InFINeeti April 2013 Budget Issue

InFINeeti | April 2013 APRIL 2013 ISSUE

InFINeeti | THE FINANCE MAGAZINE OF IIFT

Inside InFINeeti Budget Special: Information | Analysis | Insights Infrastructure sector: Will Budget 2013 be able to revive the ailing sector?

War in the air: What lies in the bag for the Indian Airline Industry?

Women Bank: Do we really need one?

APRIL 2013 ISSUE

INFINEETI@IIFT.AC.IN

What needs & from the

deserves Budget

InFINee | April 2013

InFINee | April 2013

FROM THE EDITOR’S DESK

1

W

elcome to the April edition of InFINeeti. As always, financial markets have been turbulent, though there have been some

glimpses of recovery. With the Government committed to roll out the cash transfer scheme, parliament paving the way to issue new banking licenses, RBI going for rate cuts and stock markets bound to see the pre-January 2008 levels, India economy is seen to be coming back on track.

The major highlight of the last quarter has been the Union Budget 2013. There has been a lot of speculations on whether it will be a growth-oriented budget or a populist one. While chasing the elusive high growth targets in the face of populist pressures, Mr. P. Chidambaram did a fine balancing act and made sincere efforts to please both the clusters. With his ‘Responsible and Bold’ budget’, he has deftly mooted good economics as a tool of good politics. In this Budget special edition, we have a bunch of excellent articles with in-depth analysis of some of the major provisions of Finance Bill 2013.

The Highlight of the issue is the ‘Dream Budget’, where the IIFTians have stepped into the shoes of the Finance minister and came out with an alternate budget. In their Dream budget, the authors have made an in-depth analysis and came out with some concrete suggestions that will provide a boost to the Indian economy.

Whether the new bank for women will serve the intended purpose? Is it right to impose additional Taxes on the super-rich? These are some questions posed by Budget 2013. All the answers lie at a distance of few pages.

UPA government’s last-hour effort to reduce the Current Account Deficit and revive the Infrastructure and Power sector have also been analyzed and debated. A detailed account of the measures taken in the budget should make a good read.

This issue also throws some light on the aggressive strategies adopted by the cash-strapped airline companies in the recent past. A fact based analysis of long-run sustainability of such strategies and the future prospects of the sector.

The issue features “FIN Trivia” column containing some mind-boggling facts & figures. We also take extreme pride and pleasure in announcing that IIFT has completed its 50 years of excellence in leadership in International Business and this year marks a special mention.

Happy Reading!!

InFINee | April 2013

CONTENTS

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>>> Page 3

3

WHERE THINGS BREWED A pre- budget analysis event in co-ordina on with NDTV

5

BUDGET PLUS 2.0 A post-budget analysis event @IIFT Kolkata

7

13

15

17

THE CAD PARADOX Will curbing gold import work for India?

TAXING THE SUPER RICH Will it help the UPA government achieve the fiscal targets?

LET’S BANK ON WOMEN India's first womenonly bank proposed: Do we really need one?

FINANCIAL INCLUSION An Indian perspec ve

>>> Page 5

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>>> Page 19

34

WAR IN THE SKIES What lies in the bag for the Indian Airline Industry!

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INFRASTRUCTURE SECTOR Will budget 2013 be able to revive the ailing sector?

38

UNDERSTANDING THE FINANCIAL CRISIS A simplified version of reasons that caused one of the biggest financial crisis of the century

COVER STORY DREAM BUDGET “What India needs & deserves from the budget!!”

REGULARS 41

MARKET PULSE

43

FIN-TRIVIA

44

NEWS CHRONICLE

InFINee | April 2013

PRE-BUDGET ANALYSIS

3

WHERE THINGS BREWED A pre- budget analysis event in coordination with NDTV

O

n the 15th of February, The Finance and Investments Club

Vikram Singh Mehta , Ex- Chairman of the Shell Group of Compa-

of IIFT, Delhi hosted a pre-budget ses-

nies ,currently on the Board of direc-

sion at the Delhi campus to allow stu-

tors at Mahindra & Mahindra.

dents to understand be er the intricacies and implica ons of the upcoming

Conducted by NDTV, the session pro-

budget as well as interact with an ex-

vided an opportunity to the manage-

tremely esteemed and dis nguished

ment students of IIFT, Delhi to pose

panel.

ques ons to the panelists as well as air their views and opinions on the up-

The panel consisted of Gurcharan Das,

coming budget. The session provided a

author of the bestseller India Unbound

unique pla orm for the students to ask

and former CEO of Proctor and Gamble,

ques ons ranging from oil subsidies to

India, Arvind Virman , Former Chief Economic Adviser to the Govt.of

FDI in retail to the measures that should be taken to control the ďŹ scal

India and Non-resident Fellow, Brooking Ins tute, Washington DC and

deďŹ cit.

InFINee | April 2013 4

PRE-BUDGET ANALYSIS

The students were teeming with ques ons and the discussion went

Moreover, ideas were exchanged on the incen ves of the gold linked

live with the first ques on asked on reforms in the energy sector tak-

financial instruments whether it would reduce gold imports. With a

ing into considera on the fact that 70 % of India’s imports consist of

healthy discussion ensuing between the panelists and the bright minds of IIFT, Delhi the session concluded on a very high note with all the par cipants having taken away some important insights from the session.

The students were also inquisi ve to know if the current tax structure would be changed so as to impose higher tax rates on the super rich.

The students were par cularly interested in this since most of the developed countries as well as the BRICS had a higher tax to GDP ra o than India. This ques on was taken by Mr Virmani who explained that the priority of the government should not be tax reforms in terms of revenue but more in terms of rules and procedures, so as to make India more investor friendly. He also pointed out that most oil imports. The ques on was addressed to Mr. Vikram Singh Mehta

of the countries with higher tax to GDP ra o than India had a higher

who was the former Chairman of Shell, India. Mr. Mehta explained that explora on of oil and gas has three uncertain es associated with it.

Firstly the geological structure has to be conducive to the forma on of hydrocarbons. Secondly these hydrocarbons should be accurately located and thirdly the deposit should allow for a commercially viable way to produce oil. All these three steps involve huge expenditure and hence subsidies should be such that they do not affect the oil companies’ ability to invest in research and explora on. Also he was of the view that liberaliza on of diesel prices should con nue and oil subsidies should be reduced as they account for nearly 75,000 Crore Rupees and are thus cri cal to the fiscal deficit.

Being students of interna onal business the students were keen to know the steps that would be taken in the budget to increase GDP, rein in the fiscal deficit and improve investor confidence. Mr Gurcharan Das who has a finger on the pulse of the na on was of the opinion that domes c growth has to be spurred, along with that transparency in procedures should be brought about and steps

per capita income and India when compared to countries with similar

should be taken to move away from sec onal growth to public

levels of per capita income had a higher tax to GDP ra o.

growth. Mr Das felt that the government should invest in improving the infrastructure of India rather than providing subsidies and loan

The session moved towards conclusion as the students discussed with

waivers.

the panelists the effec veness of the ‘Aadhar’ Scheme and the Naonal popula on register

InFINee | April 2013

POST-BUDGET ANALYSIS

T

5

He pointed out that a major part of the budget’s every year focus is on mee ng the 5 year plan targets. he Indian Ins tute of Foreign Trade, Kolkata organized the second edi on of Post-Budget Analysis -

Then, Mr. Nandwani asked the esteemed panel members to offer

‘Budget Plus 2.0. The panelists of the discussion were Mr. Rajib

their opening remarks. Prof. Ranajoy analyzed the budget from an

Basu, Associate Director- PricewaterhouseCoopers, Prof. Ranajoy

economic perspec ve. He observed that contrary to the belief that

Bha acharya, Professor of economics at IIFT, Dr. Ajitava Ray

there would be a growth oriented approach by inclusion of econo-

Chaudhuri, Professor of Economics at Jadavpur University, Mr. An-

mists such as Dr. Raghuram Rajan and the Finance Minister Mr.

jan Kumar Roy, Member ICSI, Anjan Kumar Roy & Co. Company

Chidambram would bring to the table has not occurred and the

Secretaries,

Founder-

budget is oxymoronic to the approach paper of the 5 year plan. He

TheEquityDesk Dot com. The discussion was presided over by Mr.

deemed the budget to be neither pro-growth nor pro-social reform.

Sanjeev Nandwani, Development Commissioner, FALTA SEZ.

Dr. Ajitava, in his analysis, divided the budget into 4 segments. The

Mr.

Basant

Kumar

Maheshwari,

Mr. Nandwani threw the discussion open emphasizing that budgets are a con nuous process and who the Finance Minister is, plays a very li le role on what the government’s policies are going to be.

first, he said, was that the budget has been a con nua on of old stories, but cited that there has been a 46 percent increase in the budgetary alloca on to the Ministry of Rural Development. Another important point he touched upon was regarding the women banks.

InFINee | April 2013

POST-BUDGET ANALYSIS

6

In his opinion, empowering the women by leveraging on the exis ng systems would have been be er rather than the new provision for women banks. In his words, the govt. is “for the people, by the people and whoever for…” and this budget has proved to be a signaling mechanism to the masses. Mr. Rajib Basu took a different stance from the two economists and praised the Finance Minister for the work he has done given the constraints of the upcoming elec ons. In his words, “the budget is a statement and the money is being put into the right sectors” but raised ques ons on the amount of money allocated to these sectors. He also ques oned the implementa on of the policies which are announced in the budget and called for se ng up of ins tu ons for efficient implementa on. Mr. Anjan Kumar Roy said that the budget has something for everyone and was a balance of reform and social sector measures. He said that the problem lay

Mr. Rajib Basu, Associate Director- PricewaterhouseCoopers speaking out his views

in implementa on of such policies and has been so for the past 30 years.

Mr. Maheshwari argued that “budgets have a shelf life of 72 hours”. He said that the investors in the stock market pay very li le heed to the provisions in the Budget and exclaimed “good companies get around bad budgets and make money for their shareholders, while bad companies do not make money even in good budgets” poin ng out that the stock market runs its course irrespec ve of the budget.

A er the opening remarks, the floor was thrown open for discussion and Mr. Nandwani asked the panelists for their remarks on whether the budget was a populist measure or a policy measure and enquired their views regarding par cular sectors. The issue of the declining savings rate in India from 36 percent to 30 percent was discussed at length and Mr. Ajitava remarked that the rent-seekers needed to have a leash and India cannot depend on foreign investors all the me. Various other issues such as the

Mr. Basant Kumar Maheshwari, (Founder-TheEquityDesk Dot com) analyzing the budget from the Equity Markets viewpoint

Domes c Ins tu onal Investors (DIIs) following the FIIs in the primary markets and the buoyancy of the capital markets were pondered upon. When it came to the issue of disinvestment, Mr. Basant proposed the idea of giving away 200 stocks to every PAN card holder at a discount rather than to LIC as a measure of keeping the investor’s money with them only.

The audience cons tu ng the students of IIFT, Kolkata campus asked per nent ques ons regarding liquidity issues arising out of disinvestment, the overshoo ng of the target of 10000 crores due to the Food Subsidy Bill and the introduc on of CTT to discourage people for inves ng in gold and silver.

The Panel concluded the discussion ci ng that although the budget touched everybody, it did not focus on any par cular sector.

A student pu ng across his ques on in Q&A session

InFINee | April 2013

UNION BUDGET 2013

7

THE CAD PARADOX Will curbing Gold Import work for India?

Vikas Goyal - IIFT Deependra Kumar & Ashish Khare - MDI

A

Rising Current Account Deficit persistently nega ve current account deficit is a cause of concern for any economy. When a country

runs CAD, it builds up liabili es to the rest of the world that are financed by flows in the financial account. Large deficits and rising indebtedness could also leave countries more vulnerable to adverse

Current Account Balance can be defined as the net of export and import and if the import is in excess to the export it is called a deficit. Although CAD cons tute of other factors like factor income and transfer payment but major cons tuent of Current account balance is the trade balance (i.e. Export- Import). High current account defi-

external shocks.

cit is major concern because it cannot be sustained for long as the Since India has a long history of sizeable current account deficits, it makes for an interes ng case study. A closer look at figure one clear

countries that ‘lend’ money (through the capital account surplus) will expect to get back their money with interest at some point.

Current Account Deficit of India ly reveals India’s inability to maintain a posi ve current account

As can be seen from the below data, India’s current Account Deficit

balance. We can see that in only four years from the past two dec-

has been widening along with the increase in gold import as per-

ades India has been able to claim a current account surplus.

centage of GDP.

In his latest Budget Speech , Finance Minister P Chidambaram expressed concern over India’s Current Account Deficit (CAD) and rising Indian gold Import .To curb imports of the Gold with a view to check the widening CAD, the government recently took a step of hiking the import duty on gold and pla num from 4% to 6% . Let’s try to analyze the CAD of India and effec veness of the hike on gold.

InFINee | April 2013 8

UNION BUDGET 2013 Comparing India with other BRICS na ons, it’s evident that India is

deficit (CAD) by one percentage point to 4.3 per cent

showing worst CAD trend.

during 2013.

