Friday, February 26, 2010

Union Budget 2010....Happy tax payers.....

Finance minister Pranab Mukherjee began presenting the Union budget for 2010-11 in the Lok Sabha today after the Cabinet approved the document. Here are some of the highlights of his budget speech.

* The Indian economy was facing grave uncertainty. Growth had started decelerating when the interim and full budget for 2009-10 were presented.
* At home there was added uncertainty because of subnormal southwest monsoon.
* Yet, the economy now in a far better position than it was
eight years ago.
* India weathered the economic crisis well and emerged from the global slowdown faster than any other country.
* First challenge before the government is to quickly revert to
high GDP growth path of 9%.
* Expects 10% economic growth in the near future.
* Second challenge is to harness economic growth to make it more inclusive and consolidate gains.
* Third challenge is to overcome weakness in government's public delivery mechanism; a long way to go in this.
* Impressive recovery in the past few months. Can witness
faster recovery in the coming months.
* Food security has been strengthened.
* But bottleneck of the public delivery mechanism can hold us back.
* Fiscal year 2009-10 was challenging for the economy.
* Focus shifted to non-governmental actors and an enabling government. Government now concentrates on supporting and delivering services to the poorer sections.
* Economy stabilised in the first quarter of 2009 itself.
* 18.5% manufacturing growth in December was the highest in two decades.
* Figures for merchandise exports for January encouraging
after turnaround in November and December last year.
* Double digit food inflation last year due to bad monsoon
and drought-like conditions.
* Government conscious of the price rise and taking steps to tackle it.
* Erratic monsoon and drought-like conditions forced supply-side bottleneck that fuelled inflation.
* Need to review stimulus imparted to economy last year to overcome the recession.
* Need to ensure that the demand-supply imbalance is managed.
* Need to make growth more broad-based.
* Need to review public spending and mobilise resources.
* Status paper on public debt within six months.
* Government hopes to implement direct tax code from April 2011.
* Earnest endeavour to implement general sales tax in April 2011.
* Government will raise Rs25,000 crore from divestment of its stake in state-owned firms.
* Kirit Parekh report on fuel price deregulation will be taken up by petroleum minister Murli Deora in due course.
* Nutrient-based fertiliser subsidy scheme to come into force from April 1 this year.
* Nutrient-based fertiliser subsidy will reduce volatility of subsidy and also reduce it.
* Market capitalisation of five public-sector undertakings listed since October increased by 3.5 times.
* FDI inflows steady during the year. Government has taken
series of steps to simplify FDI regime. Intends to make FDI policy user friendly by compling all guidelines into one document.
* Government has decided to set up apex-level Financial
Stability and Development Council.
* RBI considering issuing banking licences to private companies. Non-banking finance companies will also be considered if they meet the criteria.
* Government to provide Rs16,500 crore to public-sector
banks to maintain tier-I capital.
* Government to continue interest subvention of 2% for one more year for exports covering handicrafts, carpets,
handlooms and small and medium enterprises.
* Government to provide Rs300 crore to organise 60,000 pulse and oilseed villages and provide integrated intervention of watershed and related programmes.
* Rs200 crore provided for climate-resilient agriculture
* Government committed to ensuring continued growth of
special economic zones.
* Need to take firm view on opening up of the retail sector.
* Deficit in foodgrains storage capacity to be met with private-sector participation.
* Period for repayment of loans by farmers extended by six months to June 30, 2010, in view of the drought and floods in some parts of the country.
* Interest subvention for timely repayment of crop loans raised from 1% to 2%, bringing the effective rate of interest to 5%.
* Road transport allocation raised by 13% to Rs19,894 crore.
* Proposal to maintain thrust of upgrading infrastructure in rural and urban areas. IIFCL authorised to refinance infrastructure projects.
* Rs1,73,552 crore provided for infrastructure development.
* Allocation for railways fixed at Rs16,752 crore, an increase of Rs950 crore over the last financial year.
* Government proposes to set up Coal Development Regulatory Authority.
* Mega power plant policy modified to lower cost of generation; allocation to power sector more than doubled to Rs5,130 crore in 2010-11.
* Government favours competitive bidding for coal blocks for captive power plants.
* Rs500 crore allocated for solar and hydro projects for the Ladakh region in Jammu & Kashmir.
* Clean Energy Fund to be created for research in new energy sources.
* Allocation for new and renewable energy ministry increased by 61% to Rs1,000 crore.
* One-time grant of Rs200 crore provided to Tirupur textile cluster in Tamil Nadu.
* Allocation for National Ganga River Basin Authority doubled to Rs500 crore.
* Alternative port to be developed at Sagar Island in West Bengal.
* Draft of Food Security Bill ready, to be placed in the public domain soon.
* Outlay for social sectors pegged at Rs1,37,674 crore, accounting for 37% of the total plan allocation.
* Plan allocation for school education raised from Rs26,800 crore to Rs31,036 crore in 2010-11.
* 25% of plan outlay earmarked for rural infrastructure development.
* Plan allocation for health and family welfare increased to Rs22,300 crore from Rs19,534 crore.
* For rural development, Rs66,100 crore have been allocated.
* Allocation for National Rural Employment Guarantee Authority stepped up to Rs40,100 crore in 2010-11.
* Indira Awas Yojana's unit cost raised to Rs45,000 in the plains and Rs48,500 in hilly areas.
* Allocation for urban development increased by 75% to Rs5,400 crore in 2010-11.
* 1% interest subvention loan for houses costing up to Rs20 lakh extended to March 31, 2011; Rs700 crore provided.
* Allocation for development of micro and small-scale sector raised from Rs1,794 crore to Rs2,400 crore.
* Rs1,270 crore provided for slum development programme, marking an increase of 700%.
* Government to set up National Social Security Fund with initial allocation of Rs1,000 crore to provide social security to workers in the unorganised sector.
* Government to contribute Rs1,000 per annum to each
account holder under the new pension scheme.
* Exclusive skill development programme to be launched for textile and garment-sector employees.
* Allocation for woman and child development increased by 80%
* Plan outlay for the social justice ministry raised by 80% to Rs4,500 crore.
* Plan allocation for minority affairs ministry raised from Rs1,740 crore to Rs2,600 crore.
* Financial-Sector Legislative Reforms Committee to be set
* Rs1,900 crore allocated for Unique Identification Authority of India.
* A unique identity symbol will be provided to the rupee in line with the US dollar, British pound sterling, euro and Japanese yen.
* Defence allocation pegged at Rs1,47,344 crore in 2010-11
against Rs1,41,703 crore in the previous year. Of this, capital expenditure would account for Rs60,000 crore.
* Planning Commission to prepare integrated action plan for
Naxal-affected areas to encourage "misguided elements" to eschew violence and join the mainstream.
* Gross tax receipts pegged at Rs7,46,656 crore for 2010-11, non-tax revenues at Rs1,48,118 crore.
* Total expenditure pegged at Rs11.8 lakh crore, an increase of 8.6%.
* Fiscal deficit at 5.5%.
* Fiscal deficit seen at 4.8% and 4.1% in 2011-12 and 2012-13, respectively.
* Non-plan expenditure pegged at Rs37,392 crore and plan expenditure at Rs7,35,657 crore in budget estimates. Proposed increase of 15% in plan expenditure and 6% in non-plan expenditure.
* Cash subsidy for fuel and fertiliser instead of previous practice of bonds to continue.
* Fiscal deficit pegged at 6.9% in 2009-10 as against 7.8% in the previous fiscal.
* Government's net borrowing to be Rs3,45,010 crore for 2010-11.
* Income-tax department ready with two-page Saral-2 returns
form for individual salaried assesses.
Personal income-ax rates pruned:
Income up to Rs1.6 lakh — nil
Income above Rs1.6 lakh and up to Rs5 lakh — 10%
Income above Rs5 lakh and up to Rs8 lakh — 20%
Income above Rs8 lakh — 30%

