The $1.60 Trillion Question

Sanjiv Shankaran :B T  Edition:Jan 20, 2013

Will Chidambaram's 2013 Union Budget revive a slowing economy?

He's already got an economic dream team ready for next year's Budget.

 But the question on everybody's lips is: 
will Finance Minister P. Chidambaram pull off another dream Budget the way he did nearly 15 years ago?

It may not be so easy this time. With a general election around the corner and the economy in the throes of a slowdown, Chidambaram can either craft a Budget with giveaways aimed at winning votes or take tough decisions to revive a slowing economy.

Officials say the Finance Minister may eventually be forced to walk a tightrope between populism and pragmatism. On the one hand, he may be tempted to draft a populist Budget for 2013/14 because it will be the United Progressive Alliance's last full Budget before next year's election. On the other hand, with Asia's third-largest economy - with a gross domestic product (GDP) of $1.60 trillion in 2011/12 - expected to grow at its slowest pace in a decade, he cannot ignore a bigger economic concern: the spiralling fiscal deficit.


Chidambaram has promised to rein in this year's fiscal deficit at 5.3 per cent of GDP and bring it down to three per cent in the next three years. Officials who have been part of pre-Budget meetings say the overarching theme has been his emphasis on controlling expenditure. But cutting the fiscal deficit will be a big challenge because, at the end of the day, economics will be dominated by politics.

Bureaucrats will do the spadework and economic experts will advice the government, but sensitive cost-cutting recommendations cannot be implemented without getting the political nod. The economic team headed by Chief Economic Advisor Raghuram G. Rajan and adviser Parthasarathi Shome may only play a supporting role. Officials say a suggestion by Vijay Kelkar, Chairman of the Thirteenth Finance Commission, to scrap subsidies and link the retail price of diesel to its cost, for example, depends on the decision of politicians.

Bureaucrats and economists who have been part of the finance ministry say the Union Budget essentially represents political choices and their role is limited to offering professional advice on the economic fallout of the choices. However, there's been a continuity in India's economic policy over the past 20 years despite change of governments because the need to forge a political consensus precludes radical changes, said a government official who did not want to be identified.

Chidambaram has hinted at some tough measures to kickstart the economy. He told chief ministers last month "some measures may cause immediate pain" while separately he told Parliament "bitter medicine" was necessary to restore the health of the economy. For those trying to get a sense of what the next Budget has in store, Chidambaram's speeches may not be a bad place to start. The politician calls the shots.

Culprits in Mauritian maze could be caught

By Saurabh Shukla in New Delhi: Mail Today : 8  Jan 2013

Island nation may provide names of Indian tax defaulters AFTER several European countries providing names of Indian tax defaulters to the government, Mauritius could follow suit putting those shell companies using the island route to invest in the country under scanner. If implemented, it will be a major boost to efforts aimed at curbing the menace of black money and money laundering. According to sources, the government raised the issue with visiting Mauritian President Rajkeswur Purryag, who met Prime Minister Manmohan Singh, other important political leaders and President Pranab Mukherjee last week. “ We flagged the issue that some of these shell companies are misusing the provision, and the President [ Purryag] has indicated his willingness to stop round- tripping and promised to share tax- related information to curb black money,” a senior South Block official told MAIL TODAY . According to data, currently about 37 per cent of foreign direct investment in India comes through the Mauritian route. India and Mauritius have an annual bilateral trade of $ 4 billion with Indian exporting finished petroleum products to the island. During the discussion, Mauritian officials said that about 15,000 Mauritian nationals are employed by companies investing in India through the island route and action can be taken by New Delhi against those violating the law. Switzerland and Germany have already shared data of Indian tax offenders with the government. India is keen to review the tax treaty with Mauritius to prevent its misuse and strengthen the tax information exchange mechanism between the two countries. “ The government has proposed to review the India- Mauritius Double Taxation Avoidance Convention ( DTAC) bilaterally to incorporate appropriate changes in DTAC for prevention of treaty abuse and to strengthen the mechanism for exchange of information on tax matters between India and Mauritius,” finance minister P. Chidambaram had earlier said in response to a question in Parliament. A joint working group ( JWG) comprising Indian and Mauritian officials was constituted in 2006 to put in place adequate safeguards to prevent misuse of DTAC. However, the problems could not be resolved. Eight rounds of discussions have taken place and New Delhi is trying to work out an acceptable solution for addressing its concerns. The tax treaty, provides for taxation of capital gains arising from alienation of shares only in the country of residence of the investor. 15,000 Mauritian nationals are employed by firms investing in India