While the imports were dominated by higher demand for gold, the

Major Implica ons of High Current Account Deficit High current account deficit is major concern because it cannot be sustained for long as the countries that 'lend' money (through the

exports contracted. In the April-November period, India's total exports contracted by nearly 6 percent from a year earlier, leaving a trade deficit of nearly $130 billion.

capital account surplus) will expect to get back their money with

Another possible cause has been the higher demand or a supply

interest at some point. If the money is not seemed to be present

shocks in the Indian Economy. In 2011-12 the growth in aggregate

in future, the lending country may demand higher returns or may

demand categories like consump on and fixed investment fell

take back their money. With no one to lend, the country can’t

from about 8% to 5%. It has been observed that the Indian CAD is

import capital goods to make own good or even import consumer

countercyclical, rising when output falls and not when demand is

goods .

rising. This suggests the dominance of external supply shocks rather than the demand factor. Current account deficit is going to be as strained in Q3 2012-13 as it was in the second quarter because of the lower GDP growth.

The deprecia ng INR also contributed to for the past one year and was the third worst performer in Asia in 2012. The rupee closed 2012 at 55.00 infla ng the import bill and the current account deficit

Implica ons of the High Current Account Deficit for the Indian Reasons for high current account deficit (CAD)

Economy

To put some numbers into perspec ve, current account deficit

The recent level of the Current account deficit at

widened to 5.4 % of GDP in the Q2 2013. The current account

GDP is above the sustainable level. According to research report

deficit was $22.3 billion in the three months through September,

from RBI, India can sustain a current account deficit of 2.5 % of

or 5.4 percent of GDP, compared with $16.6 billion in the June

GDP with a lower GDP growth. This clearly is an alarming situa on

quarter and $18.9 billion in the September quarter of 2011. The

for the Indian economy and has the capacity to impair India’s fi-

widening gap has been caused mainly by the increasing trade defi-

nancial stability.

5.4 % of the

cit. The trade deficit widened to 12.2% of GDP in Q3 from 9.7% in Q2. While oil prices have risen, most of this worsening is in the

This deficit will also cause the foreign exchange reserves to dry up

non-oil segment (Nomura Report). Gold imports were the major

if the inflows to make the deficit do not materialize. It will have

cause of the widening current account deficit. India saw $60 billion

direct bearing on the strength of INR. The deprecia ng INR has

worth of gold imports in fiscal 2011-12 which contributed to high

come under a lot of pressure with the increasing current account

CAD levels. Gold imports in the 2010-11 were $40 billion. The in-

deficit. The Indian rupee has dropped more than 20% from its

crease of $20 billion can be a ributed to high level of infla on.

August 2011 peak against the dollar. This sharp deprecia on is mainly due to India’s large current account deficit .

Though Nomura said the recent fall in gold and oil prices can help improve India's elevated current account

InFINee | April 2013

UNION BUDGET 2013

9

Ac on Taken by Indian Government and RBI

following.

Government of India is considering steps to make gold imports costlier

The first category of the demand for gold consists of the ‘consump on’

in order to reduce the huge foreign exchange outgo on the yellow met-

demand for making jewellery, medals, electrical components, etc. There

al, which has pushed the current account deficit to a record high. (India

is the tradi onal obsession with the yellow metal as an adornment and

Today)

an item of personal display.

Government is also trying to create an investor friendly environment to increase investment from foreign investment in the form of FDI and FII, the income from these foreign investments posi vely contributes to current account.

Indian Gold Imports India is known to be among the largest importers of gold in the world. A look at the Indian import figures for gold over the period 2001-02 to 2010-11 suggests that gold’s share in total import bill of the country has gone up from 8.1 per cent in 2001-02 to 9.6 percent in 2010-11 even when gold prices have increased markedly over the period April 2008 to March 2012.

The second category is the ‘asset’ demand for gold as an investment.

Gold is perceived as safe haven asset, especially, during periods of financial and economic stress. More recently, a er the 2008-09 financial crisis, the demand for gold as collateral has also increased as it does not involve credit risk and its price generally exhibits counter-cyclical behavior.

Gold is viewed as a liquid asset and one of the most efficient ‘store of value’ and hence widely recognized in India as a tool for intergenera onal wealth transfer. Investors have reaped the benefit of a rac ve returns as the gold prices were increasing, that led to further investment in gold, giving impetus to further rise in gold prices.

India's love affair with Gold Indian demand for gold is influenced by many socio, economic and cultural factors. Some major driving factors for gold demand in India are

According to a recent Morgan Stanley report, over the past five years, gold has outperformed all other asset classes

InFINee | April 2013

UNION BUDGET 2013

10

Import duty hike won’t work Encourage smuggling The higher the difference between interna onal prices and official prices, higher the profit margin for illegal imports. As the difference increased in Indian and interna onal gold prices, smuggling of gold too is making a comeback. A similar hike last year had failed to curb the demand for the yellow metal.

No reduc on in trade Deficit Is this increase in Customs likely to reduce India’s trade deficit? Unlikely! It will increase capital-flight to offshore financial centers – from where foreign-exchange earnings will get higher returns than in India.

Higher customs or other barriers will mean more (and more) policy Gold hur ng Indian Economy



India does not produce much of the gold consumed. That

interven ons that will increase compliance overload and reduce policy-impact.

means, we need to buy gold from other countries and pay in foreign currency. This directly affects the value of rupee negavely and thus crea ng further prices raises especially petrol and diesel.



Gold may not be great to the economy due to its unproducve nature. The private purchase and hoarding of gold results in the diversion of surplus away from produc ve investment like fixed deposits, investment policies, shares, bonds etc.



Bulk of the gold transac ons is generally on cash basis and without much of documenta on. There are no tax hassles on gold transac ons in the informal market. This feature too might be incen vising diversion of domes c savings towards non-financial products like gold. Such de-financialisa on is undesirable to the financial system.

Retail Investors interests Gold is a protector of assets – an important reserve in mes of economic uncertainty – and plays a crucial role in hedging currency and infla on risks. The demand for gold in India is price inelas c, i.e. Indian customers are not 'duty-conscious' when they buy gold Alterna ve ways to reduce dependence on Gold

Increase the reach of Banks – India’s saving rate is es mated at around 30 percent of total income, of which 10 percent is invested in gold. Therefore it is important that the financial sector taps into this huge saving reserve.

Liquidity quo ent-The real a rac ons for gold are high returns, high liquidity and no tax and documenta ons. If interest earned on various financial savings instruments is a rac ve, a part of the demand for gold will be automa cally diverted to the financial instruments.

InFINee | April 2013

UNION BUDGET 2013

11

Massive educa on campaign Create awareness amongst the public at large as to how unnecessary

South Africa

piling of gold stocks with households is not only adversely impac ng the

The current account of South Africa's has been in the red lately. The

current account posi on of the economy but also increasing the level of

weaker outlook for the global economy in response to the interna onal

black money circula on in the economy.

financial crisis has already resulted in a large-scale withdrawal of capital from South Africa. The Rand has depreciated by approximately 30%

Current Account Deficit: Story of other Developing Na ons While focusing on the current account deficit problem of Indian economy it makes sense to have a look at similar developing na ons to under-

against the American dollar during this period. Trade balance is only quarter of the current account deficit which makes it difficult to reduce the la er simply by reducing imports.

stand current account situa on in these countries.

Current Account Deficit of developed na ons: a case study on USA 1991-2006: The phase of rising Current Account Deficit Brazil Brazil is currently facing a big current account deficit which is 2.11% of

The U.S. current account deficit grew steadily a er 1991, hi ng levels of

GDP at the end of financial year 2011-12. Brazil has a current account

4.4% in 2000 and steadily rose to a record high of 6.1% in 2005 and

deficit

2006.

despite

Much of the

having a posi ve

rise in the current

trade balance on

account deficit over

account of large

the period can be

service

a ributed

deficit.

to

two

The reason be-

factors: accelera ng

hind the posi ve

U.S. produc vity and

trade balance is

a surge in household

the

wealth driven by the

export-

oriented

stock market.

Brazil

economy heavily dependent upon soybean, orange juice and iron.

Due to the consump on boom, U.S. consumers sa sfied part of the Russia

increased demand for goods and services with imports, purchasing more

Russia’s current account surplus is fuelled primarily by high oil exports.

and more goods from foreign sources and increased current account

Oil prices have risen steadily over the past few years which have in-

deficit.

creased their export prices. From 2000 onward, the country started to record posi ve trade surplus, taking advantage of the devalued currency. Russia’s current surplus decreased sharply in ’08-’09 due to the global recession and decrease in demand for commodi es. Increase in Russians income is set to fuel demand for imports; this would lead to narrowing of the current surplus.

2007- Present: The decline of current account deficit (CAD) CAD began falling in 2007, and reached 3% of GDP in 2012. The decline may be a ributed to cyclical causes. As a result of the recession and financial crisis, domes c savings became higher, domes c private investment became lower and so the need to borrow from abroad diminished .

China China has had a consistent Current Account Surplus which today is approximately $ 300 billion. The major reason for this surplus is the compe

veness of Chinese products which have gained a reputa on in

manufacturing sector and thus China has become the supplier of goods for the whole world.

InFINee | April 2013 12

UNION BUDGET 2013

Conclusion The need to contain current account deficit as evident above is extremely urgent. Unfortunately there is no magic wand that can bring down Current Account (CAD) deficit in a go. It needs to be achieved through the synergy of a number of measures each aiming to strike at the very root of reigning current account deficit. The widening deficit is a ributable to expensive oil, high gold imports and a sharp drop in exports.

There is thus a need to reduce imports and boost merchandise exports to bring the CAD to sustainable levels. On the exports front a lot depends on the global economic situa on. Our major markets are the US,

prices and reasons for modera on in FDI are more structural in nature.

Euro zone and China. If these markets recover and do well we can im-

It is thus important for the policymakers to make Indian economy more

prove on the exports front, provided we maintain our compe

investor friendly in 2013 and eliminate bo lenecks arising due to policy

veness.

With the worst of recession already behind us and United States

paralysis at the centre.

aver ng the fiscal cliff, the prospects do look be er.

What is the ideal way out for Indian government then? Since India’s The more dominant cause of worry is the import bill. Interna onal com-

linkage with the world economy, in terms of trade and finance, is likely

modity prices and rupee exchange rate should be the focus areas as the

to grow, it is important that resilience in its trade account is built up

country imports many commodi es it needs. An important step would

mainly by promo ng produc vity-based export compe

be to make the gold imports expensive. The Indian government has

improving the domes c fundamentals. The persistent global uncertainty

veness and

and capital flow vola lity demands increase in FDI to make the capital account more resilient. India should learn from other countries around the world. The compe

veness of products of China is something to

look upon as India doesn’t have resources like Russia or Brazil. India should try to bring quality to its products similar to its services.

One key thing to learn from USA is that India cannot sustain its current account deficit as can US because capital account in India is highly dependent upon the condi ons of rest of the world. Adjus ng government spending to favor domes c suppliers is another important step that needs considera on. Another important measure would be increasing the remi ances through lucra ve savings offer for Indian Diasporas all around the world by offering higher interest rates and lesser transac on taken right steps in this direc on by imposing tax on gold jewellery and increasing the import duty for gold.

However, it will not be easy for Indian economy to correct current account in 2013, precisely because of strong domes c demand and a weak external demand. Already environment sensi ve policies, land acquision issues and availability of quality infrastructure have contributed to modera on in FDI inflows which are extremely important to finance the current account deficit. While the subdued growth of receipts is cyclical in nature and can be expected to improve with the recovery in world economy, the rise in crude oil.

charges. It is with the cumula ve effects of the above outlined measures and a strong resolve to bring down the current account deficit that we can expect India to tame this monster and safeguard the country’s financial health.

InFINee | April 2013

UNION BUDGET 2013

13

TAXING THE SUPER RIC RICH H Will it help the UPA government achieve the fiscal targets?

Yogendra Chaudhary & Vivek Patel K J Somaiya Ins tute of Management Studies & Research

V

The biggest concern of UPA government is to reduce the fiscal deficit ery recently, a er long hours of debate US has imple-

to an acceptable level. The number of HNIs in India is a very minus-

mented the proposals to tax rich at the higher rate. The

cule por on of the total popula on. How much revenue can the

new provisions puts addi onal tax burden on people

government generate by taxing these few HNIs, is something which

with income over $4, 00,000.

is very difficult to assess accurately.

Meanwhile in India, Mr. K. Rangarajan, the chairman of the prime minister’s economic advisory council, has also suggested that there is a need to increase the tax on HNIs. However, his sugges ons have met protests from the superrich in the pre-budget mee ng.

Considera on for the market sen ment We also have to consider that the market sen ment is not quite good and in such a situa on, if HNIs are heavily taxed, they are less likely to invest in the market

The so called super-rich people

which again hampers the growth prospects. Mr.

have been finally imposed with

P.Chidambaram, The present FM, had taken a

addi onal tax of 3% on their

decision of lowering the tax rates in 1997-98 so as

income. But here we need to

to induce more and more people to pay taxes and

analyse, whether it is an eco-

comply with the regula ons. So, the present day

nomic decision or a poli cal

decision of taxing the super-rich is somewhat in

one?

contradic on with his own decision in the past.

Whether it will really affect these HNIs? Whether the decision taken by the government is ra onal? Having known that the market sen ments are very low, whether it will help reduce the fiscal deficit?

These are some of the ques ons that need to be answered.

Possible Consequences The high tax on the super-rich will not only adversely hit the market sen ment but this will also force the high tax payers to find new ways to evade the tax. Currently, around 42800 people are catego-

Now let us take these issues one by one: Poli cal mo va on or Economic prudence

rized as HNIs (Disclosing taxable income exceeding Rupees 1Crore per year), although the actual number is bigger than this, which is evident from the sales figure of high end luxury cars in India.

As agreed by many, this year’s budget is more of a populist budget, this being an elec on year. So, it is argued to be the reason why the government has spared the low to medium income groups and targeted the HNIs.