* Additional deduction of Rs20,000 allowed on long-term
infrastructure bonds for income-tax payers; this is above Rs1 lakh on savings instruments allowed already.
* Investment-linked tax deductions to be allowed to two-star hotels anywhere in the country.
* Weighted deduction of 125% for payments to approved associations doing social and statistical research.
* One-time interim relief to housing and real-estate sector.
* Businesses with a turnover of up to Rs60 lakh and professionals earning up to Rs15 lakh to be exempted from the obligation to audit their accounts.
* Housing projects allowed to be completed in five years instead of four to avail of tax breaks.
* Revenue loss of Rs26,000 crore on direct tax proposals.
* Central excise duty on all non-petroleum products raised to 10% from 8%.
* FM increases customs duty on crude oil to 5%, on diesel and petrol to 7.5%, and on other petroleum products to 10%.
* Structural changes in excise duties on cigarettes, cigars, and cigarillos.
* Clean energy cess of Rs50 per ton to be levied on coal produced in India.
* Concessional excise duty of 4% on solar cycle-rickshaws.
* Balloons exempted from central excise duty.
* Customs and central excise proposals to result in a net revenue gain of Rs43,500 crore.
* More services to be brought under the service tax net.
* Certain accredited news agencies exempted from payment of service tax.
* Net revenue gain from tax proposals pegged at Rs20,500 crore.

Thursday, February 25, 2010

Economic Survey Highlights

1225 hrs Two-third of India's FOREX kitty due to rupee rally

1214 hrs Channelize savings for infra development

1105 hrs GDP may grow 8.25-8.75% in FY11

1156 hrs CIL to invest Rs 2,500 Crore in washing coal

1137 hrs Steel sector to grow 6-9 pc in 2010: Finmin

1135 hrs Survey gung-ho on economy, rising prices worrying

1227 hrs Govt begins work on five more mega power projects

1133 hrs Finance Comm for 'calibrated' exit strategy from stimulus

1130 hrs Economic Survey for more stimulus to export sector

1127 hrs India finmin report urges fiscal consolidation

1135 hrs Liberalise FDI in education, healthcare

1104 hrs India may be fastest growing economy in four years

1118 hrs Current fuel prices not viable

1120 hrs Inflation largely due to supply side bottlenecks

1120 hrs Concerned about rising food prices

1110 hrs FY12 GDP growth seen over 9%

1119 hrs Power output rose due to increase gas productivity

1113 hrs Focus on gradual stimulus exit

1110 hrs Two-digit GDP growth seen in four years

1114 hrs Savings rate expected to rise further

1106 hrs Recovery calls for fiscal consolidation

1106 hrs Supply crunch in some commodities due to poor monsoon

1106 hrs Services growth seen near 9%

Wednesday, February 24, 2010

Snap Shot :Railway Budget 24 Feb 2010.

