SC rejects Essar Oil's sales tax plea
BS REPORTER & AGENCIES
Mumbai/ New Delhi, 11 November
The Supreme Court on Monday dismissed plea from Essar Oil Limited
seeking extension of time for paying outstanding sales tax dues to
Gujarat state government.
"Supreme Court has not considered Essar Oil's application on the Sales
Tax matter.
Essar Oil will follow the Supreme Court order," Essar Oil said in a statement.
Essar Oil had approached the SC on October 7, to seek direction from
the court on constituting an expert committee which would examine the
company's plea on extension of sales tax dues. The company has till
date paid ₹ 3,697 crore towards its sales tax liability, including
interest, out of total sales tax dues of ₹ 6,169 crore ( excluding
interest).
A bench of justices A K Patnaik and J S Khehar said, "We could have
done something but the state government is not agreeing." The bench
also rejected the submission of senior advocate Mukul Rohatgi,
appearing for Essar Oil Ltd, that the hearing be adjourned for four
weeks. Rohatgi cited a newspaper report to drive home the point that
the oil firm has not been given any concession or benefit as accorded
to other companies by Rajasthan government. " It would be a
catastrophe. There are nearly 10,000 employees working in the
refinery. This is the only refinery in the country which has not
received any incentive or concession," Rohatgi said, adding that he
was not seeking any rescheduling of repayment of outstanding sales tax
dues. Essar Oil in its petition had claimed that it is facing a
challenging operating environment.
Shome throws GST ball in political court
BS REPORTER
New Delhi, 11 November
Parthasarathi Shome, one of the principal brains behind the Goods and
Services Tax ( GST), on Monday said the rollout of the new indirect
tax regime was now a call politicians would have to take.
"All the technical work is almost done and the concerns of various
states have been taken on board," Shome, advisor to Finance Minister P
Chidambaram, told
Bloomberg TV.
When asked if GST's implementation would take two to three years, he
replied: "I would be disappointed if that happens." The technical work
on the Direct Taxes Code ( DTC), which would replace the archaic
Income Tax Act of 1961, was also done, Shome said. " The finance
minister had said that it will be placed (in the House) in the winter
session.... I am keeping my fingers crossed." He said the ministry had
got clearance from the law ministry, and comments from other ministers
were discussed a week earlier. "Everything is finalised and we are
close to the finishing line. We would take it to the Cabinet and
expect it to get cleared so that it goes to Parliament." The Cabinet
had deferred the DTC in August, presumably because a proposal to levy
a super- rich tax on those earning above ₹ 10 crore a year did not
find favour with a section in the government.
The proposed indirect tax management, too, has its share of obstacles.
The Centre and states were yet to agree on the provisions of the GST
Constitution amendment Bill, aimed at providing enabling provisions
for the tax reform. Last month, states refused to include petroleum
and alcohol under the ambit of the GST, as suggested by the Centre,
and turned down a proposal to subsume entry tax under it.
States were worried that the provisions would dent their revenue
collections. Some states had suggested that the Centre not push the
tax regime now, in the wake of the 2014 general elections, but let the
new government take a call.
A decision would be taken in the next meeting of the Empowered
Committee (EC) of State Finance Ministers in Meghalaya this month. The
finance ministry was hopeful of tabling the Bill in the winter session
of Parliament, after the indirect tax proposal had missed several
deadlines due to differences between states and the Centre.
On the US Federal Reserve's plan to reduce the bond buying programme,
called the Quantitative Easing ( QE), Shome said: India might not be
completely ready for a tapering. However, he said, India was not as
exposed to international competition as China. " We are nestled in
comfort in this regard." The advisor to the finance minister said
containing the fiscal deficit at 4.8
'Technical work and concerns of states taken on board; Direct Taxes
Code technical work also completed' Parthasarathi
Usha Ananthasubramanian takes charge at Bharatiya Mahila Bank
Usha Ananthasubramanian on Monday took charge as the first chairman
and managing director of Bharatiya Mahila Bank, India's first all-
women bank. Prior to this, she was working as the executive director
of Punjab
RBI waives need for NoC from FEMA
The Reserve Bank of India ( RBI) has decided to waive the requirement
of No Objection Certificate ( NoC) from the perspective of Foreign
Exchange Management Act ( FEMA), 1999. However, any fit and proper/
due diligence requirement, as regards the non- resident investor, as
stipulated by the respective financial sector regulator shall have to
be
complied with, RBI said. BS REPORTER
Source Businessline
The senseless, irrelevant Sensex
K. RAMESH
Diwali saw the Sensex at an all-time high 21,196.81. Equally high are
fiscal deficit, current account deficit, inflation and corruption!
