In what could be a major overhaul of the way public offers are conducted, market regulator SEBI is mulling over a possible demarcation of days to be given to retail and institutional investors for submitting their bids.As part of efforts to attract more retail investors to the stock market, SEBI is considering a proposal wherein the institutional investors would be first asked to submit their bids, possibly in the first two days, and then the remaining two days would be open only for retail investors, provided the IPO is open for four days.
The move is being considered because retail investors have been traditionally following the cues from the demand generated among the large institutional investors and put in their bids on the last day, but in the recent IPOs the institutional investors have also been seen waiting till the last moment.
Tuesday, July 27, 2010
Govt. unveils Rs. 1,500 laptops for students
The Human Resource ministry unveiled a Rs. 1,500 (around $30)laptop which is designed specifically for students. The laptop will be available for the students in 2011."If more companies decide to manufacture a similar device, prices will come down automatically," Human Resource Development Minister Kapil Sibal said after unveiling the low cost-access-cum computing device here.
When the ministry floated the concept of a low cost laptop some years ago, officials said it would cost Rs.500 ($10). It will now cost about three times the initial projections.The ministry expects the prices to drop to Rs.1,000 ($20) and reach Rs.500($10) as innovations are introduced.The device, no bigger than a conventional laptop, is a single unit system with a touch screen and a built in key board along with a 2 GB RAM memory, wi-fi connectivity, USB port and powered by a 2-watt system to suit poor power supply areas."This is real and tangible and we will take it forward. Sun will rise for the Indian students in 2011," he said.The ministry also invited private players to produce similar low cost computers."When we started the project, the response from the private sector was lukewarm. Now many are willing to join the innovation," Sibal said.The ministry started its efforts by holding discussions on this concept with a group of experts at the Indian Institute of Science, Bangalore, IIT Kanpur, IIT Kharagpur, IIT Madras and IIT Bombay, a ministry official said.The low cost laptops will be distributed in institutions by the HRD ministry. The final price will depend on the transportation cost."We will give some subsidy on the device. As far as transport is concerned, if the transport cost in less, the government can bear that as well," Sibal added.
When the ministry floated the concept of a low cost laptop some years ago, officials said it would cost Rs.500 ($10). It will now cost about three times the initial projections.The ministry expects the prices to drop to Rs.1,000 ($20) and reach Rs.500($10) as innovations are introduced.The device, no bigger than a conventional laptop, is a single unit system with a touch screen and a built in key board along with a 2 GB RAM memory, wi-fi connectivity, USB port and powered by a 2-watt system to suit poor power supply areas."This is real and tangible and we will take it forward. Sun will rise for the Indian students in 2011," he said.The ministry also invited private players to produce similar low cost computers."When we started the project, the response from the private sector was lukewarm. Now many are willing to join the innovation," Sibal said.The ministry started its efforts by holding discussions on this concept with a group of experts at the Indian Institute of Science, Bangalore, IIT Kanpur, IIT Kharagpur, IIT Madras and IIT Bombay, a ministry official said.The low cost laptops will be distributed in institutions by the HRD ministry. The final price will depend on the transportation cost."We will give some subsidy on the device. As far as transport is concerned, if the transport cost in less, the government can bear that as well," Sibal added.
Goods to be taxed at 6-10 percent, Services at 8 percent
Finance Minister Pranab Mukherjee Wednesday said the country can have two goods and services tax (GST) effective from April 1, 2011.He proposed a dual rate structure during the first year of introduction of the new indirect tax regime under which the central government will keep the lower central goods and services tax (CGST) at 6 percent and the standard rate at 10 percent. Services will be charged at 8 percent.
The two structures would be merged eventually, he added. "We are agreeable to the adoption of a dual rate structure for goods at the inception of GST. In the year of introduction (April 1, 2011), the government proposes to keep the CGST (central goods and services tax) lower rate for goods at 6 percent and standard rate at 10 percent," said Mukherjee. "The services will be charged at 8 percent," the finance minister added, addressing the empowered committee of state financial ministers, which has been the key deliberating forum on the issue. India Inc has been clamouring for uniformity in the central and state tax regimes, which taken together can be as high as 30 percent, and results in rampant evasion. As per the initial understanding between the states and the centre, the state goods and services tax (SGST) will also be kept at the same levels resulting in a single rate for CGST and SGST in the range of 10-12 percent. "The peak effective rate will be about 15 percent which will be quite acceptable to the trade and industry. Eventually, it will settle down to a level of 16 to 18 percent for both CGST and SGST which will mean an effective rate of 12 percent," said Mukherjee. In the second year of implementation of GST, the standard rate for SGST and CGST may be reduced to 9 percent retaining the lower rate at 6 percent. And during the third year of its existence, the GST rates will be standardised at 8 percent for both goods and services both at the central and state level. "Thus, in a phased manner, we will be able to achieve a single CGST and SGST rate for both goods and services," said Mukherjee. The list of 99 items exempted under the present tax regime will continue to enjoy exemptions under the CGST and SGST. The finance minister also said that states would be compensated as per the recommendations of the 14th finance commission for any revenue loss. All central and state taxes like excise, value added tax (VAT) and service tax will be rolled into GST once the new regime comes into effect.
The two structures would be merged eventually, he added. "We are agreeable to the adoption of a dual rate structure for goods at the inception of GST. In the year of introduction (April 1, 2011), the government proposes to keep the CGST (central goods and services tax) lower rate for goods at 6 percent and standard rate at 10 percent," said Mukherjee. "The services will be charged at 8 percent," the finance minister added, addressing the empowered committee of state financial ministers, which has been the key deliberating forum on the issue. India Inc has been clamouring for uniformity in the central and state tax regimes, which taken together can be as high as 30 percent, and results in rampant evasion. As per the initial understanding between the states and the centre, the state goods and services tax (SGST) will also be kept at the same levels resulting in a single rate for CGST and SGST in the range of 10-12 percent. "The peak effective rate will be about 15 percent which will be quite acceptable to the trade and industry. Eventually, it will settle down to a level of 16 to 18 percent for both CGST and SGST which will mean an effective rate of 12 percent," said Mukherjee. In the second year of implementation of GST, the standard rate for SGST and CGST may be reduced to 9 percent retaining the lower rate at 6 percent. And during the third year of its existence, the GST rates will be standardised at 8 percent for both goods and services both at the central and state level. "Thus, in a phased manner, we will be able to achieve a single CGST and SGST rate for both goods and services," said Mukherjee. The list of 99 items exempted under the present tax regime will continue to enjoy exemptions under the CGST and SGST. The finance minister also said that states would be compensated as per the recommendations of the 14th finance commission for any revenue loss. All central and state taxes like excise, value added tax (VAT) and service tax will be rolled into GST once the new regime comes into effect.
EU banks stress test
The announcement:
The Committee of European Banking Supervisors (CEBS) announcement showed that the EU banking sector is in much better shape than the market had expected. The committee announced that the stress test found that 91 banks in the 20 EU economies could face around EUR 566 billion in total potential losses in a deteriorating economic and financial environment over a two year period. However, only seven banks were deemed to have failed the test, coming up short by a combined EUR 3.5 billion in capital. Out of the seven banks, five were Spanish, one was a German bank and one a Greek bank.
Both the amount of capital shortfall and number of banks deemed to have failed the test were significantly lower than market expectations. With market expectations that close to 20 banks could fail the test and that could result in a net cumulative capital shortfall of around EUR 30 to EUR 90 billion. While the figures announced were significantly better than market expectations, questions are being asked over the toughness and inconsistencies in the testing methodology. It took sometime for the market to interpret the results and reaction was fairly muted reflecting that the worst hopes were not realized.
The Committee of European Banking Supervisors (CEBS) announcement showed that the EU banking sector is in much better shape than the market had expected. The committee announced that the stress test found that 91 banks in the 20 EU economies could face around EUR 566 billion in total potential losses in a deteriorating economic and financial environment over a two year period. However, only seven banks were deemed to have failed the test, coming up short by a combined EUR 3.5 billion in capital. Out of the seven banks, five were Spanish, one was a German bank and one a Greek bank.
Both the amount of capital shortfall and number of banks deemed to have failed the test were significantly lower than market expectations. With market expectations that close to 20 banks could fail the test and that could result in a net cumulative capital shortfall of around EUR 30 to EUR 90 billion. While the figures announced were significantly better than market expectations, questions are being asked over the toughness and inconsistencies in the testing methodology. It took sometime for the market to interpret the results and reaction was fairly muted reflecting that the worst hopes were not realized.
Saturday, July 24, 2010
Discussion Paper on Foreign Direct Investment in multi-brand retail trading
The Department of Industrial Policy and Promotion (DIPP) has recently commenced issuing discussion papers on some important subjects on Foreign Direct Investment (FDI), inviting public comments. In this regard, a discussion paper on FDI in the defence sector was released in May 2010. The DIPP has now released (on July 6, 2010) a discussion paper on FDI in multi-brand retail trading. This special edition briefly discusses the present policy on FDI in trading and thereafter summarizes the aforesaid discussion paper on multi-brand retail trading. Present FDI policy on trading The present policy allows 100 percent FDI in cash and carry wholesale trading under the automatic route, subject to certain conditions. ‘Cash and carry wholesale trading’ means sale to retailers, industrial, commercial, institutional or other professional business users or to other wholesalers and related subordinated service providers. With regard to retail trading, FDI up to 51 percent is allowed with prior approval of the Government in single brand retail trading of products, subject to the following conditions: ·
Products to be sold should be of a ‘Single Brand’ only. ·
Products should be sold under the same brand internationally ie products should be sold under the same brand in one or more countries other than India. ·
‘Single Brand’ product-retailing would cover only products which are branded during manufacturing. The extant policy prohibits FDI in multi-brand retail trading. Discussion paper on multi-brand retail trading Present scenario The Discussion Paper summarizes the present policy on retail trading and provides statistics with respect to retail trading in India. It notes the following major concerns which have been expressed with regard to opening of the retail sector for FDI: ·
It would lead to unfair competition and ultimately result in large-scale exit of domestic retailers, especially the small family managed outlets, leading to large scale displacement of persons employed in the retail sector, which presently is the second largest employer after agriculture.