  • FY10 : Railways expect to achieve total Receipts of Rs 88281cr; Surplus Rs951cr; freight loading 890 mn tn (Vs 882 estimated).
  • FY11: Freight loading seen at 944 mn tn;
  • To set up Dedicated Passenger Corridor through National High Speed Rail Authority.
  • To set up Freight Corridors across N-Cut Freight on Foodgrains and Kerosene by Rs100/wagon.
  • To acquire 80,000 New Wagons.
  • To set up 10 Auto & auto Ancillary Hubs in 10 locations (thru PPP).
  • To set up 5 wagon factories (thru PPP).
  • To Run 101 new suburban trains in Mumbai.
  • To set up wagon repair shop in Mumbai.
  • To Introduce 54 new trains in FY11; to extend routes of 21 trains .
  • Not to Raise Freight Rates.
  • To set up Special Task force to clear Investment Proposals within 100 days.
  • To add 1000 route km of lines this year; it is 64015 route km currently Vs 53596 Route km in 1950.
  •  120 new trains to be started, of which 117 to be flagged off.
  •  To construct93 multi-functional complexes.
  • Through PPP: To set up 10 Auto & auto Ancillary Hubs in 10 locations, To set up 5 wagon factories, to set up Multi-level parking complex and 6 Bottling plants (Ambala, Amethi, Trivandrum, Nashik, amongst others).


Saturday, February 20, 2010

Policy Driven , Multispread Recovery

The global recovery is off to a stronger start than anticipated earlier but is proceeding at differentspeeds in the various regions.

Following the deepest global downturn inrecent history, economic growth solidified and broadened to advanced economies in the second half of 2009. In 2010, world output is expected to rise by 4 percent. This represents an upward revision of ¾ percentage point from the October 2009 World Economic Outlook. In most advanced economies, the recovery is expected to remain sluggish by past standards, whereas in many emerging and developing economies, activity is expected to be relatively vigorous, largely driven by buoyant internal demand. Policies need to foster a rebalancing of global demand, remaining supportive where recoveries are not yet well sustained.

Real activity is rebounding, supported by extraordinary policy stimulus

Global production and trade bounced back in the second half of 2009 (Figure 2). Confidence rebounded strongly on both the financial and real fronts, as extraordinary policy support forestalled another Great Depression.

Recovery is proceeding at varying speeds

Output in the advanced economies is now expected to expand by 2 percent in 2010,

following a sharp decline in output in 2009. The new forecast reflects an upward revision of 3/4 percentage point. In 2011, growth is projected to edge up further to 2½ percent. In

spite of the revision, the recovery in advanced economies is still expected to be weak by

historical standards, with real output remaining below its pre-crisis level until late 2011.

Commodity prices are rebounding

Commodity prices rose strongly during the early stages of the recovery, despite generally high inventories. To a large extent, this was due to the buoyant recovery in emerging Asia, to the onset of recovery in other emerging and developing economies more generally, and to the improvement in global financial conditions.

Inflation pressures will remain subdued in most economies

The still-low levels of capacity utilization and well-anchored inflation expectations are

expected to contain inflation pressures (Figure 3). In the advanced economies, headline

inflation is expected to pick up from zero in 2009 to 1¼ percent in 2010, as rebounding

energy prices more than offset slowing labor costs. In emerging and developing economies, inflation is expected to edge up to 6¼ percent in 2010, as some of these economies may face growing upward pressures due to more limited economic slack and increased capital flows.

There are important risks in both directions

There are still significant risks to the outlook.

On the upside, the reversal of the confidence crisis and the reduction in uncertainty may continue to foster a stronger-than-expected improvement in financial market sentiment and prompt a larger-than-expected rebound in capital flows, trade, and private demand. New policy initiatives in the United States to reduce unemployment could provide a further impetus to both U.S. and global growth.

On the downside, a key risk is that a premature and incoherent exit from supportive policies may undermine global growth and its rebalancing. Another important risk is that impaired financial systems and housing markets or rising unemployment in key advanced economies may hold back the recovery in household spending more than expected. In addition, rising concerns about worsening budgetary positions and fiscal sustainability could unsettle financial markets and stifle the recovery by raising the cost of borrowing for households and companies. Yet another downside risk is that rallying commodity prices may constrain the recovery in advanced economies.

Wednesday, February 10, 2010

India Budget 2010: what is awaited?

