Indian Economy: News and Discussion (Jan 1 2010)

[enqyoob]

When did the Indian economy thread become a Prostitution thread?

[Dileep]

Didn't you know? There is a huge economy in connection with that trade. Every day you see a center busted just here in Dera Mahab Ali. I would say the GDP from that is more than the GDP of infopark.

Money is money, and economy is economy. Remember unkil's tax code? You have to pay tax on ALL income, whether legal or illegal.

[Suraj]

Since everyone who repeatedly posted on the topic also agreed that they were offtopic, let's not have any more about the flesh trade here I gave the matter enough latitude for the dissenting voices to get their word across, so that'll be all. Thanks.

FDI down 49% in July to $1.8 billion

Reflecting fragile recovery in world's major economies, foreign direct investment into India dipped for the second consecutive month, by 49 per cent to $1.78 billion in July. The FDI inflows in July 2009 were $3.51 billion.

For the April-July period of 2010-11, FDI inflows declined by 27 per cent to $7.59 billion compared to $10.53 billion in the same period last year, the official said.

According to experts, weak global economic recovery is one of the reasons for declining FDI in India.

"The main reason for the decline in FDI is slump in the major western economies like the US and Europe...," international trade expert with India's prestigious Indian Institute of Foreign Trade (IIFT) Rakesh Mohan Joshi said.

Direct tax collections up 14% in July

The country’s direct tax mop-up has exceeded Rs one-lakh-crore mark in the first five months of the financial year, on the back of growth in revenue receipts from the corporate sector. Net direct tax collections during April-August registered a growth of 13.91 per cent, at Rs 1,00,112 crore, compared with Rs 87,888 crore in the corresponding period of the previous financial year.

Corporation income tax collections rose 17.05 per cent to Rs 57,750 crore, against Rs 49,339 crore in the same period a year ago. Personal income tax, which includes securities transaction tax, residual fringe benefit tax and banking cash transaction tax, stood at Rs 42,217 crore in April-August period, up from Rs 38,491 crore in the months last year — a growth of 9.68 per cent.

Growth in the collection of personal income tax in the five-month period was highest in the Patna region (Bihar and Jharkhand), at 90.16 per cent, followed by Lucknow region (UP-East), at 69.56 per cent, Guwahati region (Northeast), at 47.78 per cent, and Chandigarh region (Northwest), at 41.73 per cent.

Growth in corporation income tax collections was highest in the Bhopal region (MP-Chhattisgarh), at 185.25 per cent, followed by Delhi, at 62.62 per cent, and Nagpur and Pune regions (parts of Maharashtra), at 60.71 per cent and 51.85 per cent, respectively.

[krisna]

India trade unions lead strike in leftist bastions

Leftist trade unions led a strike in parts of India on Tuesday, shutting down transport, schools and shops, disrupting flights and banking services in protest against economic reforms and price rises.

Around a million banking workers went on strike to protest the role of private banks and foreign investment in the sector, the All India Bank Employees Association said.
Leading airline carriers cancelled dozens of flights and public transport in leftist bastions such as West Bengal state and Kerala ground to a halt.

"The main agenda for our strike was price rise, violation of labour laws and disinvestment in the PSUs (state-run companies)," Kali Ghosh, Secretary of the Centre of Indian Trade Unions in West Bengal, told Reuters.
Leading private carriers such as Kingfisher Airlines (KING.BO) and Jet Airways Ltd (JET.BO) announced dozens of flight cancellations to and from Kolkata, the capital of the traditional left bastion of West Bengal state.
Buses, taxis and rickshaws stayed off the road in West Bengal and Kerala states. Taxis and rickshaws shut off their engines in India's financial hub Mumbai, though the rest of the city remained largely unaffected by the strike. In Kerala, schools and almost all shops stayed shut.

[krisna]

Opening of financial sector would benefit India: UK

Asking India to revisit its rules on capital inflows and expansion by foreign banks, a senior British Treasury official today said having an open financial sector was beneficial for the country and would not affect its safety and stability.
"A lot of these limits were set in times when the Indian economy was at a scale lower than what it is today... I am not here to lecture the RBI...but I do think more of these restrictions can take the edge out of the banking market," United Kingdom's Commercial Secretary to the Treasury, Lord James Sassoon told PTI.

He said opening up of the Indian financial market was the pre-condition before Mumbai could become a global financial centre.

