Union Budget 2013 – 14: FM spares gold, no further import duty hike announced

Despite stating that the ballooning current account deficit is a bigger worry than fiscal deficit, Chidambaram did not further raise import duty on gold.

Chief Economic Advisor Raghuram Rajan in his maiden Economic Survey on Wednesday reiterated gold and oil were the main contributors to rising CAD .

In January, a two percent hike in gold import duty was announced. The duty was increased from 4 percent to 6 percent resulting in subdued gold demand, prolonged selling by stockists and fall in prices.

Gold prices in India hit a seven month low on February 20. The actively traded gold contract for April delivery on the Multi Commodity Exchange (MCX) slipped to Rs 29,579/10 grams yesterday, a level last seen on July 19, 2012.

However, this step had little impact on imports as gold imports in the same month rose over 15 percent, so an additional hike in import duty was anticipated.

This had given rise to the expectation that the government may resort to further hike in gold import duty on Thursday.

Market experts believe that a further tariff increases could stem the legal flow at a risk of increased smuggling. India’s current account deficit hit a record 5.4% of gross domestic product in the first half of FY13 on the back of high gold and crude oil imports.

Harsha Jethmalani
harsha.jethmalani@network18online.com

Budget 2013: 0.01% transaction tax on non-agri futures trade

In a major setback to commodity exchanges, finance minister Chidambarm today proposed a transaction tax of 0.01 percent on non-agri futures traded on the bourses.
The commodity transaction tax (CTT), which is in similar lines of Securities Transaction tax (STT), would work out to Rs 10 for transaction worth Rs 1 lakh.
“There is no distinction between derivative trading in the securities markets, and derivative trading in commodities markets. Only the underlying asset is different. It is the time to introduce commodity transaction tax in a limited
way,” Chidambaram said while presenting Budget for the 2013-14 fiscal in the Lok Sabha.

“Hence, I propose to levy CTT on non-agricultural commodities futures contracts at the same rate as in equity futures, that is at 0.01 percent from the price of the trade,” he said. However, Chidambaram said trading in commodity derivatives would not be considered as speculative transaction and hence CTT would be allowed as deduction if the income from such transaction forms part of the business income.

Reacting to the development, the country’s largest commodity bourse MCX managing director and chief executive officer Shreekant Javalgekar said, “CTT on selected items is not good. It will increase the hedging cost by 310 percent. It will reduce our global competitiveness.”

He said the government has “targeted small segments and not currency futures.” Much of non-agricultural items such as gold and silver are traded on the MCX. It may be recalled that Chidambaram had announced CTT of 0.017 percent while presenting the 2008-09 Budget. However, the proposal was not operationalised due to apprehensions aired by then consumer affairs minister Sharad Pawar and PMEAC.

Amid speculation that the finance minister would impose CTT in the 2013-14 Budget to curb gold demand in view of high current account deficit, commodity exchanges and brokerage firms had made several representations opposing such a tax saying it will adversely impact the nascent market.

“With the imposition of CTT, the turnover will come down.
It will negatively impact the market, especially MCX where
maximum of non-agricultural commodities are traded,” brokerage
firm SMC Comtrade Chairman and Manging Director D K Aggarwal
told PTI.

However, he said that the finance minister has provided some respite to traders by treating CTT not as speculative trade but as business profit/loss. The turnover from futures trade in farm items contributed only 13 percent of the total Rs 144.17 lakh crore during first 10 months of the current fiscal. The remaining 87 percent business came from bullion, metals and energy items.

India Budget 2013: Chidambaram proposes 10% surcharge on super-rich

The much-debated additional tax for super-rich found favour with the government as Finance Minister P Chidambaram today proposed a 10 percent surcharge for a year on income above Rs one crore. The proposal will cover 42,800 individuals and entities. “When I need to raise resources, who can I go to except those who are well placed in society. Only 42,800 persons in the whole country who admitted to a taxable income of exceeding Rs one crore per year. “I propose to impose a surcharge of 10 per cent on persons whose taxable income exceeds Rs 1 crore per year,” he said while unveiling Budget proposals for 2013-14.