The Indian Finance Minister is going to announce Union Budget 2010-11 on 26th February, 2010. Everyone is as eager to know the India Budget 2010 expectations as the final budget itself. The budget results 2010 are keenly awaited for several reasons. Some of these are:

1. What measures will be taken up to tame high inflation rate, which has given rise to high prices of primary food articles and has caused fiscal deficit?

2. How a balanced budget will be managed to cope up with rapid economic growth and the stagnancy seen in the below poverty level?

The finance minister has plenty of issues to take into notice in order to come up with an ideal budget plan that meets everyone's expectations. The results will be unfolded in the month of February. But, the expectations from budget 2010 that have come to the notice are vital and play significant role in the pre-budget scenario.


The common men and the corporates are looking for decrease in taxes. The Finance Minister is likely to augment exemption limit of individual taxes to Rs 3 lakh from Rs1.60 lakh for salaried people. Exemption limit for women is expected to be increased from 1.80 lakh to 4 lakh and for senior citizen from Rs 2 lakh to 5 lakh.

However, taxes levied on the perks availed by income earners are expected to be restructured on higher level. This arrangement may satisfy junior employees and senior citizens. But, it may not go well with the people belonging to higher position.

Corporate Tax:

A reduction of 30% is expected in the corporate tax. The expectation is found in line with the introduction of Direct Tax Code (DTC) suggesting a 25% rate. The individual rate was lowered by 30% previous year also.

Capital Gains Tax:

As far as the 2010 India Budget expectation in the area of capital gain tax is concerned, finance minister is unlikely to bring any reform in this category of tax. It is predicted to be included under the Direct Tax Code, to be implemented from April 2011.

Re-fixing of Tax Slabs:

As mentioned earlier, the tax slab for women is expected to be revised to 4 lakh and senior citizens to Rs 5 lakh. However, second and third slabs of tax would see significant change.

The second tax slab is expected to be augmented from the existing Rs 3 lakh to Rs 1 million to be taxed at 20%. The third slab is likely to be increased from Rs 5 lakh to Rs 25 lakh to be taxed at the rate of 30%.

These revisions would act in favor of the reputed advocates as well as the doctors.

Gratuity Limit:

The India Budget 2010 expectations show that significant revision in gratuity limit is also considered. The gratuity limit of the income class is expected to be raised to Rs10 lakh in the budget 2010 from Rs 3.5 lakh. Both the upper as well as middle level executives will benefit a lot, if this revision is brought into effect.

Employees are paid gratuities in the government as well as corporate organizations during the time of their retirement. The amount that is dished out as gratuity falls outside the tax regime. If the gratuity limit is enhanced, the employees will surely benefit from it.

Self Assessment Slab:

The self assessment slab for businessmen and professionals is Rs 40 lakh at present. According to expectations, the slab may be revised to Rs 1 crore to lower the burden felt by the business people and professionals.


India Budget 2010 speculations suggest that it is not the right time for the government to roll back stimulus packages, despite the fact that GDP growth of the nation in the Q2 (July – September) of the current fiscal stood at 7.9%.

However, experts believe that government would withdraw few of the subsidies from the market. The oil companies were aided with the stimulus package to check loss. Government did not allow the Oil companies to raise product costs of kerosene and diesel, which would have forced the common men to pay more.

As high prices of diesel and petrol would bear adverse effect on the transport rates of food products, the stimulus packages are expected to continue in the oil industry. However, partial withdrawal of the stimulus aid can be expected in this sector to tackle the situation of increasing fiscal deficit.

Nevertheless, stimulus packages from engineering as well as export sectors are expected to be rolled back.

Agriculture Sector:

According to India Budget 2010 expectations, the agriculture sector would be the highlight of the session. This sector is likely to receive enormous boost from the government. Finance minister's invitation to the farmers for the pre-budget meet is held to be the main reason behind such speculation.

Infrastructure and Social Sector:

Infrastructure industry is also expected to be the focus of the budget results of 2010. Many believe that development in this sector would account for massive growth in GDP. However, it is unlikely to ease monetary policy to better infrastructure. Interest rate cannot be reduced as well.


According to 2010 budget speculations, the transportation charges for bulk commodities in railway industry are likely to be increased. The turnaround in the economic conditions of India is expected to boost the transport costs of cement, coal, iron ore and steel. Previous year, the Ministry of Railway refrained from raising transportation costs to help sector tackle the scenario of global meltdown. The ministry has not come up with its plan for hikes yet. But, the range can be fixed somewhere between 5 and 10%. If this becomes effective, one would need to pay Rs. 100 to 200 per tonne.

Other Sectors:

While taking into account the India Budget 2010 expectations of various sectors, it was found that the garment industry of India is looking for considerable cut in interest rates in its exports segment. The garment exporters also want the ministry to remove all the confusion faced in the case of excise as well as custom duties. The sector wants major commercial as well as fiscal relief. Similarly, the Indian tea industry is expecting to get an allocation of more than Rs 130 crore, which was granted in the fiscal year 2009-10.