The Indian retail sector, particularly organized retail, is still underdeveloped and in a nascent stage and therefore it is important that the domestic retail sector is allowed to grow and consolidate first, before opening this sector to foreign investors. Recommendations of various studies The Discussion Paper discusses the recommendations of various reports / studies in relation to FDI in retail sector. Most of these reports (reports prepared by FICCI and ICICI Property Services, Centre for Policy Alternatives, Mid Term Appraisal of Tenth Plan, ICRIER and Economic Survey 2008-09) recommend opening of FDI in retail trading on a gradual basis. As per these studies, opening of FDI in retail trading would lead to several benefits such as supply chain improvement, investment in technology, manpower and skill development and greater GDP and employment generation. The Parliamentary Standing Committee on Commerce, in its 90th Report on ‘Foreign and Domestic Investment in Retail Sector’ has identified a number of issues related to FDI in the retail sector, including labour displacement, disintegration of established supply chains by establishment of monopolies of global retail chains, etc. Accordingly, the Committee made various recommendations for regulation and development of the retail sector. FDI policy in retail trading in other comparable countries The Discussion Paper mentions that FDI is permitted in the retail sector in Brazil, Argentina, Singapore, Indonesia, China and Thailand without limits on equity participation, while Malaysia has equity caps in this regard. The Discussion Paper thereafter discusses the experiences of countries that allow FDI in the retail sector. In most of these countries, the Discussion Paper notes that opening of the FDI has led to the development of a large organized retail industry and entry of major players in the market. Rationale for FDI in retail trading The Discussion Paper rationalizes the entry of FDI in retail sector on a calibrated basis, citing various benefits for the country, such as: ·
Improvement in the supply chain infrastructure by bringing in technical know-how and capital ·
Improvement in farmer income through removal of structural inefficiencies ·
Benefits to customers in the form of better quality of products and lower prices Issues for resolution
The Discussion Paper finally lists out certain issues for resolution in respect of which comments are invited from the public. These issues, in brief, are as follows: ·
Whether FDI should be allowed and, if yes, to what extent, in multi-brand retail trading? · Whether it should be mandated that a percentage of FDI coming in should be spent towards building up of back end infrastructure, logistics or agro processing? ·
Should a minimum threshold limit for investment in backend infrastructure logistics be fixed? If so, what should this financial threshold be? ·
Should FDI be permitted with conditions for employment generation in rural areas, for example, a condition that at least 50 percent of the jobs in the retail outlets should be reserved for the rural youth? ·
Similarly, to develop the Small and Medium Enterprises (SME) sector through local sourcing, should it be stipulated that a minimum percentage of manufactured products be sourced from the SME sector in India? ·
How can the small retailers be integrated into the upgraded value chain? For example, should it be stipulated that a minimum percentage of sales of the FDI funded retailers should be made to other retailers through special wholesale windows? ·
Should FDI in retail trading be initially allowed only in cities with population of more than 1 million and nearby areas? ·
Will any of the conditionalities mentioned above be inconsistent with India’s commitments under the WTO agreement? If not, can such conditionalities be extended to all retail chains in India above a certain size?
Will such extended conditionalities be consistent with Article 301 of the Indian Constitution? ·
What additional steps should be taken to protect small retailers (for example, an exclusive legal and regulatory framework or a Shopping Mall Regulation Act)? Does this require intervention at national level or should this be left to the States? ·
Whether the Government should reserve the right of first procurement for the public distribution system (PDS) for a part of the season or put in place a mechanism to collect a certain amount of levy from private traders in case the level of buffer stock falls below a certain level?
Whether there should be a centralised agency, to be nominated by the State Governments, to grant permissions and monitor compliance with the above stipulations?
Whether such agency should also be empowered to monitor compliance of the present cash and carry outlets? ·
In case of non-compliance, apart from the penalty of cancellation of approvals as well as denial of future permissions for such activities, whether additional civil and / or criminal penalties should be imposed?
ARTICLE BY : CA MOHAN CHAND
Products to be sold should be of a ‘Single Brand’ only. ·
Products should be sold under the same brand internationally ie products should be sold under the same brand in one or more countries other than India. ·
‘Single Brand’ product-retailing would cover only products which are branded during manufacturing. The extant policy prohibits FDI in multi-brand retail trading. Discussion paper on multi-brand retail trading Present scenario The Discussion Paper summarizes the present policy on retail trading and provides statistics with respect to retail trading in India. It notes the following major concerns which have been expressed with regard to opening of the retail sector for FDI: ·
It would lead to unfair competition and ultimately result in large-scale exit of domestic retailers, especially the small family managed outlets, leading to large scale displacement of persons employed in the retail sector, which presently is the second largest employer after agriculture.
The Indian retail sector, particularly organized retail, is still underdeveloped and in a nascent stage and therefore it is important that the domestic retail sector is allowed to grow and consolidate first, before opening this sector to foreign investors. Recommendations of various studies The Discussion Paper discusses the recommendations of various reports / studies in relation to FDI in retail sector. Most of these reports (reports prepared by FICCI and ICICI Property Services, Centre for Policy Alternatives, Mid Term Appraisal of Tenth Plan, ICRIER and Economic Survey 2008-09) recommend opening of FDI in retail trading on a gradual basis. As per these studies, opening of FDI in retail trading would lead to several benefits such as supply chain improvement, investment in technology, manpower and skill development and greater GDP and employment generation. The Parliamentary Standing Committee on Commerce, in its 90th Report on ‘Foreign and Domestic Investment in Retail Sector’ has identified a number of issues related to FDI in the retail sector, including labour displacement, disintegration of established supply chains by establishment of monopolies of global retail chains, etc. Accordingly, the Committee made various recommendations for regulation and development of the retail sector. FDI policy in retail trading in other comparable countries The Discussion Paper mentions that FDI is permitted in the retail sector in Brazil, Argentina, Singapore, Indonesia, China and Thailand without limits on equity participation, while Malaysia has equity caps in this regard. The Discussion Paper thereafter discusses the experiences of countries that allow FDI in the retail sector. In most of these countries, the Discussion Paper notes that opening of the FDI has led to the development of a large organized retail industry and entry of major players in the market. Rationale for FDI in retail trading The Discussion Paper rationalizes the entry of FDI in retail sector on a calibrated basis, citing various benefits for the country, such as: ·
Improvement in the supply chain infrastructure by bringing in technical know-how and capital ·
Improvement in farmer income through removal of structural inefficiencies ·
Benefits to customers in the form of better quality of products and lower prices Issues for resolution
The Discussion Paper finally lists out certain issues for resolution in respect of which comments are invited from the public. These issues, in brief, are as follows: ·
Whether FDI should be allowed and, if yes, to what extent, in multi-brand retail trading? · Whether it should be mandated that a percentage of FDI coming in should be spent towards building up of back end infrastructure, logistics or agro processing? ·
Should a minimum threshold limit for investment in backend infrastructure logistics be fixed? If so, what should this financial threshold be? ·
Should FDI be permitted with conditions for employment generation in rural areas, for example, a condition that at least 50 percent of the jobs in the retail outlets should be reserved for the rural youth? ·
Similarly, to develop the Small and Medium Enterprises (SME) sector through local sourcing, should it be stipulated that a minimum percentage of manufactured products be sourced from the SME sector in India? ·
How can the small retailers be integrated into the upgraded value chain? For example, should it be stipulated that a minimum percentage of sales of the FDI funded retailers should be made to other retailers through special wholesale windows? ·
Should FDI in retail trading be initially allowed only in cities with population of more than 1 million and nearby areas? ·
Will any of the conditionalities mentioned above be inconsistent with India’s commitments under the WTO agreement? If not, can such conditionalities be extended to all retail chains in India above a certain size?
Will such extended conditionalities be consistent with Article 301 of the Indian Constitution? ·
What additional steps should be taken to protect small retailers (for example, an exclusive legal and regulatory framework or a Shopping Mall Regulation Act)? Does this require intervention at national level or should this be left to the States? ·
Whether the Government should reserve the right of first procurement for the public distribution system (PDS) for a part of the season or put in place a mechanism to collect a certain amount of levy from private traders in case the level of buffer stock falls below a certain level?
Whether there should be a centralised agency, to be nominated by the State Governments, to grant permissions and monitor compliance with the above stipulations?
Whether such agency should also be empowered to monitor compliance of the present cash and carry outlets? ·
In case of non-compliance, apart from the penalty of cancellation of approvals as well as denial of future permissions for such activities, whether additional civil and / or criminal penalties should be imposed?
ARTICLE BY : CA MOHAN CHAND
GST Matters – Finance Minister’s speech
With the April 1, 2011 deadline for implementation of Goods & Services Tax (GST) approaching, the Government has recently announced certain policy statements through the Finance Minister’s speech today before the Empowered Committee of State Finance Ministers (EC); such statements are indicative of the contours of certain key aspects of the GST framework that are under discussion, and are summarized below:·
Purchase tax would be subsumed within the GST framework·
The threshold exemption limit should be common for (both) goods and services, and would be pegged at INR 1 million·
The threshold limits for compounding for small dealers would also be uniform under Central GST (CGST) and State GST (SGST), and can be fixed at either INR 5 or 10 million·
99 items currently exempted under VAT regulations should remain exempt from both components of GST·
Exemptions granted under the current excise regulations are being reviewed; going forward, items exempted from CGST should also be exempt from SGST·
There would be a phased approach to attain a single rate structure for goods and services; in the interim.
