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Understanding the effect of rolling back petrol prices
While Petrol prices seem to be running astray, what one must understand is that causing “Bharat Bandh” and other protests and eventually rolling back prices may not help the situation.
For example, India sells 100 units of produce at Rs 1000. This means as long as India spends Rs 1000, it can recover it by selling 100 units. At this stage, the economy is balanced. Now, let’s say India sells a liter of petrol at Rs 50 instead of Rs 75 (its true value) thus making a loss of Rs 25 per liter. To compensate for this Rs 25 loss, India will either borrow Rs 25 or print currency of Rs 25.Whatever be the case, for the additional Rs 25, India does not produce any goods. The number of units continues to remain at 100. In the absence of any real production, India will recover the Rs 25 from its citizens by spreading the loss across the 100 units.
So, the system had 100 units and was sold at Rs 1000. However, due to the loss, an additional Rs 25 (borrowed money or printed currency) was added into the system. So while the units remained 100, the money in the system became 1025. While the price per unit in the previous situation was 1000/100 = Rs 10, now the price per unit would become 1025/100 = Rs 10.25. This is how the recovery takes place across all the units. In other words, the value of the rupee goes down because the same number of units is now purchased at a higher amount.
A very similar thing is happening in India. People are spending more than they are producing. This is causing fiscal deficit or a gap between what we spend and what we earn. So naturally, the value of money is eroding in the economy as explained in the earlier example. India does not produce enough petrol and therefore imports because petrol is an essential commodity. As shown in our earlier example, the increase in petrol prices is not being passed on to the end consumer. Had the increase been passed on to the consumer, the system might have self regulated itself by way of the consumer and reducing the consumption because of higher prices.
Since the price rise does not get fully passed on, the demand for petrol remains unabated and India has to import more quantity of petrol. This naturally leads to more paper money (or borrowing) in the economy without a commensurate increase of real goods in the economy. This means that the price of goods in the economy increases to offset the loss of petrol sales. Thus, instead of fewer people paying for the increase in the price of petrol, now they pay by way of higher prices of goods. This is what is commonly called inflation. So in essence, by rolling back prices, the people at large may not benefit as they are hit by inflation which erodes the value of their money.
Hope this note gives you an idea on the effect of rolling back petrol prices.
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@B@R_0_0_D wrote:@
How IIPM’s Arindam Chaudhuri built the Rs 533 crore business
http://economictimes.indiatimes.com/news/news-b…
choti wala baba..
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6 banks may merge to create two big players
Financial Chronicle
Public sector banks’ consolidation, discussed often during the past decade, is being attempted for the first time with finance minister P Chidambaram taking the initiative to create global-sized Indian banks.
Two possible alignments are being talked of. One is the merger of IDBI bank and Uco bank into Bank of Baroda. The other is Andhra Bank and Oriental Bank of Commerce merging with Bank of India. There is, however, no official confirmation.
Chidambaram recently told Parliament, “Not one of our banks is among the top 20 of the world. China has three. Today, for a loan size of say Rs 6,000 crore, not a single bank in the country can take the portfolio on the book.”
Public sector banks’ consolidation is certainly a focus area but one cannot say at this point when and how it will happen, a top finance ministry official told Financial Chronicle.
Stressing that there was a case for merger of banks and for having two or three global sized banks in India, Chidambaram had raised the matter of consolidation at a meeting of top bankers in Mumbai a couple of months ago.
State Bank of India is ranked 60th among the top 1,000 banks in the world. It may take SBI decades to reach the size of any top US banks if it has to grow only organically.
Some bankers who did not want to be identified, said there had been discussions on consolidation among State Bank of India, Bank of India and Bank of Baroda to create the world’s largest bank. But disagreement and the absence of a concrete came in the way.
If its subsidiaries are merged with it, SBI would be among the world’s top 10 banks. SBI appears now to be comfortable with the idea of absorbing all its subsidiaries through the process of merger and become a very large bank. Such a mega merger would be easier, particularly from the point of view of technology and human resource management.
With unions no longer as influential as before, SBI has already merged two of its associates: State Bank of Saurashtra and State Bank of Indore.
