the role of govt's debt manager: Rajan

Raghuram Rajan, author of the latest report on financial sector reforms, today said that the Reserve Bank of India (RBI) should distance itself further from the government to preserve its credibility at a time when the Centre was rapidly borrowing to fund deficit.

He suggested that RBI should be relieved from the role of being the government’s debt manager and have a clear focus on inflation.

“The rationale for guiding the government to manage its own debt as opposed to having it lie with RBI is that in that situation RBI is not pressured into buying debt because it is the debt manager. To my mind, this is one of the reasons why it makes sense to separate these two offices,” he said.

Funds are already betting on PSUs being disinvested:
It's raining PSU funds

The government’s plan to divest its stake in public sector undertakings (PSUs) is encouraging fund houses to launch PSU funds. Some mutual funds have already launched and some others are in the process of launching PSU-dedicated schemes.

For instance, Shinsei Mutual Fund has recently launched a PSU Bond Fund, which will invest in a portfolio of debt and money-market securities issued by PSUs and nationalised banks.

Similarly, Religare Mutual Fund has filed its offer document with the Securities and Exchange Board of India (Sebi) to launch Religare PSU Equity Fund, an open-ended scheme. SBI Mutual Fund is planning to launch a similar fund by the end of this financial year.

The government is expected to kick-start its disinvestment programme with the initial public offer (IPO) of National Hydroelectric Power Corporation (NHPC) in August, followed by Oil India and other PSUs.

In June, a Morgan Stanley report said if the government reduced its stake across all PSUs, both listed and unlisted, to 51 per cent, it could potentially raise $163 billion. “We expect divestments of around $4-5 billion in FY10, which would give the government some flexibility on the fiscal front,” the Morgan Stanley report pointed out.

According to the latest Economic Survey, the government should sell a minimum 10 per cent stake each in all unlisted public sector enterprises. The Survey recommended a disinvestment target of Rs 25,000 crore annually.

[Suraj]

CSO's confusing data collection mechanism continues. We will now have IIP on 1993-94 base year, GDP on allegedly 1999-00 base year (but within the GDP, the IIP still has a 1993-94 base year), and the inflation data (which enables the computation of the GDP deflator) on a 2004-05 base year. The silver lining is the indication that the GDP base year is due to be revised soon:
New inflation data series to downgrade food inflation

The new Wholesale Price Index (WPI) series with a revised base of 2004-05, an updated product portfolio and increased data points will understate food inflation, as the weight accorded to primary articles will see a significant decrease from the current 22.02 per cent to around 10 per cent.

The new series, expected to be out by October, will see a significant increase in the weightage for the manufactured products category to around 80 per cent from the current 63.75 per cent. Therefore, the point to point inflation rate derived from this index on a year-on year basis will be driven by wholesale prices of manufactured products rather than commodities like rice, cereals, pulses and wheat, which form a part of the essential consumption basket.

Many economists feel the current WPI series, with a base of 1993-94, already understates food inflation. This has come to the fore since the headline inflation rate as measured by WPI has displayed a consistent downward trend since November 2008, moving into the negative domain in May 2009, though food inflation continued to be in the range of 7-10 per cent.

Moreover, the divergence between WPI and CPI-based inflation also reached historic levels, with CPI inflation at near double-digit levels and WPI inflation at sub-zero. This was also due to the lesser weightage given to food items in the WPI, though the CPI has around 50 per cent representation of food items in its index.

The weights in the respective data series are calculated by the share of specific sectors in the growth rate or gross domestic product (GDP) figures. The contribution of agriculture in the GDP has been on the decline and, therefore, the weight of food products in inflation indices are also going down. “The changes are made in accordance with the contribution of different sectors to the GDP figures. The share of agriculture has been going down. The idea is that the effect of an item on the inflation rate is in accordance to its contribution to GDP. The weight of food items in CPI will also see a drop as the base is revised,” said Pronab Sen, chief statistician of India.

Agriculture contributed around 32 per cent to the GDP in 1990-91; its share went down to 20 per cent in 2005-06 and now stands at around 16 per cent. The trend continues and as the GDP base is also set to be revised, the share of agriculture is expected to contract further.

[kasthuri]

Interesting projection...(don't know if there is any major economy component)

Between 2015 and 2050: Considerations in Negotiating a Date for an Indian Grand Strategy Project

[abhischekcc]

Hi Guys,

I recently started twitting on behalf of BRF. Its very small right now, and I will be twitting more in the coming days.

The url is http://twitter.com/bharatrakshak.

[Philip]

Many moons ago,I stated that one had to paraphrase that famous statement by Marx that "Religion was the opium of the people".In India these days,travelling around the metros and tier-2 cities and even smaller towns and settlements,I find that "Malls are the opium of the masses"! The foll. article has some intriguing insights and the consequences for the globe.A must read.

http://www.independent.co.uk/news/world ... 67844.html

A must-have revolution: How shopping became India's new religion

The explosive growth of India's middle class has radical implications both for the global economy and for the environment. As consumers there rush to buy the new 'people's car', Andrew Buncombe counts the cost

[Suraj]

A survey on capex plans. Note the mention of the lack of a proper corporate debt market, which we've discussed here in the past:
India Inc to see capex drop 25%

The CRISIL survey said companies will invest Rs 10.05 lakh crore ($210 billion) in expansion in the next three years against announced capital spending plans of Rs 13 lakh crore ($270 billion). However, pent-up demand in some sectors and the fact that domestic banks will pick up the slack from reduced foreign investment will ensure that capex will continue to rise, despite slower economic growth.

Manoj Mohta, head of Crisil research, said though investment in textiles, metal, autos and oil refining will be weak, investment in power was expected to rise 30 to 40 per cent over the next three years, and investment in gas transmission and distribution was expected to double. “This is a healthy sign for our economy,” he said.