Thursday, February 4, 2010

Income Tax Slab for AY 2010 - 2011

"Have Breakfast… or…Be Breakfast!"

Who sells the largest number of cameras in India?

Your guess is likely to be Sony, Canon or Nikon. Answer is none of the above. The winner is Nokia whose main line of business in India is not cameras but cell phones.

Reason being cameras bundled with cellphones are outselling stand alone cameras. Now, what prevents the cellphone from replacing the camera outright? Nothing at all. One can only hope the Sonys and Canons are taking note.

Try this. Who is the biggest in music business in India? You think it is HMV Sa-Re-Ga-Ma? Sorry. The answer is Airtel. By selling caller tunes (that play for 30 seconds) Airtel makes more than what music companies make by selling music albums (that run for hours).

Incidentally Airtel is not in music business. It is the mobile service provider with the largest subscriber base in India. That sort of competitor is difficult to detect, even more difficult to beat (by the time you have identified him he has already gone past you). But if you imagine that Nokia and Bharti (Airtel's parent) are breathing easy you can't be farther from truth.

Nokia confessed that they all but missed the smartphone bus. They admit that Apple's Iphone and Google's Android can make life difficult in future. But you never thought Google was a mobile company, did you? If these illustrations mean anything, there is a bigger game unfolding. It is not so much about mobile or music or camera or emails?

The "Mahabharat" (the great Indian epic battle) is about "what is tomorrow's personal digital device"? Will it be a souped up mobile or a palmtop with a telephone? All these are little wars that add up to that big battle. Hiding behind all these wars is a gem of a question – "who is my competitor?"

Once in a while, to intrigue my students I toss a question at them. It says "What Apple did to Sony, Sony did to Kodak, explain?" The smart ones get the answer almost immediately. Sony defined its market as audio (music from the walkman). They never expected an IT company like Apple to encroach into their audio domain. Come to think of it, is it really surprising? Apple as a computer maker has both audio and video capabilities. So what made Sony think he won't compete on pure audio? "Elementary Watson". So also Kodak defined its business as film cameras, Sony defines its businesses as "digital."

In digital camera the two markets perfectly meshed. Kodak was torn between going digital and sacrificing money on camera film or staying with films and getting left behind in digital technology. Left undecided it lost in both. It had to. It did not ask the question "who is my competitor for tomorrow?" The same was true for IBM whose mainframe revenue prevented it from seeing the PC. The same was true of Bill Gates who declared "internet is a fad!" and then turned around to bundle the browser with windows to bury Netscape. The point is not who is today's competitor. Today's competitor is obvious. Tomorrow's is not.

In 2008, who was the toughest competitor to British Airways in India? Singapore airlines? Better still, Indian airlines? Maybe, but there are better answers. There are competitors that can hurt all these airlines and others not mentioned. The answer is videoconferencing and telepresence services of HP and Cisco. Travel dropped due to recession. Senior IT executives in India and abroad were compelled by their head quarters to use videoconferencing to shrink travel budget. So much so, that the mad scramble for American visas from Indian techies was nowhere in sight in 2008. (India has a quota of something like 65,000 visas to the U.S. They were going a-begging. Blame it on recession!). So far so good. But to think that the airlines will be back in business post recession is something I would not bet on. In short term yes. In long term a resounding no. Remember, if there is one place where Newton's law of gravity is applicable besides physics it is in electronic hardware. Between 1977 and 1991 the prices of the now dead VCR (parent of Blue-Ray disc player) crashed to one-third of its original level in India. PC's price dropped from hundreds of thousands of rupees to tens of thousands. If this trend repeats then telepresence prices will also crash. Imagine the fate of airlines then. As it is not many are making money. Then it will surely be RIP!

India has two passions. Films and cricket. The two markets were distinctly different. So were the icons. The cricket gods were Sachin and Sehwag. The filmi gods were the Khans (Aamir Khan, Shah Rukh Khan and the other Khans who followed suit). That was, when cricket was fundamentally test cricket or at best 50 over cricket. Then came IPL and the two markets collapsed into one. IPL brought cricket down to 20 overs. Suddenly an IPL match was reduced to the length of a 3 hour movie. Cricket became film's competitor. On the eve of IPL matches movie halls ran empty. Desperate multiplex owners requisitioned the rights for screening IPL matches at movie halls to hang on to the audience. If IPL were to become the mainstay of cricket, as it is likely to be, films have to sequence their releases so as not clash with IPL matches. As far as the audience is concerned both are what in India are called 3 hour "tamasha" (entertainment). Cricket season might push films out of the market.

Look at the products that vanished from India in the last 20 years. When did you last see a black and white movie? When did you last use a fountain pen? When did you last type on a typewriter? The answer for all the above is "I don't remember!" For some time there was a mild substitute for the typewriter called electronic typewriter that had limited memory. Then came the computer and mowed them all. Today most technologically challenged guys like me use the computer as an upgraded typewriter. Typewriters per se are nowhere to be seen.

