The sensex went below Twenty thousand mark again on 20th October,2010. People have become apprehensive of the market behaviour. But to us it is a very significant sign.During September,after a long time, most middle class investors were smiling.The smile vanished as soon as the market hit the 19,995 mark after Durga Puja . The share market did touch twenty thousand mark during September 2010 after January 2008. Many asked us if it was the beginning of a bull market after a breather ? The flood gates of telephone calls started pouring in from our readers. “What should I do? I have doubled the amount. Should I redeem it or keep the money invested”? My reply to young investors was to stay invested if they do not want the money for next four years. There would be correction but again the market would go up. For seniors, whose risk appetite are low, they need to switch money to liquid fund and park the money for a while to invest when market correct after sometime. Another gentleman asked “Can I redeem the money and keep it in debt fund for a while and reinvest when market goes down”? It is a good idea no doubt, but if money is kept invested in Debt fund you cannot shift to another fund within one year without paying exit load. So if you redeem it now keep in saving bank or in liquid fund so that you can switch moment market goes down. The pessimism in the investment community is understandable as markets are nowhere near being called cheap. The price to earnings (PE) ratios are well over 22-23 and the continued fund flows has made sure the selling pressures from domestic fund houses hasn't been a deterrent for bulls. The new action on rep rate by RBI would also hit the Mutual Fund market, Debt funds and MIPs, which in turn would affect the senior citizens.
There is a strong possibility of 10% to 15% correction of market post Dewali. But investors need not worry . By 2011 it would jump back to new height. Be prepared. Save money and sooner market corrects invest immediately.
According to mutual fund industry sources, the selling pressures from domestic institutions have been on account of redemption pressures from individual investors.
In fact, individual investor behaviour has been that of caution in the last two years. Having been caught on the wrong foot in 2008, the small investor is in no mood to think long-term . As a result, during every uptrend many have been quick to encash profits or cut down losses (those who built portfolio in 2007-08 ). In the process, they failed to ride on the good market mood of the last few years.
The Bombay Stock Exchange (BSE) Sensex and the National Stock Exchange Nifty crossed a landmark each during the early session of trading on Monday. While the Sensex breached the 19,500 level, the Nifty crossed 5,800 marks on strong industrial output numbers from Asian and the US economies. But keep it in Mind that P/E ratio is not as high as it was during January 2008. At that time P/E ratio was 28. So there is actually still steam there and market may go up further. The market is sure to correct as soon as liquidity would come down.
At 11 am on Monday, the Sensex was 288 points up at 19,088, while the Nifty was 85 point up at 5,725. Banking stocks showed the sharpest jump in the early session as BSE Bankex and Bank Nifty had risen by close 3 per cent at 11 am. The small and mid cap stocks, however, lagged both the Nifty and the Sensex.
This rally is liquidity driven and is not fundamental driven alone. The participation from retail investors of the country is minimal. They remained hesitant even now to invest. Of course, there is a strong possibility of a deep correction at any time fro 10 to 20% at any time. So our advice to hesitant lot is to keep away from equity mutual fund. Perhaps they can invest in Long term MIPs where return is around 9 to 12% from time to time. There are three good funds in this segment according to value research, Birla sunlife MIP .5, Reliance MIP and HDFC MIP. These funds have got 5 to 25% equity and balance is in debt. My personal favourites are HDFC and Reliance MIP for retired person. HDFC MIP has paid in 71 times dividend in 77 months. The average annual dividends for last six years are around 11%, much more than bank FD, Company FD and SCSS but with little risk.
My sincere advice to our readers is not to invest any more once the sensex reaches 20,000 marks or little lower. That would be time to redeem the investment if they have earned good profit and have completed at least one year or more. Keep your money handy to invest when market goes down. There is a strong possibility of correction. Invest all the money when correction set in. People who have done STP or SIP do not have to worry at all. They should keep on investing while share market goes down. The long term investors should not be afraid of. They would surely make money.