Ratan Tata would never thump the table'

BT : Jan 20,2013 Edition

Former Tata Steel MD J.J. Irani on Ratan Tata's leadership style

I hardly knew Ratan Tata when he did an early stint in Jamshedpur. He left within a few months of my reaching Jamshedpur in early 1968. In the 1970s, we interacted while he was in charge of Nelco. His first love was the automobile industry and it is in Tata Motors that he has contributed in great detail - from design to manufacture to acquisitions.

But our interactions grew in the late 1970s, when he started taking an interest in TISCO (then known as Tata Iron and Steel Company, now Tata Steel Ltd). Becoming chairman of the company did not change his attitude - he was deputy chairman before the board appointed him chairman of TISCO in 1993.

The qualities that I like most about him are his sincerity and total devotion. He is a workaholic. He is also totally devoted to the canines he has had as pets for long years. Even at Bombay House stray dogs are cared for. My best personal memories of him are the after-dinner discussions on a one-on-one basis (or sometimes in a small group), when all those present could open up and freely express their views on all subjects under the sun. He is normally quite reserved and these moments of free expression were out of the ordinary.

The chairmanship did not change him or his manner of arriving at the most appropriate course of action. He evoked support from his team and he still does.

 Ratan Tata is not the type of boss who is given to thumping the table. He softly mandates, and those to whom the message is addressed get the point very clearly. He thinks big and encourages others to do likewise. He does not discourage those who occasionally fail to deliver.

When dealing with a difference of opinion, he will convincingly present his views but at the same time listen attentively to other points of views and arrive at a consensus. He has always listened to all points of view before evolving a decision in his own quiet but firm way.

The last decade - when I had retired from Tata Steel but still served on different boards of Tata companies as well as Tata Sons - was aimed at growing outside India, thinking big and not changing track when faced with difficulties. 

If we were convinced about our goals, we were urged not to give up. Also, another theme was not to give up on our principles of doing business ethically. Ratan Tata had clearly enunciated targets for turnover and profits. All the CEOs accepted these and by and large achieved them.

I may also recall the period prior to my becoming CEO and managing director of TISCO. That was a very turbulent period. I was on very good terms with Russi Mody for 20 years, but he was advised poorly in his final two years at TISCO.

 He smudged the line between professional management and ownership. The Tatas (both J.R.D. Tata and Ratan Tata) handled the situation with firmness and decorum and the board was with them. But that brief period was awkward for both Ratan Tata and myself. I must thank Ratan Tata for his guidance.


Jamshed J. Irani
The author is a former managing director of Tata Steel and has also been a director on the board of several Tata Group companies

CBDT grants TDS exemption on payments towards financial services provided by banks

CBDT :4 Jan 2013

The Central Board of Direct Taxes (CBDT) has granted individuals, firms and corporates using financial services offered by banks from tax deduction at source (TDS) on the payments of certain categories, in order to mitigate compliance burden on businesses.

Payment towards bank guarantee commission, cash management service charges, depository charges on maintenance of demat accounts, charges for warehousing services for commodities and underwriting service charges made to the banks can be made without TDS with effect from 1 January 2013, CBDT said in a notification issued today.

The notification also facilitates payment without TDS of credit/debit card commission on transaction between the merchant establishment and acquirer banks. This will also positively impact the use of plastic money in the economy, the notification said.

CBDT said the notification would obviate the uncertainties about the applicability of specific TDS provisions on the payments mentioned above and consequent litigation

Tata's global score: 50-50

Joydeep Ghosh & Abhineet Kumar / Mumbai December 28, 2012, 0:32 IST

It took Ratan Tata a full decade to take the group global. But it was the proverbial lull before the storm as what followed was some of the most audacious deals that corporate India had seen till they happened.

The group became bolder as well – Tetley was acquired for $450 million; JLR for $2.3 billion and Corus for $12.1 billion.