During past economic slowdowns in India — notably 1997-1998 and 2002-2003 — private sector investment contracted 1 to 2 per cent a year owing to cautious bank lending and weak demand, he said.

During the last four-year boom, however, Indian companies built up cash and today banks are willing to lend to high-demand sectors like power and telecommunications, both of which were rapidly expanding, Mohta said.

India long had an investment-to-GDP ratio of about 25 per cent, which shot up over the last four years to 39 per cent — close to that of China and Korea. In the last three fiscal years, corporate capital expenditure had grown 30 per cent on a compounded annual basis, Mohta said.

The Indian corporate debt market remains undeveloped, so that rise was powered by foreign investment, swelling company coffers and bank lending. Now, the global slowdown has reduced the amount of foreign funding available, and many Indian companies have also taken a hit on sales. As a result, banks will be even more important in funding growth, Mohta said.

Mamta Banerjee in the news again, this time related to the land acquisition/rehabilitation bill:
UPA takes land Bill off the agenda

The long-awaited Land Acquisition (Amendment) Bill 2009 is in more trouble, with the government scrambling today to withdraw a copy of the final Bill that it circulated to MPs this morning ahead of introducing it in the Lok Sabha.

The retraction was preceded by a shouting match between Finance Minister Pranab Mukherjee and Railway Minister Mamata Banerji, who had threatened to walk out of a Cabinet meeting protesting some provisions in the Bill earlier this month. Congress President Sonia Gandhi had to act as an umpire at the informal meeting that took place in Parliament during a break.

The bone of contention was the fact that one of Banerji’s colleagues in the Trinamool Congress, the Congress’ largest ally in the United Progressive Alliance, relayed her objections to the press. A furious Mukherjee thumped his desk and asked, “Why did Shishir Adhikary disclose your objections to the press?” (Adhikary is also a junior rural development minister). Banerjee retorted that he had done the right thing.Given these sharp differences between two senior ministers, Gandhi intervened and suggested the UPA discuss the contentious amendments again and that the Bill would be tabled only after a consensus.

Within minutes of this meeting, the Lok Sabha secretariat issued instructions to all the relevant sections of Parliament that the copy of the Land Acquisition (Amendment) Bill 2009 should be withdrawn and that “ no further action ” was to be taken on the Bill.

“ There is some confusion over the land Bill, so we have stopped circulating it, ” a senior office in the legislative wing of the Lok Sabha confirmed to Business Standard. All Bills to be introduced in Parliament are circulated to MPs at least 48 hours in advance.

Tata Power unveils Rs.24000 cr ($5 billion) capex plan

Chairman Ratan Tata at the company's annual general meeting here said that Tata Power has lined up a capex of Rs 23,600 crore over the next three-year period.

Tata also said that over 30,000 consumers till July-end have evinced interest to switch over to Tata Power for their electricity.

WPI down marginally to -1.58%

Though inflation, based on the wholesale price index, declined by 0.04 percentage point against minus 1.54 per cent in the previous week, food articles like sea fish, pulses, fruit and vegetables, groundnut oil and sugar became dearer.

However, eggs, soyabean, oil cakes and imported edible oil became cheaper during the reporting week. Prices of fuel, power, and light and lubricants remained unchanged over the previous week.

"WPI, which is in the negative zone, is an unnecessary distraction for policy making as prices of food and other commodities are going up," economic think-tank Indian Council for Research on International Economic Relations (ICRIER) Director Rajiv Kumar said.

The Reserve Bank of India (RBI), in its first quarterly review of its monetary policy, has projected that inflation will move up to five per cent by the end of March 2010.

[sugriva]

For once, Prafool Bidwai speaks some sense

http://business.rediff.com/column/2009/ ... -state.htm

The key to business success in India lies often less in real entrepreneurship than in capturing these major functions of the state. Nothing guarantees you higher profits better than favourable official treatment, which allows you to corner resources, grab licences or establish monopolies.

[Suraj]

NHPC IPO overbid 3.5 times

According to the National Stock Exchange data, the company got bids for over 5.94 billion shares against the 1.67 billion shares on offer. Over 40 million bids came at the cut-off price. The majority of bids had come from large institutional investors.

The portion reserved for qualified institutional buyers was over-bid by over six times, while retail investors subscribed to only 1 per cent of the shares on offer. The price band is between Rs 30 to Rs 36. The company plans to raise over Rs 6,000 crore and it is the first stake sale by a state-run company in over one and a half years.

Cement is an important core sector component:
Cement dispatches grow 10.56% in July

The domestic cement industry has again, in July, shown a double-digit despatch growth, fifth month in a row since March. The 227-million tonne industry grew at 10.56 per cent in July, which in the corresponding month last year stood at 8.13 per cent.

According to cement players, the growth will taper from October onwards, as in the third quarter of FY09. They maintain that the current financial year will end with a 9 per cent growth, against a below 8 per cent growth registered last year.

Subir Gokarn, regular contributor to Business Standard, is now shortlisted for RBI DG:
Subir Gokarn tops list for RBI Deputy Governor's post

Subir Gokarn, Executive Director and Chief Economist at Standard & Poor’s Asia Pacific, is heading the shortlist of candidates for the Reserve Bank of India (RBI) Deputy Governor’s post. Gokarn is also a Business Standard columnist.

If selected, Gokarn will replace Rakesh Mohan who quit the central bank in June and will be in charge of monetary policy matters, which are being looked after by the Governor himself.

The others in the running included Arvind Virmani, the government’s chief economic advisor, Ashoka Mody, assistant director at the International Monetary Fund’s European department, and Jahangir Aziz, J P Morgan India’s Chief Economist.

Gokarn has also worked at the Indira Gandhi Institute of Development Research, Mumbai, and the National Council of Applied Economic Research, New Delhi, where he was chief economist.

This will lead to aggressive real estate growth:
SBI slashes rates in home loan rate war

The rate war in the home loan segment has just intensified, with the State Bank of India, the country’s largest bank, slashing rates today to attract customers across income segments.

