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RBI Credit Policy

CFOs predict interest rationalisation, says Assocham
New Delhi, July 29
Majority of Chief Financial Officers (CFOs) anticipate downward revision of interest rates in RBI’s credit policy, to be announced on July 31.
But apex bank may not change rates, say experts
Mumbai, July 29
Ahead of the RBI quarterly review of credit policy on Tuesday, there seems to be a consensus among economists that policy rates would be left untouched and the apex bank would adopt a wait-and-watch policy on inflation.

Electronics Cos prefer North: panel
Chennai, July 29
North Indian states are now the most favoured destination for the electronics industry because of sops offered by the state governments and good work culture.

BHEL gets Rs 431-cr IOC contract
Tiruchirapalli, July 29
Power equipment maker BHEL has secured a Rs 431-crore contract for setting up a co-generation power plant at Gujarat Refinery Complex of Indian Oil Corporation.

Stop new entrants, GSM operators ask government
New Delhi, July 29
Even as telecom regulator TRAI is yet to give its recommendations on capping the number of operators per circle, GSM players have shot off a letter to the government saying that scarcity of spectrum may not allow open entry.




 

EARLIER STORIES

 
Taxpayers fill in forms at a special income tax return filing facility at Pragati Maidan in New Delhi
Taxpayers fill in forms at a special income tax return filing facility at Pragati Maidan in New Delhi on Sunday. Crowds have swelled at income tax counters as the July 31 deadline draws near. Out of a population of 1.1 billion, only 30 million are taxpayers. — AFP

Market Update
Global weakness dampens local sentiment
Due to sharp fall in a single session on Friday, the market edged lower last week. The Sensex lost over two per cent for the week to close at 15,234 and Nifty was weaker for the week by 2.6 per cent to settled at 4,445.

Tax Advice
RD interest in post office taxable
Q. I have opened an MIS account with post office (PO). The interest received has been included in my income. With this interest I have opened a recurring deposit (RD) in PO what is income tax liability on the interest from RD in PO. Since the interest is to be received on maturity only.

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RBI Credit Policy
CFOs predict interest rationalisation, says Assocham
Tribune News Service

New Delhi, July 29
Majority of Chief Financial Officers (CFOs) anticipate downward revision of interest rates in RBI’s credit policy, to be announced on July 31.

According to a survey conducted by Assocham, on the eve of the quarterly monetary policy announcement, 95 per cent of corporates felt that high interest rates will adversely impact their balance sheets, while 85 per cent anticipated downward revision of interest rates in RBI’s credit policy.

The sample survey conducted by Assocham Business Barometer (ABB), covered 300 CFOs, of which 150 were corporates, 100 bankers and 50 real estate players.

Commenting on ABB Survey, Assocham president Venugopal N. Dhoot said, “Interest rates have to be downward as inflation has been normal and within the permissible limits. Besides, adequate liquidity is available in the market.”

“Majority of respondents said that there was a 17 per cent rise in the PLR in June 2007 over June 2006. The call money average turnover has gone down by 1.9 per cent in June 2007 over June 2006. The call money rate (weighted average) has gone by 56.5 per cent in June 2007 over June 2006 and by 88 per cent in June 2007 over March 2007,” he said.

The dip in call money indicates adequate liquidity in the system, he said, adding the CRR has gone up by 30 per cent in June 2007 over June 2006. High interest rates will reduce the demand inversely affecting GDP growth, felt the CFOs.

As many as 95 per cent respondents say that high interest rates have an effect on the balance sheets of their companies. Even the equity earnings of the stock markets will be on a downward trend. In this process, SMEs and mid-sized companies are facing heat of the higher interest rates as the result of outflows.

The inflation is going to be normal and well within the permissible limits in 2007-08. The reasons being a normal monsoon as rainfall recorded is 27 per cent higher than previous year, increase in the agricultural production by 2.6 per cent as compared to 0.9 per cent in the previous year and also rupee appreciated by around 10 per cent, which makes imports cheaper.

On adequate liquidity in the market, 90 per cent felt that there is excessive liquidity in the market and expects it to grow further in the FY 2007-08 as result of massive consistent capital inflows.

India’s forecast of real estate growth is from $ 12 billion 2005 to $ 90 billion by 2015. Greater integration with the global economy and the increase of domestic as well as foreign investments are encouraging demand for real estate.