“I would put Tata in the larger group of ‘globalising’companies, that is, ones that have an international presence but still have not made their presence felt everywhere in the world. Tata is strong in Britain, the US and South Africa, but less high-profile elsewhere,” says Morgen Witzel, author of Tata: the Evolution of a Corporate Brand.

In terms of sheer numbers, its global operations contributed as much as 58 per cent of the $100 billion (Rs 4.75 lakh crore) group’s consolidated revenues in 2011-12. For Tata Steel, the share of global operations is as much as 74 per cent; for Tata Global, it is 70 per cent; for Tata Motors, it is 67 per cent and for Indian Hotels, it is 25.77 per cent.

A snapshot of the companies, which have gone global, reflect a mixed picture. The return on networth (RoNW or return on equity) for Tata Global at 8 per cent is more or less same at the time of acquiring Tetley and now. In case of JLR, it has shot up from negative to a whopping 52 per cent.

 For Indian Hotels, however, it has declined from 14 per cent to less than a percentage point. And Tata Steel’s RoNW has declined from 37 per cent to 7 per cent. (See Mixed results)
In fact, Tata Steel Europe is hurting the group badly.

 Even Ishat Hussain, non-executive director of Tata Sons, in response to a story in the Economist, recognised Tata Steel’s problems: “The Return on capital employed (RoCE) since 2010 has been highly distorted by the performance of one business: Tata Steel. The RoCE for Tata companies, excluding Tata Steel Europe and the capital work-in-progress of Tata Steel in India, is 14 per cent.”

Clearly, a 4 per cent drag on the overall group’s RoCE cannot be taken lightly.

Though the financial sector crisis since 2008 has led to slowing down of demand from automobile and construction companies – the key customers of Corus — many say that the deal was expensive. 

Here’s why. Lakshmi Mittal’s $34 billion acquisition of Arcelor in June 2006 was cheaper at EBITDA (earnings before interest, tax, depreciation and amortisation) multiple of 4.3 vis-à-vis 9 for Tata Steel’s acquisition of Corus.

COMPARISON OF KEY NUMBERS: FROM ACQUISITION YEAR TO 2011-12
Company	Marquee acquisition	Net sales	Net profit	Market cap	Debt- equity ratio	Return on net worth %
Tata Global	Tetley (2000-01)*	3,015.19	103.48	952.65	1.53	8.02
	2011-12	6,631.16	431.91	6,929.17	0.18	8.14
Tata Steel	Corus (2007-08)	131,498.03	12,321.76	50,640.15	1.57	32.76
	2011-12	132,899.70	4,948.52	45,685.72	1.49	6.85
Tata Motors	JLR (2008-09)	70,880.95	-2,465.00	9,268.32	3.03	0.00
	2011-2012	165,654.48	13,573.91	87,494.77	1.52	51.57
Indian Hotels	Pierre (2005-06)	1,837.31	263.17	7,689.55	0.96	14.16
	2011-12	3,432.71	25.82	4,849.41	1.17	0.73
Consolidated figures in Rs Crore; *While Tetley was acquired in 2000, the consolidated data is available only from 2001; Source Capitaline; Compiled by BS Research Bureau

That is reflected in the performance of the share price. When the deal was announced on June 30, 2006, Tata Steel’s share price stood at Rs 473 and market cap at Rs 29,516 crore. In November 2012, the respective figures are Rs 377 and Rs 37,431 crore.

 The equity base, however, has increased substantially. To fund the deal, the group issued 390 million shares, increasing the equity base from 580 million to 970 million. During the same period, the Sensex went up 82 per cent whereas the company’s stock price is down 20 per cent.

The value of the acquisition has eroded considerably. If one considers peers like Arcelor Mittal, which operate in a similar environment, their market cap stands at $26 billion. Tata Steel, Europe which has one-fifth of Arcelor Mittal’s capacity should be valued at $5 billion. In other words, the market value of Tata Steel is lesser than the debt ($6 billion) it raised, and half the total price paid at $12.1 billion. Even capacity utilisation has fallen to 14 million tonne in FY 11-12 from 23.1 million tonne in FY 07-08.

JLR, on the other hand, is a completely different story, though there were initial hiccups which forced Tata Motors to post a loss of Rs 2,465 crore in 2008-09. But now, the marquee car company is the crown jewel of the group. In fact, if JLR had not paid a dividend of Rs 1,312 crore to Tata Motors in the second quarter of the current financial year, the parent company would have declared a loss.