One last illustration. 20 years back what were Indians using to wake them up in the morning? The answer is "alarm clock." The alarm clock was a monster made of mechanical springs. It had to be physically keyed every day to keep it running. It made so much noise by way of alarm, that it woke you up and the rest of the colony. Then came quartz clocks which were sleeker. They were much more gentle though still quaintly called "alarms." What do we use today for waking up in the morning? Cellphone! An entire industry of clocks disappeared without warning thanks to cell phones. Big watch companies like Titan were the losers. You never know in which bush your competitor is hiding!

On a lighter vein, who are the competitors for authors? Joke spewing machines? (Steve Wozniak, the co-founder of Apple, himself a Pole, tagged a Polish joke telling machine to a telephone much to the mirth of Silicon Valley). Or will the competition be story telling robots? Future is scary! The boss of an IT company once said something interesting about the animal called competition. He said "Have breakfast …or…. be breakfast"! That sums it up rather neatly.

( Source : Dr. Y. L. R. Moorthi is a professor at the Indian Institute of Management Bangalore. He is an M.Tech from Indian Institute of Technology, Madras and a post graduate in management from IIM, Bangalore & I was fortunate to assist him )

Wednesday, February 3, 2010

NTPC FPO to open today Feb 3 2010

India’s largest power generation company NTPC will enter the capital markets on February 3, 2010 with its follow-on public offer (FPO) of 412,273,220 equity shares of Rs 10 each at prices to be determined through an alternative book building process under part D of Schedule XI of the SEBI (Issue of Capital and Disclosure Requirements) Regulations 2009. The FPO will close on February 5, 2010.

NTPC has filed the Red Herring Prospectus with the regulator Securities Exchange Board of India to this effect.

The floor price and the minimum bid lot for the offer will be decided at least one day prior to the opening of the offer. Of the FPO, a total of 4,273,220 equity shares are reserved for NTPC employees.

The offer marks a divestment of 5% in NTPC by the President of India acting through the Ministry of Power. Prior to this Offer, the GoI owned approximately 89.5% of NTPC’s Equity Share capital.

ICICI Securities Limited, Citigroup Global Markets India Private Limited, JP Morgan India Private Limited and Kotak Mahindra Capital Company Limited are the book running lead managers to the Offer and Karvy Computer Share Private Limited is the Registrar.

As of September 30, 2009, the company owned installed power generating capacity was approximately 18.6% of India's total installed capacity. In Fiscal 2009, the company contributed 28.6% of the total power generation of India. (Source: CEA). In 2009, NTPC was the top independent power producer in Asia, and ranked second in the world, on the basis of asset worth, revenues, profits and return on invested capital, according to a study conducted by Platts, a division of the McGraw-Hill Companies.

As of September 30, 2009, the Company’s total installed power generation capacity was 30,644 MW, including 28,350 MW of generation capacity through 112 units owned by NTPC Limited and approximately 2,294 MW of capacity through two joint venture companies. Of the Company’s owned capacity, 86% is coal-based, operated through 15 coal-based power stations, and 14% is gas-based, operated through seven gas-based power stations (including one naphtha-fired station). In Fiscal 2009, the company generated 206.9 billion units of electricity through its owned stations.

The Government of India has identified infrastructure inadequacy as a significant constraint in realizing India’s economic growth objectives. In particular, the power sector has been recognized by the GoI as a key infrastructure to sustain economic growth. Under the Eleventh Plan, the power sector is expected to attract 30.4% of the total investment in infrastructure during the Eleventh Plan.

Of the total expected investment of Rs 7,253.33 billion in electricity, Rs 4,034.76 billion (56%) is expected to be invested for generation, Rs 1,520.77 billion (21%) for transmission and Rs 1,697.22 billion for distribution. (Source: Projections of Investment in Infrastructure During XI Plan: Planning Commission.)