Why should HNIs be taxed at higher rate?

It is the me when the finance minister acknowledges the need of reducing the fiscal deficit which is currently record high at 5.4 percent. Now the ques on is how much each sec on of the society will contribute to achieve the fiscal deficit at the desired level.

Will it accomplish the intended objec ve When the fiscal policy adopted by government is such that there is

InFINee | April 2013 14

UNION BUDGET 2013

ques on is how much each sec on of the society will contribute to

But the present Finance minister himself has the target to achieve

achieve the fiscal deficit at the desired level.

the stable and moderate income tax rates. And it is also successful

When the fiscal policy adopted by government is such that there is an increase in tax rates, there is a decrease in the disposable income of people which leads to lower demand and thus lower growth

to some extent. In 1997-98, Mr. Chidambaram himself reduced the tax rates from 40 percent to 30 percent and gave what we all know as “Dream Budget”.

rates. But when it comes to HNIs, increasing the tax rates will hardly

Here we need to increase the revenues and that could be achieved

impact their consump on habits and thus this seems to be a good

by making and implemen ng certain policies like the goods and

move by the government wherein it can generate revenues through

services tax which would directly contribute 2 percent to the GDP.

tax without hampering the consump on behaviour and growth prospects.

Alterna ves: The efforts by the government in targe ng the subsidies make it very clear that it is serious on the issue of reducing the fiscal deficit. And when the poorest of the middle-class are contribu ng then, it is difficult to not to ask from the super rich.

The problem with the finance minister is high fiscal deficit and weak market sen ments. So the finance minister instead of increasing the tax on the super rich (which cons tutes only a small propor on of the tax payer community), should target the mass popula on which is not giving any taxes at all. So, here there is a need is to increase the

When some of them will not even no ce the burden of the increase in the tax rate then there is no reason for not imposing the addi onal tax on

number of tax-payers so that government could get the substan al revenue which will finally reduce the current account deficit. Other important factor is to make an efficient tax collecon system which is not at place right now.

the super rich. But the prac cal concern is that the super rich people will actually evade the tax totally so there can be some adverse effects of taxing the super rich.

The aim of reducing the fiscal deficit can be achieved through reducon in planned and non planned expenditure. A 5% stake in Coal India will fetch the government above Rs. 10000 crores or a one

The higher rates could then be more than offset by the increased evasion, leading to lower collec ons. While there may be an element of truth to this, it is important not to overstate this factor.

Here we also need to note that modest tax rate in the last decade did not a ract people much, to pay the taxes. And if lower income tax does not work to increase the tax payers then why should we

rupee increase in heavily subsidised urea and kerosene can help the government save above Rs. 3000 crores. Furthermore all ministries can be asked to implement some austerity measures. A 2% reducon in this will save Rs. 10000 crores.

The government can also adopt disinvestment policy by selling off stakes in PSUs which are running in losses.

assume that higher tax rates would drive the exis ng revenues away? It may well be argued that those who pay taxes today have no way of evading it, and a surcharge on the super-rich is not going to change that.

In short, reducing the expenditure and cu ng down on subsidies can serve as a feasible alterna ve to higher taxes. However, as long as the government is not able to achieve this, it has to devise some ways to increase the revenues which again paves the way for higher taxes and need for bringing more people under the tax net.

Why shouldn’t they be taxed?

The Chairman of the Prime Minister’s Economic Advisory Council, C. Rangarajan’s sugges on of imposing a surcharge on the super rich seems to have been intended to test the waters more than anything else.

InFINee | April 2013

UNION BUDGET 2013

15

LET’S BANK ON WOMEN India's first women women--only bank proposed Do we really need one?

Rohit Ranjan SIIB, Pune

I

credit ins tu ons are struggling to “include” people at scale in rural areas? was eagerly wai ng for this year’s union budget a er dismal performance of UPA 2, all encapsulated with

scams and scandals. But a “women centric” budget is really an ‘Out of the box’ idea and it completely took me with surprise. Will it just be a dice thrown by FM before the upcoming general elec ons or will it the long-way to generate more women entrepreneurs in future? Let us analyze in detail.

In the era of online and mobile banking, people hardly bother to visit banks in metro ci es. Such banks will be more profitable and will be able to generate more business in rural areas. Many microfinance ins tu ons have opposed this move but I think it’s a posi ve move for poor women sec ons of society which borrow money from private money lenders at exorbitant rates to run their business. Compeon will definitely get s ffer but opportuni es will emerge too.

There are posi ves as well as

Addressing the gender related

nega ves of opening a women-

aspects of empowerment; it will

oriented public sector bank (PSB)

certainly fulfill a social goal. A

with an ini al capital infusion of

women run banks are likely to

Rs 1,000 crores. How much such a

a ract women clients, promo ng

move will create an impact is s ll

inclusive

to be seen, but one thing that is

financing

and

other

women livelihood schemes.

clear is that it is surely going to But did we need to start some-

add the oomph to the otherwise

thing new like this in a country

staid terms like “women empow-

where there are 26 na onalized

erment” and “financial inclusion”.

banks, 21 private sector banks, 34 Women customers will certainly

foreign banks and numerous co-

feel comfortable on being ser-

opera ve and local banks. Such

viced by women bankers. Pene-

moves create a serious doubt on

tra on of such banks in rural

our own available resources.

areas will encourage more of A similar banking model was start-

women par cipa on and Self

ed in Pakistan 14 years back in the

Help Groups (SHGs) in availing

name of “First Women Bank” but

microfinance. There will be a

hasn’t been able to make a signifi-

sense of freedom among the women in star ng their own ventures. But the ques on arises here are hard to deal with like “Will this bank for women serve the en re

cant mark yet. It has currently only 38 branches all over and the work culture is ‘Corpora sh’.

country? If yes, how long will it take to roll out across the length and

Let us witness the success story of India Post which, through its infra-

breadth of India? Will it go to the hinterlands, where bulk of our dis-

structure and network, has implemented the plan into ac on. It has

empowered and un-creditworthy women live? What is that “extra”

more than 1.54 lakhs post office branches out of which around 90%

which will make it work even when na onalized banks and micro-

are in rural areas. Each post office has been providing banking ser-

InFINee | April 2013 16

UNION BUDGET 2013

vices, like Post Office Savings Bank, to people for decades.

People who grew up in rural areas without banks, or in places where

Bank of India and is all ready to apply for banking license by July under new RBI guidelines to operate as complete banking system.

pe y bankers were too domineering to entertain the illiterate villag-

P. Chidambaram would have been more prudent in u lizing this

ers, know where to go for the safe-keep of their precious money:

network to provide financial services to women at minimal cost. It

that li le window at their neighborhood post office.

will take around decades to establish numerous women banks all over India. Will it

It’s not a

employ

long trek to the

agents to provide

post

door

office.

office

for

every

7176

to

door

service to wom-

There is a post

women

en? What kind of banking

guide-

lines will it fol-

peo-

low?

ple in the country. In

There are many

rural areas,

ques ons which

the coverage is even be er – one for every 5682 people. When the

have been le

UPA government was struggling to find a way to transfer the wages

nouncing a relief package for farmers which included the complete

for NREGA beneficiaries, it was this network that came to its rescue.

waiver of loans given to small and marginal farmers. Called the Agri-

About 2.2 crores people get their NREGA payments through the post

cultural Debt Waiver and Debt Relief Scheme, the 600 billion rupee

offices.

package included the total value of the loans to be waived for 30

People in rural and semiurban areas who are familiar with the post office savings banks also know that it is the most womenfriendly and inclusive banking system where agents even come home to take your money, update your passbooks and even return the money on matura on.

In rural areas, there are about 2.69 lakh agents who come home to help people, mostly women, with banking. Almost all these agents are also people from the neighborhood and are familiar with the beneficiaries. It is a unique banking eco-system that only Indian Post can claim credit for. It is a model that has evolved over me and is very hard to replicate because it is driven by the sheer needs of people, and nourished by trust and rela onships.

It will be difficult to establish another system like India Post with such network and coverage anywhere in the world. Currently post offices provide only savings facili es. It has decided to set up Post

unanswered. Last

million

me they lured farmers by an-

small

and

marginal

farmers

(es mated at 500 billion rupees) and a One Time Se lement scheme (OTS) for another 10 million farmers (es mated at 100 billion rupees). This

me, the UPA government

has tried to woo the Indian women and capitalize on the inability of the current banking system to cater to the so called ‘Disempowered’ sec on of the society.

With a deep regard for poor women and a belief that they are Bankable, I would be curiously looking ahead for the implementa on of the noble move.

InFINee | April 2013

UNION BUDGET 2013

17

FINANCIAL INCLUSION - An Indian Perspective Sinjana Ghosh VGSOM, IIT Kharagpur What is Financial Inclusion?

Implementa on of Financial Inclusion in India

A report of the World Bank states “financial inclusion, or broad access From se ng up of the State Bank of India, na onaliza on of banks, the to financial services, is defined as an absence of price or non-price barri- great Indian Coopera ve movement and the lead bank scheme finaners in the use of financial services”. While in developed countries, finan- cial inclusion has always been at the core of the decisions of policy cial inclusion is more about the knowledge of fair and transparent fi- makers. Despite these prolonged efforts it was es mated that about nancial products and financial literacy, in emerging economies like In- 40% of Indians lacked access to simplest forms of financial services. The dia it is a ques on of both access Figure1: Several measures taken since 2010 to ensure financial inclusion reasons include factors like to financial services as well as absence of banking technolfinancial literacy. ogy, dearth of viable delivery mechanism, and, most Why is it a na onal concern? importantly, absence of a In a na on where almost half of sustainable business model. the popula on does not have a The issue was officially adbank account, a major part of dressed in the monetary money in the system is compolicy in 2005, when RBI pletely unaccounted for. This is directed the banks to make a major contributor to the major available no-frills accounts problems like corrup on, ineto certain growth sectors quality, poverty, illiteracy and all iden fied by the governother issues that India is ment and issue general plagued with. Empirical evicredit cards (GCC) to the dence shows that economic agricultural workers. Other growth follows financial inclurecommenda ons of RBI sion. Thus, boos ng business included, making available opportuni es will definitely overdra accounts, small increase the GDP, which will be scale loans (micro financial reflected in our na onal income ac vi es) and relaxa on of growth.

KYC norms for opening of accounts.

Serving the disadvantaged secon is not very difficult as these In January 2006, a new people just expect security and model was proposed by safety of deposits, low transacRBI, the very promising Source: RBI and news reports on costs, minimum paper work Business Correspondent or and easy access to low value credit which should not be a difficult task. BC model. Research and improvement upon this model con nues ll Low-income Indian households o en have to borrow from friends, family or moneylenders who lend at excessive rates. They have neither the necessary awareness nor easy access to insurance products that could protect their financial resources in unexpected circumstances such as illness, damage of property or death of the bread-earner of the family.

today to facilitate financial inclusion.

In 2010, the Reserve Bank advised all scheduled commercial banks to submit their financial inclusion plans (FIPs) supposedly containing selfset targets pertaining to opening of new branches in unbanked areas, employment of business correspondents (BCs), provision of financial services like no-frills accounts, issue of Kisan Credit Cards (KCCs) and General Credit Cards (GCCs) etc. Figure 1 provides details the several Policy makers in most countries of the world have now recognized fiother measures taken by the government and RBI. nancial inclusion as the way to achieve comprehensive growth, such that every ci zen of the country is able to use earnings as a resource Business Correspondent Model- the future of Indian Banking that can be invested for future returns, thus contribu ng to the naThough banks are meant for public welfare, there is no argument on on’s progress. the fact that they are business organiza ons which work for profit.

InFINee | April 2013 18

UNION BUDGET 2013

Therefore, a well-planned business model is essen al to convince the banks that business with the poor is profitable, provided there is accessibility, so that the banks willingly par cipate in this endeavor and not just do it as a legal obliga on but as an a rac ve business proposi on.

Table 1: Progress of Scheduled Commercial Banks from 2010

been allocated in 2013-2014, to modernize the postal network, thus making post offices a part of the core banking system and facilitate their contribu on to financial inclusion. In order to improve insurance penetra on, banks have been allowed to sell mul ple insurance products of different companies. In response to the persistent problems that keep women, especially from the backward society, away from the mainstream banking system, the minister proposed establishment of a na onalized women’s bank. This is not the first me though, as a similar bank, SEWA, was started by a women’s self help group in Ahmedabad.

Apart from these ini a ves, PSU banks have been instructed to have ATMs at all branches by 31 March, 2013.

Challenges and the way ahead One of the biggest controversies that plagued the financial inclusion services of India is the over-indebtedness of farmers due to aggressive micro-credit policies by the then unregulated microfinance ins tu ons (MFI). A rash of suicides by some micro-credit clients in Andhra Pradesh, one of the largest markets tapped by MFIs, took the na on by storm and led some states to halt repayment of such loans.

One of the major reasons of this kind of incidents is the lack of awareness on behalf of villagers which make them fall prey to the fake promises of corrupt agencies. Financial inclusion should be complemented with financial educa on. While inclusion acts from the supply side providing financial services that people demand, financial literacy s mulates the demand side- making people aware of what they demand.

Besides educa on, presence of proper infrastructure like connec vity, access to internet, availability of cellular network etc. is needed in the nooks and corners of India. Benefits of mobile banking should be exploited to a large extent, as it is a powerful tool for financial inclusion.