The remaining five subsidiaries — State Bank of Hyderabad, State Bank of Mysore, State Bank of Bikaner & Jaipur, State Bank of Patiala and State Bank of Travancore — are likely to be merged with SBI in a phased manner.
The buzz in the market is that Bank of Baroda would become a large bank with the merger of IDBI and Uco bank, which would also have a much larger presence in the northern and eastern region. Bank of Baroda has a dominant presence in the western region and a sizeable presence in the south.
Likewise, Bank of India, again a dominant bank in the western region, will improve its presence in the north, thanks to Oriental Bank of Commerce, and in the south, thanks to Andhra Bank, should the two mergers happen.
Between 1990 and 2000, the banking sector witnessed around a dozen mergers, which were basically between strong banks and weak lenders. Besides, more than 15 consolidations have taken place among healthy banks for commercial purposes. The acquisition of the Centurion Bank of Punjab by HDFC Bank in 2008 for Rs 9,510 crore was the biggest merger in domestic banking.
The government has always held the view that it would not force banks to merge but would also not stand in the way. Instead it would act as a facilitator if some banks come up with merger proposals, as the need of the hour is large banks for funding huge projects, particularly in infrastructure. Now that the consolidation buzz has started, analysts say the finance ministry is keen to push it quickly.
As much $1 trillion is to be spent on infrastructure in the next five years and nearly 50 per cent of it is to be under public-private partnership.
Past bank mergers indicate that the two biggest challenges have been technology and human resource management, Bank unions fear there could be cultural issues as well and widespread transfers of employees of smaller and weak banks if they are merged with strong banks. Overlapping branches also could lead to job losses.
With RBI having called for applications for setting up new private sector banks, consolidation in the sector is inevitable, particularly among public sector banks, says a government official.
The talk of bank consolidation first started in the early nineties when the Narasimham committee recommended that there should be three or four big banks, led by SBI, to create global-sized banks, followed by national banks with a countrywide presence and then local and rural banks.
_The new financial hub
Once an unknown outpost, Hong Kong is emerging as a favoured location for young Indian finance professionals. According to a recent census report, a tidal wave of Indians landed on the shores of Hong Kong between 2006 and 2011
Swati Maheshwari
The Reuters_
HONG KONG has been rated as the world’s top financial centre for the past two years in a row by the World Economic Forum, beating the US and Britain into the second and third place, respectively. The fortunes of the “fragrant harbour” have improved dramatically, propelled by a combination of factors, including the rise of China and the decline of recession-hit western economies. Until 10 years ago, the saying was “Failed in London, try Hong Kong,” underlining the inferior status Hong Kong held. Now that has changed to finance professionals making a beeline to this Asian city hoping to escape the recession in the West.
Hong Kong is a destination of choice for finance professionals because of its low rate of taxes as compared to Europe and the US
Unfamiliar outpost
Indian professionals have long preferred to work in New York or London and if stationed in Asia, Singapore has been the unhesitating choice. Nearly every fourth person in Singapore is Indian, which makes Indians feel very at home in the city. In comparison, Hong Kong has been an unknown and unfamiliar Chinese outpost that hardly registered on the Indians’ radar. Historically, there have been blue- collar Indian workers and a small Sindhi community of traders settled for decades but hardly any of the younger finance professionals who have made a name for themselves in other financial centres.
China’s growing clout and the financial crisis of 2007-2008 changed all that with the city witnessing a steady influx of Indian professionals since then. The census report of Hong Kong’s population shows a tidal wave of Indians landing on Hong Kong’s shores between 2006 and 2011, an increase of more than 30 per cent in the ethnic Indian population. With most global banks and multinational companies building their regional headquarters in Hong Kong, thousands of Indians have gravitated to the Chinese city rather than its Asian rival Singapore. It must be added that even though Indians have become much more visible in the financial services in Hong Kong, they remain a small ethnic minority in the overall population.
