[aaykarbhavan] Business standard and business line updates 24-1-2014

Currency notes may swell Govt's coffers: Experts

K. RAM KUMAR

RAHUL WADKE

 

 

MUMBAI, JANUARY 23:  

The Reserve Bank of India's move to completely withdraw from circulation all banknotes issued prior to 2005 may prompt those holding black money to aggressively look for ways, including selling banknotes at a discount and showing higher turnover and profits in business, to get rid of their stash of tax-evaded money, say experts.

Those with black money could become desperate and sell higher denomination banknotes such as ₹500 and ₹1,000 at a discount. In return, they could get banknotes (printed after 2005) amounting to, say, ₹400 and ₹800, respectively, said a chartered accountant.

The discount could get deeper in the run up to the day (July 1, 2014) from when non-customers will be required to furnish proof of identity and residence to the bank branch in which she/he wants to exchange more than 10 pieces of ₹500 and ₹1,000 notes.

The RBI's move could also swell the Government's coffers (and help bring down the fiscal deficit) as those with black money may suddenly show higher turnover and profits in their business, thereby paying more excise, sales tax and income tax, said Shravan Sharma, chartered accountant. Further, the RBI will also benefit as money (black) that was otherwise unproductive will get back in circulation.

According to an economist with a state-run bank, "Besides supply-side bottlenecks, black money and counterfeit banknotes are also responsible for the price rise.

This move to withdraw the banknotes prior to 2005 will help the Government as well as the RBI."

Experts say 'hawala' (sending money overseas and receiving money from overseas through illegal channels without actual movement of cash) transactions could also be hit as banknotes without the year of printing on the reverse side may no longer be acceptable.

What is more, temples, churches, gurudwaras and other places of worship may even see a spurt in cash offerings if the hoarders of black money are unsuccessful in converting their pile into white money (on which tax has been paid)!

Surrender from April 1

In a bid to curb black money and counterfeit notes, the RBI on Wednesday advised banks that after March 31, 2014, it will completely withdraw from circulation all banknotes issued prior to 2005.

From April 1, 2014, the public will be required to approach banks for exchanging these notes.

The Reserve Bank also clarified that the notes issued before 2005 will continue to be legal tender. This would mean that banks are required to exchange the notes for their customers as well as for non-customers.

The RBI has appealed to the public not to panic but to actively co-operate in the withdrawal process.

According to a numismatist, withdrawal of banknotes of high denomination happened in the early 1970s when inflation was ruling high.

(This article was published on January 23, 2014)

Keywords: Currency notes, Govt's coffers, Bank Notes, black money, RBI

Source   Business  standard

 

Taxation, infra hurdles will hurt FDI: EY survey

BS REPORTER New Delhi, 23 January EY's India Attractiveness Survey- 2014, released on Thursday, shows that though the country stays attractive to investors due to its traditional strengths such as cheap labour, its taxation and infrastructure are posing major challenges. EY's last such survey was in 2012. The 2014 survey, which polled 502 global executives from companies with international presence, showed the majority of respondents were considering increasing their presence in India. However, of the 502 respondents, 160 are not planning any investment in India, compared with only 61 of the 382 respondents in the 2012 survey. "This growing reluctance to invest has been partly caused by regulatory hurdles, a lack of adequate infrastructure and policy inaction. In most cases, investment is deferred until after the 2014 parliamentary elections. This approach gives them time to analyse the consequences of ongoing reforms," said the 2014 survey. Of the respondents in the survey who had an emerging market strategy, nearly a fifth said India accounted for more than 20 per cent of their total capital allocated for the developing world. India was the fourth largest recipient of FDI globally in terms of projects started in 2012. In the first nine months of 2013, foreign investment projects declined by 465 compared with the corresponding period last year. Low labour costs and the size of the domestic market in India are its most endearing features, but constraints have emerged such as the corporate taxation, inflexibility of labour laws, and transport and logistics infrastructure. Metros continue to attract the most FDI and investors are not able to think beyond Tier1cities. Technology, media and telecom were the most attractive sectors for investors with 21 per cent of FDI into India in 2007- 12 coming into these sectors. West Asia and southeast Asia are giving the traditional sources of FDI in India – US and west Europe — a run for their money. China continues to be India's main competitor for investment, but new destinations such as Vietnam, Malaysia and the Philippines are snapping at India's heels.