The boom in the housing sector led to increase in mortgage lending and now with interest prices rising, the sector had been hit as the key challenge for the RBI is reining in inflation and cooling the market through monetary and credit tightening without creating a hard landing that could have significant political and economic consequences.

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But apex bank may not change rates, say experts

Mumbai, July 29
Ahead of the RBI quarterly review of credit policy on Tuesday, there seems to be a consensus among economists that policy rates would be left untouched and the apex bank would adopt a wait-and-watch policy on inflation.

They, however, expect some action on liquidity management with capital inflows still remaining significant.

“With inflationary expectations strong and global oil prices moving upward, the RBI will definitely keep an eye on inflation. However, presently, I feel RBI can afford to wait and watch and may not take any pre-emptive action,” Crisil Director and Principal Economist D K Joshi told PTI here today.

Inflation has increased to 4.41 per cent as on July 14 as against the week-ago figure of 4.27 per cent.

The monsoon will also play a role in determining inflation “but we can assess the impact of it only by September,” Bank of Baroda’s Chief Economist Rupa Rege Nitsure said.

The RBI was expected to announce some measures to contain money supply, which presently stands at around 22 per cent as against the RBI’s comfort level of 17 per cent, she said.

When asked whether a cash reserve ratio (CRR) hike was expected, United Bank’s Gupta said: “A hike appears to be a drastic action. I would expect something milder.” Bankers and economists expect the RBI to focus on the market stabilisation scheme (MSS) to tackle liquidity.

Capital inflows are expected to remain robust given that “liquidity suppliers such as the US and Japan are likely to maintain their rates low and India being one of the fastest-growing economies in the world, it will definitely attract inflows,” Standard Chartered Bank’s Shuchita Mehta said.

“However, the good news is that capital inflows are coming through the FDI and ECB routes. It is long-term money and not hot money that is coming in,” Mehta said.

There could also be a removal of the reverse repo ceiling presently at Rs 3,000 crore, they said.

The RBI was not expected to signal a lowering of interest rates though they appear to have peaked as of now. — PTI

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Electronics Cos prefer North: panel
Tribune News Service

Chennai, July 29
North Indian states are now the most favoured destination for the electronics industry because of sops offered by the state governments and good work culture.

According to the members of Consumer Electronics and Appliances Manufacturers Association (CEAMA), the state governments in north India not only offer benefits like tax holidays, exemption from excise duties and land at cheap prices, the work culture there is good and there is no militant trade unionism.

Surprisingly, former leading states like Maharashtra and West Bengal have now taken a backseat as far as the electronics industry is concerned.

At a seminar here, CEAMA leaders said: “While cost of labour and power is high in Maharashtra, militant trade unionism and lack of good work culture plagues West Bengal. Maharashtra and West Bengal, once leaders in the electronics industry, are now being replaced by states like Uttaranchal and Himachal Pradesh because of the state governments’ desire to promote the industry and excellent work culture prevalent there,” Gulu Mirchandani, former CEAMA president and Mirc Electronics MD said.

“A large number of electronics companies are flocking to Uttaranchal, where there is full exemption from sales tax and no excise duty for 10 years besides income tax benefits.”

Sarbjeet K. Singh, Noble Group MD said: “Besides Uttaranchal, Jammu and Kashmir, Himachal Pradesh and Punjab are also offering many financial benefits for new industrial units. There is free excise duty and zero sales tax,” he added.

However, transportation costs from the north are too high, particularly for those companies, which export their goods, as the ports are far away.

The electronics industry lobby pointed out that the shipping cost from China to the Gulf countries, which had a huge market, was double compared to that from the Chennai port.

“As such, we are now focusing on Tamil Nadu, which has a port and cheaper labour and power costs. Moreover, the state government is encouraging the IT sector and we want the same benefits to be bestowed upon us,” said CEAMA members.

CEAMA president Anoop Kumar stated: “We want about 400 km of land close to Chennai because of the proximity to the port for many of our members would want to export their products.”

“As such there are seven key manufacturers, who want to set up manufacturing bases here. It would mean an investment of around Rs 300 crore and employment for around 10,000 people directly and indirectly,” he added. Therefore, the CEAMA demanded that consumer electronics and IT be treated at par and their products allowed to pay the same level of VAT and excise, and import duty on capital goods for electronics industry be waived.