RBI Monetary Policy Review

The tightening gathers momentum!
In the third quarter review of monetary policy for the year 2009-10 released on 29th January 2010, where consensus expectation was a 0.50% increase in Cash Reserve Ratio (CRR), RBI surprised the markets a tad by hiking the CRR by 0.75%. However it left the reverse repo and repo rates unchanged at 3.25% and 4.75% respectively in line with consensus expectations. The hike in CRR implies that banks would have to place an additional Rs. 36,000 crores with the central bank. These steps give momentum to RBI’s tightening of monetary policy and both the policy document and post-policy comments by the Governor emphasized the point. In tune with its signals the central bank also reiterated its intention to:
§ Anchor inflation expectations and keep a vigil on the trends in inflation and be prepared to respond swiftly and effectively through policy adjustments as warranted.
§ Actively manage liquidity to ensure that credit demands of productive sectors are adequately met consistent with price stability.
§ Maintain an interest rate environment consistent with price stability and financial stability, and in support of the growth process.
Key takeaways from the policy
§ RBI increased its GDP growth estimate for financial year ending March 31, 2010 to 7.5% from an earlier estimate of 6.0%. This is on the back of revival in export growth due to improvement in global economy, improved business optimism, better financing conditions and continued recovery in industrial production and services sector activity.
§ On inflation, RBI has upped its estimate to 8.5% by end-March 2011 in the wake of little seasonal moderation in food prices, movement in prices of the non-administered component of the fuel group and some signs of demand side pressures. However RBI expects inflation to moderate from July 2010 on the assumption of a normal monsoon, stable global oil prices and recent monetary measures undertaken.
§ RBI also stressed that the opportunity to use imports to contain food prices is quite limited due to the elevated level of global commodity prices.
§ The central bank has reduced the non-food credit growth projection for 2009-10 to 16% from 18% on the back of increased availability of funds to corporate sector from domestic non-bank and external sources. Consistent with this, aggregate deposits of scheduled commercial banks are projected to grow by 17%. Based on projected credit growth and the remaining very marginal market borrowing of the government, the projected broad money (M3) growth in 2009-10 has been reduced to 16.5%.
§ RBI notes that fiscal deficit remains a big risk to short-term economic management and to medium-term economic prospects. It exhorts government to start fiscal consolidation and ideally do two things “first, indicate a roadmap for fiscal consolidation; and second, spell out the broad contours of tax policies and expenditure compression that will define this roadmap”.
After spending months preparing markets for the exit from its accommodative stance, RBI chose to hold back on hiking rates and limited itself to absorbing liquidity. Having said that, there were some clues as to what will guide future policy decisions and markets:
§ The central bank reiterated that “a consolidating recovery should encourage us to clearly and explicitly shift our stance from 'managing the crisis' to 'managing the recovery'” however at the same time it felt “amidst concerns about rising inflation, we must remember that the recovery is yet to fully take hold” thus reflecting a fear that “Strong anti-inflationary measures, while addressing one problem, may precipitate another by undermining the recovery, particularly by deterring private investment and consumer spending”. This indicates that central bank possibly does not want to send any signal that may slow down the growth engine at this stage.
§ At the same time RBI recognizes that while current inflation pressures stem from the supply side, the recovery “increases the risk of these pressures spilling over into a wider inflation process”. This implies that if the recovery process sustains and demand-driven inflation pressures build-up, the RBI will not hesitate to hike policy rates.
Further monetary tightening is a matter of time. The Governor pointed out in one of his post-policy interviews that RBI considered raising the rates as a possible policy action but refrained from doing so as it wanted to encourage creation of capacity in the economy to fight any potential demand led price pressures in future. RBI notes that “our main policy instruments are all currently at levels that are consistent with a crisis situation than with a fast-recovering economy” thus recognizing a need to move away from the current accommodative monetary stance. RBI further says that “the reversal of monetary accommodation cannot be effective unless there is a roll back of government borrowing” thus putting the onus on government to reduce fiscal deficit in order to make way for better credit growth and help RBI in the tightening process.
For bond market, the steep yield curve and limited auctions of government bonds till March 2010 are positive factors. However stacked against this, are rising inflation, potentially a huge borrowing program for next financial year and possibly no support from RBI in the form of Open Market Operation (OMO) purchases. As a result yields may gradually drift higher from current levels as market braces itself for fresh borrowing programme and as inflation remains high with a possibility of an inter meeting move from RBI. The key risk to our view is a surprise in the form of a lower fiscal deficit (our estimate: 5.5% of GDP for 2010-2011) projection in the budget and a lower than expected borrowing for 2010-2011.

Monday, February 1, 2010

Income Tax Exemptions.....!!!

Income Tax Exemptions.....!!!
Income tax calculation is one of the easiest as well as toughest job a person needs to do. Easy in the sense all you need to do here is calculate your taxable income and find out the tax liability according to tax slabs and tough in a way that there are every chances that a person will commit mistakes while calculating his tax liability though he knows what is his income, investments and tax slab under which he falls. Then how to calculate the tax effectively and be error free and what are the things that an assessee needs to consider while calculating tax liability?

The income tax that a person needs to pay is calculated from the Net income or Taxable income. You can get this taxable income once you deduct all the deductions which come under section 80 from gross total income. Hence the first step in calculating the income tax would be to calculate gross total income.

Gross total income (GTI) Gross total income is calculated by taking into consideration five heads of income they are

• Income from Salary
• Income from house property
• Income from business / Profession
• Income from Capital Gains
• Income from Other sources

Add up incomes from each head to get gross total income. For most of assessees they will be having income from all the heads of income except third one or income from business or profession.

Once you get the gross total income all you need to do is deduct all the exemptions so as to get the taxable income.

Example 1: Mr. X has an annual income of Rs 5,00,000. He has a house from which he has obtained income of 80,000 rupees. He also has earned about 70,000 rupees from other sources. His gross total income would be

GTI= income from salary + income from house property + income from other sources

Example 2: Mr. Y is a government worker with annual income of rupees 3,45,000. He also has a house property which earns him an annual income of rupees 38,000. He also has got capital losses to the tune of 20,000 rupees. Income from other sources amounts to 20,000 rupees. His gross total income is

GTI= income from salary + income from house property + income from other sources

In this case you may think that I forgot to deduct the capital loss but the fact is that the capital losses cannot be deducted under any heads of income but carried forward. Capital loss is deducted from capital gains during next assessment year.