The proposal to tax the super-rich was mooted by Prime Minister’s Economic Advisory Council Chairman C Rangarajan and found echo in Wipro Chairman Azim Premji. “I believe there is a little bit of spirit of Azim Premji in every affluent taxpayers and I am confident when I ask relatively affluent taxpayers to bear a small burden for one year they will do so cheerfully,” he said, adding the tax proposal will be only for one year. He further said, “fiscal consolidation cannot be effected only by cutting expenditure. Where ever possible, revenues must also be augmented.” The surcharge will apply to individuals, HUFs, firms and entities with similar tax status, he added.

Budget 2013: FM offers minor sops to income tax payers in Budget

Walking the tight rope ahead of next year’s elections,finance minister P Chidambaram today offered minor sops to income tax payers but slapped a 10 per cent surcharge on ‘super-rich’ individuals and corporates, levied an inheritance tax and raised duties on mobile phones, cigarettes and luxury vehicles.
In his tax proposals in the Budget for 2013-14 to raise an additional Rs 18,000 crore, he gave a benefit of Rs 2,000 to individual tax payers with taxable income of up to Rs 5 lakh but made no change in either slabs or rates of personal income tax which will continue at 10, 20 and 30 per cent.

Aiming at higher growth rate for inclusive and sustainable development and revive manufacturing, Chidambaram hiked outlays for health, water and sanitation, SCs/STs and tribals and rural development.

Defence allocation has been increased to Rs 2,03,672 crore, including Rs 86,741 crore for capital expenditure. First-time home buyers will get an additional deduction of interest of Rs 1 lakh for home loans above Rs 25 lakh and Rs 1.50 lakh for home loans up to Rs 25 lakh. This will be over and above the current Rs 1 lakh deduction allowed for self-occupation.

Implementing the much-talked about super-rich tax, Chidambaram proposed to levy a 10 per cent surcharge on income of Rs 1 crore and above and a 5 to 10 per cent surcharge on domestic corporates whose income exceeds Rs 10 crore a year.

In the case of foreign companies, who pay a higher rate of corporate tax, the surcharge will go up from 2 to 5 per cent. On dividend distribution tax, he proposed to raise current surcharge from 5 to 10 per cent.

Presenting his eighth Budget, the first after coming back to finance ministry last year, Chidambaram imposed an inheritance tax of 1 per cent on transfer of immovable property of over Rs 50 lakh.

Continuing the education cess for all tax payers at 3 per cent, he promised that the new surcharges will be in force for just a year during 2013-14.

Detective-novel fan governor Kuroda to solve BOJ mystery

 An avid reader of detective novels, Haruhiko Kuroda may now get a chance to try to unravel the mystery of engineering Japanese economic growth if the Asian Development Bank (ADB) chief is confirmed as the next Bank of Japan (BoJ) governor.

Prime Minister Shinzo Abe is expected to nominate the 68-year-old former finance ministry official for the BoJ’s top post, sources told Reuters on Monday. Abe is trying to transform the central bank into a bold deflation fighter to revive Japan’s stagnant economy.

A fluent English-speaker with a masters degree from Oxford University, Kuroda served as Japan’s top currency diplomat after the Asian financial crisis in the late 1990s and as ADB president since 2005, putting him in regular contact with global policymakers.

Kuroda is likely need to harness his international network and experience as BoJ governor to counter criticism from other countries that Japan’s aggressive monetary easing is intended to weaken the yen and give its exporters an unfair advantage.

“Kuroda can hold the stage with anybody – Bernanke, the Bundesbank or the People’s Bank of China,” said Jesper Koll, head of equities research at JP Morgan in Tokyo, who has known Kuroda for two decades.

Kuroda may also be more keen to communicate BoJ policy than incumbent Masaaki Shirakawa, who was regularly criticised as being too coy about playing up the effect of the central bank’s stimulus measures.

When guiding Japan’s yen-selling currency intervention as its top currency diplomat — a post he held from 1999 to 2003 — Kuroda was keen to send out the message, through the media, that Tokyo was indeed stepping into the market and serious about stemming yen rises.

People who have worked with him describe him as soft-spoken and approachable, but a demanding boss who would ask a lot from subordinates. “He is very energetic and loves work,” said an ADB official who works under him.