Source: RBI Ins tu ons or individuals, who interface between the excluded poor and banks, are leveraged to provide support services under welldefined terms and condi ons by way of contractual arrangements. In BC model, these agencies provide basic support services such as customer iden fica on, collec on of informa on/applica ons, credit appraisal, marke ng etc. Under the BC model, specific agencies e.g. MFIs, NBFCs etc. also provide disbursal of small value credit as “pass through” agents for the parent bank. The BCs are allowed to conduct banking business as agents of the banks at places other than the bank premises.

The idea that new banking licenses should be given out to increase compe on, which will automa cally create inclusion, may not be praccal as new banks are less likely to make financial inclusion their top priority unless mandated to do so. Saurabh Tripathi, partner and director of the Boston Consul ng group suggested a new win-win model.

According to him the same corporate houses that are reques ng for banking licenses can be given BC licenses instead. That way, the client’s money will stay with the bank at the back-end thus ensuring safety while the BCs will have the right to price the customers appropriately, offer services without unnecessary interference, market themselves and geographically expand freely while being able to e up with many banks at the back end.

Figure3: Twin pillars of inclusive growth

Though the cost of performing low-value personal transac ons is high, this can be decreased by effec ve use of ICT solu ons.

Banks can also form systems of reward and recogni on for personnel ini a ng, ideang, innova ng and successfully execu ng new products and services in the rural areas.

All said and done, what needs to be reformed is the mindset, cultural and a tudinal changes at grass roots which will impart organiza onal resilience and flexibility. India’s dream of becoming a developed na on can’t be achieved with stellar growth of a microscopic minority sec on of the super-rich; it can only be achieved through an inclusive growth.

Financial inclusion is the path that India needs to tread toward for becoming a global player. It will help a ract FIIs to the country which will result in increased employment and business opportuni es. Inclusive Budget 2013- a step forward growth will act as a source of empowerment and allow more people to With focus on Financial inclusion in the budget 2013, the government contribute to the economic and social progress of India. declared an investment of INR 49 billion, of which INR 5.3 billion has

InFINee | April 2013

COVER STORY

19

DREAM BUDGET

Don’t be afraid of the space between your dream and reality..

If you can dream it.. You can make it so..!!

Bhushan Kanathe (IIFT)

Avneet Bhulania (IIFT)

InFINee | April 2013

OVERVIEW OF BUDGET During the past few years, India’s growth story has been sluggish owing to decreased industrial produc on, poor investor sen ment, high infla on (dragging the interest rates upwards), and weak rupee eleva ng import costs adding to the burgeoning trade deficit. We need to consider these things in backdrop before designing the budget for FY13-14. Rather than looking this budget as a single event, it should be looked forth as an a empt to achieve the targets set forward by The Twel h Five Year Plan (2012-17) dra ed by Planning Commission of India (to be achieved over a set of 5 budgets). The Economic Survey also presents insights on the important areas of the economy which needs a en on. Overall, a budget needs to have a focus and clear guidelines to catapult India’s growth story to the golden era that would enable us to achieve growth across all sectors uniformly and at fast pace. The purpose of this budget is to create economic space and find resources to achieve the objec ve of inclusive growth and development.

Source : www.tradingeconomics.com The Gross Domes c Product (GDP) expanded 4.5% in the fourth quarter of 2012 over the same quarter of the previous year. The growth has decreased considerably from average of 6% over 2011-12, and 5.4% in 2012-13. The following areas need to be looked at with high priority in this budget to be able to redefine our growth story :

INDUSTRIAL PRODUCTION & INFRASTRUCTURE

EDUCATION

AGRICULTURE

ENERGY & POWER

SOCIAL PROGRAMMES

GOVERNANCE

InFINee | April 2013

INDIA ECONOMY AND THE CHALLENGES

Source : www.voiceee.com

BUDGETARY ALLOCATION OVERVIEW—TWELFTH FIVE YEAR PLAN

InFINee | April 2013

Fiscal Deficit | Current Account Deficit | Infla on

T

he fiscal deficit for FY 12-13 stands at 5.2%, within the expected levels. Considering the recommenda ons given by Kelkar Commi ee, the deficit can be contained well inside 5%, and the target for the next year is 4.8%. We are well aware of the consequences of high fiscal deficit - heightened infla on, reducing room for monetary policy s mulus and dampening of private investment, growth and employment. The following steps would be taken to achieve fiscal consolida on: uniform subsidies across all the sec ons, depending on the income level

Increasing Incoming money A) Direct Taxes



Comprehensively Reviewing of the DTC Bill, 2010



Improving IT infrastructure with the help of IT companies for Income Tax Department to enhance their capability of data mining to check for tax evasion and black money



Selling of LPG, kerosene at market price, and reimbursement of subsidy for the respec ve income groups a er they pay Income Tax



Changing the focus of schemes such as MGNREGA towards employment genera on rather than aiming for populist schemes

Charging 22-24% interest rate on tax defaulters

B) Indirect Taxes





Pruning the nega ve list and taking more services inside the service tax regime. NGO’s, railways no longer be exempted from paying service tax



Fast-tracking the process to implement the GST by passing the Cons tu onal Amendment rela ng to introduc on of GST



Implemen ng 6% Excise duty on merit goods



Improving E-Governance in Central Board of Excise and Customs (CBEC) to help check tax evasion

Current Account Deficit 1)

Reducing the Gold Rush



Tax incen ves on gold linked financial instruments (ETF etc) . Introducing more financial instruments available to the average ci zen, and encouraging by tak-

Dives ng from PSU’s by selling minority stakes to the public (to amount of ~50% ll 2018) and money collected be deployed in infrastructure projects

D) Sale of unproduc ve land at market price through fair auc on process Decreasing Outgoing Money



Implemen ng progressive subsidies (not for public BPL) rather than having

Source :www.indiabudget.nic.in

3) Export oriented schemes





Introduc on of infla on indexed bonds, and taking hard steps to curb the inflaon, as infla on is posi vely correlated with buying of gold

2)

Increasing Capital Account Surplus



FII, FDI and ECB three main source of CAD Financing. FDI policy to be reviewed and policy bo lenecks will be removed . Relaxa on in ECB limit in some sectors, and implementa on of GAAR and DAA in phased manner

Incen ves for export-oriented SMEs, and se ng up of 6 new Export Oriented Units to boost exports Infla on (Controlling food infla on)



ing ini a ve to increase financial awareness and financial inclusion

C) Stake sell in PSU’s



Fiscal Deficit as percentage of GDP

Minimizing the constraints on the supply

side would make monetary policy more potent



Improving the infrastructure (transporta on, cold storage systems) and increase in the number of the warehouses in every region of the country



Strict ac on against hoarding of food grains by traders by the local government

InFINee | April 2013

AGRICULTURE

T

he Eleventh Five Year Plan (2007-12) witnessed an average annual growth of 3.6 per cent in the gross domes c product (GDP) from agriculture and allied sector against a target of 4% .India is the first in the world in the produc on of milk, pulses, jute and jute-like fibers, second in rice, wheat, sugarcane, groundnut, vegetables, fruits and co on produc on, and is a leading producer of spices and planta on crops as well as livestock, fisheries and poultry. 

Interest subven on scheme for short-term crop loans to be con nued, scheme extended for crop loans borrowed from private sector scheduled commercial banks



Fer lizer subsidy to be removed par ally and diverted to promote use of organic fer lizer



Promo ng the Land reforms, land consolida on, coopera ve farming to reduce the “small sized farms”



Inclusion of Quality based differen al pricing for agriculture products to promote healthy nutrient



Se ng up funds to promote KCC loans



Bringing green revolu on 2.0 to improve the crop yields



Star ng a programme of crop diversifica on that would promote technological innova on and encourage farmers to choose crop alterna ves



Credit Guarantee Fund to be created in the Small Farmers Agriculture Business



Widening the MSP to other crops as well on cash crops

Source : www.forbesindia.com



Implemen ng the Family Drip System (FPS) for mainstream farming in India which is being followed in Jharkhand



Con nuing the AIBP scheme to implement the ongoing irriga on projects

Source : Synopsis of Groundwater Resources in

Green Revolu on

InFINee | April 2013

Farmer Producer Organiza ons

General



Matching equity grants to registered Farmer Producer Organiza on (FPO) upto a maximum of 10 lakhs per FPO to enable them to leverage working capital from financial ins tu ons



Expanding defini on of term "infrastructure" to include companies that develop affordable housing



Built to operate warehouses for 10 years to be developed under PPP





Shi ing current APMC model to profit sharing basis under minimum MSP, so that farmers get a share of revenue

Exemp ng SEZ and Infrastructure companies from payment of Minimum Alternate Tax (MAT) as suggested by CII (Confedera on of Indian Industry) and according infrastructure status to integrated township development



Hence infrastructure debt funds be encouraged. Increase in limit infra tax-free bonds to Rs 50000 cr and IIFCL to provide a credit enhancement to boost investment (35% contribu on is likely to come through debt contribu on)



A centralized clearance and administra ve system be made efficient—Na onal Investment Board (NIB) to fast-track the execu on of mega-projects ( above 1000cr). This step will further reduce the gesta on period in infrastructure projects



Permi ng insurance companies, pension and provident funds to trade directly in infra and energy sector debt funds, to meet these companies extensive capital requirements

Sugar Subsidy 

Sugar subsidy to be removed completely



Free to trade with any mill, jute packaging discon nued, no minimum distance clause removed



Monthly quota export mechanism to be followed.



Promo ng the use of side products like molasses

INFRASTRUCTURE

T

“ These funds have less than 1% of exposure to infrastructure”

he Twel h Five Year Plan (2012-2017) lays special emphasis on de velopment of the Infrastructure sector including energy which are the primary sources of growth drivers of an economy. The total investment in the infrastructure sector during the Twel h Five Year Plan, es mated at 56.3 lakh crore , will be nearly double that made during the Eleventh  Five Year Plan. S ll, more than half of the resources required for infrastructure would need to come from the public sector (~50%), from the government, and the parastatals. Hence, scaling up private-sector par cipa on on a sustainable basis will require redefining PPP boundaries for the development of infrastructure sector in a transparent and objec ve  manner with a comprehensive regulatory mechanism in place. Delays in land acquisi on, municipal permission, supply of materials, alloca on of work, opera onal issues, etc. con nued to drag down implementa on of these projects.

Long term base rate to be introduced for infrastructure projects which should be delinked from bank base rates in order to provide stable interest charges for projects Rural areas be given prime importance with increase in corpus to RIDF (proposed Rs 20000cr) and tax sops being given to private players for rural investment to boost infrastructure development in remote areas Rs 5,000cr proposed to NABARD to finance construc on for warehousing. Window to Panchayats to finance construc on of godowns

Roads

Source : Economic Survey Report (2012-13) | Twel h Five Year Plan (2012-17)



As of now about 24 per cent of the total length of Na onal Highways (NHs) is single lane/intermediate lane, about 51 per cent is two-lane standard, and the balance 25 per cent

InFINee | April 2013 is four-lane standard or more 

A regulatory authority for road sector is proposed to address the problems in the sector like delay in preconstruc on ac vi es and law and order problems



Partly mee ng funding requirements of NHDP via loans from World Bank, Asian Development Bank etc which are passed onto NHAI in form of grants and loans



In addi on to 3000 kms of road projects in Gujarat, MP, Maharashtra, Rajasthan and UP to be awarded in the first six months of 2013-14, emphasis must be given for development of roads in North-Eastern and Maoist affected areas

ENERGY & POWER

A

total domes c energy produc on of 669.6 million tons of oil equivalent (MTOE) in 2016-17 and 844 MTOE in 2021-2 has been projected by the Twel h Five Year Plan This will meet around 71% and 69% of expected energy consump on. The balance would met from imports, projected to be about 267.8 MTOE in 2016-17 and 375.6 MTOE in 2021-2. Import dependence in case of crude oil and coal is projected to be about 78% and 22.4% respec vely by 2016-17.

Energy explora on and exploita on, capacity addi ons, clean energy alterna ves, conserva on, and energy sector reforms will, therefore, be cri cal for energy security.

Ports 

Major emphasis be given to increase the capacity of nonmajor ports , as this would help in reducing the container traffic at major ports



Development of two major ports, one each at east and west coast as suggested by Ministry of Shipping, in the Mari me Agenda 2010-20 to handle heavy cargo traffic



Development of exis ng ports by raising money via taxfree bonds (as currently done by JNPT)

Airports

The Twel h Five Year Plan es mates 2012-17 at Indian airport Target Investment 65000 cr (Rs) : Private contribu on 50,000 cr (Rs) Source : Planning Commission Document (2012-17)



Gran ng infrastructure status to avia on sector and addi onal benefits under sec on 80IA, and se ng up of a separate SPV for handling aviaon finance at lower interest and longer maturi es and also airport operators be allowed to raise funds through tax-free infrastructure



Encouraging PPP in Airport Infrastructure projects, and fast tracking the clearance procedures

Source : Economy Survey Report 2012-13

General 

The capacity addi on target for the year 2012-13 was set at 17,956 MW. As against it, capacity of only 9,854 MW has been added ll 31 December 2012



Elimina on of the 1% import duty on thermal coal, which will help reduce the cost of genera on for the power plants based on imported coal, and se ng up PPP framework with CIL as partner to reduce dependence on imported coal in medium-to-long term



Extension of 80-IA benefit. Under this sec on, a 10-year tax holiday is given to the power plants if they start power genera on by March 31, 2017Crea on of Na onal Power Grid by Jan, 2014 opera ng in synchronous mode as a

InFINee | April 2013

Sector

Growth in 2011-12(%)

Growth in 2012-13(Dec’12 (%)

Electricity

8.2

5

Source : Economic Survey Report (2012-13) | Twel h Five Year Plan

energy projects by crea ng a low-cost fund and providing interest subsidy through Na onal Clean Energy Fund (NCEF) as suggested by FICCI

single system by connec ng the only unconnected South Grid to the system 

Relaxa on of the lending limits to the power sector which will help fund new projects.