Changed perception
Just how drastic the change in perception about Hong Kong has been is evident when an Indian lawyer reminisced that Hong Kong felt like the Wild West when he moved from New York six years ago! Gaurav Kumar, a banker who shifted to Hong Kong in 2003, says, “We didn’t know any Indians here then. If we saw an Indian, we would go up and say ‘hi’ and strike up a conversation as it was such a novelty. The IIM placements in 2004-2005 changed that significantly. Then the companies who hired Indians liked their quality, which they found was much better than the locals and it became a formal policy to hire from Indian campuses.” Saurabh Agrawal, an MBA from IIM Ahmedabad, who moved to Hong Kong a year before Gaurav, says, “If you knew one Indian family and their friends, then you knew all the Indians on Hong Kong island as there were so few but there was a huge amount of hiring after 2004 as companies tried to build their Asian businesses and wanted local talent to build relationships with clients.”
Asia growth story
The first significant wave of Indian finance professionals reached the shores of Hong Kong when the belief that Asia would be the growth story of the future became widespread in the years preceding the bust in western economies. Shiva Shankar, an IIM graduate and now a senior-level executive in a global investment bank, moved to Hong Kong from New York. He says there were at least 40-50 IIM graduates reaching Hong Kong every year between 2005 and 2008. With Asia growing at more than 10 per cent and most banks enhancing their strength in Hong Kong, the city presented an added incentive. “I would be able to visit my family in India just once a year from the US, taking 20-hour flights but I can easily go home three to four times a year from Hong Kong while being in the thick of things. Hong Kong has become much more accessible with many flights daily to India. Also, why would I want to work in New York City and London where tax rates for the highest earners are above 50 per cent as compared to less than 20 per cent rates in Hong Kong? Hong Kong has become a lot more visible now and if you want to rise to senior management in banks, this is the place to be.”
Enhanced Indian presence
This resulted in a strong network and enhanced presence of Indians in China’s global financial centre. The recession and the resulting shrinking of business in the US and London added to its attractiveness, leading to another wave of professionals leaving these traditionally dominant financial centres. Sneha Kohli, a banker who graduated from Chicago business school in 2007, says the market for new graduates in the US was difficult in 2008. She moved to London but there weren’t too many opportunities in the global markets and she was tired of looking. “Even though we were not actively looking to move, I thought I’d be able to find something better in Asia. There are many more opportunities for Indians here. Most banks do India from here or Singapore and the equities market is much bigger in HK. It was really a career move.”
This was also the time when Indians settled in the US and Europe for many years decided to take the plunge to go to Asia. Rupali Saluja, an IT professional who relocated to Hong Kong after 10 years in the US, says she and her husband had been considering a stint in Asia for a while to be closer to India but the opportunity to move materialised only after the financial crisis. She says, “We wanted to try out Asia for both personal and professional reasons but the opportunity came when our bank shut down its US credit-card options and Asia became big. Hong Kong was an unknown destination and I was quite nervous. I was quite pleasantly surprised at the number of Indians here. Integrating here was much easier than I had imagined.”
Prashant Kanodia, another IIM graduate who relocated to Hong Kong after eight years in London, describes the situation in London as much bleaker. “There is definitely more action here. Most people are busy and not so depressed. Contraction is far worse in Europe. I have friends who are keen to move here as the environment and growth is better here.”
Transient destination
But for most Indians, Hong Kong is not a long-term location. Rupali says they would like to move back to the US after their Hong Kong stint but they have found that there is a divide and moving cross geographies is difficult. She feels, “Hong Kong is a transient place. It is difficult to grow roots in the city as language is a big barrier.” Shiva Shankar adds, “You have to realise that the move from the West is a one-way ticket as business is done very, very differently in these regions compared to the West.” Unlike the US or UK, it is far more difficult to integrate with the local population and make it a permanent home.
And now with the optimism about Asia turning out to be exaggerated, banks and other financial service companies are not just downsizing their operations in the West. There have been job cuts across the financial sector in the Asian financial centres too resulting in Indians having to leave.
Sneha Kohli says, “Banks built huge overcapacities in Asia but the growth in Asia has not been as expected or hoped for. Banks want to get rid of expensive senior-level management so these firings are different from 2008-09 firings, which were about pruning numbers of staff.” These cuts have checked the tide of Indian professionals in the last year but there is no doubt that Indians have made their presence felt in this currently top- ranked financial centre.