It introduced a new scheme for borrowers up to Rs 5 lakh. In this Hi-Five Loan Scheme, the bank has offered an annual rate of 8 per cent for the first five years. Thereafter, the borrower has the option to choose between a floating rate of 2.75 per cent below the State Bank Advance Rate (SBAR) and a fixed rate of 1.25 per cent below SBAR.

Meanwhile, the limit on the Easy Home Loan scheme has been enhanced from Rs 30 lakh to Rs 50 lakh. For loans up to Rs 50 lakh, the lender will charge 8 per cent in the first year and it has reduced the second- and third-year rates from 9 per cent to 8.5 per cent. From the fourth year on, the conditions are the same as that in the Hi-Five Loan scheme.

For loans above Rs 50 lakh (Advantage Home Loan scheme), the new rates are 8 per cent (first year), 9 per cent (second and third years) and a floating rate of 1.75 per cent below SBAR or a fixed rate of 0.75 per cent below SBAR from the fourth year.

There will be no processing fees, free personal accident insurance and no levy on prepayment of loans if they are paid from the borrower’s own resources. Said P Nandakumaran, chief general manager, personal banking, SBI “We have taken the lead and expect others to be in step with us.”

RBI rejects GoI bond auction bid

Signalling its “discomfort” with hardening of yields, the Reserve Bank of India (RBI) today rejected all bids submitted for government bond auction for raising Rs 12,000 crore.

The government had scheduled the auction for today to sell “6.49 per cent paper 2015” for Rs 4,000 crore, “6.9 per cent paper 2019” for Rs 6,000 crore, and “7.40 per cent paper 2035” for Rs 2,000 crore.

RBI in a statement said the government in consultation with the central bank has rejected all the bids submitted in the above auctions.

Bond dealers said though major players (banks) were absent due to the two-day PSU banks’ strike, the participating banks, though few in numbers, and bond houses placed aggressive bids.

[Singha]

SBI may have low rates but I know many many people who were given the run around by SBI asking for 30 documents to sanction loan compared to HDFC which would ask for 10. maybe if you have a cast iron docs stretching back 100 yrs on ancestral BDA land then SBI is a walkover else its not easy.
my sis tried for 9 months with SBI then moved to HDFC.

[manju]

I got SBI Loan for 25lac in 2006, but this was in my home city in North Karnataka where you know most people! My friend had long term relationships with the Bank and I had pretty decent documents. Getting the loan is difficult but once it is approved and you get the money there is no harassment. I visited the bank 2-3 times only...

They are not making phone calls if you miss your EMI by a few days or even months... and I believe there is no fine for early repayment.

[chandrabhan]

.. have had their "intellectual' and "rational" facades ripped off.

Now all that is well and good. If a Paul Krugman can admit "Macro Economics has been a terrible waste over the past 30 years at best and positively harmful at worst", it still shows that the spirit of a true truth seeker is present in him, however "dismal" his field his, because, he can face the objective truth.

Not so the DSE, JNU, ISI ding dongs. I have not seen a [g]SINGLE[/b] quack oops.sorry, "Respected Professors" and "Thinkers" (past and present), own up to their intellectual charlatanism for the past 40 years and their outsized role in framing and justifying the intellectual underpinnings and consensus for the dreadful performance of the Indian economy all those years and the huge huge responsibility of consigning the vast majority of this country to a miserable and pitiless existence.

On the contrary, the modern day inheritors of that legacy, who are even scarier and nuttier than the originals like Prabhat Patnaik , Utsa Patnaik, CP Chandrashekar and the rank troglodytes who are even nuttier than a fruit cake, continue with nary a look back at the past and go on and on like a broken LP record. JNU well, anyways is the well known necropolis of learning , so we can write them off as nut cases. What about the 'oh so scientific' ISI and DSE ?. When will their reputations get torn up and consigned to the dust bin like JNU. When will a degree from DSE make one close to being unemployable in the real world (beyond some wolly headed academia and des ki seva and other chamchagiri some "media" scam) like the JNU types. Let that day come and I will take an India trained economist seriously again.

Vina,
the reputation of DSE degree is already up on that path. People who could have made a difference (IG Patel & Dharmendra kumar) kind sought greener pastures in LSe & elsewhere. Last I heard that Prof DK was in research in UK and had not taken a class for almost 10 months. Anyway , he too would have retired by now.
JNU anyway has become famous for other reasons rather than the right one. I so very much miss the discussions on John Rawl and galbraith sipping the shake at chacha's and mini shop.

[Chinmayanand]

I got SBI Loan for 25lac in 2006, but this was in my home city in North Karnataka where you know most people! My friend had long term relationships with the Bank and I had pretty decent documents. Getting the loan is difficult but once it is approved and you get the money there is no harassment. I visited the bank 2-3 times only...

They are not making phone calls if you miss your EMI by a few days or even months... and I believe there is no fine for early repayment.

Pre-closure Penalty
No penalty if the loan is preclosed from own savings/windfall gains for which documentary evidence is produced by the customer.

In case, such proof is not produced by the borrower, penalty @2% on the amount prepaid in excess of normal EMI dues shall be levied if the loan is preclosed within 3 years from the date of commencement of repayment.

This is for home loan.

[Chinmayanand]

India's exposure to US Treasury bonds least among BRIC nations

India’s exposure to the US treasury bonds as a percentage of the total forex reserve is around 14% whereas China, also a BRIC nation, invested over 38% of its forex reserves, an analysis jointly done by SundayET and CARE Ratings found out.

For the other two BRIC nations, Brazil and Russia, have an exposure of over 62% and 31% respectively in the US treasury bonds as a percentage of their respective forex reserves.