AGGRESSIVE ENOUGH

The flip side of Kuroda’s global resume may be a lack of extensive contacts among domestic business leaders and bankers, a gap that could, however, be made up for by his deputies.

Abe will need to get a signoff on Kuroda from opposition parties since his Liberal Democratic Party and its junior coalition partner control parliament’s lower house but lack a majority in the upper chamber, which must approve the nominee.

But Kuroda might fit the bill as a candidate radical enough to fit Abe’s criteria but moderate enough for the biggest opposition Democratic Party of Japan (DPJ), where some heavyweights have taken issue with Abe’s aggressive stance.

Some Japanese politicians and policymakers worry that if Kuroda leaves his post at the ADB before it expires, Japan would risk losing the coveted job to another country such as China.

Traditionally, a Japanese finance official is chosen to head the Manila-based ADB, much as a European by tradition runs the International Monetary Fund and an American, the World Bank.

That might be the price to pay for a central bank governor who fully supports Abe’s push for aggressive easing and can articulate Japan’s policies to an international audience.

Kuroda has said the BoJ’s 2 percent inflation target, set in January, can be met in two years, contrary to the central bank’s argument that it has not set a strict timeframe for achieving that level.

Kuroda would succeed Shirakawa, 63, a career central banker who was made governor in 2008 as a compromise choice and is due to leave with his two deputies on March 19.

Under Shirakawa’s leadership, the central bank has cut interest rates almost to zero and kept injecting cash into the economy, but has been criticised for being too cautious.

Divide between European and US telcos widens

When the bosses of global mobile operators meet in Barcelona this week, there will be an elephant in the room: the widening gap between fast-growing and richly-valued US telecoms companies and their ailing European counterparts.

A overcrowded market, tough regulations and recession are hampering European telcos’ ability to invest in faster networks, increasing the risk that the region’s flagging economy falls further behind the United States and parts of Asia.

As a result, a transatlantic gap in company valuations has opened to its widest since 2008, with European telco stocks now trading at roughly 9.9 times earnings against 17.6 times for US peers.

The gap reflects differences in the competitive landscape. Europe has about 100 mobile firms to the United States’ six, as well as harsher rules that have sapped profitability and contributed to four straight years of revenue decline.

And it has real world consequences. As investors’ confidence in them wanes, European telcos find it harder to raise or borrow money and become increasingly wary of funding network upgrades that take years to pay off, but are vital to economic growth.

“If it were just a valuation gap of 5 percent it wouldn’t really matter, but when it is so large, it does have serious consequences,” said France Telecom chief financial officer Gervais Pellissier in an interview.

“If European operators don’t get their financing capacity back and regain higher stock market valuations, investment in networks may be lower than many would wish.”

To keep up with the smartphone and tablet computer boom, global carriers must invest USD 800 billion in their networks through 2016, according to trade group GSMA, notably on fourth generation (4G) mobile technology and fiber broadband that offer up to ten times faster internet speeds.

While American, Japanese, and South Korean telcos invest heavily in networks, Europe’s players have been struggling to pay off debts as their ability to generate cash is hit by fierce competition. As a result, they are building 4G and fiber broadband only slowly, leaving swathes of Europe poorly covered.

The situation has led many European telco executives to lobby the European Union for a more benign approach to mergers and acquisitions and regulations on, for example, call charges.

Europe’s top technology regulator Neelie Kroes supports consolidation to create a handful of strong cross-border telecom leaders. But European antitrust watchdogs led by competition commissioner Joaquin Almunia have been cold on such deals over fears they will raise prices for consumers.

The valuation gap could even make European telcos acquisition targets for the US and Asian rivals, a tough pill to swallow for proud, former state-backed monopolies that build key national infrastructure.

However, the heavy losses faced by Mexican tycoon Carlos Slim since he bought stakes in Dutch group KPN and Telekom Austria suggest foreigners must tread carefully before bargain shopping in Europe.

ACROSS THE POND

In the U S, Verizon Wireless and AT&T control 70 percent of the mobile market and their virtual duopoly has allowed them to grow sales and profits, avoiding the fate of European peers to become investor darlings.