 

>YOUR MONEY   Get your high- end smartphone insured

Smartphones have become a necessity these days, and many of us are buying the high- end ones on equated monthly instalments ( EMIs) which allows one to pay for these phones over time. But what if your phone is stolen or damaged ? You will still have to pay the EMIs on your phone. Here's where an insurance cover on your phone can come to your rescue. Increasing instances of theft and break downs means you could easily lose expensive items. " It always makes sense to buy an insurance cover when you buy an expensive item," says Amarnath Ananthanarayanan, chief executive officer ( CEO) of Bharti AXA General Insurance. There are a few ways in which you can insure your phone. Firstly, extended warranties can help with the repairs of your phone for two years as repair costs of smartphones are high. Retailers say those who buy smartphones on EMIs don't bother with an extended warranty. Experts say this is because such buyers pay a few thousands a month for phones costing ₹ 30,00035,000, and dont want to cover the costs because it's too low. "Insurers offer group covers for smart phones through the retailers. This could be in the form of higher warranty, mostly for one year," says Ananthanarayanan. Most retailers see 55- 57 per cent of customers opting for extended warranty. The first year warranty on mobile devices is offered by the manufacturer. "Mostly, mobile devices develop problems in the second year and, hence, an extended warranty is offered in the second year," says Himanshu Chakravarthy, CEO, The Mobile Store. The warranty should be bought within three days of buying the handset. There is no warranty beyond the second year. For a ₹ 37,990 Samsung Galaxy S4 ( online price), the cost of extended warranty is ₹ 759. This could be as low as ₹ 300 for a phone costing ₹ 10,000- 15,000. The other way of insuring smartphones is theft covers offered by insurers. This can be claimed only if the phone is stolen, not when it is lost. " These are individual policies only but are looked at as group because stores have a certain volumes, say 5,000 or so. You can claim against the policy by filing a First Information Report ( FIR)," says Chakravarthy. But hardly 8- 10 per cent customers opt for a theft cover. It's cost structure is similar to extended warranty. There are limited insurers in this segment as of now. Some insurers are planning to get into the smartphone insurance segment. ICICI Lombard, for instance, is looking to enter the segment and Bajaj Allianz General Insurance offers such a cover on a case to case basis. So, you will need to look at the exclusions carefully before buying cover. Public sector insurers also offer group mobile policies to retailers that cover theft, loss and damages. The cover replaces the insured piece with a new one of the same specification and capacity. But you need to be careful about the exclusions, warns a public sector insurance executive. " If you claim against the policy because the device has disappeared, that is, you are not sure that it got stolen, mechanical breakdown, inherent defect, damaged at the time of repair, stolen from an unattended car and so on, you will not get anything," he said. NEHA PANDEY DEORAS Phones can be covered for both repairs and theft and your top- of- the- line phone needs both You can insure your phone by opting for extended warranties that can help with repairs for two years; another way is by opting for a theft cover Reserve Bank extends debt recast benefit to NBFCs BS REPORTER Mumbai, 23 January The Reserve Bank of India (RBI) on Thursday decided to extend the asset classification benefit of restructured assets, which is enjoyed by banks, to non- banking finance companies (NBFCs). Till now, any debt restructuring undertaken by NBFCs were classified as non- performing and attracted higher provisioning. Banks, even after recasting a debt, are allowed to treat it as a standard asset and required to make a provision of five per cent, as compared to 15 per cent provisioning required for sub- standard assets. "NBFCs being part of the financial institutions that lend to various sectors, also undertake restructuring of advances, either as part of a consortium or otherwise. It has, therefore, been decided to harmonise the guidelines on restructuring of advances with that of banks," RBI said in a statement. However, the regulatory leeway from both banks and NBFCs will be taken away from April 1, 2015, in line with the recommendation of the Mahapatra committee on restructured assets. The other recommendations include relaxation or extension of commencement of projects to not amount to restructuring for infrastructure, non- infrastructure and corporate real estate projects. The central bank also said a special classification benefit would be provided to corporate debt restructuring cases, including small and medium enterprises, until the end of March 2015. Till now, any debt restructuring undertaken by NBFCs were classified as nonperforming and attracted higher provisions FDI rules may stump even Indian chains NIVEDITA MOOKERJI & RAGHAVENDRA KAMATH New Delhi/ Mumbai, 23 January When the Arvind Kejriwal- led Aam Aadmi Party ( AAP) government in Delhi last week overturned the earlier Congress administration's decision to allow foreign- owned multibrand retailers in the state, it dealt a severe blow to the United Progressive Alliance government's grand plans to get foreign investment in the sector. The AAP argument was that it would impact the small retailer and the corner grocer — the aam aadmi shopkeeper. But the move will not only affect foreign investment, it is also a setback to the hope that the country's supply chains would become more efficient with global know- how. The decision will also affect the plans of Indian retail chains to get foreign direct investment, or FDI, and scale up their business. Take the example of Bharti's EasyDay. It's pan- India spread of 212 stores makes it a promising investment for any international chain. Organised retail is a small part — less than 10 per cent — of overall retail, which leaves a huge potential for growth. Walmart, the world's largest retailer which was supposed to buy into EasyDay, has broken off with Bharti. Foreign retailers should have been falling over each other to acquire a stake ( they are allowed up to 51 per cent) in the Indian retailer. But careful scrutity shows why it would be prudent to wait. Take EasyDay, for instance. Of its 212 stores, only 