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BHEL gets Rs 431-cr IOC contract

Tiruchirapalli, July 29
Power equipment maker BHEL has secured a Rs 431-crore contract for setting up a co-generation power plant at Gujarat Refinery Complex of Indian Oil Corporation (IOC).

The project is being set up to meet the power and steam needs of the refinery for high-speed diesel quality improvement project, a BHEL press release said here.

The scope of work for the contract envisaged design, engineering, manufacture, supply, erection and commissioning of frame-6 gas turbine generator and two units of heat recovery steam generators of 100 ton per hour capacity along with requisite auxiliaries, it said.

The BHEL’s unit here would manufacture and supply heat recovery steam generators, while the Hyderabad facility would supply gas turbine generators. The Electronics and Control Systems would be produced by electronics division of BHEL at Bangalore.

BHEL was executing a similar turnkey contract for IOC for its Haldia Refinery Complex. Earlier, BHEL had supplied and installed several co-generator power plants of various capacities for IOC’s refinery complexes at Panipat, Digbol, Barauni, Haldia and Mathura among others, the release said. — PTI

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Stop new entrants, GSM operators ask government

New Delhi, July 29
Even as telecom regulator TRAI is yet to give its recommendations on capping the number of operators per circle, GSM players have shot off a letter to the government saying that scarcity of spectrum may not allow open entry.

“It may be appreciated that in an environment where raw material (spectrum) is limited, it is not possible to follow a policy of unlimited competition and open entry,” Cellular Operators Association of India (COAI) said in a letter to the Telecom Commission chairman D S Mathur.

COAI’s current position contradicts its earlier stance that India should enhance the foreign direct investment (FDI) limit in telecom sector to 74 per cent to increase competition in the sector.

According to COAI, as per the present commitment and promise of the government, each licensee/operator is entitled to receive up to 15 MHz spectrum upon achieving the pre- defined subscriber linked milestones.

Department of Telecom (DoT) is hoping to get spectrum from the armed forces, for which the process is under way, and operators in the GSM and CDMA segment are at loggerhead over the allocation of additional airwaves.

Telecom Regulatory Authority of India (TRAI) is in the process of finalising its recommendations on the service conditions of license agreement, including on whether number of players be restricted or not. — PTI

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Market Update
Global weakness dampens local sentiment
by Lalit Batra

Due to sharp fall in a single session on Friday, the market edged lower last week. The Sensex lost over two per cent for the week to close at 15,234 and Nifty was weaker for the week by 2.6 per cent to settled at 4,445. This was due to the setback caused by sharp fall in the USA and other Asian markets. The market, though, remained firm for a better part of the week as renewed buying was witnessed due to good first quarter results.

Now, with the results session coming to an end, all eyes will turn to the Reserve Bank's monetary policy review on Tuesday. We expect the RBI to keep the policy rates unchanged. With inflation down below 4.5 per cent and annual credit growth moderating to 24 per cent, the RBI is much more comfortably placed than it was in the previous couple of quarters. Thus, we feel the monetary policy's focus is likely to shift from inflation management to liquidity and exchange rate management, as the current high annual growth of above 21 per cent in the money supply continues to be above the central bank's comfort zone.

The Indian markets will continue to track the world markets and weakness in global equities may dampen the local sentiment as well.

Tourism Finance Corporation of India

The TFCI provides loans for green-field hotel projects as well as for expansion, up-gradation and renovation of the existing hotels, resorts, restaurants and related businesses.

Given its loan exposure to the hotel and tourism sector, the TFCI's performance is inextricably linked to the prospects of the tourism sector. This was largely responsible for TFCI's earlier financial problems, when the tourism sector took a downturn in the late 1990s and had an adverse impact on the growth and asset quality of the company.

A buoyant domestic economy, improved air connectivity, initiatives taken to attract foreign investment in the industry, improved infrastructure and most importantly, efforts to promote the brand “India” have contributed to the strong demand for hotel accommodation in most cities across the country. The result is that the country is one of the fastest-growing markets for the global hotel industry.