As they have upped investment to build faster 4G networks, they have secured higher prices from consumers increasingly addicted to smartphones from the likes of Apple and Samsung.

Their financial performance last year is the stuff of dreams for Europe’s operators. Verizon grew mobile revenues by 7.7 percent last year on a margin of 46.6 percent, while AT&T mobile sales grew 5.7 percent on a margin of 39.6 percent.

In contrast, Europe’s biggest mobile operator Vodafone saw its revenue dip 0.4 percent in the first half of its current fiscal year, and its operating margin was 30.5 percent.

The two smaller US players – Sprint Nextel and T-Mobile, a unit of Deutsche Telekom – have some 30 percent of the market, but are far from matching the two leaders’ network quality or profitability. That could change if the market gets more competitive after Japan’s Softbank bought about 70 percent of Sprint last year. T-Mobile USA is also in the process of buying smaller rival Metro PCS .

Average revenue per U.S. mobile user (ARPU) has grown 25 percent to USD 49 (39.24 euros) since 2007, according to Sanford Bernstein. In Europe, ARPU has fallen 15 percent to 24 euros.

To cope with lower sales, Europe’s telcos have cut costs, But that has not improved profits because prices keep falling. The sector index dropped more than 8 percent in 2012, making it the region’s worst-performer.

For Bernstein analyst Robin Bienenstock the problem is European telcos have no confidence that investing in networks to offer superior service than rivals will pay off.

“So they don’t invest, they just cut costs and tweak pricing, locking themselves in a vicious cycle of selling an increasingly commoditised service,” she said.

“If you are an American consumer, especially in a big city, there has been a tangible improvement in what you’re being offered on mobile speeds, whereas for Europeans, there has been a deterioration in quality.”

TARGETS

If the valuation gap persists, it could open the door to outside companies looking for bargain acquisitions in Europe.

AT&T, for example, has signalled it would look for opportunities to expand in Europe, although people familiar with its thinking said no decisions had been made on such moves.

Verizon Communications CEO Lowell McAdam, meanwhile, said last month it was “feasible” to achieve a long-held goal to buy out the 45 percent of Verizon Wireless owned by Vodafone, though it is unclear whether Vodafone would want to cash in on all or part of a stake that is a rich source of revenue.

Carlos Slim’s experience, however, shows the risks of dealmaking in Europe. The founder of America Movil

Need larger banks, consolidation greater need: Parekh

Welcoming RBI’s guidelines for grant of new bank licences, eminent banker Deepak Parekh has said consolidation is a greater need for the Indian banking space to create some large banks of global size and scale.

“I think that the RBI (Reserve Bank of India) guidelines for grant of new licences are well thought-through and it seems that a lot of thinking has gone into it,” Parekh told PTI.

However, a greater need of the hour in the Indian banking space is banks of large size and scale to match their international peers and consolidate their positions on the global league tables, Parekh said in a telephonic interview.

A veteran banker and well-respected industry leader, Parekh is Chairman of financial services giant HDFC Ltd whose group companies include leading private sector lender HDFC Bank.

When asked whether he feels that Indian banking sector needs more players, Parekh, however, said a greater need of the hour is banks with much larger size and scale.

“I have always said that we need consolidation, rather than more players in the Indian banking sector. “The need today is for more consolidation than the new banks, because what we require is large-scale banks,” he said.

Asked if Indian banks need to match the size and scale of their international peers and consolidate their positions on global league tables, Parekh replied in affirmative and said: “We need scale for that and we would need consolidation to get the scale.”

Parekh also said the Indian banking sector needs to address the issue of huge unbanked population in rural areas. “We need to have much more rural branches today, although it will be very difficult for new banks to have 25 per cent] rural branches. It is a very tough call.

“Still the guidelines are very well thought-through for a comprehensive, pretty fair and transparent process to grant new licenses,” he said.

Parekh further said RBI in its final guidelines for new banking licences has taken care of all critical issues such as capital adequacy, foreign holding and rural branches.

“They have not excluded anyone outrightly and now it is their (RBI’s) prerogative that how many licences they want to give,” Parekh said.