78 are in Congress- ruled or FDI- friendly states, making it about 36 per cent of the total. Of these, 45 are in Haryana and six in Maharashtra — states that will go to the polls later this year. Given the wave of populism sweeping the country, it is possible that the two states may alter their stands on FDI in multi- brand retail. Thus, EasyDay would be left with just 27 stores, or 12 per cent of the total, in states which are proFDI ( at least for the next few years). This should make any investor think twice before pumping funds in EasyDay. When the United Progressive Alliance opened up multi- brand retail for FDI in September 2012, it said that every state would be free to decide whether or not to allow foreign- owned retailers there. This was done to build political consensus for the move. But the government failed to anticipate how this would backfire. State after state ruled by the Bharatiya Janata Party, which counts shopkeepers among its traditional voters, began to exercise the veto. Punjab, ruled by BJP ally Shiromani Akali Dal, had encouraged foreignowned wholesalers but said no to foreign- owned retailers. "They ( the wholesalers) are procuring everything locally. And the local retailers are benefiting from them. So, rather than competing with the local traders, it is complementing them," Punjab Deputy Chief Minister Sukhbir Badal had told Business Standard some time back. More reversals may follow What really seems to have unnerved foreigners is the Delhi government's about turn. Rajasthan, where the Congress lost in the recent Assembly elections to BJP, too is likely to oppose the multi- brand FDI policy. Union Commerce & Industry Minister Anand Sharma, on his part, has attempted to assure investors by stating that no state has the right to reverse its decision on the FDI policy. But as a consultant who tracks retail argues, current political uncertainties are too much of a hurdle for investors, irrespective of what the minister says. "There will be a new government at the Centre in just a few months. So, who will risk an investment at this juncture?" This goes both ways as seen in the decision taken by the Karnataka government to change its " no" to " yes" last year after power transferred to the Congress from BJP. A common problem EasyDay is not the only example of a domestic chain which may face hurdles if it were to look for an overseas partner. The Mukesh Ambani- led Reliance Retail's food and groceries business, Kishore Biyani's Big Bazaar and Aditya Birla group's MORE too have a small fraction of their total stores in states that support foreign investment in retail. In the case of Big Bazaar, around 70 out of its 165 stores, or 42 per cent, are in FDI- friendly states. But, if the poll- bound states of Congress- ruled Andhra Pradesh, Maharashtra and Haryana are kept out, the number falls to just 25, or 15 per cent of the total. Reliance Retail has 74 of its 302 stores, or 24 per cent, in FDI- friendly states. Leaving out the states which will have elections this year, the number drops drastically to just 16, which is only 5 per cent of the total. The Aditya Birla chain presents a unique scenario: all the FDI- friendly states where its stores are located (Andhra Pradesh, Maharashtra and Haryana) are slated to have elections. The three states account for 148 of its 394 stores, or 37 per cent. If these states were to reverse their earlier decisions, the group would be left with no store in a FDIfriendly state. Location matters So, while these domestic retail chains are potential Indian partners for foreign players, their attractiveness fades away when seen in the context of the location of the stores. It's a different matter that both Future group and Reliance Retail have maintained they are not looking for foreign investment. Still, Tesco will invest $ 110 million, or close to ₹ 700 crore, for a 50 per cent stake in Tata group's Trent Hypermarket. But there's a catch: the UKbased retailer has said in its application that it will invest in only Maharashtra and Karnataka, both Congressruled and FDI- friendly states. The two- state strategy works for Tesco as Trent's Star India Bazaar has the majority of its stores in Maharashtra and Karnataka. The first foreign entrant in multi- brand retail still runs a risk in Maharashtra, which is scheduled for Assembly elections at the end of this year and may just see a change in government and reversal in retail FDI policy. However, what will work for Tesco may not work for others, points out Arvind Singhal, chairman of Technopak Advisors, as new investors will be more wary of investing in the light of policy reversals by the states. That said, the buzz is getting stronger that French retail chain Carrefour is preparing to file an application for entry in multi- brand retail. It is also said to be in talks with potential Indian partners. Carrefour entered the cash & carry (wholesale) segment in December 2010 and runs five stores in the country. Walmart, which was expected to be the first to apply for multi- brand but has now been left behind, is busy organizing its cash & carry business after splitting with Bharti and putting in place a new India entity. Experts point out that at a time when the two largest international chains — Walmart and Carrefour — are without Indian partners and many domestic retailers are looking for foreign investment, the state- by- state rule has emerged as the biggest hurdle. The uncertainty around a particular state's decision and reversal of policy after each assembly election will stand in the way of any serious foreign investment. This, according to them, could be a bigger hindrance than even the rule for mandatory local sourcing. Under it, retailers are required to source 30 per cent of their merchandise from small local suppliers. Walmart has asked the government to reduce the quantum from 30 per cent. The group's Asia chief, Scott Price, had last year said that the policy was not feasible. Where the unpredictability of rules and regulations in Indias very political economy are concerned, the more things change, the more they remain the same. Since allowing FDI in multi- brand retail has been left to the states, Indian companies may not benefit as foreign investors are wary of the politics Uncertainty around a state's decision and reversal of policy after each assembly poll will hamper any foreign funding GROWTH DRIVER Most department stores in the country are looking for foreign investments to scale up their business

