SPECIAL COVERAGE
CHANDIGARH

LUDHIANA

DELHI



THE TRIBUNE SPECIALS
50 YEARS OF INDEPENDENCE

TERCENTENARY CELEBRATIONS
B U S I N E S S

RBI may cut key rates
New Delhi, March 21
As the inflation is nearing zero level, the RBI may cut key lending rates (repo and reverse repo) by as much as 100-150 basis points on April 21, when it announces its annual policy review. The central bank is waiting till that date because it wants to see whether the recent cuts in first week of March have yielded any results.

Global economy to shrink in 2009: World Bank
Brussels, March 21 The global economy is set to shrink by one to two per cent this year, World Bank president Robert Zoellick said on Saturday, saying the depth of the slowdown was unprecedented since the 1930s Great Depression.

Wireless broadband in Punjab by Dec
Chandigarh, March 21
Punjab and Kerala will soon be rolling out wireless broadband using WiMax technology. State-owned telecom behemoth, BSNL, is all set to introduce this service in the two states by the end of this year.





EARLIER STORIES



Pedestrians walk in front of an empty building for rent on Sunset Boulevard in Hollywood, California
Pedestrians walk in front of an empty building for rent on Sunset Boulevard in Hollywood, California, on Saturday. California's unemployment rate rose for the 11th straight month in February, hitting 10.5 per cent as a recession-racked economy shed 116,000 jobs across all professions and industries. The number was up from 10.1 per cent in January, the highest since April 1983. — AFP 

Satyam evaluates suitors
Mumbai, March 21
Satyam's government-appointed board met here today to evaluate the Expressions of Interest (EoIs) from suitors to acquire a majority stake in the IT major as also to take stock of the beleaguered company's performance.

Aviation Notes
‘Palace in sky’ ready for take-off
The 'Palace in sky' and two other VVIP Boeing business aircraft, valued at Rs 937 crore, have been readied for operations from April 1, 2009. They have replaced aged 737-200 with IAF's elite Communication Squadron, which has thus far undertaken operations on both national and international routes.

Investor Guidance
Gift from close relative not taxable
Q: I wish to give a gift / loan of Rs. 2 lakh to my mother who is in India. If I transfer this amount from my NRE a/c to her savings account in India - will he be taxed?





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RBI may cut key rates
Bhagyashree Pande
Tribune News Service

New Delhi, March 21
As the inflation is nearing zero level, the RBI may cut key lending rates (repo and reverse repo) by as much as 100-150 basis points on April 21, when it announces its annual policy review. The central bank is waiting till that date because it wants to see whether the recent cuts in first week of March have yielded any results. In addition to this, the corporates will start fresh borrowing only when the new fiscal starts.

The RBI is intended to cut repo and reverse repo rate - the rates at which the central bank lends to and borrows from banks. It will encourage banks to lend more at lower rates to spur demand in the slowing economy.

There is clearly lack of credit demand, as also a falling production in factories as firms are waiting to buy raw materials at a cheaper rate when the inflation comes in the negative zone. Economists say managing growth is the most important aspect right now, and the market is ignoring every action by the RBI of rate cuts. It was only in the first week of March that the apex bank had cut key policy rates, but still the market has shown no signs of credit pick up.

Banking circles admit that they are flush with funds and there is nearly Rs 20,000 crore in the system that is waiting to be lent, but there are no borrowers.

As this is a problem of excess liquidity, the rate of interest at which money is lent is most important, say sources. Over a period of time, there have been cut in repo and reverse repo rates, but the lending rates have remained as high as 11-12 per cent. The problem lies with the fact that if lending rates are cut then the deposit rates will also have to be cut, making bank deposits unattractive saving instruments as compared to other investment vehicles such as PPF, post office deposits etc.

However, according to the Finance Ministry sources, the central bank may not bring down key reserve ratios such as Cash Reserve Ratio - part of deposits that banks are required to keep with RBI - and Statutory Liquidity Ratio - part of deposits that the banks are required to invest in specified instruments such as government securities.

The risk premium of lending to corporates is very high. Banks don’t feel too confident about lending to corporates unless they furnish enough collateral. Bankers say most of them are rescheduling loan tenures that were given at high interest rates earlier. Rescheduling means that if loans were given for say 10 years, the borrower can repay the loan in 15 years now. This is because the banks want to avoid bad loans and defaults, which in this situation could be massive, say bankers.

Most industrial borrowers may pick up fresh loan at cheap interest rates and set off against the expensive loan or average the borrowing rate. This is a good borrowing idea, but for the banks, it means a large amount of money is stuck in industrial houses, which, if growth does not pick up soon, may become non- performing advances.

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Global economy to shrink in 2009: World Bank

Brussels, March 21
The global economy is set to shrink by one to two per cent this year, World Bank president Robert Zoellick said on Saturday, saying the depth of the slowdown was unprecedented since the 1930s Great Depression.