According to Jagannadham Thunuguntla, equity head at SMC Capitals, India has the least exposure to the US treasury bonds not just in terms of percentage of the total forex reserves but also as a percentage of total GDP thereby making it the least vulnerable nations among BRIC countries.

[Singha]

I read Forbes india latest issue yesterday. lead story was how chanda kocchar is remaking ICICI bank.

have to hand it to business mags and corporate 'leaders' - suppose if we screw up royally on a phenomenal scale over a period of years - all we will see is the business end of a size12 boot and a involuntary "1:1" with the manager of the day.

but these corporate types are able to project themselves in good light when at the 11th hour they smell the coffee and use the sensible approach they should have adopted much earlier.

as per the story - ICICI was hell bent on expansion at all costs even if their
margins were half of folks like axis, sbi and hdfc. they ignored staffing the branches with qualified people (compare to highly knowledgeable and empowered managers in the big PSU bank branches) and used branches merely as a holding pen for their army of DSA (direct sales agents). they
let the ratio of (current+savings)/total deposits fall to 30% when others
keep it at 33% minimum. more the ratio, better for the bank as the cost
of interest in current+savings is lower than long term deposits.

so now they have reduced DSA by 70% (set to eliminate altogether), opening 100s of more branches in next 2 yrs, pushing out people from corporate offices into branches and asking them to solve matters down there,
focusing on bottomlines while keeping opex constant....in short trying to
become more like HDFC bank.

the A-team @ ICICI was highly praised for putting together and implementing this new plan and the architect of the discredited old plan
Kamath sir himself gets away free inspite of not recognizing the issues
earlier than when the Lehman brothers crisis and run on deposits forced
them to smell the coffee.

beautiful hagiographic EOS-1D type portrait shots too.

[vera_k]

I used to think that credit cards would be a good way to combat the unofficial economy. Looks like it will need some doing to compel people to use them.

A visit to India's first Wal-Mart

It has also tied up with Kotak Mahindra Bank to offer "business cards" with which customers can shop on credit for 14 days. Kalia, the restaurateur, laughs at this: "In a country where half the economy is a black economy, how do they expect a shopkeeper to give checks and put all transactions on record?"

[vina]

the A-team @ ICICI was highly praised for putting together and implementing this new plan and the architect of the discredited old plan
Kamath sir himself gets away free inspite of not recognizing the issues
earlier than when the Lehman brothers crisis and run on deposits forced
them to smell the coffee

That is why you read BRF, where you get the whole unvarnished truth. Reality as it is!.

Remember,BRF had an exemplary record during this crisis. I had named Bear Stearns at least a WEEK before it went down. I named Lehman as well and also guessed correctly that ICICI would be caught with it's pant down if there was an external credit crisis and it's cheap cash fueled expansion binge was going to put it in mortal danger.

All of which was proven true . Ok, now that the crisis has passed, let me say something that simply WONT get published in the Forbes article. ICICI had suffered a serious lack of confidence and there were runs on the bank. Banks usually die more often when there is a crisis of confidence, than going actually bankrupt (unlike Lehman). ICICI was in a death spiral. What rescued it was the firm backing of the Govt of India which signaled quite openly that ICICI wont face a liquidity problem (ie, RBI would give them liquidity, even if they run out of liquid cash..aka technically bankrupt).

Such hagiographic rubbish belongs in the dust bin. Compared to Deepak Parekh and his folks truly professional folks at HDFC, ICICI are a bunch of cowboys. More door to door salesman kind of one dimensional types, than true bankers in the broader sense.

From what I hear from my in the NBFC/ retail banking sources sources, RBI actually looked at ICICI's books and asked them to cut down on the risks they are taking and cut back on their run away credit growth in the retail side (auto loans, home loans ,credit card and all those very marginal low quality loans) . ICICI was more an NBFC/Retail finance company fighting for that market.

And oh.. dont believe that story about margins. It is the classic truism of business. It is very easy to manage for Topline OR Bottomline. What separates the men from the boys is someone who can consistently grow BOTH bottom line and top line for any consistent period of time (usually happens when you hit a winning formula and continue to scale that and you get economies of scale). However, I think ICICI has hit the max relative market share possible with that kind of business model. Scaling that further will expose it to outsize risks and low quality portfolio . Going after a higher portfolio would mean a sure loss of margins because of competing with PSU and other banks with lower cost of funds and more focus.

So effectively in my opinion , this Chanda Kocchar story seems to be like sacrificing growth and managing margins. Yawn.. no biggie there. Any two big, half way competent manager with an established business can do it.

[svinayak]

Such hagiographic rubbish belongs in the dust bin. Compared to Deepak Parekh and his folks truly professional folks at HDFC, ICICI are a bunch of cowboys. More door to door salesman kind of one dimensional types, than true bankers in the broader sense.

What is reason for this behavior of ICICI.
WHo are the backers of ICICI. I was told by somebody that some folks in the west wanted it to fail to show that India also has a financial crisis.

[Chinmayanand]

Is India ready for IFRS?

The International Financial Reporting Standards (IFRS) is a novel way of looking at accounting. Be it the preparation of accounts or the way they

are presented, IFRS challenges the status quo without providing definite answers.

Be it valuation of assets or liabilities or even revenue recognition, there is enough room for professional judgement within the broader arena of rules governing them. IFRS questions valuation of fixed assets on historical cost basis, questions application of uniform rates of depreciation on all components of a fixed asset as also the amortisation of intangible assets such as goodwill or patents.

One of the governing principles of the existing accounting practices was that of objectivity under which actual costs are reported, thereby leaving no scope for judgement. But accountants all along knew that objectivity was being achieved at the cost of relevancy. By not showing the current market values of assets, the investor was not being given relevant information for crucial decisions of investing or raising money from domestic or international markets.

Instead of focusing on popular measures of earnings such as earnings before interest and taxes (EBIT) or earnings before depreciation, interest and taxes, IFRS focuses on Income before Extraordinary Items and Income after Extraordinary Items.