Calculation of Net income
To get net income an assessee needs to deduct the exemptions under section 80 from gross total income.

In example 1 if Mr. X has paid an medical insurance premium of 12000 rupees, has purchased National Saving Certificates worth 10,000 rupees, LIC premium of 8,000 then his net income would be;
Variables Amount
Gross total income 6,50,000
(-) Deductions 30,000
Net income 6,20,000

In second example if Mr. Y has contributed 50,000 towards Provident fund, 10000 towards medical insurance, has donated 5000 rupees to a charitable trust which is fully exempted, his total income would be;

Variables Amount
Gross total income 4,03,000
(-) Deductions
Provident fund -50,000
Medical insurance -10,000
Charitable trust -5,000
Net income 3,38,000

Tax slabs as per income tax act 2009

For Male Tax Payers
Upto Rs. 1,60,000 NIL
From Rs. 1,60,001 to Rs. 3,00,000 10%
From Rs. 3,00,001 to Rs. 5,00,000 20%
Above Rs 5,00,001 30%

For Female Tax Payers
Upto Rs. 1,90,000 NIL
From Rs. 1,90,001 to Rs. 3,00,000 10%
From Rs. 3,00,001 to Rs. 5,00,000 20%
Above Rs 5,00,001 30%

For Senior citizens Tax Payers
Upto Rs 2,40,000 NIL
From Rs 2,40,001 to Rs. 3,00,000 10%
From Rs. 3,00,001 to Rs. 5,00,000 20%
Above Rs 5,00,001 30%

Note: education cess of 3% will be applicable to all the tax payers and surcharge of 10% was applicable to all those tax payers whose income is above 10 lakh rupees but for calculation of Income tax for the assessment year 2010-11 the surcharge has been removed.

Let us calculate income tax keeping in mind some of the situations

Example 3: Nirmala is a salaried employee, her annual income is Rs. 3,40,000. She has made no tax savings investments during the year.

Let us calculate her income tax liability.
Variables Amount
Gross total income 3,40,000
Deductions Nil
Taxable Income 3,40,000

Income tax calculation
Description Tax (%) Tax (Amount)
Income upto 1,90,000 Nil 0
Income from 1,90,001 to 3,00,000 10% 11,000
Income from 3,00,001 to 5,00,000 20% 8,000
Tax liability 19,000
Education cess at 3% 570
Total tax liability (rupees) 19,570

Example 4: Prashant is a salaried employee. His annual income is Rs. 3,50,000. His home loan interest payment is Rs 1,20,000 and his home loan principal repayment is Rs. 80,000.He has made an investment of Rs. 30,000 in NSC.

Let us calculate Prashant's Tax liability.
Description Tax (Amount)
Income from salary 3,50,000
Income from house property (deduction) 1,20,000
Gross total Income 2,30,000
Deductions US 80C (Maximum Rs. 100000)
Home loan repayment 80,000
Investment in NSC 30,000
Total -1,10,000
Taxable income 1,30000
Tax liability Nil

In this case although Prashant has invested more than 1,00,000 in home loan repayment and NSC certificates maximum deduction given under 80C is 1,00,000 only. Hence the tax liability in the above case is Zero because income up to 1,60,000 is exempt from tax.

Example 5:Ramesh is a salaried employee who earned Rs.12,00,000. He has bought a health insurance policy for himself worth Rs 9,000. Ram has also bought ELSS funds for Rs. 85,000 and has also paid a LIC premium of Rs. 20,000.He has also donated Rs. 15,000 to the Prime Minister's Relief Fund. We will try to find what will be the tax liability if Ramesh is a senior citizen and if he is an individual.

Let us calculate Ramesh's tax liability if he is an individual below the age of 65
Description Amt Tax (Amount)
Gross total Income 12,00,000
Deduction US 80C
LIC Premium 20,000
ELSS 85,000
Total -1,05,000

Deduction US 80D Health Insurance Premium 9,000
Deduction US 80G Donation to PM fund 15,000
Total Deductions -1,24,000
Total Taxable Income 10,76,000

* Maximum deduction under Sec 80c is Rs. 1,00,000

Tax liability would be
Description Tax (%) Tax (Amount)
Upto 1,60,000 Nil Nil
From 1,60,001 to 3,00,000 10% 14,000
From 3,00,001 to 5,00,000 20% 40,000
Above 5,00,000 30% 1,72,800
Total 2,26,800
Education cess @ 3% 6,804
Total tax liability (rupees) 2,33,604

By investing in tax exempted avenues Ramesh could save Rs. 37200

If Ramesh is a senior citizen then there will be no change till calculation of Total taxable income.

Total Taxable Income 10,76,000

Tax liability would be
Description Tax (%) Tax (Amount)
Upto 2,40,000 Nil Nil
From 2,40,001 to 3,00,000 10% 6,000
From 3,00,001 to 5,00,000 20% 40,000
Above 5,00,000 30% 1,72,800
Total 2,18,800
Education Cess @ 3% 6,564
Total tax liability (rupees) 2,25,364