With the objective of accelerating the set up of an IT infrastructure for tax administration which is homogenous across States, an empowered group chaired by Dr. Nandan Nilekani would be constituted· The Central Government would fully compensate the State Governments for losses in FY 2009-10 on account of reduction of the rate of CST and purchase tax; the formulae for compensating the State Governments for losses during FY 2010-11 is being finalized by the EC. This approach would be continued in the GST regime as per the recommendations of the 13th Finance CommissionBMR comments This is a significant event at various levels; it re-affirms the commitment of the Centre to achieve the transition to GST on April 1, 2011. It also signifies the progress in alignment of the divergent objectives of various States towards a common goal through the financial support of the Centre. Further, clarity now available on the likely rates that would be operational under the GST regime (though subject to validation by States). This would enable the industry to appropriately envision the financial impact of GST on the supply and distribution chains. The service sector will be significantly impacted with this development. The key next step would be circulation of draft legislations, including rules for identification of place of supply of services.
ARTICLE BY: CA MOHAN CHAND
Purchase tax would be subsumed within the GST framework·
The threshold exemption limit should be common for (both) goods and services, and would be pegged at INR 1 million·
The threshold limits for compounding for small dealers would also be uniform under Central GST (CGST) and State GST (SGST), and can be fixed at either INR 5 or 10 million·
99 items currently exempted under VAT regulations should remain exempt from both components of GST·
Exemptions granted under the current excise regulations are being reviewed; going forward, items exempted from CGST should also be exempt from SGST·
There would be a phased approach to attain a single rate structure for goods and services; in the interim.
With the objective of accelerating the set up of an IT infrastructure for tax administration which is homogenous across States, an empowered group chaired by Dr. Nandan Nilekani would be constituted· The Central Government would fully compensate the State Governments for losses in FY 2009-10 on account of reduction of the rate of CST and purchase tax; the formulae for compensating the State Governments for losses during FY 2010-11 is being finalized by the EC. This approach would be continued in the GST regime as per the recommendations of the 13th Finance CommissionBMR comments This is a significant event at various levels; it re-affirms the commitment of the Centre to achieve the transition to GST on April 1, 2011. It also signifies the progress in alignment of the divergent objectives of various States towards a common goal through the financial support of the Centre. Further, clarity now available on the likely rates that would be operational under the GST regime (though subject to validation by States). This would enable the industry to appropriately envision the financial impact of GST on the supply and distribution chains. The service sector will be significantly impacted with this development. The key next step would be circulation of draft legislations, including rules for identification of place of supply of services.
ARTICLE BY: CA MOHAN CHAND
The RMB Appreciation: Who does it favor?
Taken From: Fibre2fashion.com
China has achieved an 8% GDP growth in 2009, and is further predicted to accomplish a 9.6% GDP growth in 2010. Simultaneously, the countrys inflation rates are also shooting up. In February, the consumer price index and producer price index experienced an increase of 2.7%, and 5.4% respectively, which was higher than the previous month. Along with the economic growth, the RMB also seems to have a rapid escalation.
Impact of the Appreciation:
Effects of the appreciation have been felt in both domestic, and abroad, becoming more and more significant with the time. Increase in the RMB exchange rates will help to minimize import costs of China, and help to reduce domestic inflationary pressure. Simultaneously, with the increase in RMB exchange rates, US will have to pay more cash while importing Chinese products. This will not be appreciated by US, especially for its domestic demand. The appreciation will have an impact on the Chinese stock markets, and the profitability of the Taiwan owned companies based in China, especially the export oriented. Authorities prefer a two-way movement in the RMB value, but that would be difficult due to the large amount of current account surplus, and high net capital inflows.
Does the appreciation favor China?
In a short term, the appreciation is likely to have less desirable effects on the countrys economic growth. The export market of China depends heavily on the availability of cheap labor. Escalating currency value will affect the exports of China, and resultantly, the overall national economy. If the Yuan appreciates against the dollar, it would bring financial instability, and is anticipated to endanger Chinas financial security.
On the contrary, some industry analysts predict that, in the long term RMB appreciation will result in a three-fold benefit for the country.
It will generate more development opportunities. It will augment the status on the country in the global forefront, people will feel richer, and will influence the commodity structure and the flow of investment. It will also maneuver the structure of domestic production resources.
The soaring currency value is likely to promote technical innovation, as the same relies on the market mechanism of the country, using price as a lever. Labor cost in China is cheap, while production and energy costs are expensive. The appreciation will encourage a demand for land and labor, and ultimately the demand for innovation. Export products depend more on technological innovation so as to remain competitive in the international market.
Finally, it will benefit the people as well. It makes imported products cheaper. It will motivate the market price of domestic financial assets, changing the financial market structure. Chinese people will see their money growing.
The appreciation of Chinese currency will simultaneously put pressure on other Asian countries, forcing them to increase their currencies as well. Taiwan currency is being predicted by industry experts to go up. A notable proportion of Asian exports to China are intermediate goods for re-export. This could keep the final export prices unchanged if the RMB appreciation is offset by low import prices.
Economic analysts foresee a further appreciation during the course of the current year and also during 2011. China should embrace new opportunities that have opened due to its currency appreciation, and allow growth for its national economy.
China has achieved an 8% GDP growth in 2009, and is further predicted to accomplish a 9.6% GDP growth in 2010. Simultaneously, the countrys inflation rates are also shooting up. In February, the consumer price index and producer price index experienced an increase of 2.7%, and 5.4% respectively, which was higher than the previous month. Along with the economic growth, the RMB also seems to have a rapid escalation.
Impact of the Appreciation:
Effects of the appreciation have been felt in both domestic, and abroad, becoming more and more significant with the time. Increase in the RMB exchange rates will help to minimize import costs of China, and help to reduce domestic inflationary pressure. Simultaneously, with the increase in RMB exchange rates, US will have to pay more cash while importing Chinese products. This will not be appreciated by US, especially for its domestic demand. The appreciation will have an impact on the Chinese stock markets, and the profitability of the Taiwan owned companies based in China, especially the export oriented. Authorities prefer a two-way movement in the RMB value, but that would be difficult due to the large amount of current account surplus, and high net capital inflows.
Does the appreciation favor China?
In a short term, the appreciation is likely to have less desirable effects on the countrys economic growth. The export market of China depends heavily on the availability of cheap labor. Escalating currency value will affect the exports of China, and resultantly, the overall national economy. If the Yuan appreciates against the dollar, it would bring financial instability, and is anticipated to endanger Chinas financial security.
On the contrary, some industry analysts predict that, in the long term RMB appreciation will result in a three-fold benefit for the country.
It will generate more development opportunities. It will augment the status on the country in the global forefront, people will feel richer, and will influence the commodity structure and the flow of investment. It will also maneuver the structure of domestic production resources.
The soaring currency value is likely to promote technical innovation, as the same relies on the market mechanism of the country, using price as a lever. Labor cost in China is cheap, while production and energy costs are expensive. The appreciation will encourage a demand for land and labor, and ultimately the demand for innovation. Export products depend more on technological innovation so as to remain competitive in the international market.
Finally, it will benefit the people as well. It makes imported products cheaper. It will motivate the market price of domestic financial assets, changing the financial market structure. Chinese people will see their money growing.
The appreciation of Chinese currency will simultaneously put pressure on other Asian countries, forcing them to increase their currencies as well. Taiwan currency is being predicted by industry experts to go up. A notable proportion of Asian exports to China are intermediate goods for re-export. This could keep the final export prices unchanged if the RMB appreciation is offset by low import prices.
Economic analysts foresee a further appreciation during the course of the current year and also during 2011. China should embrace new opportunities that have opened due to its currency appreciation, and allow growth for its national economy.
Economic Outlook 2010-11
Growth Prospects
The performance of the Indian economy in 2009/10 greatly
exceeded expectations. The farm sector which was expected to
contract showed resilience, growing by 0.2 per cent despite the weak
South West monsoon.The non farm sector also did well. It is the
assessment of the Council that the Indian economy would grow at
8.5 per cent in 2010/11 and 9.0 per cent in 2011/12.In the current fiscal
year,agriculture will grow at 4.5 per cent,industry at 9.7 per cent and
Global Prospects
The global economic and financial situation is recovering
slowly.The large fiscal deficits and high debt ratios coupled with
slow economic growth have created unsettling conditions for
business and have potential for causing great volatility in financial
markets.It is hard to visualize strong economic growth in the advanced
economies in 2010 and to a large extent in 2011. The implications of
this,for India ’s strategy to return to the 9.0 per cent growth
trajectory,are that public policy must promote business confidence
and facilitate increased
Structural Factors
In 2008/09 the investment rate fell on account of the drawdown
of inventories. This trend has reversed and the Council expects the
investment rate to be higher at 36 per cent (of GDP)in 2009/10,rising
to 37 per cent in 2010/11 and 38.4 per cent in 2011/12.Similarly we
expect the domestic savings rate to pick up and reach 33.4 per cent in
2009/10,34.3 per cent in 2010/11 and 35.5 per cent in 2011/12. These
rates should enable the economy to grow in a sustained manner
Private corporate investment and total investment in fixed
assets is expected to recover strongly but will not reach the previous
high levels. Government Final Consumption Expenditure to GDP
which hit a peak of 12.3 per cent in 2009/10 is expected to fall to 10.33
per cent in 2011/12. On the contrary, Private Final Consumption
Expenditure which declined in 2008/09 and 2009/10 is expected to
increase in the current and next fiscal year.Since 2001-02 the
progressive decline in the Private Final Consumption Expenditure
has been accompanied by a matching increase in the investment
expenditure component of GDP.