Further, by making off-balance sheet transactions as part of accounts, it brings a whole new meaning to the reported numbers. It defines control of entities not through percentage of holdings but by the decision-making power inherent in the parent company.

Earlier, consolidated accounts of many multinational companies did not include accounts of special entities because shareholding was less than 51% although management control was absolute. IFRS wants to plug these loopholes and usher in much more transparency in reported figures.

IFRS, by forcing a change of thinking, has become the new management mantra. Management defines success as being non-conformist and that is what IFRS focuses on. IFRS is also clear that there are multiple ways of challenging the status quo.

[Chinmayanand]

India Inc loves to invest in tax havens

India is part of the G20 resolve to plug loopholes and prevent funds from being parked in tax havens but a government statement placed in Parliament today shows that 60 per cent of investments abroad by Indian companies last fiscal were routed to tax havens.

Of the $16 billion invested by Indians in 2008-09, almost $10 billion was routed to countries listed as tax havens. The top three beneficiaries of this investment surge are Singapore, Cyprus and Mauritius.

About $3,680 million was routed to Singapore — law agencies across the world complain of lack of cooperation and response from Singapore in providing investment details. Cyprus offers a minimal rate of corporate tax with special concessions to shipping companies. Indians invested $2,255.60 there in 2008-09 — about four times of what was invested the previous fiscal. Investment in Mauritius grew from $1,467 million in 2007-08 to $1,804 million in 2008-09, according to Finance Ministry data to Lok Sabha.

Russia is there with $676 million in 2008-09. Other favourite destinations include Isle of Man ($334 million), British Virgin Islands ($230.4 million) and Cayman Islands ($119.75 million).

[Katare]

I have totally different understanding of ICICI bank......

The assumption here is that ICICI has messed up and is/was in deep trouble without specifying those troubles or mess-ups. Another assumption is that the makeover or graduating to a newer evolved model some how means the previous model was a failure. Infect the previous model was designed for a much smaller and mostly finance company to rapidly evolve into a large modern bank.

ICICI bank's previous model was a highly successful one and it changed the outlook of entire Indian banking sector for good. The model was designed to over come certain structural issues in regulatory mechanism and legacy burdens of ICICI finance arm. It firmly established ICICI as largest private sector bank and second largest bank of India with balance sheet size totaling 10% of India's GDP, handsome profits and return on assets. It’s prolly the most capitalized (17-18%) and hence safest among all of the largest Indian Banks.

Regulatory issue - RBI did not allow banks to open new branches or acquire smaller banks which severely restricted ICIC bank's ability to expand in profitable urban areas. Also traditional route would have taken a much longer time and capital to achieve the growth that ICICI bank wanted for itself. It over came those issues by employing technology and innovative sales force. That innovation allows it to let go access manpower (DSA) when it doesn't need them.


Legacy issue- ICICI and ICICI bank were merged few years back (~2002 IIRC) which brought a large debt funded balance sheet to combined entity as compared to traditional banks, with thousands branches, whose loans are funded with higher CASA ratio. ICICI has never had CASA (current/savings account) ratio of more than 30% due to this legacy issue although it has always strived to garner as much share as it can.

The new model is designed for a large sophisticated bank to operate more like a traditional bank. ICICI has now license to open hundreds of new branches and it also acquired a failing bank with couple of hundred branches. This is consolidation phase for ICICI bank and model for it would certainly look different.

The easy money period (2002-07) provided an opportunity and ICICI bank took advantage of it by providing credit to consumers and industries. They funded this expansion by raising massive amount of capital from market by two FPOs. The first one was for Rs5K corer and second one was for Rs 25K corer, which is still a record for India Inc.

Who lost in all this? Did depositors loose? Did investors loose? Did creditors of bank loose? Did debtor of bank loose? Did govt loose?

The answer to all of the above questions is NO!

All of the above (bank, depositors, investors, creditors and debtors) made bucketful of money and they are happy. The opinion of rest of the folks doesn’t really count does it? Some people did try to ‘run down’ the bank with vicious and malicious rumors (including here at BRF but intent were prolly purely acedemic) last year but truth did prevail. All govt/RBI did was to clarify that rumors are malicious and enough liquidity is available with the bank as per regulations.

[Hari Seldon]

Good points, katare saar.

No doubt that ICICI lighted the fire of much needed competition under PSB musharrafs. Better some desi pvt bank make those inroads than the phoren vultures who've shown themselves to be brilliantly insolvent anyway.

Though in all fairness, some might argue that had lehmann not failed, similar arguments might apply to the counterfactual lehmann todday, perhaps?

[vina]

All govt/RBI did was to clarify that rumors are malicious and enough liquidity is available with the bank as per regulations.

.That "ample liquidity" and "no liquidity problem" statements. That is exactly what saved ICICI's Musharraf. Not it's vaunted "capital adequacy ratio" , not it's spectacular growth in the past. Nothing else at all could have saved it. As for "malicious rumors" , what exactly were the rumors , the fact that it had a Lehman exposure ?. The fact that it is heavily exposed in the Real Estate Sector and the 2 wheeler auto finance sector (from what I hear, it has basically exited the 2 wheeler sector), very dodgy credit card portfolio and finally , it's reliance on bulk deposits? .

Err, all those big corporates who pulled thousands of crores out and the ordinary folks who withdrew their life's savings out of ICICI didnt seem to have much confidence and pereferred "malicious rumors" over Kamath and Chanda Kocchar's cool aid.

Problem with ICICI story is , if those cowboys had really had no regulations like the one RBI put in and without the requriement to set aside reserves for real estate loans, they would have been a goner. ICICI would have been the Indian equivalent of RBS !. A massive bankruptcy which would have ended up on the govt and in turn tax payer's lap. Same-Same as Lehman no ?. All those previous huge profits, the shareholders keep, all the huge losses, the tax payers take up because of "systemic" effects onree.