Earlier, there were apprehensions that RBI might not allow companies with exposure to certain high-risk sectors like brokerage and real estate to seek banking licenses, while there were also voices of opposition against large business] houses being allowed to set up banks.

However, the final guideline does not exclude any aspirants on the basis of their business interests and rather focusses on ‘fit and proper’ criteria for grant of licences.

RBI has said the applicants should have a past record of sound credentials, integrity and financial strength with a successful track record of 10 years. RBI has fixed a minimum equity capital level of Rs 500 crore for the banking license aspirants, while capping the foreign holding in the first five years to 49 per cent and mandating 25 per cent of branches in rural area.

The RBI’s decision to open up the sector for new players has been widely welcomed by the aspirants as well as independent experts and industry leaders.

“The new RBI Guidelines on the banking licenses have opened the doors to next-generation banks. The move not to bar any sector and tough Group exposure norms are steps in the right direction,” said S Ravi, an eminent chartered accountant and independent director on various public companies.

“This will envisage the existing banks towards better performance which augurs well for the customers. RBI’s emphasis on the track record of the promoters will go a long

way in establishing a stable and safe banking companies,” he said.

At the end of last fiscal, India had a total of 173 commercial banks, which included 169 scheduled commercial banks and four non-scheduled commercial banks. Excluding the regional rural banks, there were 87 scheduled commercial banks in the country as on March 31, 2012. This included including about 27 from the public sector and 20 the domestic private sector banks.

As on March 31, 2012, a total of 41 foreign banks operating in India, while another 46 overseas banks had their respective representative offices in the country. In comparison, on lay 23 Indian banks had any overseas presence at the end of last fiscal.

Also, none of the Indian banks figure among even the top-50 banks globally in terms of either valuation or size, measured by equity and reserves.

L&T Fin, M&M Fin rally on new banking licence norms

Shares of non-banking finance companies rallied quite smartly in early trade on Monday after the Reserve Bank of India (RBI) on Friday issued its final guidelines for grant of new banking licences and invited applications from aspirants.

CNBC-TV18 reported quoting sources that the Reserve Bank may issue 4 to 5 licences.

L&T Finance Holdings , a subsidiary of engineering & construction major Larsen & Toubro , was locked at 5 percent upper circuit at Rs 85.70. There were pending buy orders of 326,411 shares, with no sellers available.

JP Morgan is neutral on L&T Finance with a target price of Rs 80. “While the stock is fully valued at the current share price, near term catalysts like a new banking license and possible rate cuts provide strong support,” JP Morgan said.

At 09:41 hours IST, Mahindra & Mahindra Financial Services jumped nearly 6 percent to Rs 210.55 while SREI Infrastructure Finance advanced more than 6 percent Rs 38.30 on Bombay Stock Exchange.

Bajaj Finserv gained 4 percent to Rs 856.35 while IFCI rose 2.7 percent to Rs 34.25. State-owned Power Finance Corporation went up nearly 2 percent to Rs 207.95.

The central bank kept July 1 as the deadline to apply for new banking licences.

RBI said the applicants should have a past record of sound credentials, integrity and financial strength with a successful track record of 10 years.

The banking regulator fixed a minimum equity capital level of Rs 500 crore for the banking license aspirants, while capping the foreign holding in the first five years to 49 percent and mandating 25 percent of branches in rural area with population upto 9,999, among others

In line with existing domestic norms, the new bank should also achieve priority sector lending target of 40%. Interestingly, most of the existing banks are failing to meet the target.

RBI said non-operating finance holding company must be fully promoter-owned. “Non-operating holding company will hold 40 percent in new bank for 5 years and will cut stake in new bank to 15 percent in 12 years,” the RBI added. Private companies and NBFCs can set up bank via non-operating holding company.

After a span of around 10 years RBI is set to issue fresh banking license. In 2003-04, it had last issued license to Yes Bank and Kotak Mahindra Bank.

Ranbaxy up on restart of Atorvastatin production in the US

Ranbaxy shares rose over 4 percent in morning trade after the drug maker said it has resumed production of the drug substance for its Atorvastatin cholesterol lowering drug in United States.

