The Fiscal Sops Would Result In Revenue Loss - Feb 26, 2009

The Lok Sabha has approved the Interim Budget, including the Finance Bill 2009 by voice vote despite a walkout by the Opposition National Democratic Alliance and the Left parties.

Pranab Mukherjee, the acting Finance Minister said "The government is keen on restoring business confidence in the services sector. It is also our objective that the dispersal between CENVAT rate and the service tax rate is reduced with a view to moving towards the Uniform Goods and Service Tax."

The announced fiscal sops will be effective from midnight and will have revenue loss of Rs. 29,000 crore to the government. The fiscal sops would result in revenue loss of Rs. 14,000 crore in service tax, Rs 8,500 crore in excise duty and Rs 6,600 crore in customs duty. Mr. Mukherjee said that the full impact of the recession in other parts of the world, especially Europe and Asia, was yet to unfold. Due to the strong export linkages with these economies, it was likely that the Indian economy might feel further impact in the coming months. To counter any such effect, the United Progressive Alliance had taken these decision, he said adding that the Union Budget was just one of the instruments for addressing economic policy concerns and the government would take necessary measures as and when required, until the next regime took over.

He also said that the irregularities faced by suppliers to Special Economic Zones with regard to treatment of export profits will be addressed in the regular budget. As regards the States, Mr. Mukherjee said that as part of the stimulus package they had been allowed to borrow an additional 0.5% of the Gross State Domestic Product (GSDP). The exemption, he added, would continue in 2009-2010 with the possibility of further review.

Gold Prices Are Expected To Touch Rs 17,000 - Feb 26, 2009

Gold prices are expected to touch Rs 17,000 per 10 grams by August, an industry body said on Feb 25. In the same way, silver prices would also climb to Rs 24,000 a kg by the same time, as assessment study by industry body Assocham said. Since global financial crises has diminished investment opportunities in stocks, mutual funds, government securities and bonds, investments in gold and silver would continue to grow and restrict at Rs 17,000 per 10 grams and Rs 24,000 a kg, respectively by August 2009, it said.

Nevertheless, gold and silver would subside to fall to realistic levels of Rs 12,000 per 10 gram and less than Rs 17,000 a kg by January 2010 onwards, it pointed out. The assessment on ''Prospects of Bullion Trade'' for the next six months, carried out by Bullion Trade Committee headed by bullion expert S K Jindal, anticipated that peak crisis in stocks, realty and other secured markets would gradually start fading away by August and until then, gold and silver will continue to lure investors for their surpluses. In March, the average gold price would go up to Rs 15,750 per 10 gram, while silver would stray at around Rs 23,000 a kg, it said.

Local Corporates And Banks Are Realizing Rise In Cost - Feb 26, 2009

Global financial crises is also affecting India Inc as some local corporates and banks are realizing rise in cost of servicing their overseas loans has temporarily by 1-3%. First time lenders have invoked the ''market disruption clause''. The market disruption clause was invoked, after beginning of crisis in global credit markets following the collapse of investment bank Lehman Brothers in September last year. Internationally, bank-borrowing costs have gone up considerably, from Libor-plus 10-15 bps to around Libor-plus 50-60 bps currently.

Borrowing costs for Indian public sector banks have increased even more sharply. A one-year loan, which was pegged at 20 bps above Libor prior to the credit crisis, would now be available for not less than Libor-plus 150 bps.

Besides, overseas lenders, including foreign and Indian banks with offshore branches, are also in the process of increasing interest rates. They are asking for more security from Indian corporates, which have broken their financial agreement due to the downturn.

Delhi-based infrastructure corporate, a group company of a large private sector conglomerate and a couple of major public sector institutions are among the companies, which have broken financial covenants. Bankers are awaiting audited results of FY09 before taking a final decision in some cases.