How is that investors in markets have gained confidence to drive it
high, even when the economy is struggling to recover and households
are reeling over increasing price rise? The answer lies in
understanding the structure of both market and household savings.
MARKET STRUCTURE
Out of 11.60 lakh companies registered in India, less than 5,800 (0.5
per cent of the total) are listed on the BSE! A small portion of these
listed companies is actively traded. Even among actively traded
shares, the 'free-float' shares, that is, shares available for trading
in the market (excluding promoters' holding, strategic holding, and
other locked-in shares) are too low.
According to a committee appointed by the Securities and Exchange
Board of India (SEBI), the number of listed companies in the BSE
remained around 5,800 only, after taking into account new listing and
de-listing.
Surprisingly, the trading volumes have gone sky-high in the last one
decade. The Sensex has gone up seven times from 3,100 in March 2003 to
about 21,000 in 2013!
How is that when the number of listed companies is too low — and among
them the actively traded shares are still lower, that too with minimum
'free-float' shares — the market is booming?
Liberalisation as part of economic reforms in August 1992 permitted
foreign institutional investors (FIIs) to enter Indian stock trading.
Individual FII was permitted to invest up to 5 per cent of a company's
issued capital (now increased to 10 per cent) and all FIIs as a group
were permitted to invest up to 24 per cent (now increased to 40 per
cent), with the approval of shareholders of the company by a special
resolution.
Tax policy was also liberalised selectively for listed securities
only. Total exemption was granted from long-term capital gains tax,
levied at 10 per cent on listed stocks.
This significant tax concession virtually made the Indian stock market
a tax haven for foreign investors.
Add to this the huge liquidity in developed countries, which enabled
foreign investors to access capital at near-zero interest rate to
invest in the stock market. Given the situation of too little float of
stocks chased by many, the demand increased, raising the prices of
stocks.
This position encouraged volatile FII investments, only for short-term
gains. The index also increased on investments and collapsed with
exits. Consequently, investors in the short term gained, compared with
medium-term and longer-term investors.
Thus, foreign investors in the capital market with access to cheap
money take advantage of India's liberal economic and tax policies. The
next question is, how does the Indian household see investments in
stock markets?
HOUSEHOLD SAVINGS
The Reserve Bank of India report of the Working Group on Savings
during the Twelfth Five Year Plan explains that during the 40-year
period from 1950-51 to 1990-91, the gross domestic savings increased
by about 13 percentage points (from 9.5 per cent of GDP to 22.9 per
cent). But after structural reforms were initiated from 1992, it
increased more rapidly. The gross domestic savings rate rose from 22.9
per cent in 1990-91 to 34 per cent of GDP in 2010-11, or in just two
decades.
For the period 2005-11, the composition of savings in gross financial
assets reveals that bank deposits (49.9 per cent), life insurance
(19.9 per cent), provident/pension fund (10.3 per cent) and small
savings (3.5 per cent) aggregated to 83.6 per cent of total investment
in financial assets. Investment in shares is only a meagre 4.3 per
cent! From this, two things are clear: the overall savings rate is on
a steady rise and Indian households prefer guaranteed investments to
the risky capital market.
Of a population of over 1.2 billion, barely 18 million invest in
equity market. Only 10 cities contribute to over 80 per cent of
trading volume in 2010 (Business Today April 2011).
The National Council of Applied Economic Research (NCAER) confirmed in
July 2011 that Indian households have only been marginal investors in
the stock market. They are extremely risk-averse.
The report finds that in times of economic crisis, investments in bank
deposits, life insurance funds, provident and pension funds increase
substantially, as they are relatively safer means of saving.
This remains so even as income from such safe investments, adjusted
for inflation, is either low or even negative. It is also
understandable, as households need to provide for themselves in the
absence of social security (unlike in the West), particularly in an
adverse economic environment.
The stock market is physically Indian, but financially foreign in
character. The economic theory that portfolio investment would reward
an active capital market, and therefore ultimately spur investments,
has been proved wrong in the Indian situation.
In fact, given the structure of the market (its narrow economic and
demographic base) and the nature of portfolio investors (read "hot
money"), the investment risk is high. In view of the merits of savings
over Sensex, one would expect supportive policies to boost the former.
Goldman Sachs has observed that household savings in India would
increasingly reduce the relevance of foreign investments for building
infrastructure.
In May this year the Prime Minister stressed the need to put household
savings to productive investments. A SEBI-appointed consultant
recommended that there should be greater focus on mobilising household
savings into capital markets.
The attempt to direct household savings into the capital market is a
Western notion that is being mechanically applied to the Indian
reality.
Such imported theories are bound to fail; ultimately, the government
depends largely on the savings of households.
(The author is a practising advocate and a fellow of ICAI.)
--
CS A Rengarajan
9381011200
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