 

Special unit to aid stricter regulatory enforcement

SAMIE MODAK Mumbai, 23 January The capital markets regulator, Securities and Exchange Board of India (Sebi), in the process of revamping its enforcement wing, to be able to probe and proceed against violators in a more effective way. The overhaul, to include establishing a specialised unit and strengthening the personnel, is based on recommendations made by Oliver Wyman, the international consultancy. It had been brought in in by the market watchdog in 2012 to assess its performance and to advise on organisational restructuring. According to sources, Sebi has initiated the revamp action by creating a task force, entrusted with responsibility for implementing and shifting to a new system. Under the latter, all enforcement proceedings will be handled by the enforcement department alone, letting the others focus on their core activity. "The other departments will continue to provide leads; the enforcement department will take care of follow- up action such as issuing of notices, organising hearings, passing of orders and handling court proceedings," said a Sebi source. The regulator also aims to improve the enforcement timelines and clear a large pile of pending cases, a source added. As on March 2013, a little over 1,000 proceedings, 114 enquiry proceedings and a little over 2,000 adjudication proceedings were pending, according to the annual report for the year. Sebi has been dealing with enforcement action in quite a few high- profile cases, including those against Reliance Industries, the Sahara group and Bank of Rajasthan. It also initiated action against a slew of collective investment schemes, in diverse areas. Under the new process, Sebi plans to have a fixed and significantly reduced turnaround time for every step of enforcement. The regulator will also set up a robust data management system; the current system is said to lack accuracy. The new system will store information on all previous cases and proceedings, in a better way. Sebi in the process of implementing Oliver Wyman recommendations |Sebi aims to improve effectiveness of enforcement |All proceedings to be handled by enforcement department; others to provide leads and focus on their core activities |Department to get more staff |Turnaround time at every step to be improved |Sebi will set up a new data management system *SAT: Securities Appellate Tribunal SEBI GETS TOUGH nLeadn nnoticen nHearingn nOrdern nSAT* n Stock exchanges are stepping up pressure on listed companies to improve shareholder disclosures, as FIIs boost holdings in the Indian equity market to an all- time high. The National Stock Exchange ( NSE) has asked at least 54 companies, including Reliance Industries and Bharti Airtel, to provide more information or explain unusual share- price swings since November 18, when the Securities and Exchange Board of India (Sebi) compelled bourses to tighten oversight and levy fines for lax disclosures. That compares with 42 requests in the previous 11 months, data compiled by Bloomberg show. Fines can reach ₹ 10,000 aday in case of delays in submitting financial results, according to Sebi's website. An additional penalty of 0.1 per cent of the equity capital or ₹ 1 crore, whichever is less, will be levied on companies that fail to comply for more than 15 days. BLOOMBERG NSE asks firms to explain unusual share- price movements

 

 

 

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