[Suraj]

India growth may be cut by below average monsoon: PM adviser Rajan

“The monsoon will have an effect, but not as devastating as it would have been in the past,” said Raghuram Rajan, who is also a professor of finance at the University of Chicago. “Now hopefully it takes a fraction of a percentage point or a percentage point off growth, which still looks reasonably healthy.”

The weather office today lowered its forecast for monsoon rainfall for a second time this season, saying the rain in the June-September season will be 87 percent of the average between 1941 and 1950, compared with a 93 percent forecast on June 24, said Ajit Tyagi, director general at the India Meteorological Department.

“What a monsoon does is create wide bands around any forecast,” Rajan said in an interview in Kuala Lumpur yesterday, ahead of the World Capital Markets Symposium starting today. “The weakness in the rural areas will be offset by urban growth.”

India now aims to increase production of winter-sown crops to compensate for a possible shortfall in summer-sown rice, Singh said last week. The area under rice cultivation, the worst hit by delayed rain, has declined by 15 million acres, he said.

Rajan said India’s central bank should think “carefully” about whether it should maintain an expansionary monetary policy, predicting less-than-normal monsoon rain and government payments to villages through a national employment-guarantee scheme could spur food-price inflation.

Auto sales up 21% in July

July automobile sales released by the Society of Indian Automobile Manufacturers (Siam) show a growth of 20.8 per cent over the same month last year, the highest such rise till now for the current financial year. A total number of 941,118 vehicles were sold last month. This growth comes from record sales of cars and utility vehicles, which grew by 29.2 per cent, and two-wheelers, whose sales surged by 20.1 per cent last month over the corresponding period last year.

Since April, overall sales of automobiles grew between 9 and 15 per cent, with sales in June peaking at 14.3 per cent. Now comes the July spurt, also made possible from better performance in the medium and heavy commercial vehicles (M&HCV) segment. While M&HCV sales on a year on year basis had dipped by around 35 per cent since April, sales in July moderated to a drop of only 8 per cent. And sales of light commercial vehicles (LCVs) went up.

“Growth in passenger cars has come from four factors. The GDP growth witnessed in the past quarter, new model launches in the passenger vehicle segment, drop in vehicle loan costs, and a low base effect of last year,” says Dilip Chenoy, Director General of Siam. The low base effect refers to the fact that total sales of vehicles for much of 2008 was subdued

[Katare]

All govt/RBI did was to clarify that rumors are malicious and enough liquidity is available with the bank as per regulations.

.That "ample liquidity" and "no liquidity problem" statements. That is exactly what saved ICICI's Musharraf. Not it's vaunted "capital adequacy ratio" , not it's spectacular growth in the past. Nothing else at all could have saved it. As for "malicious rumors" , what exactly were the rumors , the fact that it had a Lehman exposure ?. The fact that it is heavily exposed in the Real Estate Sector and the 2 wheeler auto finance sector (from what I hear, it has basically exited the 2 wheeler sector), very dodgy credit card portfolio and finally , it's reliance on bulk deposits? .

Err, all those big corporates who pulled thousands of crores out and the ordinary folks who withdrew their life's savings out of ICICI didnt seem to have much confidence and pereferred "malicious rumors" over Kamath and Chanda Kocchar's cool aid.

Problem with ICICI story is , if those cowboys had really had no regulations like the one RBI put in and without the requriement to set aside reserves for real estate loans, they would have been a goner. ICICI would have been the Indian equivalent of RBS !. A massive bankruptcy which would have ended up on the govt and in turn tax payer's lap. Same-Same as Lehman no ?. All those previous huge profits, the shareholders keep, all the huge losses, the tax payers take up because of "systemic" effects onree.

How do you know that there were liquidity problems with ICICI bank? Based on rumors? Which I believe was an attempt to run down the bank to make quick bucks at the cost of long-term/ & retail investors. It has happened in previous downturn too with ICICI bank so nothing new. It was wrong than and everything indicates it was wrong this time too. How do you know it needed saving by govt. It’s regulator’s obligation to dispel rumors by providing official information to investors/market which regulators discharged faithfully and timely. If all it takes is a statement by govt to save second largest bank of a nation. I don’t think so many banks would have failed in US or in India.

As per your argument of thousands of people pulling out thousands of corer of rupees from ICICI bank, you must also remember that at that very moment millions of people trusted ICICI bank with lakhs of corers of rupees and were handsomely rewarded for it. Check out quarterly report of bank and RBI data on how much money was pulled out (or deposited) of ICICI bank each quarter since than. For your information it has snatched retail depositors from PSU banks almost every year if not each and every quarter and it maintains much higher CASA/Branch ratio than any of the large PSU banks.

You talk about “problem with ICICI story’ without specifying the problem(s). Than you go on into wild hypothetical scenarios like “if there were no regulations those cowboys would have been goner”. An unsubstantiated rumor is basis of most of your arguments while you ignore the facts like continued investor, depositor and creditor confidence in Bank. Material things like one of the highest profit/employee, net profits, Dividends, top line growth, highly valuable subsidiaries etc don’t matter to you.

Do you know how much exposure ICICI bank (actually it’s UK subsidiary which is a pocket change size bank) had to Lehman brothers/sub-prime?

It’s no secrete that their model was high-risk model and it was primarily designed for capturing market share at the cost of lot of good/old traditional banking practices that provide safety cushions. But their model took care of that by aggressively raising capital, employing technology and flexible workforce. Everyone knew that and that’s why for instance HDFC bank has always enjoyed a substantial share price premium (PE ratio) over ICICI bank. A lot of older folks preferred HDFC for the safety that it provided, while a lot of younger folks with long-term goals preferred ICICI bank for the growth opportunity it provided. Both those banks have largely delivered on what their models were designed for.