Why Hong Kong takes the lead
Hong Kong was named the world’s top financial centre for the second year running by the World Economic Forum (WEF), thanks to the strength of its business environment, infrastructure and a favourable tax regime.
The WEF’s annual Financial Development Report considered a wide range of factors and underscored the rise of Asian trading centres and the influence of China as the world’s second-largest economy.
Rival surveys based purely on the total value of transactions typically put New York or London in top place. However, stalling capital markets, sputtering economic growth and waning trust in financial organisations served to ensure that the top six positions remained unchanged from 2011, the WEF said. “Macroeconomic uncertainty as well as concerns related to regulation, contributes to inhibiting the financial industry from funding much-needed growth,” said Giancarlo Bruno, senior director at the WEF, which hosts an annual meeting of political and business leaders in Davos, Switzerland.
Though the report noted “pockets of improvement” across some banking-related indicators, it said that these signified “only a small step in what will be a long road to recovery”. The United States, Britain, Singapore, Australia and Canada followed Hong Kong in the 2012 rankings. The report looked at legal and regulatory factors, business environment, financial stability, banking and non-banking services, markets and access to them.
“Despite these strengths, Hong Kong has a relatively underdeveloped bond market and its financial sector has yet to be fully liberalised," the report said.
Japan, Switzerland, the Netherlands and Sweden made up the remainder of the top 10 financial centres. The report said that policymakers face a “monumental” task to restore confidence in markets as waning trust in the overall system holds back investment.
*You’re better off with NSC, PPF
Radhika Merwin
The Business Line
At first sight, interests on bank deposits are higher than the
small saving schemes. You need to factor in the tax aspect.
The Government has recently announced new interest rates for post office savings schemes that will take effect from April 1. In most cases they have been cut by 0.10-percentage point from present levels. So, after this tweak, which is a better investment option — Post office schemes or bank deposits?
Post office term deposits for five years now offer 8.40 per cent against 8.50 per cent a year back. Five-year and 10-year NSC will now carry an interest rate of 8.50 per cent and 8.80 per cent respectively. PPF will now carry 8.70 per cent interest instead of 8.80 per cent this year.
So, first how do the rates compare? After 75-100 basis points cuts in their rates, five year-bank deposit rates now range between 7.25 and 9.25 per cent, against 8.5 and 8.4 per cent now offered on the five-year NSC and post office deposits. At first sight, interests on bank deposits are higher than the small saving schemes. You need to factor in the tax aspect.
Five year options
Principal invested under small savings is exempt from tax under Sec 80 C (up to Rs 1 lakh). Ditto for special tax-saving deposits from banks for five years.
But there is a tax that you pay on the interest earned. This tax liability on the interest earned, varies. Interest earned on banks deposits as well as post office deposits is taxed at your slab rate, so no issues there.
Therefore, a bank deposit that earns 9.25 per cent (the best rate) is straightaway better than the post office deposit.
But interest earned on NSC, which is accumulated, is eligible for tax benefits if there is room under section 80C. Therefore, if you are able to avail of this benefit, NSC will offer better post-tax returns than bank deposits, for five years.
This is because a bank deposit at 9.25 per cent will effectively earn you a post tax return of 6.4 per cent at the 30 per cent tax bracket. The NSC offers 200 basis points more.
Ten-year options
The 10-year NSC will offer an interest rate of 8.80 per cent from April 1. The entire interest component may become taxable for an investor who has exhausted his Section 80C limits.
Interest of 8.70 per cent from PPF, in contrast, is completely tax free. However, unlike NSC, do note that the rate itself is subject to change every year. Hence, you cannot be sure of the final sum you will receive from saving in PPF. Nevertheless, the rates cannot be lower than long-term Government bond rates.
For a window of 10 years and above therefore, PPF remains the best option, no matter what your tax bracket is.
Other aspects
However, returns are not the only aspect to consider while choosing between bank deposits and post office schemes such as NSC and PPF. The former offers much easier options if you end up withdrawing your money early. Banks usually charge a penal interest for early withdrawal.