Within these two giant deals, there is Tetley which has done quite well. Witzel says, “The Tetley acquisition seems to have gone very well, partly because Tata Beverages has taken a soft approach to managing it. Most people in the UK still don't know that it is owned by Tata Beverages.” And the numbers continue to be stable.

Indian Hotels has suffered the brunt of a lacklustre world economy. “The international acquisitions done by Indian hotels have not been earnings per share accretive due to economic slowdown leading to lower passenger traffic,” said Rashesh Shah, analyst with ICICI Securities

. With the company willing to go aggressive with the Orient Express deal, the results will only show in 10-20 years, say analysts. The numbers, as a result, are not very flattering.

While the jury is still out on how Tata has done in his global ventures, the fact is they have been bold, but not necessarily beautiful.

தாராபுரம் தொழிலதிபரிடம் சிக்கியது அமெரிக்க கடன் பத்திரங்கள் அல்ல: வருமான வரித் துறை

 dn, சென்னை

: 05 January 2013 02:57 AM ISTB

தாராபுரம் தொழிலதிபர் ராமலிங்கம் வீட்டில் கைப்பற்றப்பட்டது அமெரிக்க கடன் பத்திரங்கள் இல்லை, பண பரிவர்த்தனை பத்திரங்கள் (பில் ஆஃப் எக்ஸ்சேஞ்ச்) என்று வருமான வரித்துறை விசாரணையில் தெரிய வந்துள்ளது.

தாராபுரத்தை சேர்ந்த தொழிலதிபர் ராமலிங்கம் என்பவர் வீட்டில் இருந்து ரூ. 27 ஆயிரம் கோடி மதிப்பிலான அமெரிக்க கடன் பத்திரங்கள் உள்ளிட்ட ஆவணங்களை வருமான வரித்துறை அதிகாரிகள் பறிமுதல் செய்தததாக கூறப்பட்டது. இதனையடுத்து அவர் வெள்ளிக்கிழமை வருமான வரித்துறை அலுவலகத்தில் நேரில் ஆஜராக வேண்டும் என்று சம்மன் அனுப்பப்பட்டது.

சென்னையில் உள்ள வருமான வரித்துறை அலுவலகத்தில் வெள்ளிக்கிழமை காலை 9.30 மணிக்கு அவர் ஆஜரானார். அவருடன் அவரது வழக்குரைஞர் இளங்கோவும் வருமான வரித்துறை அலுவலகத்துக்கு வந்திருந்தார்.

காலை 11.45 மணி முதல் இரவு வரை ராமலிங்கத்திடம் அதிகாரிகள் விசாரணை நடத்தினர்.

விசாரணையின்போது வழக்குரைஞர் இளங்கோ விசாரணை நடந்த அறைக்குள் அனுமதிக்கப்படவில்லை. பத்திரிகையாளர்களும் அனுமதிக்கப்படவில்லை. விசாரணை முடிவில், அவை கடன் பத்திரங்கள் இல்லை என்ற விவரம் தெரியவந்துள்ளது.

விசாரணை குறித்து வருமான வரித்துறை உயர் அதிகாரிகள் கூறியது: ராமலிங்கம் வீட்டில் இருந்து கைப்பற்றப்பட்டவை அமெரிக்க கடன் பத்திரங்கள் இல்லை.

அவை பண பரிவர்த்தனை பத்திரங்கள்தான். இந்த பத்திரங்களின் உண்மைத்தன்மை குறித்து ஆய்வு செய்ய இன்னும் ஒரு வார காலம் ஆகும்.

அவரிடம் இருந்து 5 பத்திரங்கள் கைப்பற்றப்பட்டுள்ளன. ஒரு பத்திரத்தின் மதிப்பு சுமார் ஒரு பில்லியன் டாலர் ஆகும்.