Speaking at a conference in Brussels, Zoellick referred to a an International Monetary Fund (IMF) forecast that the world economy would shrink by one percent this year.

He said: "We in the bank will be coming up with ours again soon, probably in the range of one to two percent ... We haven't seen a figure like that globally since World War Two, which really means since the Great Depression."

The World Bank chief has raised concerns over existing efforts to tackle the crisis, warning of the risk of doing "too little, too late".

He has said that fiscal stimulus without addressing the roots of the credit crunch will be a mere "sugar high" with no lasting impact on the economy.

Zoellick proposed that the Group of 20 major and emerging economies - whose leaders are due to meet in London next month - establish a review process to see whether further stimulus measures would be needed to kickstart recovery.

"Out of the G20 process one should have a monitoring system," he told the conference organised by the German Marshall Fund transatlantic thinktank, suggesting a system of reviews on the impact of existing stimulus packages agreed by governments.

"Some of the packages actually withdraw stimulus in 2010. So given the uncertainty of this crisis I think you want to have a review process to see whether more would be needed in 2010."

Zoellick warned of a fall-off in world trade as countries retrenched into their domestic economies, and cited World Bank forecasts that up to 400,000 infants would die this year as an indirect effect of the economic crisis.

"There are issues that go beyond the economics to political and social stability," he said. "If kids don't get proper nutrition in their early years, you lose a generation." — Reuters

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Wireless broadband in Punjab by Dec
Ruchika M. Khanna
Tribune News Service

WiMax is the next generation telecommunications technology that provides wireless transmission of data using a variety of transmission modes, from point-to-multipoint links to portable and fully mobile Internet access.

Chandigarh, March 21
Punjab and Kerala will soon be rolling out wireless broadband using WiMax technology. State-owned telecom behemoth, BSNL, is all set to introduce this service in the two states by the end of this year.

Highly placed sources in BSNL informed TNS that tenders for rolling out this service have already been floated and they were evaluating the financials bids for these tenders. It is learnt that Chinese telecom gear manufacturer Huawei and US-based Telsima have emerged as frontrunners to bag the contract from BSNL for deploying WiMax (world interoperability for microwave access) services in urban areas across the two states.

Sources said Huawei has also bagged a contract to set up WiMax-enabled common service centres (CSCs) in 1,000 rural blocks to provide Internet access in villages. BSNL had floated two tenders for supply of WiMax equipment. One was for setting up the CSCs in rural areas, while the second was for providing broadband services in urban areas. While Huawei and South-based Gemini have been given the contract for the rural project, Telsima and Huawei are the lowest bidders for the urban scheme — which will initially be rolled out in Punjab and Kerala.

Officials in BSNL Punjab circle informed TNS that the pilot projects for launching this technology in the Punjab telecom circle have already been done. BSNL will be the first to roll out wireless broadband on the 2.5-Ghz band. While private telecom companies have to bid for spectrum in this band, BSNL has got automatic allocation. Broadband services on WiMax technology promise high-speed Internet access on laptops and mobile handsets.

“We already have the infrastructure in terms of BTS sites for mobiles, and only the interface equipment is required. Considering the huge success of broadband services in the region, they foresee a huge potential for WiMax technology. “We already have the largest number of broadband connections in this region (1.33 lakh customers). At certain places like Ludhiana and Patiala, we have already exhausted our port capacity and are re-allocating ports from nearby areas. Besides this, we also have 1.78 lakh dial-up connections. With this region having the highest teledensity, we have a ready market for adoption of WiMax technology,” said the official.

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Satyam evaluates suitors

Mumbai, March 21
Satyam's government-appointed board met here today to evaluate the Expressions of Interest (EoIs) from suitors to acquire a majority stake in the IT major as also to take stock of the beleaguered company's performance.

The company is expecting to complete the selection process for a strategic investor in the next three-four weeks after a thorough evaluation of the potential bidders, a source in the know of developments said.

The board meeting, which lasted for nearly five hours, assessed the potential bidders including engineering major Larsen & Toubro, Mahindra group's Tech Mahindra and the B K Modi-led Spice Group. — PTI

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Aviation Notes
‘Palace in sky’ ready for take-off
by K.R. Wadhwaney

The 'Palace in sky' and two other VVIP Boeing business aircraft, valued at Rs 937 crore, have been readied for operations from April 1, 2009. They have replaced aged 737-200 with IAF's elite Communication Squadron, which has thus far undertaken operations on both national and international routes.

Since arrival about eight months ago, all three aircraft have been subjected to rigorous tests, operations on several routes and interiors have also been adequately altered to provide the needed comfort to the VVIPs and their invitees. The crews, cockpit and cabin, have also been trained.

The inaugural operation to transport President Pratibha Patil is scheduled for April 1. The itinerary of other VVIP movements have not been finalised.