He revealed 10 new Indian banks had shown interest in opening up branches in the UK. He, however, said the UK- based lenders' interest in setting up shops in India was dependent on available opportunities in the country.

Under the present rules, Foreign Institutional Investors (FIIs) can invest up to USD 15-billion in corporate bonds and USD 5-billion in Indian Government bonds. The Reserve Bank of India also regulates the entry of foreign banks and the amount of branches they can open here.

[krisna]

House panel recommends cap on CEO salaries

A parliamentary standing committee on the company's bill 2009, chaired by former finance minister Yashwant Sinha has recommended a universal cap on the burgeoning pay checks of India Inc.

As of now, Section 198 of the Companies Act, 1956, prescribes that managerial personnel’s total remuneration cannot be more than 11 per cent of the net profit and an individual manager's salary to 5 per cent of the net profit requiring the MCA's approval for any exceptions asking for a further hike.
However, as per the new recommendations, there will be no hikes beyond the capped limit with all salaries of the top management requiring the shareholder's mandatory approval.
Meanwhile Corporate India has given a guarded reaction and say that salaries of Indian corporates are still within permissible limits and can’t be compared to the west.

[Dileep]

In the seventies, when I was in school, we used to be told that there is a law requiring that no one can be given a salary more than the president of India (and the CEO of Tata gets 1 Re less). Is it just an urban legend?

[Virupaksha]

In the seventies, when I was in school, we used to be told that there is a law requiring that no one can be given a salary more than the president of India (and the CEO of Tata gets 1 Re less). Is it just an urban legend?

it is true for govt employees even as of today.

[Singha]

instead of capping salaries they should have abolished all ceo perks and forced the cos to account for these in taxable cash payout.

a typical ceo will have a premium bungalow, phone, driver, mali, mercedes all pushed under some perk.

[Dileep]

Well, govt employee is fine. My specific question is, for corporate salaries, WAS there such a rule in the soviet socialist republic of India? Or was that an urban legend?

[Virupaksha]

instead of capping salaries they should have abolished all ceo perks and forced the cos to account for these in taxable cash payout.

a typical ceo will have a premium bungalow, phone, driver, mali, mercedes all pushed under some perk.

even the mps, mlas, judges, ias officers in short nbjprie or whatever of rahul mehta fame do exactly the same.

You cant expect them to legislate to tax themselves do you?

[vina]

In the seventies, when I was in school, we used to be told that there is a law requiring that no one can be given a salary more than the president of India (and the CEO of Tata gets 1 Re less). Is it just an urban legend?

No. It was true I think. That cap was repealed only after 1991 economic reforms. It was part of the price control project of the govt, which dictated prices (input, output, wages and everything) and when the economy was freed, wages had to be freed as well!

[vina]

instead of capping salaries they should have abolished all ceo perks and forced the cos to account for these in taxable cash payout.

a typical ceo will have a premium bungalow, phone, driver, mali, mercedes all pushed under some perk.

Ah. Mon ami, those perquisites are all taxed now at the peak slab rate under the Fringe Benefits Tax!. Also, taxed are your ESOPs at the FBT rate when they are exercised.. Mucho takleef to IT/Vity folks and other ESOP wielding folks onree

[Dileep]

Thanx Vina Swami.

[abhishek_sharma]

Ohio bans offshoring of IT projects by govt depts


http://timesofindia.indiatimes.com/busi ... 517588.cms

[Vasu]

Ohio bans offshoring of IT projects by govt depts


http://timesofindia.indiatimes.com/busi ... 517588.cms

Thats quite alright. They will award the projects to homegrown, All-American IT companies which will then outsource it to India. With the highly coveted H1B visas still only half-filled, apparently even our IT people don't want to go there!

Please, just let me add some points on the prostitution point because I was the one who started it. Already a lot has been discussed, and as said already, it is a very complex topic. I was afraid we would go on a tangent because of this topic. I am sorry. I do want to discuss this topic further, so maybe I will continue in the general discussion forum.

Abhishek, I didn't say that prostitution had social benefits (while some members do point out that it does), I said that legalization of prostitution has social benefits. Throughout time, women have been paying the price for men not keeping their testicles to themselves, and been accused of being the wrong-doer! The poor men of this country have a greater chance of losing all their money to legalized gambling than to legalized prostitution.