Sectoral Growth Projections
In the backdrop of a weak South West (SW)monsoon in
2009,the Council had expected the farm sector GDP to decline by 2
per cent. However, the actual loss in farm sector output was less.
The strength in horticulture, animal husbandry as well as higher
cotton output,helped farm sector GDP to ultimately register a
marginally positive growth of 0.2 per cent.
On the basis of a normal SW monsoon forecast by the
Meteorological Department, one may reasonably expect a strong
rebound in crop output in Kharif and Rabi in 2010/11.The better seed
and fertilizer availability and the construction of a large number of
water harvesting structures through the MNREGA lend strength to
these expectations. Moreover, the expansion in horticulture and
animal husbandry and a low base effect should generate a farm
sector GDP growth of around 4.5 per cent in the current fiscal.
Industrial sector recovery became evident in June 2009 and by
August 2009 the General Index of Industrial Production (IIIP)
registered double digit growth rate driven by similar growth rates
in output in the manufacturing and mining sector.
Overall,we expect GDP arising in the industrial sector to expand
9.6 per cent in 2010/11 rising to 10.33 per cent in 2011/12. The
expansion in the services sector is expected to approach 9 per cent
in 2010/11 and inch up to 9.6 per cent in 2011/12.Over all,the nonfarm
sector is expected to grow by 9.2 per cent in 2010/11 and 9.8 per
cent in 2011/12.
Trade & External Sector
According to the DGCI&SS report the merchandise trade
exports touched $176.6 billion in 2009/10 which was 4.7 per cent less
than 2008/09.Engineering and electronic goods were the hardest
hit declining by more than 20 per cent. Because of currency
fluctuations,the rupee value of exports showed practically no decline
in 2009/10.The value of merchandise imports in 2009/10 in doller
terms was 8.2 per cent lower at $2278.7 billion and 4 per cent
lower in rupee terms.
In 2010/11 we expect the value of crude oil imports to be high
due to increase in crude prices by almost 15 per cent and an
increase in the quantities imported. The oil import bill is expected to
rise to $1103 billion in 2010/11 $1120 billion in 2011/12.
Amongst the non oil imports we expect a comparatively slower
growth in the case of gold, silver imports and a stronger growth in
the remaining segments. The overall merchandise imports on
balance-of-ppayments basis are expected to rise to nearly $3354 billion
(uup 18 per cent) in 2010/11 $4414 billion (uup 17 per cent) in 2011/
12.
On the export side, the Council is projecting that in 2010/11
growth of petroleum products would be slightly higher than that of
imports at 24 and 16 per cent in 2010/11 and 2011/12 respectively.
The value of exports of gems & jewellery would show growth of 25
per cent.
Export of non-oil, non-jewellery products would rise by 20 per
cent in 2010/11 and moderate slightly in 2011/12. Our projections for
exports on balance-of-ppayments basis for 2010/11 amounts to
$2216 billion and for 2011/12 to $2254 billion.
Overall,the merchandise trade deficit on balance-of-payments
(BoP)basis in 2010/11 estimated at $1138 billion which is 18 per cent
more than the previous year.The projected trade deficit in 2011/12 is
$160 billion,an increase of 16 per cent over the 2010/11 In both
years, we are expecting the merchandise trade deficit to be around
9 per cent of GDP.
In 2009/10 the net FDI inflow at $20 billion was 11 per cent
more in 2009/10 compared to the previous year.Portfolio capital inflows
at $32 billion marked a big turnaround from (–)$14 billion in 2008/
09,reflecting the growth in domestic and world asset markets.The
portfolio inflows were primarily in the form of investments by Foreign
Institutional Investors (FFIIs) while the overseas equity issuance
(GGDR & ADR) by Indian corporates was quite subdued. Loan
capital inflows stood at $12 billion.
In 2010/11 and 2011/12 we see a continued expansion of net
FDI to $330 billion in both years,portfolio capital inflows of $25
billion and $35 billion and a steady increase in net loan capital inflows
to $17 and $25 billion respectively. Overall,our estimates for capital
inflows are $73 billion in 2010/11 and $91 billion in 2011/12.This would
be adequate to finance the large current account deficit in the two
years and leave a modest $31 and $41 billion (2.0 and 2.4 per cent of
GDP) to be absorbed in the foreign exchange reserves.
Prices and Inflationary Pressure
Since October 2008,the Indian economy has been experiencing
very high inflation in food prices.Initially this high inflation was
confined to only food articles – both primary and manufactured.
However as economic recovery began to stabilize it has,not
unexpectedly,manifested itself in the prices of manufactured goods.
The headline inflation rate which was 1 per cent in September
2009 has been rising since then reaching double digits in February
2010. Even in June the provisional headline rate was over 10 per
cent.Inflation in manufactured goods also jumped from less than 1
per cent in September 2009 to a high level of 6-8 per cent in April-
June 2010.
Inflation reflected in Consumer Price Indices has been running
in double digits.In July 2009,both CPI-IW (Industrial Workers)and
CPI -UNME (Urban Non-Manual Employees)surged from 9 per cent
to 12 and 13 per cent respectively. By December 2009,both indices
were reporting inflation of around 15 per cent, which increased further
to 16 per cent in January 2010. There has been a slight easing
thereafter,with both indices reporting inflation of less than 15 per
cent in March 2010.The CPI-IW inflation rate for May 2010 was less
than 14 per cent.
Inflation has remained a major source of concern in the economy
for more than a year.The overall WPI inflation rate has remained at
double digit levels for the past five months and the consumer price
inflation for much longer.Inflationary expectations,particularly food
inflation expectations,will be moderated because of the projected
normal monsoon. Food prices have already begun to soften.
Combined with the base effect,we expect inflation rate to fall to around
6.5 per cent by March 2011.
The available food stock must be released in a manner that
they have a dampening effect on prices.The behaviour of inflation
will also be a major concern for monetary authorities.Against the
background of inflation rates that are more than twice the comfort
level, monetary policy has to operate with a bias towards tightening.
This is essential to promote conditions for sustainable growth in the
medium term.
Monetary Conditions and The Financial Sector
In the October 2009 Economic Outlook,the Council had noted
that financial conditions had improved sharply across the world and
risk perceptions had turned more favourable. However the pace of
improvement has slowed down due to the heightened risk
perceptions on the sovereign debt,especially after the Greece episode.
In January 2010 as the Euro-zone initiative to support Greek
sovereign debt began to run into a range of obstacles,a generalised
lack of confidence developed with respect to sovereign governments
in general and weaker members of the Euro-zone in particular.
The Credit Default Swap (CDS) spreads increased not only
for public and corporate debt issued by Greece and the other
European economies perceived to be relatively weak but also for all
emerging and developing economies. However, currency exchange
rates did not show much movement till later.
Except for the Japanese Yen which strengthened against the
US dollar almost all other currencies declined – though the declines
were of varying orders.China had linked the Renminbi,to the US
dollar at the onset of the crisis.There was no change in the exchange
rate till the third week of June 2010, when Chinese authorities
announced that they were removing this peg. Since then the currency
has gained from a level of 6.83 to the dollar to 6.77.
While the monetary easing and the fiscal measures during the
crisis effectively limited the damage caused by the contagion, it was
always clear that these would have to be rolled back as the economies
gradually recovered.The European Union and the US continue to
face unsettled recovery conditions, with the possibility of recurrent
crisis being particularly pronounced in the Euro-zone.
In view of this exit from the accommodative monetary policy
and the reduction in fiscal deficit is only likely to materialize in
2011,perhaps in the middle of that year. 25 In those economies where
the effects of the crisis have clearly worn off and the recovery is
strong,an early exit from both the monetary and the fiscal stimulus is
called for.Australia,India,China,Brazil and Singapore have been
tightening their monetary policy by raising policy interest rates
and/or rolling back specific liquidity measures that were adopted at
the time of the crisis.
In India, the excess liquidity conditions created by an easy
monetary policy during the crisis, continued to prevail till May
2010, despite the tightening by RBI since October 2009.The situation
changed in June when banks at the margin began borrowing at the
repo window from the RBI. With the reversal in liquidity conditions,
overnight interest rates also reverted to levels that have approached
and even exceeded the upper end of the interest rate corridor i.e.,
the repo rate.
The performance of the Indian economy in 2009/10 greatly
exceeded expectations. The farm sector which was expected to
contract showed resilience, growing by 0.2 per cent despite the weak
South West monsoon.The non farm sector also did well. It is the
assessment of the Council that the Indian economy would grow at
8.5 per cent in 2010/11 and 9.0 per cent in 2011/12.In the current fiscal
year,agriculture will grow at 4.5 per cent,industry at 9.7 per cent and
Global Prospects
The global economic and financial situation is recovering
slowly.The large fiscal deficits and high debt ratios coupled with
slow economic growth have created unsettling conditions for
business and have potential for causing great volatility in financial
markets.It is hard to visualize strong economic growth in the advanced
economies in 2010 and to a large extent in 2011. The implications of
this,for India ’s strategy to return to the 9.0 per cent growth
trajectory,are that public policy must promote business confidence
and facilitate increased
Structural Factors
In 2008/09 the investment rate fell on account of the drawdown
of inventories. This trend has reversed and the Council expects the
investment rate to be higher at 36 per cent (of GDP)in 2009/10,rising
to 37 per cent in 2010/11 and 38.4 per cent in 2011/12.Similarly we
expect the domestic savings rate to pick up and reach 33.4 per cent in
2009/10,34.3 per cent in 2010/11 and 35.5 per cent in 2011/12. These
rates should enable the economy to grow in a sustained manner
Private corporate investment and total investment in fixed
assets is expected to recover strongly but will not reach the previous
high levels. Government Final Consumption Expenditure to GDP
which hit a peak of 12.3 per cent in 2009/10 is expected to fall to 10.33
per cent in 2011/12. On the contrary, Private Final Consumption
Expenditure which declined in 2008/09 and 2009/10 is expected to
increase in the current and next fiscal year.Since 2001-02 the
progressive decline in the Private Final Consumption Expenditure
has been accompanied by a matching increase in the investment
expenditure component of GDP.