Relaxa on of dividend distribu on tax if the same is invested in the new capaci es







Restructuring the debt of State Distribu on Companies DISCOM’s with support through a Transi onal Financial Mechanism by the Central Government Extension of service tax exemp on to all power projects, including power genera on, transmission and distribu on projects, in line with other infrastructure projects as suggested by IEEMA Implemen ng Perform, Achieve and Trade (PAT) mechanism (a market-based mechanism) to incen vize improvements in energy efficiency in 8 energy-intensive industries (including TPS) by se ng up standards and cer fica on of energy saving achieved which can be traded

Renewable Energy 

Fast-tracking the project via single window clearance and increase emphasis on hydroelectric sector (Installed capacity— 25 MW vs Available capacity of 1,45,320 MW)



Reduc on of high interest rates for financing renewable



Crea on of hedging mechanism for ECB’s and crea ng a separate lending category for renewable energy projects to avoid these being crowded put by conven onal power projects



Reintroduc on of genera on-based incen ve schemes for wind and solar sectors with alloca on of about Rs 1500 cr for this purpose

Oil & Gas 

A policy to encourage explora on and produc on of shale gas to be announced soon



Provisioning the petroleum subsidy of Rs 65,000 cr for 2013-14,with the fuel price reforms being con nued



Removal of subsidy on diesel on monthly basis, LPG & Kerosene now stands deregulated.



Subsidy of 9 cylinder per year for BPL sector through direct cash transfer scheme and subsidy of 6 cylinder per year for people under 2 lakh income tax bracket through income tax refund

InFINee | April 2013

Manufacturing and Associated Industries (Mining & Construc on)

T

he industrial sector comprising of manufacturing, mining, electricity and construc on sectors has slowed down substanally to record subdued performance of 3.5% in 2011-12 and 3.1% in 2012-13 from the high-growth of around 9% recorded in 2009-10 and 2010-11. The modera on in industrial growth, par cularly in the manufacturing sector, is largely a ributed to sluggish growth of investment, squeezed margins of the corporate sector, decelera on in the rate of growth of credit flows and the fragile global economic recovery.

Source : Economic Survey Report(2012-13)

dustry 

Sector

Growth in 2011-12(%)

Growth in 2012-13 ( ll Dec’12) (%)

Manufacturing

2.7

1.9

Mining

-0.63

0.4

Export incen ves like duty drawback, focus product and focus marke ng rates to be increased to boost exports for tex le industry

Mining 

Reduc on of export Duty on Iron Ore from the current 30% to 15-20% to make products more compe ve and elimina on in import duty on iron ore to overcome the shortage of iron ore supply



Removal of steel products from the ambit of Free Trade Agreement (FTA)



Increase in Import duty on manganese ore from the current 2% to 5% and sponge iron (to 5-10%) , and increase in customs duty on copper and aluminum products (Coal covered under Power Sector above)

Source : Economic Survey Report(2012-13)

Manufacturing 

Manufacturing Sector to be turned into a priority sector as a whole



Gran ng industry status to Retail and consumer goods companies and an independent ministry set up for retail



Clustering and aggrega on of Na onal Investment and Manufacturing Zones (NIMZ), and introduc on of tax incen ves that support revival of the manufacturing and capital goods sectors as per the Dra Manufacturing policy tabled last year



Allowance of FDI in engineering and hi-tech goods manufacturing as dependence on high-tech goods import is much more as suggested by EXIM Bank

Fast-tracking the clearance procedures by forming a centralized commi ee to minimize the con nued delays in project approvals



Import duty hike of 5-10% on power equipment and removal of customs duty exemp ons on imported capital goods required for certain industries will help protect the domes c equipment manufacturers against cheap imports

Providing Real Estate with industry (infrastructure) status to overcome lack of regula ons and effec ve policies, as the sector is experiencing many challenges on its growth path



Enac ng provisions for Special Residen al Zones (SRZs) to incen vize the growth of housing stock at targeted loca ons



Enac ng the Real Estate Regulatory Bill and crea ng a regulatory authority for the realty sector and ensuring sale of immovable proper es in an efficient and transpar-







Reduc on in VAT on energy efficient products to make them cheaper and encourage the manufacturers



Alloca ng adequate funds for the Technology Up gradaon Fund Scheme (TUFS) and lowering of customs and excise du es on all machinery for tex le and clothing in-

Affordable Housing and Urban Development

InFINee | April 2013 ent manner 

Provisions for subsidized construc on materials for low-to -mid-income housing, and ra onalized license fees and other government levies



First- me home loan takers to be given an addi onal deduc on of interest to the tune of Rs 1 lakh for loan for amounts not exceeding Rs 25 lakh, with spill over allowed



Fast-tracking the process of finalizing “The Right to Fair Compensa on, Rese lement, Rehabilita on and Transparency in Land Acquisi on Bill” to remove the hurdles while acquiring of land

Automobiles 

Subsuming Road Tax, R&D Cess & Octroi in the proposed GST and construc ng framework on applicability of GST on used-vehicles market



Reduc on in Excise Duty rate on chassis from 14% to 10% and allowable Increase in deprecia on rate to 60% from 40%



Purchase of Ambulances through Na onal Rural Health Mission and extending the credit scheme to larger NBFCs/ Co-Op Banks



Suppor ng the Na onal Electric Mobility Mission Plan (NEMMP) to promote the range of Electric Vehicles which will result in the savings of 2.2 – 2.5 million tones (es mated) of liquefied fuel by 2020 and concessions to be provided & extended to at least 5 yrs



Increase in Custom Duty on passenger cars/MUVs to 100% and on CV to 40%(from 10%) to benefit domes c manufacturers

SERVICES SECTOR The growth story of services of world and India in the 2000s began from almost the same level of around 4-5 per cent in 2000. But over the years, India’s overall and services growth rates have outpaced those of the world. Thus, for more than a decade, this sector has been pulling up the growth of the Indian economy with a great amount of stability .With an 18.0 per cent share, trade, hotels, and restaurants as a group is the largest contributor to GDP among the various services sub-sectors, followed by financing, insurance, real estate, and business services with a 16.6 per cent share. India’s services sector has emerged as a prominent sector in terms of its contribu on to na onal and states incomes, trade flows, FDI inflows, and employment.



India’s share of services exports in the world exports of services, which increased from 0.6 per cent in 1990 to 1.0 in 2000 and further to 3.3 per cent in 2011.



The share of services in India’s GDP at factor cost (at current prices) increased from 33.3 per cent in 1950-1 to 56.5 per cent in 2012-13 as per Advance Es mates (AE).

IT and ITeS India’s IT and ITeS services with exponen al growth are a unique export-led success story which has put India on the global map



TDS for technical services provided in domes c market reduced from 10% to 2%



So ware would now be treated as service (and not goods), to avoid double taxa on



Se ng up a commi ee to clear backlog and provide certainty for future 'Transfer pricing' issues

InFINee | April 2013

Telecom 







Se ng up a commi ee for implementa on of pooled spectrum and tax breaks for 10 years towards 3G and 4G services for long-term viability Focusing on Na onal Telecom Policy (NTP) 2012 ,aimed at maximizing public good by making affordable, reliable, and secure telecommunica on and broadband services available across the country Providing affordable and reliable broadband-on-demand and to achieve 175 million broadband connec ons by the year 2017 and 600 million by the year 2020 at minimum 2 Mbps download speed Approved a project at a cost of 20,000 crore for crea ng a Na onal Op cal Fiber Network (NOFN) which will provide broadband connec vity to 2.5 lakh gram panchayats for various applica ons

FINANCIAL SECTOR

Banking 

Compliance of public sector banks with Basel III regulaons to be ensured, 18,000 crore provided in BE 2013-14 for infusing capital.



Agricultural loan of Rs 5.75 lakh crore to be unchanged as in previous budget



Private banks will now be able to meet their lending target to the priority sector, by offering the concessional rates of interest to agriculture as well

Insurance 

Se ng up a commi ee to increase the penetra on of insurance, both life and general, in the country

Capital Market Avia on 









Development of 35 selected non-metro airports has been undertaken by the AAI which have been iden fied based on regional connec vity.

Proposal to amend the current SEBI Act, to strengthen the regulator.



Reducing duty on import of spares & test equipment for MRO (Maintenance, Repair and Overhaul) to zero ( duty free )

FIIs to be permi ed to par cipate in the exchange traded currency deriva ve segment, by the extent of their Indian rupee exposure in India



Avia on Turbine Fuel (ATF) a racts sales tax across different states raging from 4-25% . Including the ATF under the declared category of goods under Central Sales Tax Act to achieve uniform levy of 5 per cent.

Small and medium enterprises (SME’s) are to be permi ed to list on the SME exchange without filing for an ini al public offer (IPO)



Removal of STT completely and inclusion of CTT to 0.01 % on metal commodi es is beneficial against specula ng gold prices

Dilu on of stake in Air India in this fiscal year, for healthy compe on in the sector



Rajiv Gandhi Equity Savings Scheme (RGESS), exclusively for first- me retail investors in the securi es market. This scheme provides 50 per cent deduc on of the amount invested from taxable income for that year to new investors who invest up to 100,000 and whose annual income is below 15 lakh with a lock in period of 1 year

Tourism ( 6.8 % of GDP ) 

Foreign tourist arrivals in India grew by 9.2% in 2011



Removal of levying service tax on air condi oned restaurants



Se ng up of investment funds in tourism infrastructure through PPP mode, to change image of Indian tourism



Investment-linked deduc on under Sec on 35 AD of the Income Tax Act extended to new hotels of 2 star category and above anywhere in India



Inclusion of 3star or higher category classified hotels located outside ci es with popula on of more than 10 lakh

InFINee | April 2013

EDUCATION

T

he 12th Five-Year Plan states that Educa on is the most important lever for social, economic and poli cal transforma on. A well-educated popula on, equipped with relevant knowledge, a tudes and skills, is essen al for economic and social development in the 21st century. According to the survey conducted by ‘One Globe 2013’ report, by 2020, 220 million will finish school and around 150 million people will opt for a profession and not higher educa on.

There are 135 million students in primary schools, which makes India the largest primary school educa on system in the world. Despite the significant progress in the enrollment of students in the last decade, India’s educa on sector s ll faces a lot of challenges that are low Gross Enrollment Ra o (GER), gender disparity and lack of quality educa onal ins tu ons. 

Encouraging alloca on for PPP model

Providing land at concessional rate to the schools, and giving an accelerated tax break of 150% of their investment in educa on infrastructure leading to capacity crea on for educa on. In return, some percent of the seats would be filled by the government 

Se ng up a regulatory body for conformance to quality and compliance

Literacy Rate

74%

Male Literacy Rate

82.14%

Female Literacy Rate

65.46%

Source: Census 2011

Gross Budgetary support for the Twel h Plan (In Rs crores) Department of School and Secondary Educa on Sarva Shiksha Abhiyan

Total = 343028 192726



Fund Sharing pa ern of Sarva Shiksha Abhiyan (SSA) to be revised to 50:50 (Centre:State Govts), which is now fixed at 65:35 for efficient funding

Rashtriya Madhyamik Shiksha Abhiyan

27466

MDMS (Mid-day meal scheme)

90155



Partnering with (Encouraging) IT companies to develop IT infrastructure at government schools as a part of key CSR ac vity to these companies

Others

32681



Effec ve implementa on of Mid-day Meal Schemes by encouraging par cipa on from private players (floa ng tenders) and NGO’s, and repeatedly performing qualita ve checks



Crea on of Finance Development Bank for the purpose where loans given to the students will be backed by the government and repayable by the students when they get a job



Relaxa on of provisions in Foreign Contribu on and Regula on Act to allow NRIs to invest in notfor-profit educa on



Allowing Foreign universi es to start their fullme program by reviewing Foreign Educa onal Ins tu ons Bill, 2010

Department of Higher Educa on

Total =110700 Grand Total = 453728

Source : Planning Commission

InFINee | April 2013

SOCIAL PROGRAMMES AND INITIATIVES

E

conomic growth though important cannot be an end in itself. Higher standards of living as well as of development opportuni es for all, stemming from the greater resources generated by economic growth, are the ul mate aim of development policy. This implies the need to bridge regional, social and economic dispari es, as well as the empowerment of the poor and marginalized, to make the en re development process more inclusive. The dra Twel h Five Year Plan's sub tle 'Faster, More Inclusive and Sustainable Growth', puts the growth debate in the right perspec ve.