With the above developments, the hotel industry is poised for significant growth in the next five years. It is expected that from a seven-to-eight brand hotel market a few years ago, the country would be a 40-brand hotel market by 2010. Owing to the influx of international brands and global funds, the country's hospitality sector will witness the revamping of its organisation and management. The expected creation of additional room capacity, involving a substantial investment, offers great opportunities to the TFCI to play a major role in the creation of tourism infrastructure. It would have a positive impact on the operations of the company by resulting in increased sanctions and disbursements and improved profitability.

As the TFCI starts reporting higher loan growth and improved profitability, it should lead to the re-rating of the TFCI stock which currently is quoting at around Rs 20.

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Tax Advice
RD interest in post office taxable
by S.C. Vasudeva

Q. I have opened an MIS account with post office (PO). The interest received has been included in my income. With this interest I have opened a recurring deposit (RD) in PO what is income tax liability on the interest from RD in PO. Since the interest is to be received on maturity only. Is this interest is taxable, if yes, whether on maturity or annually.

— Balbir Singh

A. The interest on the RD in the post office would be taxable. Such interest will have to be declared in the return of income on the same basis (i.e. accrual or receipt basis) which has been followed for declaring the other interest income by you.

Spouse income from share trading

Q. I am a salaried class person with annual salary in the range of 3-3.5 lakh, filing my tax return regularly. My wife is a housewife and she is doing equity sale/purchase through recognised stock exchange and paying the applicable taxes, w.r.t. STT, etc. on sale of shares. During the just passed year, she has earned approx. Rs 34000 as net profit from the sale purchase of shares on a short term basis. We wish to know whether her this income will be added into my income or not. If I add her income into my income then do I have to pay income tax at 30 per cent tax slab (as I fall under 30 per cent tax slab) or I shall have to pay tax on this additional income at 10 per cent being the short term capital gain tax.

— Neelash Verma, Bathinda

A. The income earned by your wife is not includible in your income provided the share dealings have been done through her own sources of funds. Such income should be taxable as a business income since she has been carrying on this activity regularly.

In case the income has been derived by her through your sources such income would be added to your total income and taxable at the applicable slab rate on your total income.

Rebate on education loan

Q. I am a 24-year-old doctor, living with my parents. I am going for postgraduation in some pvt. medical college and fee over there is 4.5 lakh per year. As I am not in a position to pay the fee, I am planning to get education loan. My trouble is whether it will be given on my name or on name of my father. He is also a doctor. My mom is in Government job working as a staff nurse. Please guide me on this issue. If I have to borrow money from my relative not in blood relation, what should be the procedure?

— Dr Harneet Singh Ghotra

A. Section 80E of the Act provides that in computing the total income of an assessee, being an individual, there shall be deducted, any amount paid by him in the previous year, out of his income chargeable to tax, by way of interest on loan taken by him from any financial institution or any approved charitable institution for the purpose of pursuing his education or for the purposes of higher education of his relative. The deduction is allowable for a period of 8 years or until the interest is paid by the assessee in full whichever is earlier. The term "financial institution" means a banking company or any other financial institution which the Central Government may notify in this behalf. Relative means spouse and children of the individual. Accordingly, the amount can be borrowed by you or your father and the deduction of any amount of interest paid on such borrowed amount shall be allowed as deduction in computing the total income of such person who has borrowed the amount for the purposes of using the borrowed money for the higher education of himself or his spouse or children.

ITR-4 for salary plus pvt income

Q. In case one has income from salary from a private sector employer and also has varying and irregular intermittent income from own profession, how the same will be shown in the Tax Return — if in column for income from other sources? If so, any accounts to be maintained by the individual and how?

— Nikhlesh

A. In accordance with the provisions of Income-tax Rules 1962, an individual who has income from salary as well as income from profession will have to file return in Form ITR - 4 which includes a column for reflecting income from salary. In case you are carrying on profession whether intermittently or regularly, it will be in your interest to maintain books of account so as to reflect the income earned from such profession and the expenditure incurred in connection with the earning of such income. The income as well as the expenditure should be fully supported with the vouchers. Normally the professionals account for the income on cash basis and you can select the method for the purpose of preparing your accounts. It would also be essential for you to give the complete details of your professional income, assets and liabilities and expenses incurred in ITR - 4. The form is quite lengthy and has number of details which are required to be filled in.

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