The aircraft, called 'the flying fortress', are equipped with all ultra-modern gadgets to protect its occupants. The VVIP Boeing is certainly not as sturdy and luxurious as US Air Force I, but it is a delightful 'bird' to travel. "The comforts and safety levels are virtually fool-proof " said officials connected with three aircraft.

While operations in sky will be without any hazard or hindrance, there is some uncertainty about handling on ground. The government will have to take immediate measures in notifying whether VVIP and civil operations will be conducted simultaneously or civil movements will be restricted.

The analysts emphasise that it is essential to make this information public so that there is no possibility of the near-miss, as it happened in early February between VVIP helicopters and Air India aircraft at Mumbai airport. The directorate-general of civil aviation (DGCA) has completed the probe but findings have not yet been officially made public for some unknown reasons. Delhi sadly tops the air-miss list.

The Indira Gandhi International Airport (IGIA) is the second busiest airport.

The first continues to be Mumbai. But unusual incidents and accidents take place with monotonous regularity. Recently, one private airline's passenger coach was damaged by another private carrier's 'blast' around the bay 16. There have been deaths on the tarmac and the sad part is that culprits have not been found.

According to analysts, there is needless overlapping of authority. This will never seize until authorities wake up and appoint a 'trouble-shooter' who should be able to oversee the functioning of multiple units at the IGIA.

There was a proposal to ban landings on new third runway from 10 pm to 8 am to provide relief to residents of Vasant Kunj. This proposal has now been kept in abeyance as, according to experts, the ban on night flying will cause more problems than sort them out. The analysts say that the suggestion for 'curfew' is irrelevant and uncalled for because if such a ban is introduced here, Delhi will never be able to fight for lifting of curfew on night flying in New York and Tokyo. This 'cufew' is the cause for many problems.

Now the runway will be carpeted in phases so that operations continue unhindered.

The new domestic departure terminal, known as 1D, will soon start functioning. The airlines have started shifting. According to airline officials, they now have enough room and passengers will have little problem in boarding their flights from different 'gates'. The baggage scanning area is also big enough to handle operations without any difficulty. The new building is of double the size of the old one.

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Investor Guidance
Gift from close relative not taxable
by A.N. Shanbhag

Q: I wish to give a gift / loan of Rs. 2 lakh to my mother who is in India. If I transfer this amount from my NRE a/c to her savings account in India - will he be taxed?

— Suresh

A: Gift amounts received from any close relative are not taxable in the hand of either the donor or the donee. It is perfectly okay to give the gift as intended by you to your mother, both of you will not be taxed on this transaction. As far as the law is concerned, you may give the same as a loan also if you so desire. Note that the income generated in future from this gifted amount is exigible to tax, unless your mother’s total income, including income from the gifted corpus, is less than Rs. 2.25 lakh for the financial year.

Investing in Niftybees

Q: Sir what is the potential risk in investing in Niftybees from “Benchmark MF” (Other than price)?

— Vijay

A: The risk in investing in Niftybees is not different than what you undertake by investing in any other equity oriented fund. It is just that Niftybees is a passive index fund whereas the others are actively managed equity funds.

Capital gain

Q: I have purchased house-1 at X place in year 2005 & the same is on rent. since I moved to place Y. House-1 was purchased with the help of 15-year housing loan from HDFC.

Now I have purchased house-2 at Y place for my own use & again taken a loan from HDFC.

Suppose I sell house-1 after one or two years then I will incur long term capital gain. Can I save tax on this long-term capital gain by repaying part of my house loan for house2?

— Jignesh

A: You cannot save capital gain on sale of house-1 by repaying part of the housing loan for house-2. However, if you were to sell house-1 within one year of purchasing house-2, then the capital gain, to the extent invested in house-2 would be exempt from capital gain tax. Note that it is not necessary that the proceeds per se, of house-1 be invested. In fact, since you are selling house-1 later, the same is not even possible. All the law intends is that an equivalent amount that you will earn as capital gain upon sale of house-1 be invested in house-2. This can be done by using personal equity or by means of housing finance. In your case, you have already used housing finance.

Insurance proceeds

Q: I was recently hospitalized and the payment to the hospital was directly made by the insurance company from whom I had taken out a mediclaim policy. Kindly advise whether I am liable to pay income tax on the amount paid to the hospital by the insurance company.

— A P Thazhathethil

A: No, you need not pay any tax on the amount paid to the hospital by the insurance company. All insurance proceeds, whether life or general are tax-free in nature.

Gift from spouse

Q: I have one query regarding income from gift by my husband. I have received a gift (FD of Rs. 11 lakh in a company in my name) from my husband on my birthday in Feb 09. Can you please advise as to interest on such FD will be treated as my income or the income of my husband? Whose tax return will need to include such income? What documentary proof do I have to keep, in case IT authorities ask for it?