Sectoral Growth Projections
In the backdrop of a weak South West (SW)monsoon in
2009,the Council had expected the farm sector GDP to decline by 2
per cent. However, the actual loss in farm sector output was less.
The strength in horticulture, animal husbandry as well as higher
cotton output,helped farm sector GDP to ultimately register a
marginally positive growth of 0.2 per cent.
On the basis of a normal SW monsoon forecast by the
Meteorological Department, one may reasonably expect a strong
rebound in crop output in Kharif and Rabi in 2010/11.The better seed
and fertilizer availability and the construction of a large number of
water harvesting structures through the MNREGA lend strength to
these expectations. Moreover, the expansion in horticulture and
animal husbandry and a low base effect should generate a farm
sector GDP growth of around 4.5 per cent in the current fiscal.
Industrial sector recovery became evident in June 2009 and by
August 2009 the General Index of Industrial Production (IIIP)
registered double digit growth rate driven by similar growth rates
in output in the manufacturing and mining sector.
Overall,we expect GDP arising in the industrial sector to expand
9.6 per cent in 2010/11 rising to 10.33 per cent in 2011/12. The
expansion in the services sector is expected to approach 9 per cent
in 2010/11 and inch up to 9.6 per cent in 2011/12.Over all,the nonfarm
sector is expected to grow by 9.2 per cent in 2010/11 and 9.8 per
cent in 2011/12.
Trade & External Sector
According to the DGCI&SS report the merchandise trade
exports touched $176.6 billion in 2009/10 which was 4.7 per cent less
than 2008/09.Engineering and electronic goods were the hardest
hit declining by more than 20 per cent. Because of currency
fluctuations,the rupee value of exports showed practically no decline
in 2009/10.The value of merchandise imports in 2009/10 in doller
terms was 8.2 per cent lower at $2278.7 billion and 4 per cent
lower in rupee terms.
In 2010/11 we expect the value of crude oil imports to be high
due to increase in crude prices by almost 15 per cent and an
increase in the quantities imported. The oil import bill is expected to
rise to $1103 billion in 2010/11 $1120 billion in 2011/12.
Amongst the non oil imports we expect a comparatively slower
growth in the case of gold, silver imports and a stronger growth in
the remaining segments. The overall merchandise imports on
balance-of-ppayments basis are expected to rise to nearly $3354 billion
(uup 18 per cent) in 2010/11 $4414 billion (uup 17 per cent) in 2011/
12.
On the export side, the Council is projecting that in 2010/11
growth of petroleum products would be slightly higher than that of
imports at 24 and 16 per cent in 2010/11 and 2011/12 respectively.
The value of exports of gems & jewellery would show growth of 25
per cent.
Export of non-oil, non-jewellery products would rise by 20 per
cent in 2010/11 and moderate slightly in 2011/12. Our projections for
exports on balance-of-ppayments basis for 2010/11 amounts to
$2216 billion and for 2011/12 to $2254 billion.
Overall,the merchandise trade deficit on balance-of-payments
(BoP)basis in 2010/11 estimated at $1138 billion which is 18 per cent
more than the previous year.The projected trade deficit in 2011/12 is
$160 billion,an increase of 16 per cent over the 2010/11 In both
years, we are expecting the merchandise trade deficit to be around
9 per cent of GDP.
In 2009/10 the net FDI inflow at $20 billion was 11 per cent
more in 2009/10 compared to the previous year.Portfolio capital inflows
at $32 billion marked a big turnaround from (–)$14 billion in 2008/
09,reflecting the growth in domestic and world asset markets.The
portfolio inflows were primarily in the form of investments by Foreign
Institutional Investors (FFIIs) while the overseas equity issuance
(GGDR & ADR) by Indian corporates was quite subdued. Loan
capital inflows stood at $12 billion.
In 2010/11 and 2011/12 we see a continued expansion of net
FDI to $330 billion in both years,portfolio capital inflows of $25
billion and $35 billion and a steady increase in net loan capital inflows
to $17 and $25 billion respectively. Overall,our estimates for capital
inflows are $73 billion in 2010/11 and $91 billion in 2011/12.This would
be adequate to finance the large current account deficit in the two
years and leave a modest $31 and $41 billion (2.0 and 2.4 per cent of
GDP) to be absorbed in the foreign exchange reserves.
Prices and Inflationary Pressure
Since October 2008,the Indian economy has been experiencing
very high inflation in food prices.Initially this high inflation was
confined to only food articles – both primary and manufactured.
However as economic recovery began to stabilize it has,not
unexpectedly,manifested itself in the prices of manufactured goods.
The headline inflation rate which was 1 per cent in September
2009 has been rising since then reaching double digits in February
2010. Even in June the provisional headline rate was over 10 per
cent.Inflation in manufactured goods also jumped from less than 1
per cent in September 2009 to a high level of 6-8 per cent in April-
June 2010.
Inflation reflected in Consumer Price Indices has been running
in double digits.In July 2009,both CPI-IW (Industrial Workers)and
CPI -UNME (Urban Non-Manual Employees)surged from 9 per cent
to 12 and 13 per cent respectively. By December 2009,both indices
were reporting inflation of around 15 per cent, which increased further
to 16 per cent in January 2010. There has been a slight easing
thereafter,with both indices reporting inflation of less than 15 per
cent in March 2010.The CPI-IW inflation rate for May 2010 was less
than 14 per cent.
Inflation has remained a major source of concern in the economy
for more than a year.The overall WPI inflation rate has remained at
double digit levels for the past five months and the consumer price
inflation for much longer.Inflationary expectations,particularly food
inflation expectations,will be moderated because of the projected
normal monsoon. Food prices have already begun to soften.
Combined with the base effect,we expect inflation rate to fall to around
6.5 per cent by March 2011.
The available food stock must be released in a manner that
they have a dampening effect on prices.The behaviour of inflation
will also be a major concern for monetary authorities.Against the
background of inflation rates that are more than twice the comfort
level, monetary policy has to operate with a bias towards tightening.
This is essential to promote conditions for sustainable growth in the
medium term.
Monetary Conditions and The Financial Sector
In the October 2009 Economic Outlook,the Council had noted
that financial conditions had improved sharply across the world and
risk perceptions had turned more favourable. However the pace of
improvement has slowed down due to the heightened risk
perceptions on the sovereign debt,especially after the Greece episode.
In January 2010 as the Euro-zone initiative to support Greek
sovereign debt began to run into a range of obstacles,a generalised
lack of confidence developed with respect to sovereign governments
in general and weaker members of the Euro-zone in particular.
The Credit Default Swap (CDS) spreads increased not only
for public and corporate debt issued by Greece and the other
European economies perceived to be relatively weak but also for all
emerging and developing economies. However, currency exchange
rates did not show much movement till later.
Except for the Japanese Yen which strengthened against the
US dollar almost all other currencies declined – though the declines
were of varying orders.China had linked the Renminbi,to the US
dollar at the onset of the crisis.There was no change in the exchange
rate till the third week of June 2010, when Chinese authorities
announced that they were removing this peg. Since then the currency
has gained from a level of 6.83 to the dollar to 6.77.
While the monetary easing and the fiscal measures during the
crisis effectively limited the damage caused by the contagion, it was
always clear that these would have to be rolled back as the economies
gradually recovered.The European Union and the US continue to
face unsettled recovery conditions, with the possibility of recurrent
crisis being particularly pronounced in the Euro-zone.
In view of this exit from the accommodative monetary policy
and the reduction in fiscal deficit is only likely to materialize in
2011,perhaps in the middle of that year. 25 In those economies where
the effects of the crisis have clearly worn off and the recovery is
strong,an early exit from both the monetary and the fiscal stimulus is
called for.Australia,India,China,Brazil and Singapore have been
tightening their monetary policy by raising policy interest rates
and/or rolling back specific liquidity measures that were adopted at
the time of the crisis.
In India, the excess liquidity conditions created by an easy
monetary policy during the crisis, continued to prevail till May
2010, despite the tightening by RBI since October 2009.The situation
changed in June when banks at the margin began borrowing at the
repo window from the RBI. With the reversal in liquidity conditions,
overnight interest rates also reverted to levels that have approached
and even exceeded the upper end of the interest rate corridor i.e.,
the repo rate.
Sunday, July 5, 2009
Thursday, November 13, 2008
GDP forecast for US to decline 1.4 percent in 2009
The estimate for U.S. real gross domestic product growth was lowered to 1.3 percent this year and was projected to decline by 1.4
percent in 2009, the U.S. Energy Information Administration said on Wednesday in its monthly forecast. The U.S. average unemployment rate is expected to jump to 7.9 percent next year, the Energy Department's analytical arm said. World real GDP growth is projected to slow from about 4 percent in 2006 and 2007 to about 2.5 percent this year and 1.8 percent in 2009, the agency said. Separately, the EIA said the price for U.S. West Texas Intermediate oil will average $63.50 a barrel next year.