Health and Educa on 

Health for all and educa on to all remains priority



Alloca ng funds for medical educa on, training and research





Exemp on from excise/custom du es on life saving medicines as well as on their raw materials and exemp on on capital goods and consumables, CRO's, diagnos c kits Review of providing tax holidays and so loans for health care industry sector

ICDS 

17,700 cr allocated for ICDS in 2013-14 represen ng an increase of 11.7 per cent over 2012-13



Alloca on of 300 cr in 2013-14 for a mul -sectoral programme aimed at overcoming maternal and child malnutri on. Programme to be implemented in 100 districts during 2013-14 to be scaled to cover 200 districts the year a er

Drinking Water 

15,260 crore allocated to Ministry of Drinking Water and Sanita on



Se ng-up of water purifica on plants in 2000 arsenic and 12000 fluoride-affected rural habita ons

Rural Development 

Alloca on of more funds in 2013-14 for Ministry of Rural Development



Proposal to carve out PMGSY-II and allocate a por on of the funds to the new programme that will benefit States such as Andhra Pradesh, Haryana, Karnataka, Maharashtra, Punjab and Rajasthan

JNNURM 

Star ng fresh round of JNNURM scheme for buses & extending the same for Inter City Buses also and bringing scheme for fleet moderniza on

Implementa on of skill up grada on in Na onal Rural Livelihoods Mission (NRLM)

MGNREGA 

Budgetary alloca on of Rs. 33,000 crore made in 2013-14 for the rural job scheme



Electronic fund management system (eFMS) in all states has been ini ated in a phased manner to reduce delay in payment of wages



Provision has been made for seeding in Aadhaar into the MGNREGA Workers records to prevent leakage

Alloca ng funds to six AIIMS and department of Ayush

Health Industry 



RSBY 

The Rashtriya Swasthiya Bima Yojana covers 34 million families below the poverty line



Extension of RSBY to other categories as rickshaw, autorickshaw and taxi drivers, sanita on workers, rag pickers and mine workers

NSDC 

Inclusion of SGSY and SJSRY with NSDC for implemen ng skill development

Food Security Bill The Food Security Bill, envisages the distribu on of wheat, rice and coarse grains at just Rs 2, Rs 3 and Re1 a kilo each to about 65 per cent of the popula on — 75 per cent of them in rural areas and the rest in ci es and towns 

Implemen ng pilot project for cash coupons under Food security bill to contain undue usage of cash and prevent leakages



Implemen ng direct cash transfer for ci es and towns, without burdening the current FCI model



Linking of cash coupons with Aadhar cards under UIDAI scheme

InFINee | April 2013

GOVERNANCE

G

overnance in terms of both Private and Public plays an important role in defining the policy framework of an economy. Our country has been marred by the series of scandals and acts of corrup on by people in private and public service alike. Being a responsible government, we would not pardon such acts commi ed against the very principles of our own ethics and democracy. No one individual is above the democracy of this country, and the laws of the land are same for everyone. We as a government, as a na on are commi ed to take every step to discourage such kind of ac vi es, and for that con nuous improvement in our governance and compliance procedures are must.

Black Money 

Fastening the process of Se ng up all-India judicial service and a Na onal Tax Tribunal , as taxa on is a highly specialized subject



Repor ng of transac ons above a threshold limit to the law enforcement agencies, and insis ng en es opera ng in India to report all global financial transac ons above a threshold limit



Crea ng effec ve credible deterrence by informa on technology (integra on of databases), integra on of systems and compliance departments of the Indian government, direct tax administra on, and adding data mining capabili es



Reducing disincen ves against the voluntary compliance and introducing amnesty schemes, simpler compliance processes



Expanding the DTAA with other countries, and also helping other countries via enforcement

Corrup on 

Use of Public money must be disclosed. Any leader or government official who uses any public money must publish its full details on their official website



In addi on to classifica on by scheme type, func on (economic services or social services), and economic segment (capital vs revenue), all budgeted items will also be slo ed under ‘Leakages’ and ‘Non-leakages’



Performing more frequent assessment of Public Distribuon System (PDS) to improve the delivery system

Withdrawing Retrospec ve Amendments 

Withdrawing of retrospec ve tax amendments, boos ng

the government- corporate rela onship, and provisioning of clear frameworks to make India more investor friendly

Sustainable & Inclusive Growth 

Encouraging science throughout society, not just in departments of science by incen vizing Private Sector Research, Research in Universi es and Academic Ins tu ons



Need of an ‘Intelligent Industrial Policy’ - like developing integrated industrial areas (IIA) to ensure all-round industrial development



Focusing on Urbaniza on in small towns and in-situ urbaniza on and urban planning to focus on the needs of the poor



Extending the reach of Na onal Skill Development Corpora on (NSDC) to all states in the country, and encouraging more PPP in this area

InFINee | April 2013

TAX PROPOSALS Tax Sta s cs (FY11-12) Income Slab 0 – 5 lakhs 5 -10 lakhs 10 -20 lakhs >20 lakhs Total

% of taxpayers 89% 5.5% 4.3% 1.3% 100%

Tax Money Collected 10.1% 14.8% 12.1% 63% 100%

Direct Taxes 

Imposing progressive surcharge from Rs 10 lakh onwards to the tune of increase in 0.11% per lakh ll Rs 1 crore (Cap Limit—Surcharge = 10%), and imposing surcharge of 10% on the super-rich with annual incomes of Rs 1 crore or more per annum



Lock-in period for tax saving fixed deposits to be reduced from the current 5 years to 3 years



Reintroduc on of Tax Saving Infrastructure Bonds U/S 80CCF, which would be beneficial for infrastructure



Making the filing of tax returns mandatory for all (even in case of exemp ons) if income is above 2.2 lakhs. The government will refund the amount a er the IT return is filed



Keeping the Corporate tax at 30%, and surcharges similar to the previous year (Domes c –5%, Foreign –2%)

Indirect Taxes 

No Increase in Service Tax rate from 12.36% as any increase may fuel infla on further



Reverse Chain Mechanism—Giving op on of nonpayment of Service Tax to recipient if en re Service Tax is deposited by service provider



Increase in Excise Duty by 1% to 13%, on goods manufactured within the country

Goods and Services Tax 

Fast-tracking the process to implement the GST by passing the Cons tu onal Amendment rela ng to introduc on of GST



Proposed date of introduc on and roadmap for introduc on of GST to be put in public domain soon, a er sor ng out differences with the state government

Proposed DTC Slabs Income Slab

Tax Rate

0 – 2.2 lakhs

NIL

Above 2.2 lakhs – 5 lakhs

10% of amount above Rs 2.2 lakhs

Above 5 lakhs – 10 lakhs

Rs 30000 + 20% above Rs 5 lakhs

Above Rs 10 lakhs

Rs 1,30,000 + 30% above Rs 10 lakhs

Composi on of Total Receipts (Es mated for 2013-14) by the Government

Source : www.incometaxindia.gov.in |

GAAR | DTAA 

Induc on of an independent member in GAAR approval panel to ensure objec vity & transparency in the process



Deferring the GAAR date to April 2016, and providing clear framework concerning its implementa on



No change in tax policy for P-Notes ll the implementa on date of GAAR i.e ll 1 April,2016



Assessing of the impact on DTAA a er the implementa on of GAAR and

InFINee | April 2013 34

INDIAN ECONOMY

WAR IN THE SKIES What lies in future of Indian Airline industry?

Ankit Yaduvanshi & Swa Pathak School of Interna onal Business, IIFT Kolkata

L

Timeline of Events Nov 18, 2012: Air India announces short

me promo onal scheme

et us take you back 20 years from today when flying was a slashing for travel on specified domes c sectors, between January 16 luxury, merely for the upper middle & rich class. How things and March 31st 2013. The fares, inclusive of all taxes, under this scheme have changed!

were kept very low ranging from Rs 1799 to the highest being Rs 4199.

When Captain Gopinath openly claimed to have broken down Ryan Air’s January12, 2013: Kalanidhi Maran led Spice Jet slashes fares for onemodel & showed his willingness to implement this model in India, li le way travel across the country to a consolidated Rs 2,013 ( up to 750 Km) did he know that he would alter the direc on of the Indian avia on including all taxes. 1 million seats were put on offer for travel from Feb industry. For those who remember the morning papers of 23rd April 1 ll 30th April 2013.

2003, Times of India said, “Delhi-Mumbai air travel to cost as low as Rs.

Indigo reacted by reducing its fares,

500 only!” Of course there was a mar-

quietly, for select des na ons. On

ket, it was the common man’s dream

those routes, which included key ones

to fly. Surely, people benefi ed for a

like

while but the repercussions were dras-

for February 2013.

As this industry flourished, aviators

Feb 20, 2013: Jet Airways slashed

joined in the race to serve the bo om-

shu ng down of ModiLu in 1996), in 2008, the market boasted of 8 strong players. But in the consequent three years, profit margins shrunk & the industry reached a sort of a consolida on phase. Sahara was sold to Jet & became Jet Lite, Kingfisher bought out Deccan & it became Kingfisher Red (eventually). Kingfisher subsequently incurred huge loss-

Mumbai-

Bangalore, it offered fares at Rs 2,000

c!

feeders of the air enthusiasts. From a dis nct duopoly (a er the

Mumbai-Delhi,

fares across domes c routes pu ng 2 million seats on sale. One dis nc ve feature was that the booking was allowed only ll 24th Feb 2013 for travel ll 31st Dec 2013. Under the offer, the fare up to 750 km was priced at Rs.2250 while for 750-1,000 km it is Rs.2850. Similarly, fare for des na ons between 1,000 and 1,400 km was pegged at Rs.3300. Tickets for des na ons beyond 1,400 km were priced at Rs.3800.

es to keep its market share up & eventually was grounded by the DGCA in November 2012.

Feb 21, 2013: Air India that recently increased its domes c market share from 14% to 21% could not let it go. It also joined the race by

From double digit growth in past to disappoin ng 5-5.5% forecast, fi-

slashing fares across its 6 major routes by nearly 40%

nancial year 2012-13 failed to bring much hopes & smiles to Indian consumers. With infla on making a dig at their pockets accompanied by weak economic growth, the purchasing power of average consumer

Mar 14, 2013: Air India offered reduced fares for 60 day advance bookings.

went down. The items that are first wri en off the list are luxury ones And the war is on, more to expect up in the sky. and by defini on of Indian household consump on, air travel does fall Price war: A well thought strategy or a con ngent approach in luxury category. The avia on sector witnessed 3% decrease in air Opening up the skies for private players made the consumers spoilt for traffic from Jan-Dec2012 as compared to 2011, from 606 million passen- choice. The India shining phase of 9-10% average GDP growth allowed gers to 588 million passengers. To secure the wallet share of the con- the disposable income at hand to swell. But the growth this sector was sumer, airlines began the offensive of price wars, slashing 30-50% fares witnessing could not be sustained. The avia on fuel cost makes up along various routes.

InFINee | April 2013

INDIAN ECONOMY

35

nearly 40% of opera ng cost of any airline. In India, the fuel costs The Future of Indian Aerospace nearly 1.5 mes the global average cost of ATF. To add to it, the sales We believe that in case the Indian aerospace industry has to survive, tax on fuel is state governed and ranges from 4-30%. Delhi itself has they need to go back to the basics, literally! We need to look at why 20% sales tax on avia on fuel. To coincide with that many airports and how people want to fly in the first place. It is a fast & reliable way including Delhi, Kolkata & Chennai had pending increment in airport to get from Place A to B! fee. In May 2012, as compared to year 2011-12, Delhi airport increased the fee by 346%, Kolkata had effec ve increase of 385% in two phases during the year, Mumbai by 164% and Chennai by 269%.

These factors led to increase in the cost of air travel. The Indian consumer is very price sensi ve and it immediately reacted, which could be seen as the reason for the falling passengers

So, you need to keep that in mind, speed & reliability are the two major reasons why most people prefer airlines over trains or buses.

The airlines’ opera ons will become cheaper too as the airport fees that has to be paid will also reduce as turnaround mes fall & the cost of handling & pu ng up passengers at expensive hotels will also see a dras c drop.

count as compared to previous year.

Let us now come to the main issue: airfares. Do The airlines in India have an average passenger load factor of around 70%

airlines increase them? Do they decrease them?

Here is what we suggest:

with LCC (low cost carrier) Indigo having best of 80.7%. With lesser number of passengers they cannot even recover their opera ng cost. Also, it should be kept in mind even glob- Firstly: An airline must clearly define (internally, if not publicly) whether they are a low cost carrier or a luxury carrier. Kingfisher was a low ally airlines run on opera ng margins as thin as 1-1.6%.Hence, it can cost carrier that offered meals, wine & a selec on of in-flight enterbe a well-manoeuvred strategic decision on the part of airlines to avoid losses if they can’t make profits. The expected gains to Jet Air- tainment on board. This model is not sustainable. We are not sugways were of order of Rs.600 Crores and to Air India of Rs.300 Crores.

This price slashing also earned the airlines cash in advance for flights

ges ng that there should be no such airlines. But, then again, this business model is not sustainable because even though a market ex-

that go as late as 31st Dec 2013. This cash may be u lised for working ists for every product at every price, it is our job to develop a product that aims to sa sfy the needs of that segment. There is a bo le of capital, pending payments or investments. water cos ng a whopping $900,000, made of solid Gold. If you are a The other school of thought may write off all of above explana ons luxury carrier, then so be it! Cater to the high-fliers but don’t sell your calling it mere reac on to turbulence in the skies. Talks were going ckets at Rs 4,000. Price accordingly. around that Singapore based LCC ‘Air Asia’ is making its way to the Indian market. The airline is infamous for its predatory pricing and it was expected to clinch a sizeable market share. The already ailing Secondly: Every airline has to come up with either one of the two: airlines which just managed a posi ve balance on P&L account in third services that delight the customers (luxury carriers) or prices that quarter ending Dec-12 (SpiceJet & Jet Airways) could not just let go of leave them open-mouthed (low cost carriers). their share. So was the case with na onal carrier Air India, the hard earned 21% market share in domes c space. They individually wanted their shares maintained, at least, if not increased. As per past data, For luxury carriers, we would suggest a new class (on the lines of Feb-April remains a lean season and Air India triggered a war that Anubhu class in Railways) where (like Singapore Airlines or Qantas) others just followed.

you offer services like Sauna and Masseurs (on prior booking). For low cost carriers, they could go for alternate revenue sources like baggage

So, in our humble opinion, Air Asia will fail, miserably, in crea ng a sizeable dent in the Indian airline market as the strategy that they have used in countries like Indonesia & Malaysia, has already been

or adventure sports. Alterna vely, they can reduce costs by impor ng ATF from Arab countries. Opera onal losses are not an op on! Operaonal cash flows must always be posi ve.

implemented by India’s biggest players. So, what is the way ahead, is the future of Indian aerospace in jeopardy? NOT NECESSARILY, we say IF THEY DO THIS, THEY CAN SURVIVE BUT THE NEXT FEW STEPS ARE & here’s how…

IMMENSELY CRUCIAL..!!