[RamaT]

Therefore, those willing to settle for 8% are selling this country short. We cannot settle for anything less than the best we can do — nothing short of 10% annualised growth for the next several decades. Consider that our trillion dollar economy today, growing at a rate of 8% over 20 years to 2030, would attain a size of $5.6 trillion and the per capita income would be $4,200 (up from $1,000 now).

Good — but not good enough — because we can do better. Assuming a 10% growth rate however, the GDP would be $8 trillion and per capita $6,200 —an increase of almost 50% over the 8% scenario ! Stretch the calculation out to 2050 and the numbers are even more stark — the difference is a full 100% in both the size of the economy and in per capita GDP.

The sad fact is that this is due to too many people working in agriculture in India and not enough working in the manufacturing sector. While China has people agitating for higher wages our workers are still stuck in subsistence farming and family plots, the only way to change this is manufacturing jobs as the plain fact is not everyone can be in IT.

The #1 thing holding back manufacturing in India is infrastructure.. so the Gov't should do better(it's trying but needs to do more). I'd be all for slapping two more deep water ports on each coast and then creating nearby manufacturing SEZ's with relatively high FDI allowances in each to soak up the labor looking to diversify out of China.. in fact we should get to the point where we start undercutting and taking their business if this is done smartly.

One favor, any good source of info on India's manufacturing sector? I'm looking for hard numbers by sector, etc. Help appreciated.

[Ambar]

http://finance.yahoo.com/news/India-cou ... 2.html?x=0

And some people still wonder why multinationals shudder to do business in India! Going by the logic of our esteemed courts,almost every foreign company operating in India should pay the IT dept billions for their M&As abroad!

[Uttam]

http://finance.yahoo.com/news/India-cou ... 2.html?x=0

And some people still wonder why multinationals shudder to do business in India! Going by the logic of our esteemed courts,almost every foreign company operating in India should pay the IT dept billions for their M&As abroad!

The issue at hand is more serious than the casual remark you made. There is a business being operated in India. The owner of this business Mr A invested Rs 100 to start this business. A few years later Mr A sold this business to Ms B for Rs 150. So Mr A had a capital gain of Rs 50. Now should Government tax any capital gains or not is not the question here. The question is that just because Mr A and Ms B are Non-Indians and decided to sign this transaction outside India (even though everything about that business is Indian), Indian government should not tax it.

[Uttam]

http://finance.yahoo.com/news/India-cou ... 2.html?x=0

And some people still wonder why multinationals shudder to do business in India! Going by the logic of our esteemed courts,almost every foreign company operating in India should pay the IT dept billions for their M&As abroad!

The issue at hand is more serious than the casual remark you made. There is a business being operated in India. The owner of this business Mr A invested Rs 100 to start this business. A few years later Mr A sold this business to Ms B for Rs 150. So Mr A had a capital gain of Rs 50. Now should Government tax any capital gains or not is not the question here. The question is that just because Mr A and Ms B are Non-Indians and decided to sign this transaction outside India (even though everything about that business is Indian), Indian government should not tax it.

Also will the answer to the above question be different if both Mr A and Ms B were India?

A question for gurus here:
How does US and other common law countries tax capital gains for sale of businesses, if the business is operated in their respective countries (irrespective of the nationalities of parties involved in the transaction)?

[vina]

ow does US and other common law countries tax capital gains for sale of businesses, if the business is operated in their respective countries (irrespective of the nationalities of parties involved in the transaction)?

It doesn't matter where you are physically residing. As the asset/business jurisdiction is in India, it is liable for all taxes in India.

As an analogy, if there is an apartment say in New York, owned by a Japanese living in Tokyo that gets sold to an Indian living in New Delhi, there is a residual tax liability including capital gains that is due to Uncle Sam and the other city and local taxes will be due to the Big Apple. Now just because both are foreigners and live in New Delhi and Tokyo and the deal was concluded in Singapore does not mean that there is no tax liability.

Similarly , an Indian living in India sells an apartment he owns in London to a German from Stuttgart, he will have to pay capital gains and other taxes due in London jurisdiction and since there is a double tax avoidance treaty, he will pay NO taxes to any wealth repatriated to India from that transaction as it has already suffered tax.

[Uttam]

ow does US and other common law countries tax capital gains for sale of businesses, if the business is operated in their respective countries (irrespective of the nationalities of parties involved in the transaction)?

It doesn't matter where you are physically residing. As the asset/business jurisdiction is in India, it is liable for all taxes in India.