Also it was Kamath who started current consolidation phase (they call it preserving capital and limiting risk) of ICICI bank because changed world financial market situation demnded it. He has been promoted to post of the president of the Bank for his services and Chandra K has been promoted as CEO.

[vina]

How do you know that there were liquidity problems with ICICI bank? Based on rumors?

How about going back via google or even the old econ threads in BRF to see what the inter bank overnight call rates had gone up to , and the confirmed news that ICICI was basically raising huge amounts , upwards of 1000 crores at mind boggling rates!. If that is not clear indication of liquidity stress, dunno what is.

That is when RBI stepped in with soothing noises and opening up the liquidity tap to ICICI. That is exactly what saved ICICI.

It’s regulator’s obligation to dispel rumors by providing official information to investors/market which regulators discharged faithfully and timely. If all it takes is a statement by govt to save second largest bank of a nation

No, ICICI management ran to the Finance Ministry and the Fin Min responded because they didn't want ICICI to go down and reacted to the situation. Yeah, because of the tough regulation in India, they didn't need "saving" like with other US and UK banks and the capital adequacy was sufficient. Note however, a bank can have adequate capital and still go technically bankrupt because of lack of liquidity (that can happen with ANY bank mind you, that is the nature of fractional reserve banking).

So really what ICICI suffered from was a loss of confidence. Not lack of capital. The Govt standing up behind it was what put confidence back in it.

As per your argument of thousands of people pulling out thousands of corer of rupees from ICICI bank, you must also remember that at that very moment millions of people trusted ICICI bank with lakhs of corers of rupees and were handsomely rewarded for it

Err. If the govt hadn't stepped in, the leak would have widened into a breach and a full floo

You talk about “problem with ICICI story’ without specifying the problem(s). Than you go on into wild hypothetical scenarios like “if there were no regulations those cowboys would have been goner”. An unsubstantiated rumor is basis of most of your arguments while you ignore the facts like continued investor, depositor and creditor confidence in Bank. Material things like one of the highest profit/employee, net profits, Dividends, top line growth, highly valuable subsidiaries etc don’t matter to you.

Go back before Oct 2009 and you will see spades of such statistics for EVERY Wall St Bank and for UBS and RBS and every other bank that needed bailout. So what is the point of such "Shanghai " statistics.

Do you know how much exposure ICICI bank (actually it’s UK subsidiary which is a pocket change size bank) had to Lehman brothers/sub-prime?

This is precisely the reason why people lost confidence in ICICI. There was this Kool Aid from Kamath and others that there was NO exposure, we are fully capitalized, yada yada, and when Lehman's exposure story broke, and ICICI was exposed at having exposure, it basically ripped open ICICI "All Quiet, All Peace, Progress and Prosperity" story. No one believed ANYTHING that ICICI said any more.

How about this. Why did they not open out their entire book and show what the exposures were and let investors and public figure out for themselves ?. No sir, a whole bunch of skeletons , including the exposure to the collapsing real estate sector and other high risk dodgy overseas operations and investments would have come out.

As for "low" exposure, remember , it was a very very teeny weeny subsidiary of AIG in UK brought it to it's knees

It’s no secrete that their model was high-risk model and it was primarily designed for capturing market share at the cost of lot of good/old traditional banking practices that provide safety cushions. But their model took care of that by aggressively raising capital, employing technology and flexible workforce. Everyone knew that and that’s why for instance HDFC bank has always enjoyed a substantial share price premium (PE ratio) over ICICI bank. A lot of older folks preferred HDFC for the safety that it provided, while a lot of younger folks with long-term goals preferred ICICI bank for the growth opportunity it provided. Both those banks have largely delivered on what their models were designed for.

That is fine from ICICI's view point. But it's cowboy culture created system wide risks. Basically, they risks they took were not limited to themselves and had a wider economic impact. While it is perfectly fine to gamble with your own money, ICICI has no right in exposing the wider economy to larger risks than what the people are prepared to take!.

Also it was Kamath who started current consolidation phase (they call it preserving capital and limiting risk) of ICICI bank because changed world financial market situation demnded it. He has been promoted to post of the president of the Bank for his services and Chandra K has been promoted as CEO.

Lets face it. RBI read the riot act to ICICI and ordered them to pull out of the high risk businesses and improve credit quality and the quality of the book. That is the bottom line. ICICI management didnt have a chance. No way in hell those cowboys will give up the only trick they know and sacrifice higher growth,profits and margins over safety

[shyam]

Rajan said India’s central bank should think “carefully” about whether it should maintain an expansionary monetary policy, predicting less-than-normal monsoon rain and government payments to villages through a national employment-guarantee scheme could spur food-price inflation.

This guy is seriously after RBI. His IMF connection only makes it very suspicious.

[Katare]

Vina!

I don't want to add nothing else, you have your mind madeup.

[svinayak]

Rajan said India’s central bank should think “carefully” about whether it should maintain an expansionary monetary policy, predicting less-than-normal monsoon rain and government payments to villages through a national employment-guarantee scheme could spur food-price inflation.

This guy is seriously after RBI. His IMF connection only makes it very suspicious.

I heard him on the radio. There is something wrong.

[vina]

Vina!

I don't want to add nothing else, you have your mind madeup.

Actually, I agree with all the facts that you put up. ICICI did a splending job in the one dimensional thing they set their mind on and that was growth and profitability. That I have no quarrel with and given the cheap money that was sloshing around, Kamath and his team did a great job.

But that really didnt mean that it was the smart thing to do from a broader perspective. They went through a near death experience (whether they like to admit it or not is a different matter). And the fact that they are forced to change course (whether under pressure from RBI or out of thier own realization, the point is moot) is a positive.

So this hagiographic rubbish about Chanda Kocchar and Kamath is really misplaced . That is all I contest.. They showed themselves as incapable as having the smarts to think beyond one dimension and to manage risks. That is the bottomline.