— Usha Jain

A: Any income earned from assets transferred by the spouse is taxable in the donor spouses hands. This clubbing provision is as per Sec. 64 of the Income Tax Act. Therefore, any interest that you will earn on the FD will be treated as your husband’s income and will be taxable in his hands. As such the income will be included in his tax return. By way of documentary proof, each should keep on file the record of the bank statement that depicts the debit and the credit of the funds from your respective accounts.

Rebate on HRA

Q: I take this opportunity to seek your guidance on the following:-

I am a retired defense officer getting pension along with disability pension.

My wife is a teacher and a tax payee. She gets HRA (Rs. 4,346 Per Month).

We are staying in our own house registered on my name. Our house is a 3 Bed Room one with a servant Quarter (Total covered area 4000 s.f)

Since I am a disabled solder, my pension (the disability element and service element) is exempted from IT.

My query is: Can I issue a receipt of rent to my wife for her to get a tax rebate on HRA?

If yes then to what limit? Of course I will show the amount as income from house property in my IT Return.

— Lt Col S.S.Bhatia (retd)

A: Theoretically, the answer is in the affirmative. There are only two conditions as stipulated by Sec. 10(13A) which makes the assessee ineligible for the exemptions. Accordingly, an employee living in his or her own house or where he / she does not pay any rent is not eligible for this exemption. Since the house is registered in your name and you will issue rent receipts for the rent paid, your wife will pass both these tests.

However, in practice, husband and wife cannot have a commercial relationship and there is very high possibility of the Department denying the exemption and ruling this as a tax evasion transaction. Our advice would be to desist from charging rent to your wife just for claiming HRA exemption.

Rental income

Q: I am planning to buy commercial property with loan in India and deposit rent income on that property to NRO account and pay monthly payments from that account.

Is it possible to do that? And also do I need to pay income tax on rental income? Is tax exempt if I pay that income against mortgage payments?

Can you please provide more details on that?

— Ganesh

A: Rental income has to be credited to the NRO account and should be first adjusted against the monthly mortgage payments.

You would get first a deduction from the lease rental of municipal taxes paid and thereafter a standard deduction of 30%.

The interest payable on loan is also deductible.

The resultant figure is to be added to your other income taxable in India.

The rent should first be adjusted against the mortgage interest and the rest can be repatriated (after payment of taxes). If the rental income is less than the prescribed installment, the borrower should remit the amount to the extent of the shortfall from abroad or pay it out of his NRE, FCNR or NRO accounts in India.

The after-tax rental income, being current income is repatriable.

The authors may be contacted at wonderlandconsultants@yahoo.com

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BRIEFLY

RBI to buy Rs 10,000 cr govt bonds
New Delhi:
The Reserve Bank of India (RBI) today said it will buy dated government securities of Rs 10,000 crore through auction-based open market operation (OMO) on March 25. The central bank, by purchasing bonds through the OMO window, plans to add liquidity into the system, cut down the cost for government borrowing and ensure flow of money into the credit market. — PTI

Allahabad Bank raises 400 cr
Kolkata:
Allahabad Bank on Saturday closed the issue of tier II subordinated bonds amounting to Rs 400 crore to augment capital adequacy and enhancing long-term resources. A bank spokesman said that the bonds were unsecured, redeemable, non-convertible, subordinated and promisory notes in nature. — PTI

Sony eyes 20 pc growth
Kochi:
Consumer electronics major Sony India is targeting a 20 per cent growth in digital still camera market in the 2009 fiscal, Sony India general manager (sales) Sunil Nayyar said. Recession has made no impact in the company's growth and in fact it helped in its growth, he said, unveiling a range of new cameras. — PTI

RCom mobile stores
Lucknow:
Reliance Communications on Saturday launched Reliance Mobile Stores (RMS) in the state capital, in a bid to reach the doorsteps of the customers. "The basic idea behind establishing these RMS is to provide all products and services and efficient customer care to our subscribers within the minimum distance of the locality they reside in," said RCom regional head (UP and Uttrakhand) Saleem Haq, while inaugurating the mobile stores. — PTI

Madoff loses bail appeal
New York:
A US federal appeals court has rejected the plea of Bernard L Madoff, accused of defrauding investors of $65 billion in a Ponzi scheme, for release on bail calling him a flight risk. The three-judge ruling came after Madoff's lawyers asked that the 70-year old, now under detention, be allowed to return to his Manhattan apartment until his sentencing due on June 16. — PTI

BoI to open 150 branches
Kochi:
Public sector lender Bank of India (BoI) plans to open 150 branches across the country during the 2009 fiscal, a top bank official said here on Saturday. This year, the bank's target was 100 branches, executive director M Narendra told reporters here. The bank currently has over 3,000 branches in the country, including 82 in Kerala. — PTI

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