The ''market disruption clause'' is found in most of the overseas loan agreements. It gets triggered, usually for a quarter, if banks find it very hard to raise funds, or when their cost of borrowing increases significantly. Most of the hikes in rates came after a host of banks invoked the clause during the quarter-ended December 2008. For most overseas loans, banks charge a premium over the benchmark London Inter-Bank Offered Rate (Libor).

Finance Minister Announces The Third Stimulus Package - Feb 25, 2009

The Finance Minister Pranab Mukherjee announced the much-awaited third stimulus package. The stimulus has offered across-the-board cut in excise and service tax rates to save and support the domestic economy. He said the general reduction in excise duty rates by 4 percentage points, from December 7, 2008 would extend beyond March 31, 2009.

The stimulus includes 2% cut in service tax rates to 10%. The minister announced that on goods that attract 10% excise duty will now be charged at 8%. However, excise rates on items that attract 8% and 4% excise duty will not be changed. Further the rate of excise duty on bulk cement has also been reduced from 10 per cent or Rs. 290 per tonne to 8 per cent or Rs. 230, whichever is higher. The customs duty on Naphtha will continue beyond March 31, 2009.

The government is keen on restoring business confidence in the services sector. It is also our objective that the dispersal between CENVAT rate and the service tax rate is reduced with a view to moving towards the Uniform Goods and Service Tax, the Minister said.The Lok Sabha later approved the Interim Budget, including the Finance Bill, 2009 and related Appropriation Bills, by voice vote, with walkout by the Opposition National Democratic Alliance and the Left parties. The fiscal sops given to provide stimulus to the slowing down economy will be effective from midnight and will have revenue implications of over Rs. 29,000 crore.

There Is No Sign Of Slowing Down Of Financial Crisis - Feb 25, 2009

There is no sign of slowing down of financial crisis in India''s economy, with government spending likely to continue. Finance Minister Pranab Mukherjee''s interim budget has confirmed the worst fears of economists that India''s fiscal deficit is expanding.

According to financial firm, Goldman Sachs, India''s combined fiscal deficit at around 11 per cent of GDP is now among the highest in the world. The deficit is unlikely to come down in the next few years. Also, global rating agencies like Moody''s, Fitch and S&P have warned that India''s rating may be downgraded.

In the meantime, policymakers insist the rising deficit is expected, given the government''s increased spending. Montek Singh Ahluwalia, Deputy Chairperson of Planning Commission, said, "I should say it''s a cause of congratulations. All of you who have been asking for a fiscal stimulus should congratulate the government that you have been given a fiscal stimulus. It''s impossible to have a fiscal stimulus and not increase in deficit."

Gold Prices Broke Its Increasing Trend - Feb 25, 2009

On Feb 24, gold prices broke its increasing trend and dropped slightly by Rs 40 per ten grams to Rs 15,705 on account of selling pressure from stockists in view of weak overseas advices. However, silver prices, went up amrginally on mild industrial demand.

According to the dealers, prices of gold affected by the lack of buying interest at higher levels coupled with lower global advices. On Feb 23, gold futures fell in New York on profit- taking after its recent rally that had sent prices above $1,000 an ounce. Gold for February ended down by $7.20 an ounce to $994.60 an ounce on the Comex Division of the New York Mercantile Exchange. Silver March delivery ended lower at $14.45 an ounce. Turning to the local market, standard gold (99.5 purity) fell by Rs 40 per ten grams to Rs 15,705 from the last weekend''s level of Rs 15,745. Pure gold (99.9 purity) also moved down to Rs 15,780 from Rs 15,810. However, silver ready (.999 fineness) edged up to Rs 23,235 per kilo from Rs 23,230 previously.

Amid Demands Of More Rate Cuts - Feb 24, 2009

Amid demands of more rate cuts, RBI Governor D Subbarao has met Finance Minister Pranab Mukherjee and assured him of monitoring the ongoing situation and taking appropriate policy action, if necessary.The Governor assured the Finance Minister that the Reserve Bank is constantly monitoring the situation and will take appropriate policy action, as may be necessary, the central bank said in a statement in Mumbai on Feb 23.