Japan's DoCoMo to buy 26 pc stake in Tata Teleservices
Japan's leading mobile
telecom operator NTT DoCoMo will pick up a 26-per cent stake in Tata Teleservices for $2.7 billion (Rs.13,070
crore/Rs.130.7 billion), it was announced Wednesday. DoCoMo will also make an open offer to acquire at least 20 pAercent of the outstanding equity shares
of Tata Teleservices Maharashtra, part of the $62-billion Tata group, India's largest industrial house. The open offer will be made along with Tata Sons, the holding arm of the Indian company, as per guidelines issued by the market watchdog, Securities and Exchange Board of India (Sebi), the two companies said in a statement. "As a result of the capital alliance, the partners expect to expand mobile communication operations in the fast-growing Indian mobile market, aiming to increase operating revenue and achieve steady business growth," the statement added.
RUPEE CONTINUED TO SHOW WEAKNESS
The rupee continued its slide on Wednesday, as it registered its worst single day performance in more than 12 years. This takes the rupee
back to levels of beyond 49 against the dollar
and dealers say that its just a matter of time before it breaches the 50 mark again. The liquidity situation remained under slight pressure, even as the overnight lending rates were in the range of 7-8%. However, bonds rallied because of the fall in global oil prices with the 10-year sovereign paper’s yield falling from 7.68 to 7.60. “Stocks were negative and even the RBI was not seen selling dollars as was expected,” said a dealer at a private bank. The rupee ended at 49.30 against the dollar, 2.4% weaker than Tuesday’s close of 48.12. On October 27, it fell to a record low of 50.29. It was the local currency’s biggest single-day percentage fall since February 5, 1996. However dealers say that there is feeling in certain quarters that RBI will be intervening soon to stem the fall any further. The BSE’s benchmark share index, Sensex closed down 3.08%, at its lowest close in November after bad news from corporate America added to the grim global economic outlook. Foreign funds continued to repatriate funds, a key factor for the rupee’s weakness in recent months. They have so far sold a net $12.7 billion worth of shares after buying a record $17.4 billion last year. Indian overnight call money rates ended little changed on Wednesday as demand for funds prevailed in the banking system ahead of treasury bill auction outflows and bond sale due on Friday. Call rates closed at 7.30%, lower than 7.40 levels on Tuesday. Dealers say that the rates are holding steady since there was a treasury bills’ auction on Wednesday (Rs 7,000 crore raised), and the bond auction on Friday for raising more than Rs 10,000 crore. A buyback of Rs 10,000 crore worth MSS bonds is also scheduled for Wednesday. The 6.65% 2009 bond was bought back at a YTM of 6.78% and the 5.78% 2010 paper was bought back at a yield of 6.87%. RBI barely absorbed any major sum via its reverse repo auction, while it pumped in a total of close to Rs 11,000 crore in to the system through the repo auctions, indicating some tightness in available cash.
Oil fell for a third straight day on Thursday to hit a 22-month low of $55 a barrel as mounting pessimism about the global economy
outweighed OPEC's comments that it could cut output again as early as end-November. OPEC officials, concerned about oil's steep drop from record highs over $147 a barrel per day (bpd) in July, said the cartel could possibly decide by the end of the month to cut production again to raise prices. But comments from the producer group failed to lift oil prices
, as investors focused on near-term demand worries after the US Energy Information Administration (EIA) slashed America's 2008 oil demand outlook and the International Energy Agency (IEA) flagged further reduction in its oil forecast. US light crude for December delivery was down 81 cents at $55.35 a barrel by 0259 GMT, after having fallen earlier to $55.03 -- the lowest since Jan. 29, 2007. London Brent crude fell 41 cents to $51.96 in early Asian trade. "Oil prices continue to be pressured by fears that weaker international economic growth will depress oil consumption," said David Moore, an analyst at the Commonwealth Bank of Australia. Oil fell 5 percent overnight, along with a big drop in U.S. stock markets, after the U.S. government shifted its position on how it planned to use its $700 billion bailout fund, which added uncertainty to financial markets and renewed fears of a protracted global recession.
, as investors focused on near-term demand worries after the US Energy Information Administration (EIA) slashed America's 2008 oil demand outlook and the International Energy Agency (IEA) flagged further reduction in its oil forecast. US light crude for December delivery was down 81 cents at $55.35 a barrel by 0259 GMT, after having fallen earlier to $55.03 -- the lowest since Jan. 29, 2007. London Brent crude fell 41 cents to $51.96 in early Asian trade. "Oil prices continue to be pressured by fears that weaker international economic growth will depress oil consumption," said David Moore, an analyst at the Commonwealth Bank of Australia. Oil fell 5 percent overnight, along with a big drop in U.S. stock markets, after the U.S. government shifted its position on how it planned to use its $700 billion bailout fund, which added uncertainty to financial markets and renewed fears of a protracted global recession.
source: economic times
Thursday, October 30, 2008
India may face diesel dearth in Nov-Mar
India is likely to face a shortage of 2.5 million tonne of diesel during the November-March period, which would have to be met either through imports or from Reliance Industries' only-for-exports refinery. "The oil companies have told us that they will have a deficit of 2.5 million tonne from now till March," said S Sundareshan, Additional Secretary, Ministry of Petroleum and Natural Gas.IOC, Bharat Petroleum and Hindustan Petroleum have projected a cumulative diesel requirement of 1.05 million tonne for December to March, comprising 2,40,000 tonne of Euro-III diesel and 8,10,000 tonne of Euro-II grade fuel. If these quantities are not tied up with Reliance, the oil companies would have to turn to imports.However, diesel from Reliance's Jamnagar refinery can be bought only if government does away with double taxation, he said. Since Jamnagar has turned into an Export-Oriented Unit (EoU), any supply to domestic tariff area was levied with dual basic customs dut y and a double levy of special additional excise duty.For diesel these work out to Rs 6 a litre more in duties, which the oil companies say they cannot absorb given the fact that they already are losing over Rs 7 a litre on the sale of the fuel. “The matter is under examination and we hope a decision will b e taken (in time),'' said Sundareshan.
SOURCE: UTV
MCA to scan tax evasion cases
This could spell double trouble for tax-evading companies. The ministry of corporate affairs (MCA) has sought details from the Income-Tax
department of companies against whom tax-evasion charges have been framed. The ministry feels that scanning those records could unearth cases of violation of company law. While tax evasion can be settled through payment of penalty, many offences under company law are punishable as imprisonment for top managers. A proposal to establish a system wherein the ministry is kept updated on corporate I-T defaults is under consideration. Officials say the move will require setting up an information-sharing network between the two departments. The idea is to leverage on the I-T department’s data network to identify defaulting companies, and then examine if they have breached company law provisions. Experts do find logic in the move as evasion of taxes often results in distortion of numbers in the company’s financial results, an activity which constitutes an offence under the company law. Many companies, on being caught evading taxes, pay the penalty to the authorities and then shift the burden of it to their shareholders by fudging their financial records. A recent instance is the case of Mumbai-based Elder Pharma where the ministry procured details from the I-T department to initiate action against the company. The company, which is now being probed by the ministry’s Serious Fraud Investigation Office (SFIO) for altering its financial records, was earlier caught evading taxes. Officials feel that the proposal, if effectively implemented, could lead to a reduction in the number of tax evasion in the long term. While tax evaders in most cases shell out a penalty to move out of a prosecution, officials feel the present move might deter them from effecting similar offences. Company law provisions prescribe stricter punishment for offences, and in many cases carry an imprisonment for the offenders
GOLD PRICES SURGE
Tracking strong global cues gold prices today surged by Rs 560 to close at Rs 12,570 per ten gram on the bullion market here on brisk buying by retail customers for the ongoing festival and marriage season. Standard gold rose by Rs 320 at Rs 12,570 per ten gram while Jewellery, which opened after two day's break met with a rush of buyers for jewellery, quoted higher by Rs 560 at Rs 12,420 per ten gram. Sovereign gained Rs 100 at Rs 10,500 per piece of eight gram. Marketmen said, the precious metal which had remained in demand during recent festivals was boosted by customers buying jewellery for marriages. The market also received support as all buying shifted to the national capital following closure of main bullion markets in Mumbai, they added. The bullion prices spiralled after commodity prices posted biggest surge in five decades on speculation reduced borrowing costs in US and China may help spur recovery in raw material demand. Also, the U.S. cutting borrowing rate pushed up the demand for the yellow metal.
RBI relaxes forex derivatives accounting norms
The Reserve Bank relaxed the accounting guidelines for valuing derivatives, a move that will help the Indian banks with overseas
branches to post better financial results. "It has now been decided to confine the applicability of the principle of borrower-wise asset classification to only the overdues arising from forward contracts and plain vanilla swap and options", the central bank said, while modifying its earlier notification for off-balance sheet exposures of banks. Under the borrower-wise classification norms, all other funded facilities given to a defaulting clients are required to be shown as non-performing assets (NPAs) Earlier, the RBI had said borrower-wise classification norms will apply to all funded facilities of a client if the receivables representing mark-to-market value of a derivative contract remains unpaid for over 90 days. With the modification of the earlier circular, the unpaid amount towards foreign exchange derivatives contract entered between April 2007 and June 2008 will have to be parked in a separate account in the same of client. RBI further said that amount overdue for more than 90 days will not make other funded facilities provided to the client as NPA as per the borrower-wise asset classification principle. "The relaxation will also be applicable to the foreign branches of Indian banks
Wednesday, October 15, 2008
Will fuel prices be cut?
SOURCE:UTV
The global financial crisis has helped oil prices slump nearly half from its peak July prices of $145 a barrel. But are PSU oil companies smiling? Not really.
The PSU oil companies are still not seeing the light because the gloom of the depreciating rupee has clouded their gains.