[vina]

Rajan said India’s central bank should think “carefully” about whether it should maintain an expansionary monetary policy, predicting less-than-normal monsoon rain and government payments to villages through a national employment-guarantee scheme could spur food-price inflation
This guy is seriously after RBI. His IMF connection only makes it very suspicious.

I heard him on the radio. There is something wrong.

Guys. There is nothing wrong. Rajan is right. The RBI in it's policy stance has clearly said that it is done with dropping interest rates.

Just today, the govt admitted that we are facing the worst drought of the century. Prices will inevitably shoot up (especially of food and basic essentials), and more money will have to flow to drought relief and welfare transfers. The monetary expansion is NOT sustainable. The RBI WILL have to fight inflation and raise rates next year. No two questions on it. If you got suckered into one of those "teaser" rates of 8% or so from SBI and others, ok, good luck, but you are in for trouble.

The real estate sector is going to be in for prolonged trouble and so will all the interest rate be in similar trouble. The failure of the monsoon has happened at the worst possible time, infortunatelyy. There is going to be a lot of pain in INdia next year.

[vera_k]

Rupee to Drop 8% on Risk of India Rating Cut, Deficit, SEB Says

Not as bad as you'd expect based on expansion of the fiscal deficit. But then this is only for the next 6 months.

[csharma]

This is big since economists were expecting growth of 3.8% or so.

Doesn't this mean that India's fiscal deficit might turn out to be lower because of higher tax revenues?

http://business.rediff.com/report/2009/ ... n-june.htm

Industrial production grows 7.8% in June

Led by a smart recovery in manufacturing sector, industrial production growth accelerated to 7.8 per cent in June compared to 2.7 per cent a month ago.

Manufacturing sector, which accounts for two-thirds of the industrial production, recorded a growth of 7.3 per cent in June indicating return of consumer demand in the market.

Consumer durables and capital goods grew by 15.5 per cent and 11.8 per cent, respectively - the strongest expansion in several months.

The trend in the first quarter, however, remained subdued at 3.7 per cent mainly due to lower production in the first two months of the period.

[Katare]

Maha-ati-mega-radical tax change proposals

New Tax code: Pay 10% tax for salary up to Rs 10 lakh

The government on Wednesday initiated radical tax reforms through a draft code that aims at moderating income tax rates, abolishing
Securities Transaction Tax and increasing deduction for savings up to Rs three lakh. The new Direct Taxes Code has suggested a significant expansion of personal income-tax slabs, with levels of relief going up with incomes.

Releasing the Direct Taxes Code that will ultimately replace the over four-decades old Income Tax Act and bring all other direct taxes like wealth tax under its purview, Finance Minister Pranab Mukherjee today said if reasonable level of discussion happens on the code, a bill could be placed in the winter session of Parliament.

The Code said that the 10 per cent tax rate should apply to an annual income of Rs 1.6-10 lakh per annum and the 20 per cent rate to Rs 10-25 lakh.

The maximum rate of 30 per cent, it added, should apply to income above Rs 25 lakh per annum.

The new rates, it said, "are expected to yield the existing level of revenues with the revised comprehensive tax base proposed in this code".

Now 10 per cent is levied on incomes of Rs 1.6-3 lakh, 20 per cent on Rs 3-5 lakh and 30 per cent above Rs 5 lakh.

The Code also suggested that perquisites given to employees should be included in salary income, a recommendation that may inflate the taxable income of certain categories of salaried persons.

Besides, the Code also suggested that tax rates for companies should be reduced to 25 per cent for both domestic and overseas companies. Currently, domestic companies are taxed at 30 per cent with surcharge and cess coming later.

Foreign companies should pay an additional tax of 15 per cent as branch profit tax, the Code said.

"We expect to have better compliance and better collection of taxes," Mukherjee said.

While the code proposes abolition of the controversial STT, it also suggests reintroduction of tax on long term capital gains on securities trading.

"The language is very, very simple. By putting simple language and simple forms, we will eliminate litigations as far as possible," Mukherjee said.

He said it would be possible for most taxpayers to file their returns easily, adding that there were several easy to comprehend illustrations to guide them through the entire process, which today is often seen as complex and confusing.

"I expect people will read it, there would be an informed debate. Of course, we will hold detailed discussions with large numbers of stakeholders."

Home Minister P Chidambaram, who during his tenure in the Finance Ministry had initiated work on the Code, said that this was a brand new Code written from scratch.

"In these 48 years, not only India has changed, the world has changed. Therefore, it is widely accepted that the present code is outdated," Chidambaram said, adding: "It became a happy hunting ground for lawyers. This will be a transformational law."

People should not get perturbed by the large number of pages in the new draft, which runs into 256 pages, Chidambaram said, explaining that the direct tax code of the US ran into 2,000 pages.

The finance minister also placed on the ministry's website a discussion paper on the subject to invite opinion from the public before going to parliament with a proper bill for the legislative changes.

[manish]

^^^
Long overdue. Let us see what it morphs into as it makes it way through the political and administrative labyrinth.
Fingers Crossed!

[Hari Seldon]

Hurrah for the new tax proposals! Poor realtors might take a hit if the tax-saving motivation for going in for a home loan gets diluted amongst the all-important upper middle class now, eh?

[rohiths]

How the hell are they going to cover the fiscal deficit??
Enlightened mullahs please explain

[Hari Seldon]

How the hell are they going to cover the fiscal deficit??
Enlightened mullahs please explain

Not by income taxing hard working mujahids using TDS, I surmise!

Target excise taxes for raises (much more equitable), streamline VAT and help the GST come online....

In any case, given the amount of evasion and black money sloshing around in the system, doubt the move will have real consequences. Ulta, will encourage more of the income to be declared white. IMVVHO, of course.

[vera_k]

With such a generous federal tax structure, it opens up a space for states to levy their own income taxes for any services they'd like to provide. What is the constitutional situation in India with respect to states levying they own income taxes?