As an analogy, if there is an apartment say in New York, owned by a Japanese living in Tokyo that gets sold to an Indian living in New Delhi, there is a residual tax liability including capital gains that is due to Uncle Sam and the other city and local taxes will be due to the Big Apple. Now just because both are foreigners and live in New Delhi and Tokyo and the deal was concluded in Singapore does not mean that there is no tax liability.

Thanks Vina. But are sales of business treated any different from sales of real estate? I know in US the capital gains from home sales are not taxed if gains are less that $250,000 ($500,000) for single (married) filers. And that was probably one of contributors to the real estate bubble. But I am not sure of the rules that apply to Acquisitions of businesses.

[Suraj]

Let's not confuse the CG tax benefit on personal real estate (homes) with business transactions. I'm sure each country has its own set of distortionary policies meant to encourage certain industries (RE capital gains tax benefits and mortgage interest tax deduction etc in US for example) those should not alter the general argument Vina made.

[Uttam]

Let's not confuse the CG tax benefit on personal real estate (homes) with business transactions. I'm sure each country has its own set of distortionary policies meant to encourage certain industries (RE capital gains tax benefits and mortgage interest tax deduction etc in US for example) those should not alter the general argument Vina made.

I am in total agreement with Vina's argument. In fact, I am absolutely for having uniform tax laws for such transactions, whether or not the parties involved were Indian, as long as the business was being conducted in India.

Just trying to figure out if the same tax laws (in general and not looking for tax benefits to specific sectors) apply in other common law countries as well. Because if it does, it is less likely that India will face arm-twisting by home countries of the firms involved (though U.K. is not really in any position to do that in this case).

[vera_k]

The issue at hand is more serious than the casual remark you made. There is a business being operated in India. The owner of this business Mr A invested Rs 100 to start this business. A few years later Mr A sold this business to Ms B for Rs 150. So Mr A had a capital gain of Rs 50. Now should Government tax any capital gains or not is not the question here. The question is that just because Mr A and Ms B are Non-Indians and decided to sign this transaction outside India (even though everything about that business is Indian), Indian government should not tax it.

In principle, perhaps the transaction should be liable to Indian tax. But Indian tax laws were silent on this type of transaction, and the parties involved took advantage of the loophole. It is not that the tax itself is an issue, but the fact that the goverment is making up rules as they go along on many occasions (Posco's case in Orissa is another example).

Even the fact that this transaction should be liable to Indian tax is not clear cut. If person A as a Mauritius person, owns stock in INFY and transacts entirely on stock exchanges and depositories located outside India, should person B now be liable to Indian tax on any gains made by person A after he sells this stock?

Vodafone’s tax trials

Whether one believes such transactions should be taxed or not, the law is silent on them. Indeed, India has not taxed them before.

In a tacit acknowledgement that a loophole exists here, the government has sought for the first time to introduce rules specifically addressing such transactions in its proposed new direct tax code, which is still awaiting implementation.

[krisna]

The non-identical twins of the East

Will China always overshadow India? A Morgan Stanley report released in August provocatively declares that by 2015, India will begin outpacing China’s rapid GDP growth. Given the current economic divide between the two countries, this looks unlikely at first glance.
Yet, Subramanian Swamy comes to a similar conclusion in his book Economic Development and Reforms in India and China: A Comparative Perspective.

Citing new reforms in the financial system, inclusiveness of education and intelligent manipulation of the demographic dividend as crucial determinants of growth, the author predicts that India, with its sustained democracy, will overtake China by 2020.

Finally, as China aims to create a “Harmonious Society” and India wants an “Inclusive Society”, the possibility of a future ideological convergence warrants analysis.

weakness of both countries-

Poverty, regional inequalities, structural weaknesses in the financial sector and the need for an extensive set of reforms remain to be dealt with.

A McKinsey Global Institute (MGI) study revealed the three main barriers retarding India’s annual growth by 4 per cent as “the remaining multiplicity of regulations governing product markets, distortions in the land markets and extensive government ownership of business”.
The book points to removing these obstacles as labour productivity would increase by 8 per cent, creating 75 million new jobs which, in turn, would translate into the 10 per cent growth rate that India needs to overtake its behemoth neighbour.