இந்த பரிவர்த்தனை பத்திரங்களை பிரேசில் நாட்டைச் சேர்ந்த ஒருவரிடம் இருந்து வாங்கியதாகவும், இவை தங்கப் பத்திரங்களுக்கு மாற்றாக பெறப்பட்டது என்றும் ராமலிங்கம் கூறுகிறார். விசாரணையில் ராமலிங்கம் பல்வேறு கோணங்களில் பதில் அளிக்கிறார். அமெரிக்காவில் இருந்து எந்தவித தகவலும் வருமான வரித்துறைக்கு கிடைக்கவில்லை. இன்னும் ஒரு வாரத்தில் அமெரிக்காவிலிருந்து உறுதியான தகவல் கிடைத்துவிடும்.

இந்த பத்திரங்கள் 2011 பிப்ரவரி 25-ம் தேதி வழங்கப்பட்டுள்ளன. இதன் முதிர்வு காலம் 2015 பிப்ரவரி ஆகும்.

எண்ணெய் சுத்திகரிப்பு ஆலை தொடங்க அனுமதி கேட்டு ராமலிங்கம் விண்ணப்பித்திருந்தார். ஆனால், கடந்த 4 ஆண்டுகளாக வருமான வரியை அவர் செலுத்தவில்லை. ராமலிங்கத்தின் வங்கி லாக்கரில் இருந்து சில நிரந்தர வைப்புநிதி (பிக்சட் டெபாசிட்) ஆவணங்களும் கைப்பற்றப்பட்டுள்ளன என்று அதிகாரிகள் தெரிவித்தனர்.

ராமலிங்கத்தின் வங்கிக் கணக்கு ஏற்கெனவே முடக்கப்பட்டுள்ளது என்பது குறிப்பிடத்தக்கது. நிலக்கடலை வியாபாரியின் வீட்டில் ரூ. 27 ஆயிரம் கோடி மதிப்புள்ள பத்திரங்கள் இருந்தது நாடு முழுவதும் பெரும் பரபரப்பை ஏற்படுத்தியுள்ளது.

How to become a CROREpathi at 65

ET :3 JAN, 2013, 02.57PM IST, BANKBAZAAR 

Financial Planning for YOUNG INDIA

Financial Planning for YOUNG INDIA

Einstein calls it the 8th wonder of the world. It has power to create enormous wealth for people who persevere and hold on to it.

This is compounding rate of return. Compounding return is nothing but earning returns over returns as well as principal. 

The wealth created by compounding rate works in favour of those who have larger earning period remaining in their life.

This article will focus on such people. 

I will worry about it later, I am young and I will have fun for now. 

While this is certainly something that all of us do in our young age, we have to also build the discipline to save a part of our income and invest to reap benefits in future.

The discipline that we build now will keep us in good stead years later. 

Moreover, compounding works in the favour of people who start investing early than those starting later in life.

Here is a sample of the power of compounding. 

It assumes a person starts investing Re. 1 per month at various stages of his life till he or she is 65. It means if you are 25 years old, your investment horizon is 40 years while the horizon is 30 years for a 35 year old. The table also shows how your future wealth varies with the rate of return.





A 25 year old person who starts investing Re. 1 per month at 10% return till he reaches 65 years of age will have Rs. 6324.08 while a 30 years old person will have only Rs. 3796.64. At 14%, you will have twice as much wealth than someone who started investing just 5 years later. 

If you can start investing Rs. 5000 per month at the interest of 12% from 25th year, you will accumulate Rs 5,88,23,850.00 (5 crore, 28 lakhs, 8 hundred and 50) by the time you turn 65. Does it really look like the 8th wonder? You bet. 

Where to find money for investment? 

Saving Rs 5000 is not a big deal if you are serious about it. 

Even if you are able to save Rs 2500, you will have close to Rs 3 Crore at the end of 65 years of age, assuming you are 25 years old.

 The important point is that you save something. 

Some of the things you can use to save money and invest in appropriate funds are as follows: 

1. Pay your credit card bills on time. No exception. 

2. Make a budget for your expenses. This may sound like a tough job but do it for 2-3 months and you will have a fair idea of where the money is going. You may not need to do it after the initial few months. Now curtail useless expenses. For example, going to an expensive restaurant 3-4 times in a week. Cut it down to once or twice a month. 

3. Pay yourself first: Resolve to save a specific amount every month. Put it in an investment account. Take this money out of the salary in the beginning of the month so that you don't touch it. 

4. Buy a car or bike having resale value. If possible, buy a second hand car if you are too keen. 

5. Stop splurging on sale and discount. You often end up buying things you never need.