For instance if we consider the oil prices and the corresponding losses then, for the last 15 day at an average of $82 a barrel for Indian crude basket, the per litre losses for BPCL and IOC are hardest hit for LPG. Thats followed by kerosene, then diesel and lastly petrol.
Bleeding PSUs per litre losseS (Rs/Litre) BPCL IOC Diesel 6.40 12.95Petrol 2.40 5.57Kerosene 24.60 29.19
Bleeding PSUs Rs/CylinderLPG 316.80 335.03
Absolute losses of oil companies have shrunk from Rs 2, 80,000 crore to Rs 1, 68,000 crore but this gain of about 42 percent has been offset by the weakening rupee.
In the last 3 months, the rupee has fallen by over 10% and for every one rupee that depreciates, the IOC loses Rs 300 crore.
Add to this the oil companies continue to face liquidity crunch. The fight for liquidity has made banks cagey. Industry officials say oil companies are squeezed to negotiate the interest rates. Also, the government has not yet issued bonds, which are awaited for Q4 of last year, Q1 and Q2 this year. But with parliamentary session begining on Monday, the companies expect the bonds to be issued soon.
Alas, fuel price cut may not happen anytime soon..
The global financial crisis has helped oil prices slump nearly half from its peak July prices of $145 a barrel. But are PSU oil companies smiling? Not really.
The PSU oil companies are still not seeing the light because the gloom of the depreciating rupee has clouded their gains.
For instance if we consider the oil prices and the corresponding losses then, for the last 15 day at an average of $82 a barrel for Indian crude basket, the per litre losses for BPCL and IOC are hardest hit for LPG. Thats followed by kerosene, then diesel and lastly petrol.
Bleeding PSUs per litre losseS (Rs/Litre) BPCL IOC Diesel 6.40 12.95Petrol 2.40 5.57Kerosene 24.60 29.19
Bleeding PSUs Rs/CylinderLPG 316.80 335.03
Absolute losses of oil companies have shrunk from Rs 2, 80,000 crore to Rs 1, 68,000 crore but this gain of about 42 percent has been offset by the weakening rupee.
In the last 3 months, the rupee has fallen by over 10% and for every one rupee that depreciates, the IOC loses Rs 300 crore.
Add to this the oil companies continue to face liquidity crunch. The fight for liquidity has made banks cagey. Industry officials say oil companies are squeezed to negotiate the interest rates. Also, the government has not yet issued bonds, which are awaited for Q4 of last year, Q1 and Q2 this year. But with parliamentary session begining on Monday, the companies expect the bonds to be issued soon.
Alas, fuel price cut may not happen anytime soon..
Gold extends gains as equities slip
Gold rose further on Wednesday after declines in stock markets gave speculators an excuse to buy the metal seen as an alternative investment.
Gold traded at $842.90 an ounce, up $7.65 from New York's notional close. Gold jumped 2% to an intraday high of $853.50 on Tuesday before trimming gains after the United States unveiled plans to take stakes in its biggest banks.
Japan's Nikkei slipped 0.6% on Wednesday, a day after its biggest one-day gain in history; with exporters down as US stocks fell on worries about the global economy.
The US unveiled plans to take equity stakes worth up to $250 billion in financial institutions, an incursion into the private sector that US officials called a regrettable last resort.
Platinum traded at $1,010 an ounce, down $7.50 an ounce from New York's notional close. It hit a two-week high of $1,040 on Tuesday, mainly due to buying from investors in Japan.
New York gold futures GCZ8 rose $7.2 an ounce to $846.7 an ounce on safe-haven buying.
Yen rises in Asia on renewed risk aversion
The yen rose in Asia on Wednesday as players refrained from risky bets after a global stock market rally fizzled out amid concerns about the
economic impact of the credit crunch. The dollar slipped to 101.73 yen in Tokyo morning trade from 102.01 yen late Tuesday in New York. The euro fell to 137.77 yen after 139.05, and to 1.3570 dollars from 1.3618. "Investors remain cautious, although panic selling (on global stock markets) seems to have subsided," said Mizuho Corporate Bank analyst Masaki Fukui. Players bought the yen as the currency is seen as a relatively safe haven amid the financial crisis, dealers said. The Japanese currency tends to rise in times of market turmoil as it has been heavily sold in the past to fund risky investments. "Worries over banks' bankruptcies are gone, so there will be no panic yen-buying anymore," Shinkin Central Bank senior dealer Hiroshi Yoshida told Dow Jones Newswires. "But players are pessimistic about the global economy ahead. The yen will likely appreciate gradually in the long-term," he said. Tokyo stocks were slightly lower in morning trade Wednesday after a Wall Street rally faded overnight. US authorities pushed forward with a plan to inject up to 250 bn dollars in capital into struggling banks. Janet Yellen, the head of the San Francisco branch of the Federal Reserve, said that the United States "appears to be in a recession." Barclays Capital analysts predicted the dollar would fall back below 100 yen by the end of the year because it will take time for the US authorities to resolve the credit crunch.
economic impact of the credit crunch. The dollar slipped to 101.73 yen in Tokyo morning trade from 102.01 yen late Tuesday in New York. The euro fell to 137.77 yen after 139.05, and to 1.3570 dollars from 1.3618. "Investors remain cautious, although panic selling (on global stock markets) seems to have subsided," said Mizuho Corporate Bank analyst Masaki Fukui. Players bought the yen as the currency is seen as a relatively safe haven amid the financial crisis, dealers said. The Japanese currency tends to rise in times of market turmoil as it has been heavily sold in the past to fund risky investments. "Worries over banks' bankruptcies are gone, so there will be no panic yen-buying anymore," Shinkin Central Bank senior dealer Hiroshi Yoshida told Dow Jones Newswires. "But players are pessimistic about the global economy ahead. The yen will likely appreciate gradually in the long-term," he said. Tokyo stocks were slightly lower in morning trade Wednesday after a Wall Street rally faded overnight. US authorities pushed forward with a plan to inject up to 250 bn dollars in capital into struggling banks. Janet Yellen, the head of the San Francisco branch of the Federal Reserve, said that the United States "appears to be in a recession." Barclays Capital analysts predicted the dollar would fall back below 100 yen by the end of the year because it will take time for the US authorities to resolve the credit crunch.
GOPINATH PLANS OFFER TO BUYBACK DECCAN
GR Gopinath, vice-chairman of Kingfisher Airlines, is believed to be considering an offer to buy back Air Deccan as he is reportedly unhappy over the alliance Kingfisher has struck with Jet Airways. Some sources said he might even offer to buy Kingfisher itself at a meeting of the airline board on Wednesday. Some overseas investors are reportedly backing him in this effort. That, however, is not easily possible. For starters, UB Group chairman Vijay Mallya has 65% share in Kingfisher, making it impossible for anyone to make a bid unless he is willing to sell out. He is not. “I spoke to Capt (Gopinath) out of courtesy about the alliance with Jet. He was in Andamans. He said he was happy with the arrangement (with Jet) and the synergistic benefits,” he said. “I hold 65% stake in the airline. If there is a so-called bid, we will see it off when it is made,” Mr Mallya told ET. According to the latest stock exchange filings, Mr Gopinath has 5.58% stake, and may control about 9-10% shareholding along with his associates.
Thursday, October 2, 2008
EURO COULD FALL FURTHER
This week the euro sold off against 11 of the world’s top 16 currencies by trading volume on speculation the ECB will have to lower interest rates to prevent the region from falling into a recession. European banks have written off $229 billion out of a global total of $588 billion in losses related the collapse of the U.S. subprime market and the credit crisis that began in the United States is now affecting the euro zone. Moreover, even though the Governing Council of the European Central Bank is widely expected to keep rates unchanged at 4.25 percent, Jean-Claude Trichet is likely to acknowledge that recent economic data points towards a sharp contraction in economic activity in the euro zone and lower interest rates could be needed to prevent the region from falling into a recession
Senate passes $700B rescue
After one spectacular failure, the $700 billion financial industry bailout found a second life Wednesday, winning lopsided passage in the Senate and gaining ground in the House, where Republicans opposition softened.
Senators loaded the economic rescue bill with tax breaks and other sweeteners before passing it by a wide margin, 74-25, a month before the presidential and congressional elections.
In the House, leaders were working feverishly to convert enough opponents of the bill to push it through by Friday, just days after lawmakers there stunningly rejected an earlier version and sent markets plunging around the globe.
The measure didn't cause the same uproar in the Senate, where both parties' presidential candidates, Republican John McCain and Democrat Barack Obama, made rare appearances to cast "aye" votes, as did Obama's running mate, Sen. Joe Biden of Delaware.
In the final vote, 39 Democrats, 34 Republicans and independent Sen. Joe Lieberman of Connecticut voted "yes." Nine Democrats, 15 Republicans and independent Sen. Bernie Sanders of Vermont voted "no."
President Bush issued a statement praising the Senate's move. With the revisions, Bush said, "I believe members of both parties in the House can support this legislation. The American people expect and our economy demands that the House pass this good bill this week and send it to my desk."
The rescue package lets the government spend billions of dollars to buy bad mortgage-related securities and other devalued assets held by troubled financial institutions. If successful, advocates say, that would allow frozen credit to begin flowing again and prevent a deep recession.
Even as the Senate voted, House leaders were hunting for the 12 votes they would need to turn around Monday's 228-205 defeat. They were especially targeting the 133 Republicans who voted "no."
Their opposition appeared to be easing after the Senate added $110 billion in tax breaks for businesses and the middle class, plus a provision to raise, from $100,000 to $250,000, the cap on federal deposit insurance.