InFINee | April 2013 36

INDIAN ECONOMY

INFRASTRUCTURE SECTOR Will budget 2013 be able to revive the ailing sector?

Rahul Jain School of Interna onal Business, IIFT Kolkata

I

bond markets to fund the massive infrastructural investments that India urgently needs.

NFRASTRUCTURE

Some of the key policies proposed were: i.

The road sector which under achieved with a project award of just 879 km compared to a budget target of 8,800 km for 201213 got a regulator to address contract management issues. It will provide some relief related to different project clearances, contractual obliga on etc

ii.

Over 3000 km road projects across Maharashtra, Gujarat, MP to be awarded in 6 months me in 2013-2014. It will be a major boost to road sector development and government ini a ves

Having recognized the role that the infrastructure sector plays in terms of overall growth, key changes have been introduced in respect of some of the policy related issues. Effec ve implementa on of the policy measures holds the key for revival of this industry.

P

OWER

We will list down some of the important policies which have been proposed in the recent budget:

will bring back the private sector iii.

Announcement of 2 new major ports in AP and WB gives fillip to I. Dredging work in ports. It is posi ve for ports sector from investment perspec ve

iv.

Deduc on under Sec on 80 –IA extended ll 31st March 2015

As per Sec on 80 –IA, power genera on companies are eligible for 100% deduc on of the profits for 10 consecu ve years during the first

More ins tu ons, strictly based on need and capacity to raise 15 years of opera ons. The benefit under this sec on was earlier availamoney in the market, will be allowed to issue tax-free bonds in ble only un l FY2013 which is extended ll FY2015. This will be a major 2013-14 up to a total sum of Rs 50,000 crore

v.

Infrastructure Debt Funds (IDF) will be encouraged. These funds

advantage to project developers, as it will substan ally reduce their tax burden. However, the industry was expec ng the extension ll 2017

will raise resources and, through take-out finance, credit enhance- II. ment and other innova ve means, provide long-term low-cost debt for infrastructure projects. Both IDFs and Infra bonds though have the poten al to meet the huge long-term fund to the tune of $ 1 trillion required by infrastructure sector in 12th plan period, required by the sector, the flow of funds largely depends on confi-

CCI (Cabinet Commi ee on Investment)

The CCI has been set up for revival of investment especially in the power, oil & gas and coal projects. This aims to remove the clearance bo lenecks and will speed up the project commissioning. This is just an announcement and we don’t see a major impact on the sector un l it being implemented effec vely

dence of the investor on the sector III.

Investment allowance of 15% for investment in plant &

machinery Infrastructure, being a sector facing huge financial crunch, the FM reiterated the government’s commitment to press ahead with previously announced measures such as credit enhancement from India Infrastructure Finance Company Limited and encouragement for se ng up infrastructure debt funds. Both of these had the poten al to galvanise the

A company inves ng Rs. 100 crores or more in plant and machinery between April 1, 2013 and March 31, 2015 will be en tled to deduct an investment allowance of 15 per cent of the investment in addi on to the current rates of deprecia on. It will have spillover benefits to small and medium enterprises. It may also give an impetus to have more in-

InFINee | April 2013

INDIAN ECONOMY

37

vestments in power equipment manufacturing market and OEM’s

iii.

might increase the tune of investments

coal in short to medium term

IV. Financial Restructuring Plan (FRP) for state distribu on compa-

This clearly implies that Government is in favour of coal import

nies

through price pooling. It has also indicated that it needs to devise a

The government has asked the Discoms to sign a Memorandum of

Focus on coal import, coal blending and price pooling of

policy for price pooling and blending

Understanding (MoU) and avail the benefits of the financial restructuring plan which was earlier approved by Cabinet Commi ee on Economic Affairs. The Scheme contains various measures which needs to be taken by State DISCOMs and State Govt for achieving the financial turnaround of the DISCOMs by restructuring their debt with support through a Transi onal Financial Mechanism by the Central

R i.

ENEWABLE ENERGY

Re-introduc on of Genera on-based incen ves (GBI)

Government The Budget proposed a genera on-based incen ves to wind energy V. Leh-Kargil transmission line In order to improve power supply in the Leh-Kargil and Ladakh region, the government has proposed to develop the transmission systems and connect these regions with the Northern Grid. For this project, the government is proposing a budget of Rs. 1,840 Crores out of which Rs 226 Crores would be allocated during FY 2013-14.

projects and provided Rs 800 crore for the said purpose to the New and Renewable Energy Ministry.

The re-introduc on of it is a mely interven on for the wind industry which was suffering for more than a year. GBI will allow the developers to have some addi onal gains. This would rejuvenate the sector with more investments coming in

This will provide access of power to the people in remote areas of the northern part of country and also bring the surplus power from these regions to deficit regions

ii.

Low interest bearing funds from the Na onal Clean Energy

Fund (NCEF) Na onal clean energy fund was introduced by govt. in 2010 by levy-

C i.

ing INR 50/tonne cess on domes c and imported coal. The fund is now es mated to be at INR. 5000 crore. The so

loan @ 5-8%

through IREDA will augur well for the small and medium segment OAL RELATED POLICIES :

investors to develop renewable energy projects. The scheme will have a life span of 5 years.

Removal of differen a on of steam coal and bituminous coal

As both type of coals are used in power plants, they both will a ract 2% custom duty and 2% CVD (Counter veiling duty) on import. Cost of imported thermal coal is expected to rise between Rs 45 per tonne to Rs 75 per tonne at current interna onal prices. The cost of power genera on will increase by 2 to 3 paise per unit. It will adversely impact the price pooling of coal

Overall, Budget brought a mixed bag for the sector. In the long-term, Extension of tax benefits, availability of low cost finance for renewable sector and forma on of JVs with Coal India will certainly have a posi ve impact on the power sector. However, the increase in steam coal prices due to a hike in customs and countervailing duty may have some nega ve impact in short term as it will immediately increase the price of imported coal. Also, laxity on part of the state

ii.

Proposal for Public-private partnership (PPP) policy frame-

work, with CIL as one of the partners

power u li es (SPUs) and state governments in expedi ng the implementa on and taking advantage of the Financial Restructuring Plan

It is done in order to increase the produc on of coal for supply to

can result in con nued stress on financial health of SPUs and impact

power producers and other consumers. PPP mode as proposed

the overall power sector value chain. Thus, outlook on power sector

would see an indirect way to open the coal market. It will see private

con nues to be stable.

players in compe cess

ve bidding and will help ease the clearance pro-

InFINee | April 2013 38

WORLD ECONOMY

A simplified version of reasons that caused one of the biggest financial crisis of the century Mr. Debarshi Das

A

market. On the other hand, huge amount of foreign currencies were ge ng piled in US reserve due to be er credit worthiness of USA as bubble bursts when its size increases beyond its limit. Financial bubbles also follow the same rule.

When a stock price breaks through the roof, it comes down eventually. The same goes with the house prices. House prices, like the stock prices, increases indefinitely following a massive demand for houses and price specula on. But when the price goes beyond a range, it bursts like a bubble. Then the price of the houses get back

a country. Under these circumstances, US reserve bank had to reduce the rate of interest in order to discourage the investment of public money into government securi es. The money had to flow into the system. To create a liquidity boost in the market the housing loan rate was reduced dras cally – almost near 0%. The US banks started giving loans at a very low rate of interest. The demand for houses started rising in USA. Money started flowing in.

to their ini al value. The original price of a house, which was not known to anyone during the financial boom and which is known to almost everyone during the bust, basically does not change over a long period of me.

DEVELOPMENT OF THE FINANCIAL MARKET There are several root causes behind the financial meltdown that

The recent US recession that happened just within seven years of

occurred in USA. The paragraphs given below tries to describe how

dot com crash, happened mainly due to the development of an

the financial market developed before recession in chronological

unregulated financial mortgage market. When the house prices

order:

crashed in the US market, all the deriva ves that mushroomed around the mortgage specula on lost their values. But unlike other recessions in the history of finance, this me it has created a worldwide financial devasta on like never before and its recovery does not seem to happen in the near future.

Banks started giving loans to the prospec ve home buyers at a very low rate of interest. Now, depending on the loan repayment capabili es of borrowers, they can be divided in two categories: prime borrowers - one who could repay the borrowed loan with interest in due me and subprime borrowers - one who fails to repay the borrowed money. To speed up the liquidity flow in market, the banks

THE BEGINNING

prac cally ignored the risk component of loan repayment and targeted these subprime categories as the prospec ve home loan cus-

It is very difficult to say when it started and how it started, but it can

tomers.

be speculated that the whole event started long back in the year 2000. The US economy was severely affected by the Y2K crisis and 9/11 terrorist a ack. There was less than expected liquidity in the

In this process of loan distribu on one situa on arised when the banks needed huge money to give as fresh loans. To bridge the gap

InFINee | April 2013

WORLD ECONOMY

39

between demand and supply of money in the market one group of

approached the insurance companies and paid premium to insure the

financial ins tu ons named as special purpose vehicle (SPV) sprang up.

bonds. The insurance companies agreed to insure the money in case

SPVs were mainly composed of high net worth investors, investment

of default of MBS. In this way the bond holders basically swapped the

banks etc. who were looking for a financial instrument which could

risk of credit ge ng default with buying of insurance. This technique

give them a good return of investment (investment in US T-bills at that

of mi ga ng the risk of credit default is known as Credit Default Swap

me was a poor op on as its rate of interest was almost nil).

The banks had mortgages with them. They bundled the mortgages together and sold them to SPVs to raise money. As house prices were rising in USA, this financial instrument appeared to be very a rac ve to

(CDS). CDS was another type of deriva ve that got developed during this period. This has been the en re cycle of how money started flowing into the system. The figure below describes the development of the financial cycle.

SPVs. They bought mortgages from banks. This process of selling mort-

gages to raise money was called securi sa on. In this way a new kind of a deriva ve was born in the US market.

THE REAL PROBLEM: As the subprime borrowers got huge money in hand, they started

With having high valued mortgages in hand, SPVs started releasing

spending it indiscriminately, as a result of which infla on crept into

securi es (mainly bonds) in market to raise money. The credit ra ng

the system. To control the infla on, Federal Reserve ordered the

agencies rated the bonds as very secure and stable (AAA ra ng) as the

banks to raise the rate of interest of loan. Now if a bank raises the

SPVs were holding high priced mortgages.

rate of interest by x% (x > 0) for its prime borrowers, the rise of the

SPVs started releasing bonds in market, corporate’s being their primary customer. As these bonds were backed by mortgages so this type of security was called Mortgage Backed Security (MBS). In this way a second level of deriva ve got developed.

same rate of interest will be more than x% for its subprime borrowers (due to poor credit worthiness). Due to this increase in interest, the subprime people were unable to repay the loan and started defaul ng. Ini ally this posed no threat to anyone as the banks seized the control of houses mortgaged with them as collateral and sold

Although the mortgage market was very lucra ve in USA and there was very li le chance that MBS will default, s ll the bond holders wanted to insure the money that they paid to buy the bonds. For this reason they

them in the open market. The financial market that developed on mortgages seemed to work properly. But as the number of default

InFINee | April 2013

40

WORLD ECONOMY

started rising, banks got a large number of houses in their custody.

In this way slowly the en re financial system plunged into huge debt

The supply started surpassing the demand. The gap between the

crisis.

number of sellers and number of buyers of houses started widening.

The house prices started falling dras cally. This fall in price led to under performance of all the related deriva ves that were available in

CONCLUSION

the mortgages market. Unfortunately this event started to replicate

This is seen in the history of economics that it is very difficult to pre-

itself thus developing a big hole in the system. I have discussed it be-

dict the nega ve outcome of a financial event in a system un l it real-

low in sequen al manner with the help of a diagram (figure 2):

ly happens. No devia on took place here as well. While discussing this

As mortgage prices fell dras cally, banks started losing their money.

The debt amount was so high that banks started to fail.

en re event, one can easily realise that it was Wall Street which took uncontrolled risk which led to this financial meltdown. The lack of regula on by the Fed Reserve just worsened the situa on. Unregulat-

The fall in house prices affected the en re securi sa on process. As

ed flow of money in the market, providing loans to subprime people

the house prices started falling, SPVs could not sell the mortgages

without doing any risk assessment, improper credit ra ng, develop-

(due to lack of buyer) to get back their invested money. In this way,

ment of mul layered deriva ves – these were few of the basic rea-

SPV, e.g. Lehman Brothers failed.

sons behind this financial catastrophe. Now, as the part of the a ermath ac vity, the US government came up with huge bailout packag-

As the situa ons worsened, the bond (MBS) holders approached SPV to redeem the bonds. But SPV was unable to return the money, thus MBS failed.

es and regula on of the financial system to stop any further damages.