It had recalled some batches of Atorvastatin, which is a generic version of Pfizer’s Lipitor, in November 2012, stating that could contain small glass particles about less than 1mm in size. The company owned by Japan’s Daiichi Sankyo had said that it was a voluntary recall in the US market related to 10mg, 20mg and 40mg dosage strengths, packaged in 90s and 500 count bottles with respect to certain lot numbers and didn’t affect the tablets in 80mg strength.

“We are working with the US Food and Drugs Administration and have identified and implemented multiple corrective and preventive actions. As a part of the first step in initiating the manufacturing process to resume supplies to the US market, we have commenced the production of the drug substance for our Atorvastatin product,” Ranbaxy said in a notice to stock exchanges on Monday.

HSBC upgraded Ranbaxy to “overweight” from “underweight” saying its re-entry in the generic Lipitor market and the approval to resume manufacturing at Ohm’s Labs in the US are key positive catalysts.

The recent correction in the stock was also a reason for the upgrade.

At 10:10 hrs, Ranbaxy shares were up 3.8 percent at Rs 429.40 on NSE. Since the company announced the drug recall on Nov 23, the stock has t

China’s Feb HSBC flash PMI retreats from 2-year high

Growth in China’s giant manufacturing sector in February pulled back from two-year highs despite racking up a fourth consecutive month of expansion, a private survey showed on Monday, as foreign demand remained unsteady.

The HSBC flash purchasing managers’ index (PMI) for February slipped to 50.4, the lowest in four months and down from January’s final reading of 52.3, which had been the best showing since January 2011.

Also Read: FIIs investment in India mkt crosses USD 4-bn in Feb

The flash PMI is the earliest indicator of China’s economic health in any month and should not alter expectations that the world’s No. 2 economy is enjoying a gentle recovery, a welcome development for the country’s new leaders who take office in March.

“The underlying strength of the Chinese growth recovery remains intact, as indicated by still expanding employment and the recent pick-up of credit growth,” said Qu Hongbin, an economist at HSBC.

In line with recent trends, the flash PMI showed demand for Chinese exports teetered in February. The new export orders sub-index inched down to 49.8, a hair’s breadth from the 50-point mark separating expanding activity from contraction on a monthly basis.

China’s export sector has been an Achilles’ heel for its economy in the past two years as faltering global economic growth saw net exports drag on growth.

Although export growth surged to 21-month highs in January in a sign that business is picking up, most economists believe exporters face continued difficulty as US and European demand continues to languish.

Still, the flash PMI did not suggest China’s factories were re-entering a slowdown. While most PMI sub-indices fell in February, they were pulling back from multi-month highs, suggesting manufacturers were only taking a breather.

Some economists may attribute the dip in February’s flash PMI to the Lunar New Year holiday that began on February 10 this year and which fell in January last year, although the survey’s publisher, Market, says the data is seasonally adjusted to account for distortions from holidays.

The output sub-index fell from 22-month highs, new orders backed away from 20-month highs, factory employment edged down from its highest in 20 months, input prices cooled from a 16-month peak, and output prices fell from a 14-month high.

DOMESTIC DEMAND STEADY

As in previous months, February’s survey showed domestic demand held up better than that from abroad. The new orders sub-index remained comfortably above 50 even after falling from January.

China holds its annual full-session parliament meeting on March 5 when incoming President Xi Jinping officially takes the reins of state power, while outgoing Premier Wen Jiabao presents the government’s 2013 economic targets.

Most analysts believe Beijing will retain its 2012 gross domestic product (GDP) growth target of 7.5 percent this year, thereby giving itself some room to slightly surpass expectations.

China’s economy grew 7.8 percent in 2012, roughly in line with investors’ expectations, but still the worst growth report in 13 years. Analysts polled by Reuters expect the economy to grow 8.1 percent in 2013.

The rebound, though gentle, would comfort investors banking on a modest Chinese economic recovery to lift global growth.

Indeed, February’s flash PMI still marked the fourth consecutive month that the index has been above 50 despite its retreat. Prior to the turnaround that began in November 2012, the index had languished below 50 for 12 straight months.

The HSBC PMI survey is based on a poll of purchasing executives from over 420 manufacturing firms. The flash PMI is compiled from responses from 85 percent to 90 percent of that pool. The final results will be published on March 1.