They were also cheering a decision Tuesday by the Securities and Exchange Commission to ease rules that force companies to devalue assets on their balance sheets to reflect the price they can get on the market.
There were worries, though, that the tax breaks would cause some conservative-leaning "Blue Dog" Democrats who voted for the rescue Monday to abandon it. The bill doesn't designate a way to pay for many of the tax cuts, and Blue Dogs typically oppose any measure that swells the deficit.
"I'm concerned about that," said Rep. Steny Hoyer, D-Md., the majority leader.
Raising the deposit insurance limit -- along with the SEC's accounting change -- helped House Republicans claim credit for some substantive changes. And with constituent feedback changing dramatically since Monday's shocking House defeat and the corresponding market plunge, lawmakers' comfort level with the package increased markedly.
Rep. John Shadegg, R-Ariz., who voted "no" on Monday, said he was leaning toward switching, and Rep. Steve LaTourette,R-Ohio, said he was "getting there." Several others were weighing a flip, said Republican officials who spoke on condition of anonymity because the lawmakers had not yet announced how they would vote.
Leaders in both parties, as well as private economic chiefs everywhere, said Congress must quickly approve some version of the bailout measure to start loans flowing and stave off a potential national economic disaster.
"This is what we need to do right now to prevent the possibility of a crisis turning into a catastrophe," Obama said on the Senate floor. In Missouri, before flying to Washington to vote, McCain said, "If we fail to act, the gears of our economy will grind to a halt."
Critics on the right and left assailed the rescue plan, which has been panned by their constituents as a giveaway for Wall Street, and has little obvious direct benefit for ordinary Americans.
Sen. Jim DeMint, R-S.C., a leading conservative, said the step was "leading us into the pit of socialism."
Sanders, a self-described socialist, said the rescue was fundamentally unfair.
"The masters of the universe, those brilliant Wall Street insiders who have made more money than the average American can even dream of, have brought our financial system to the brink of collapse," Sanders said, and are demanding that the middle class "pick up the pieces that they broke."
Still, proponents argued that the financial sector's woes were already being felt by ordinary people in the form of unaffordable credit and underperforming retirement savings and without the bailout would soon translate into even more economic pain for working Americans, including more job losses.
"There will be no balloons or bunting or parades," when the rescue becomes law, said Sen. Chris Dodd, D-Conn., the Banking Committee chairman. But lawmakers will have "the knowledge that at one of our nation's moments of maximum economic peril, we acted -- not for the benefit of a particular few, but for all Americans."
Sen. Judd Gregg, R-N.H., said the intense, at times contentious, 11-day round of bipartisan talks to craft the bailout -- which followed dire warnings of impending economic meltdown from Bush's economic chiefs to congressional leaders -- was an "extraordinary experience."
"This is the way government's supposed to work, folks, and it did," Gregg said.
The Senate specializes in high-stakes legislating by enticement, and the long list of sweeteners it added was designed to attract votes from various constituencies.
In addition to extending several tax breaks popular with businesses, the bill would keep the alternative minimum tax from hitting 20 million middle-income Americans and provide $8 billion in tax relief for those hit by natural disasters in the Midwest, Texas and Louisiana.
Tax cuts new and old are favorites for most House Republicans. Help for rural schools was aimed mainly at lawmakers in the West, while disaster aid was a top priority for lawmakers from across the Midwest and South.
Another addition, to extend the deductibility of state and local taxes for people in states without income taxes, helps Florida and Texas, among others.
Increasing the deposit insurance cap was a bid to reassure individuals and small businesses that their money would be safe if their banks collapsed. It was particularly geared toward small banks that fear customers will pull their money and park it in larger institutions seen as less likely to fold.
The FDIC would be allowed to borrow unlimited money from the Treasury Department through the end of next year as a way to cover the increased insurance limit. If used, it would be the first time the agency has tapped Treasury for a loan since the early 1990s.
The rescue bill hitched a ride on a popular measure that gives people with mental illness better health insurance coverage. Before passing it, senators voted by an identical 74-25 margin to attach the massive bailout and the tax breaks.
(This version corrects vote breakdown of yes votes to 39 Democrats, 34 Republicans and one Independent.)
Senators loaded the economic rescue bill with tax breaks and other sweeteners before passing it by a wide margin, 74-25, a month before the presidential and congressional elections.
In the House, leaders were working feverishly to convert enough opponents of the bill to push it through by Friday, just days after lawmakers there stunningly rejected an earlier version and sent markets plunging around the globe.
The measure didn't cause the same uproar in the Senate, where both parties' presidential candidates, Republican John McCain and Democrat Barack Obama, made rare appearances to cast "aye" votes, as did Obama's running mate, Sen. Joe Biden of Delaware.
In the final vote, 39 Democrats, 34 Republicans and independent Sen. Joe Lieberman of Connecticut voted "yes." Nine Democrats, 15 Republicans and independent Sen. Bernie Sanders of Vermont voted "no."
President Bush issued a statement praising the Senate's move. With the revisions, Bush said, "I believe members of both parties in the House can support this legislation. The American people expect and our economy demands that the House pass this good bill this week and send it to my desk."
The rescue package lets the government spend billions of dollars to buy bad mortgage-related securities and other devalued assets held by troubled financial institutions. If successful, advocates say, that would allow frozen credit to begin flowing again and prevent a deep recession.
Even as the Senate voted, House leaders were hunting for the 12 votes they would need to turn around Monday's 228-205 defeat. They were especially targeting the 133 Republicans who voted "no."
Their opposition appeared to be easing after the Senate added $110 billion in tax breaks for businesses and the middle class, plus a provision to raise, from $100,000 to $250,000, the cap on federal deposit insurance.
They were also cheering a decision Tuesday by the Securities and Exchange Commission to ease rules that force companies to devalue assets on their balance sheets to reflect the price they can get on the market.
There were worries, though, that the tax breaks would cause some conservative-leaning "Blue Dog" Democrats who voted for the rescue Monday to abandon it. The bill doesn't designate a way to pay for many of the tax cuts, and Blue Dogs typically oppose any measure that swells the deficit.
"I'm concerned about that," said Rep. Steny Hoyer, D-Md., the majority leader.
Raising the deposit insurance limit -- along with the SEC's accounting change -- helped House Republicans claim credit for some substantive changes. And with constituent feedback changing dramatically since Monday's shocking House defeat and the corresponding market plunge, lawmakers' comfort level with the package increased markedly.
Rep. John Shadegg, R-Ariz., who voted "no" on Monday, said he was leaning toward switching, and Rep. Steve LaTourette,R-Ohio, said he was "getting there." Several others were weighing a flip, said Republican officials who spoke on condition of anonymity because the lawmakers had not yet announced how they would vote.
Leaders in both parties, as well as private economic chiefs everywhere, said Congress must quickly approve some version of the bailout measure to start loans flowing and stave off a potential national economic disaster.
"This is what we need to do right now to prevent the possibility of a crisis turning into a catastrophe," Obama said on the Senate floor. In Missouri, before flying to Washington to vote, McCain said, "If we fail to act, the gears of our economy will grind to a halt."
Critics on the right and left assailed the rescue plan, which has been panned by their constituents as a giveaway for Wall Street, and has little obvious direct benefit for ordinary Americans.
Sen. Jim DeMint, R-S.C., a leading conservative, said the step was "leading us into the pit of socialism."
Sanders, a self-described socialist, said the rescue was fundamentally unfair.
"The masters of the universe, those brilliant Wall Street insiders who have made more money than the average American can even dream of, have brought our financial system to the brink of collapse," Sanders said, and are demanding that the middle class "pick up the pieces that they broke."
Still, proponents argued that the financial sector's woes were already being felt by ordinary people in the form of unaffordable credit and underperforming retirement savings and without the bailout would soon translate into even more economic pain for working Americans, including more job losses.
"There will be no balloons or bunting or parades," when the rescue becomes law, said Sen. Chris Dodd, D-Conn., the Banking Committee chairman. But lawmakers will have "the knowledge that at one of our nation's moments of maximum economic peril, we acted -- not for the benefit of a particular few, but for all Americans."
Sen. Judd Gregg, R-N.H., said the intense, at times contentious, 11-day round of bipartisan talks to craft the bailout -- which followed dire warnings of impending economic meltdown from Bush's economic chiefs to congressional leaders -- was an "extraordinary experience."
"This is the way government's supposed to work, folks, and it did," Gregg said.
The Senate specializes in high-stakes legislating by enticement, and the long list of sweeteners it added was designed to attract votes from various constituencies.
In addition to extending several tax breaks popular with businesses, the bill would keep the alternative minimum tax from hitting 20 million middle-income Americans and provide $8 billion in tax relief for those hit by natural disasters in the Midwest, Texas and Louisiana.
Tax cuts new and old are favorites for most House Republicans. Help for rural schools was aimed mainly at lawmakers in the West, while disaster aid was a top priority for lawmakers from across the Midwest and South.
Another addition, to extend the deductibility of state and local taxes for people in states without income taxes, helps Florida and Texas, among others.
Increasing the deposit insurance cap was a bid to reassure individuals and small businesses that their money would be safe if their banks collapsed. It was particularly geared toward small banks that fear customers will pull their money and park it in larger institutions seen as less likely to fold.
The FDIC would be allowed to borrow unlimited money from the Treasury Department through the end of next year as a way to cover the increased insurance limit. If used, it would be the first time the agency has tapped Treasury for a loan since the early 1990s.
The rescue bill hitched a ride on a popular measure that gives people with mental illness better health insurance coverage. Before passing it, senators voted by an identical 74-25 margin to attach the massive bailout and the tax breaks.
(This version corrects vote breakdown of yes votes to 39 Democrats, 34 Republicans and one Independent.)
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