[abhishek_sharma]

U.S. Pressures I.M.F. to Expand Role of Growing Economies

http://www.nytimes.com/2010/09/10/busin ... 10imf.html

[Airavat]

Meghalaya village council supports mining project

The Dorbar (traditional tribal village council in Meghalaya) of Nongtrai, the village in East Khasi Hills district where Lafarge Umuiam Mining Pvt Ltd (LUMPL) plans to mine limestone, has come forward to support the project. “The Nongtrai Durbar and the people are proud to be associated with the project and (are) also working closely with LUMPL to implement the biodiversity conservation plan for protection of ecology and biodiversity in the area,” the village council said.

[ashi]

India loses competitive edge due to poor health, infra
http://www.business-standard.com/india/ ... ra/407629/

[chetak]

Meghalaya village council supports mining project

The Dorbar (traditional tribal village council in Meghalaya) of Nongtrai, the village in East Khasi Hills district where Lafarge Umuiam Mining Pvt Ltd (LUMPL) plans to mine limestone, has come forward to support the project. “The Nongtrai Durbar and the people are proud to be associated with the project and (are) also working closely with LUMPL to implement the biodiversity conservation plan for protection of ecology and biodiversity in the area,” the village council said.

Clearly shows the efficacy of repeated applications of Vitamin M.

Go Lafarge!!!

[Nihat]

Industrial growth rises to 13.8 pc in July

New Delhi: India's industrial output in July rose at a faster-than-expected 13.8 per cent from a year earlier, sharply higher than the previous month's 7.1 per cent, government data showed on Friday.

Manufacturing output rose an annual 15.0 per cent in July, the federal statistics office said in a statement.

Industrial output rose 10.4 per cent in the 2009- 2010 financial year (April-March) , faster than the 2.8 per cent clocked in the previous fiscal year.

[abhishek_sharma]

Ohio outsourcing ban: Weak case for India in WTO say experts

http://economictimes.indiatimes.com/new ... 530831.cms

[Neshant]

^^ why not just do the same thing and protect the domestic market against the like of Walmart.

[Abhijeet]

Well...they already are. It's a different matter that it's the Indian consumer who's losing out on "everyday low prices" because of that.

[Neshant]

^^ How is it a different matter. In the end, don't their consumers lose out on the 'everyday low prices' of an Indian coolie as well.

One wonders what damage these everyday low prices end up doing when 90% of the stuff comes in from China while India exports nothing the other way. Same question for US vis-a-vis outsourcing.

US at least has the benefit of paying for stuff in its own printed up currency. Plus its own company absorbs the bulk of the retail profits limiting the damage of importing stuff. Not quite the case for India since sh&t is paid for in foreign currency that India has to work for and Walmart is a non-Indian company.

I suggest India conduct free trade only with countries willing to accept rupees. Likewise we should accept payment in their currency. That way the money gets re-invested back into each other's economy. Otherwise it ends up being a zero sum game.

[A_Gupta]

Economy demolishing "caste"
http://www.nytimes.com/2010/09/11/world ... caste.html

[Hari Seldon]

I suggest India conduct free trade only with countries willing to accept rupees. Likewise we should accept payment in their currency. That way the money gets re-invested back into each other's economy. Otherwise it ends up being a zero sum game.

+1.
Euro's travails have dimmed enthusiasm for common currencies piled up on FTAs/common markets. Good. Because currency fluctuations are an important adjustment mechanism and interest rates reflect on local economy competitiveness - paramount signals that should never have been lost sight of. But that discussion is OT for this thread.

[vera_k]

On that line, perhaps India should not have a common currency. For instance, there's not much in common between the Maharashtra economy and the Bihar economy, and Bihar citizens could make more money if they had their own currency that could be devalued against the Maharashtra currency.

[Hari Seldon]

On that line, perhaps India should not have a common currency. For instance, there's not much in common between the Maharashtra economy and the Bihar economy, and Bihar citizens could make more money if they had their own currency that could be devalued against the Maharashtra currency.

OK, at the risk of getting reeeally OT for this dhaga, let me rush to briefly clarify that common currencies make sense only when there exists central (aka federal) authority to tax and redistribute the proceeds. That isn't the case when 'sovereign' states sign up for a common currency (EU, anyone?) that implies low rates in places where tax revenue potential doesn't keep pace. The result - Ireland, Greece, Portugal, Spain....

[enqyoob]

To de-OT that observation, Hari, could u pls speculate on what would happen if the long-standing proposal for a common SAARC currency were to be implemented (minus TSP, that is). India, SL, BD, Mauritius, Seychelles, Maldives?? Wish Myanmar was possible to include but it is not, for now.