The Governor briefed the Minister last night on the evolution of the global financial crisis, the outlook for the global economy and the response of the advanced and the emerging economies, the statement said.In January and February, Subbarao had met other central bank governors in Basel, Switzerland, Kuala Lumpur and Malaysia to discuss the measures taken by the developed and developing countries to counter the global financial crisis.The bank has injected over Rs 4,00,000 crore of liquidity into the system since Lehman Brothers declared bankruptcy. However, the central bank refrained from cutting rates at its quarterly monetary review announced in late January.The industry is pitching for more rate cuts as industrial growth turned negative for the second time this fiscal, a rarity in independent India.

India Inc''s M&A Value Dips 53% In 4 yrs - Feb 24, 2009

Continuous downfall in the stock market has led the current market valuation of corporate India''s mergers and acquisitions losing behind by a whopping $24.04 billion, in just four years time. During 2005-08, listed Indian companies have been involved in M&A activities worth $45 billion, but the current mark-to-market value of such M&As is down to $20.96 billion, with a loss of 53 per cent, SMC Capital said in a report. Though M&As are meant more for long-term strategic reasons, a loss of $24.04 billion is lot of money to totally ignore. However, the overall M&A experience by Indian corporates turning sour, raising questions about the very rationality of such aggressive M&As, SMC Capitals CEO Jagannadham Thunuguntla said.

Fast and aggressive M&As by Indian corporates on unprecedented bull market, was also one of the key reason for fall in its valuations, as during the four-year time (2005-08) the equity market went through a rough patch. A yearly comparison shows that the listed M&As of 2005 are performing relatively better with current mark-to-market return of negative 6.68 per cent. However, the listed M&As of 2006, 2007 and 2008 are bleeding severely with losses as high as 62.84 per cent, the report said.

Nearly 85 per cent of the listed M&As during 2005-08 are posting losses. There were 54 deals in the period under review, out of which as many as 46 are in losses. Only eight deals representing 15 per cent have been able to post profits and these deals were from sectors like energy, manufacturing, oil and gas and telecom. Deals that reported profits were NTPC-Ratnagiri Gas, GAIL-Ratnagiri Gas, Vodafone-Bharti, Tata Power-Arutmin, Holcim-HCC, Bharat Petroleum-Encana, Indian Oil-IBP Company.

All the other sectors under review, barring telecom, that posted negative returns are aviation (69.94 per cent), Banking, Financial Services and Insurance (44.09 per cent), energy (37.07 per cent), hospitality (75.72 per cent), IT and ITeS (57.87 per cent), manufacturing (62.71 per cent), media and entertainment (78.66 per cent), oil and gas (16.81 per cent), pharma and healthcare (67.10 per cent).

Board Of Approval For Special Economic Zones - Feb 24, 2009

The Board of Approval for Special Economic Zones (SEZs), which was chaired by the Commerce Secretary, Mr G.K. Pillai, on Monday allowed the merger of three stand-alone SEZs, promoted by the Adani Group at Mundra in Gujarat. The combined zone will create India''s largest SEZ with an area of 6,100 hectares in Mundra making it the first zone to exceed the 5,000-hectare limit. However the nod was given to such a proposal by the empowered group of Ministers (eGoM) on SEZs headed by the Union Finance and External Affairs Minister, Mr Pranab Mukherjee

These three zones were situated next to each other include the two multi-product SEZs and a power-based zone. "The amalgamated zone is likely to see investments of over Rs 1,00,000 crore and employ over 500,000 people in the next 10 years," said a government official.

Mr Pillai while addressing the BoA meeting said that 560 formal approvals so far have been granted for setting up of SEZs out of which 286 have been notified as on date. The Board, which will meet again only in June after a new government is elected, also formally approved nine SEZs, including one being developed by a company promoted by Anand Jain, a close associate of Mukesh Ambani, chairman and managing director of India''s largest private sector firm Reliance Industries Ltd.