But this me the financial tsunami crossed the US border and affected the en re Europe and a few Asian countries as well. A sooner recov-

As MBS failed, the bondholders approached the insurance agency.

ery seems to be a distant affair. As today we are more global than

Now as the number of claims for credit default rose to such an extent

local, we need to be more careful and more responsible while taking

that the insurance agency was unable to pay the money insured. Thus

any financial risk. Otherwise the term globalisa on will become a

CDS also failed with the fall of insurance agency, e.g. AIG.

misnomer. Then countries will create virtual boundaries to protect themselves from any such financial failure.

InFINee | April 2013

REGULARS

41

T

he Indian markets have oscillated quite a bit during the past few months, with regards to the skep cism surrounding India’s growth story. The vola le FII inflows post Union Budget 2013, high current account deficit at 4.9%, specula on about Indian companies recording weak growth in Q4,2013 and lack of par cipa on from the domesc investors are some of the factors the accounted for the See-saw we witnessed in the Sensex. The 25 basis rate cut in the Repo announced by RBI recently surely did its part to cheer the market ; also most of the companies did their part in boos ng the sen ment by recording good bo om line growth leading to the improvement in their opera ng margins, even though the top line growth was very much subdued . The defensive sectors like pharmaceu cals, healthcare and consumer goods lead the rally along with the telecom and entertainment (media) sectors, while the power, energy, infrastructure and real estate group con nue to face pressure due to their high debt burden though their valua ons are quite cheap at the current level. The NIFTY ended up above 6100 a er 2 years, while the Sensex looks comfortably poised above 20k level (as on 11-May)

Infrastructure As per the latest five year plan, $1 trillion is to be spent on infrastructure in the upcoming five years. This may sound very a rac ve, however ground reality is different. Navi Mumbai Airport, Golden Quadrilateral (linking all four ‘original’ metros by road), Dedicated Freight Corridor between Delhi & Kolkata are only few of the projects that are either scrapped or delayed. Corrup on & red tapism were sufficient enough for the delay, which was compounded by environmental clearance & land acquisi on impediments. These factors made sure that all deadlines & goals are well extended, to site one: Building 20kms road has only remained a far dream while the actual work done was nowhere around it. However in the recent mes few posi ves have been emerged for this sector like Public Private Partnerships or PPP, Japan has also shown interest in various infra projects like Delhi-Mumbai Industrial Corridormega infra-structure project of USD 10 billion covering an overall length of 1483 kms between Delhi & Mumbai, which has already

InFINee | April 2013 42

REGULARS

got confirma on, Mumbai-Bangalore Corridor is also proposed on the similar lines. Land acquisi on bill is also passed that has given much needed ‘certainty’, although it proposes high compensa on. Lately, CCI (Cabinet Commi ee on Investments) has approved infrastructure projects with a combined investment of around Rs 70,000 crore. It has given nod to 25 oil and gas blocks with investment commitments of $ 7 billion (approx. Rs 38,039.89 crore).Out of 25 blocks as many as nine blocks have been fully cleared and 16 blocks have been cleared with specific condi ons. As a part of infrastructure projects clearance, CCI has cleared 13 power projects worth Rs 33,000 crore.

Aviation

FDI up to 49% in avia on, Jet-E had deal, entering of Air Asia in a joint venture with Tata; seems ”good mes” have again come for the sector although “King of Good Times” no more exists in Indian skies. Posi ve results (presumably) are s ll to be seen for Jet-E had deal meanwhile Spice Jet may be the next beneficiary of increasing FDI caps. As per media reports, it is also in talks with airlines of gulf. Payload factor has also been improved for all the airlines that is in the range of 75%-83% for all major airlines that have pan India presence. However, everything is not so hunky-dory for the sector which is s ll mired by high ATF (avia on fuel), which is responsible for 42% of an airline’s cost & high taxa on. “The Ailing Maharaja” is s ll on venlator a er government announced last year to infuse Rs. 300 billion in various phases ll 2020 & importantly this infusion will be on the basis the airline’s performance.

Banking

In last few years, a couple of major changes have taken place when talking about interest paid by banks on savings account.

First change is that deregula on of interest to be paid to depositors on savings account with bank. Another major change is the interest rate calcula on method. Earlier, the interest used to get calculated on the minimum amount in an account between 10th & 30th of the month, however now it’s on daily basis. Banking Amendment Bill that was in lurch since so long, has finally got the approval from Lok Sabha. This may entail greater powers in the hands of the central bank. Now RBI can call for informa on and returns from the associate and group companies of the banking companies and to even inspect them. Earlier it can remove only a director now it can supersede the whole board, the public sector banks can also issue bonus shares, rights issue or preference shares. The private share-

holders of public sector will have 10% vo ng rights while in private sector banks it 26% vo ng rights are proposed. This bill also paved the way for issuing new banking licenses.

Hence, in the following years more players would be in the market leading to high compe ve prac ces to capture more market share & in the whole act consumers would be benefi ed the most.

Telecom

One of the most booming sectors of last decade was bruised in last couple of years thanks to the 2G scam. This was ensued by exit of few foreign players like Sistema & Batelco and Telenor exited from its JV with Unitech. Following the supreme court’s order of auc oning the waves, government that proposed to garner Rs. 40,000 crore in last Finance Budget could manage to just rake in around Rs. 9400 crores.

Airtel- Big Daddy of this sector in its quest of inorganic growth has seen its profit growth shrinking since last 13 quarters. Although, customer base has almost stagnated at a base around 944 million, Idea has started making significant profits & Vodafone has emerged as the second largest player in the market chipping away Airtel’s & RCom’s market shares. BSNL has been progressively heading towards south, as in 2007-08 it made a profit of Rs. 3009 crores while in FY12 it was laden by a loss of Rs 8851 crores. Its employee strength of 1 lakh that is almost equivalent to 50% of its revenues of Rs. 27,933 crores. However, in last few years a er a humble response in 3G connec ons, the sector is poised to see some ac on by the entrance of Reliance Jio Infocomm with deep pockets that acquired a 95% stake in Infotel Broadband Services for Rs 4,800 crore for a pan-India BWA licence. It has also joined hands with Rcomm to share fibreoptic services for Rs. 1200 crores & Bharti Airtel to use its submarine cable network to provide data connectivity across Asia Pacific.

Anuj Narula is a first year student pursuing fullme MBA at NMIMS, Mumbai

InFINee | April 2013 43

REGULARS



With only a 1 in 100 chance of having a

nonfatal injury or illness, the financial sector is the saf-

est job area out there



Where does the term "check" or "cheque" come from? It's derived from the game of chess. Pu ng the king in check means his choices are limited, just like a modern day cheque that limits opportuni es for forgery and altera on



Legendary investor Warren Buffe bought a 40-acre farm at age 14 with $1,200 in savings from delivering newspapers

Where does the $ symbol come from? It's derived from the Spanish dollar sign. In 1782, the US consid-



ered choosing the Spanish peso as the country’s currency. The abbrevia on for the Spanish peso (PS) later transformed into a $



What's with the word "Greenback? The first bills were called “greenbacks” a er the green ink used on the backs of the bills



Three of the world's 50 largest economies don’t have a dedicated exchange-traded fund (ETF)

listed on a U.S. exchange: Iran, Saudi Arabia and Pakistan



More than one million shares changed hands on the NYSE for the first me on December 15, 1886. The NYSE had its first billion share day on October 28, 1997



The largest cash robbery of a bank was the Loomis Fargo bank robbery in 1997. $17.3 million, in cash, was

stolen from a regional office vault in Charlo e, NC. An FBI criminal inves ga on turned up evidence that the heist was an "inside job," and less than six months later, the thieves were caught. In the end, 95% of the cash was recovered



The biggest lo ery jackpot of all me was $390 million in the Mega Millions Lo ery in the US in March, 2007



The oldest component company of the Dow Jones Industrial Average is General Electric, which was added on November 7, 1907

InFINee | April 2013 44

REGULARS

Chit Fund Scam: Government announces mul -agency probe into Ponzi schemes In a mul -agency crackdown against alleged duping of public investors through Ponzi schemes, the government today said the en

es suspected to be engaged in such ac vi es

are being probed by SEBI, RBI and the Corporate Affairs Ministry, among others. Besides, the Income Tax Department has also ini ated an inves ga on of Saradha group and the Enforcement Directorate has also registered a case of suspected money laundering ac vi es against this Kolkata-based group and others including its chief Sudipta Sen, the Finance Ministry said.

Government pitches for ra ng upgrade with S&P India on Thursday exuded confidence that global agencies will upgrade the country's sovereign ra ng in the backdrop of bold and tough decisions taken by government to contain fiscal deficit and promote growth. Talking to reporters a er mee ng a with representa ves of ra ng agency Standard and Poor's,

Economic Affairs Secretary Arvind Mayaram said

there was no case of ra ng downgrading as the government has taken bold and tough decisions, like reducing subsidies on petroleum products.

Forex reserves fall by $485 mn to $294.76 bn The country's foreign exchange reserves were down by $485.9 million to $294.76 billion for the week ending April 19, in the wake of fall in core currency assets, the Reserve Bank said on Friday. The forex reserves had gone up by $1.4 billion to $295.25 billion in the previous repor ng week. Foreign currency assets, a major component of the forex reserves, were down by $489.2 million to $262.41 billion, according to Reserve Bank's weekly sta s cal supplement.

InFINee | April 2013

REGULARS

45 “Fiscal deficit will be below 4.8 pc in FY14” - Chidambaram Finance Minister P Chidambaram on Wednesday assured the investors that he has drawn red lines and the fiscal deficit will be below the 4.8 per cent mark in 2013-14.

"A number of measures have been taken...We are determined to go back to the path of fiscal consolida on...We have laid out a new path and I have said these are red lines. This will be never, never breached," he said while addressing India Summit organised by UK-based magazine The Economist."Going forward in 2013-14, fiscal deficit will be contained below 4.8 per cent of the GDP", he said.

Jet Airways brings on board E had A er long weeks of nego a ons, Jet Airways (India), India's second largest domes c carrier by passengers carried, announced on Wednesday that E had Airways had come on board as a partner. The Jet Airways board, on Wednesday, agreed to issue fresh shares in favour of the UAE-government owned carrier at Rs 754.74 per share for a total deal value of about $379 million or about Rs 2,050 crore. E had will have 24 per cent stake in the Indian carrier, promoted by Naresh Goyal, a er the issue of fresh shares

“GDP to grow by li le over 6% in 2013-14” - FM Finance Minister P Chidambaram today said the fiscal deficit for 2012-13 will be be er than 5.2 per cent as tax collec on target of over Rs 10.38 lakh crore has been achieved."As always there will be some savings (on expenditure). So what does it mean ... if we reach the revenue target and if there are some savings, the fiscal deficit will be be er than 5.2 per cent that I have projected," Chidambaram told reporters here. He, however, did not "hazard a guess" on the actual fiscal deficit number for 2012-13.

India received $70 bn in remi ances in 2012 India received $70 billion in remi ances in the year 2012 , Government told Rajya Sabha on Thursday. Overseas Indian Affairs Minister Vayalar Ravi gave the figure quo ng a World Bank report. He was replying to a ques on on the issue. India had received over $66.13 billion in remi ances in the year 2011-12 while in 2010-11, the amount was $55.62 billion. The remi ances to the country through private transfer of funds have been on the rise in the last few years. India received $53.63 billion in 2009-10 while in 2008-09, the amount was $46.9 billion.

InFINee | April 2013

46

REGULARS

Government clears 9 FDI proposals worth Rs 1,140 crore The government on Wednesday said it has cleared nine FDI proposals, including that of Mul Screen Media and Wire and Wireless, totaling over Rs 1,140 crore. Besides, the Foreign Investment Promo on Board (FIPB) deferred decision on 11 FDI applica ons including that of Norway-based Telenor Mobile Communica ons AS and Coca-Cola's bo ling arm.. Based on the recommenda ons of FIPB in its mee ng held on January 21, 2013, government has approved 9 proposals of foreign direct investment (FDI) amoun ng to Rs 1140.14 crore approximately," Finance Ministry said in a statement.

Apple to dole out $100 billion to shareholders Apple is opening the doors to its bank vault, saying it will distribute $100 billion in cash to its shareholders by the end of 2015. At the same me, the company said revenue for the current quarter could fall from the year before, which would be the first decline in many years.Apple CEO Tim Cook also suggested that the company won't release any new products un l the fall, contrary to expecta ons that there would be a new iPhone and iPads out this summer.

China's economic growth slows in first quarter China's economic growth slowed unexpectedly in the first year, fueling concern about the strength cond-largest economy

three months of the

of its shaky recovery. The world's se-

grew by 7.7 per cent over a year earlier, down from the

previous quarter's 7.9 per cent, the government reported Monday. That fell short of many private sector forecasts that growth would cent.

accelerate slightly to 8 per

InFINeeti | April 2013

INFORMATION

EDITOR-IN-CHIEF V

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MEET THE TEAM

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AAKANKSHA HAJELA is an Electronics Engineer with a keen interest in Finance and Strategy. She looks forward to work in the field of Consultancy. She has authored ar cles in business blogs

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KUNAL MAHESHWARI is a qualified Chartered Accountant and aims to make a career in the field of financial consultancy

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VAIBHAV GARG is a qualified Chartered Accountant and graduate from DU. He aims to specialize in Finance & Trade. He follows the stock and commodity markets and likes to update himself with the recent happenings in the field of finance

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