Both NSC and PPF have fairly complex rules for withdrawal, ranging from the reasons for which you can withdraw to the amount of the outstanding balance that you can encash. For instance, in case of NSC you can withdraw prematurely only in case of death, forfeiture by pledgee or through a court order. Even then the amount you can encash is calculated based on simple interest. Again in case of PPF, the investments are locked in for a period of 15 years and partial withdrawals are allowed only after the end of sixth year. The amount is subject to limits based on the outstanding amount at the end of the fourth year.
Hence if liquidity is your top priority, you may just have to trade off better returns for one.
*For Self-employed Customers
Axis Bank Offers 75 bps discount on Home Loans *
*
The Economic Times*
Under Axis Bank’s new scheme, individuals with good repayment track record will be rewarded with three rate reductions of 25 basis points each at the end of the second, third and fifth year
Axis Bank, the country’s third-largest private sector lender, has launched a home loan product for the self-employed that offers 75 basis point cut in interest rate for customers with good repayment record.
The scheme, launched on Tuesday, offers a minimum loan of Rs. 10 lakh and a maximum tenure of 15 years for repayment. It, however, comes with a rider: the age of the borrower should be 65 years, or less, at loan maturity. The product, which focuses on businessmen in small towns, is part of the lender’s efforts to counter a slump in income growth due to saturation of the urban salaried-class market and high real estate prices.
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Partial relief for 480 Pakistani hindus
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Rs 55 crore and counting: Sebi’s expense bill to Sahara
wolf wrote:
Partial relief for 480 Pakistani hindus
1 month visa extension for overstaying Pakistan Hindus given by Ministry of external affairs. But, the refugees do not want to go back to Pakistan, say they would rather die in India than go back.
isse finance kaise simpify hua>>??
@B@R_0_0_D wrote:@
Vijay Mallya gets Rs 1.5 crore pay from US, UK firms
http://economictimes.indiatimes.com/news/news-b…
ystrdy news was there his planes will end up in scrap..
rajdesidime wrote:@B@R_0_0_D wrote:@
Vijay Mallya gets Rs 1.5 crore pay from US, UK firms
http://economictimes.indiatimes.com/news/news-b…
ystrdy news was there his planes will end up in scrap..
yes, bura haal hai,
Slowdown-hit retailer Kishore Biyani now out of ‘ivory tower’, spends time on the floor with employees
Get Aadhaar to obtain PAN card now
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*SMS alerts to caution investors against fraud schemes soon
The Financial Express*
Corporate Affairs Ministry will soon start sending out SMS alerts asking people to take informed decision before putting in their money in any scheme, a move to sensitise the common man against fraudulent investment schemes
The plan to send SMS alerts, expected to be ready by end of this month, is part of larger efforts to create awareness among investors amid rising instances of people getting duped by fraudulent investment schemes. “We are going to provide SMS alerts, which will be small cautionary messages to alert investors about fraudulent and ponzi schemes. We will be providing such alerts through the BSNL network,” a senior Ministry official said today.
According to the official, the Ministry would also soon be tapping ‘Google’ as well as airing messages on All India Radio and Doordarshan, to create more awareness among investors about fraudulent schemes. “We will finalise a Google package or Google enabled mechanism to spread awareness (among investors) by the end of month,” he said. Campaigns through SMS alerts and Google would continue for about three to four months. The expenditure in this regard is expected to be around Rs 1 crore to start with.
The official noted that digital media would be utilised, especially to caution vulnerable sections like youngsters and pensioners from making investments in fraudulent schemes. The idea to have SMS alerts and to tap the digital media was mooted by Corporate Affairs Minister Sachin Pilot. Already, the Ministry is carrying out various investor awareness programmes.
Meanwhile, the ministry is planning to analyse data on unpaid and unclaimed money lying with various companies, besides drawing up a list of entities that are non-compliant with such norms. The proposal is aimed at promoting investor education and awareness for growth of corporate sector in the country. Also, plans are on the anvil for providing a search facility on MCA 21 – the ministry’s key portal for stakeholders – whereby investors can obtain details of prosecution cases pending against a company or director.