Dinesh Thakkar, chairman and managing director, Angel Broking said: “Strong IIP numbers, better than expected month of July 2010 fired the bourse, which inched up to cross the 19,000 mark. Going forward, with the Agriculture growth accelerating on back of good monsoons, which along with the robust growth in the manufacturing and the services sector should aid Indian economy to deliver an 8.5 per cent GDP growth in FY2011.”
We need to understand that share market is a risky field and correction is inevitable. Warren buffet makes money because the share market is a volatile field and he enters the market when others fly away. He invests in companies whose functioning he understand well. It is impossible for common people to understand so it would be wise to depend on their personal financial advisers always. Investors need to study well the money magazine and business pages of news papers and form their own opinion. On the flip side the key concern area inflation is also likely to moderate as we go forward, resulting in most of the monetary tightening measures being front ended. This along with the strong earnings growth momentum, wherein the Sensex earnings are expected to grow at a 18 per cent CAGR over FY2010-12, the Indian equities would continue to be sweet spot and continue to gradually move upwards in the long run. It short and medium term there could be correction.
It is necessary for senior citizen to understand that they need not invest all the money in equity related instrument . They can invest only 20 to 30% money in equity. The balance money could be kept invested in PPF, SCSS and Banks FD and long term debt fund. While investing in equity they should invest mostly in balanced fund like HDFC prudence or Reliance balanced fund. They can invest also in MIP of HDFC and Reliance or in Birla.
Younger readers can take risk and can invest a larger amount in equity. But they too need not put all the eggs in one basket. The good diversified funds are IDFC premier equity, HDFC equity and top 200 beside Reliance growth and Birla Dividend yield.
Asian equity markets also rose in September on the back of strong economic data in China and the United States . The news on agreement among global banking regulators to implement stricter Basel III norms also stoked positive sentiments in the market.
Japan’s benchmark Nikkei average rose 1.4 per cent, while the MSCI index of Asian shares outside Japan was up 1.6 per cent as strong economic numbers boosted investors’ confidence. India growth story is taking shape and this is the time our readers should take advantage of the share market of the country. One thing must be kept in mind that patience is the most r4quired skill if investors wants make money. Be a long term player always. Redeem your funds whenever you make more than 30% return. Keep it aside for sometime to re invest when market goes down. Rakesh Jhunjunwals said he enjoys when market goes down because then only he would be able to make money in future.
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Wednesday, October 20, 2010
GOLD IS A GREAT ASSET BUT DONOT PROVIDE UNLIMITED SECURITY
Gold is powerful asset from time immemorial. Even the world’s monetary system revolves around the Gold. The Gold standard has been the key for devising the monetary system of the world. The currency of individual country revolves around the Gold Standard. Yet Gold is not the best asset class though generally it is considered as the safe bet. In last 20 years the best asset class has been art forms and equity ranks next to it. In effect the gold is below equity next only to real estate. However, the Gold ETF had occupies a position higher than equity in last three years. But we need to keep it in mind that long term the position of Gold ETF would be behind Equity only.
Gold prices today seem unstoppable. They’ve reached levels that would have been unimaginable a few years ago and gold cheerleaders say they are on their way to levels that are unimaginable today.
When investors go and look for information on whether gold is still a good bet, there are experts who loudly proclaim that Gold is the only commodity which will save the financial crisis of the world. They recommend buying of Gold ETF or Gold ornaments so that during the financial deluge they would survive better than their neighbours. Many experts do advocate well-reasoned arguments supporting as to why the yellow metal prices would continue to move northwards. Gold is generally accepted by all. Hence demad of Gold is unending. There are shortages of Gold in the market and demand moves up as more and more countries would like to hoard it. There are many variations to these arguments, but basically, they all boil down to the age old theory of ‘safe haven’ t, viz. that investors are scared of the bleak future of stocks, bonds, currencies and all other kinds of financial investment. They are absolutely scared that there would be another financial crisis. To survive such financial catastrophe it would be desirable to act smart now itself and need to rush in to acquire an asset type that has a historical reputation of crating and protecting wealth in worst times.
Now a days it is not just the financial experts, but even the print and electronic media also carries stories and articles recommending gold as a significant chunk of the individual’s investment portfolio. They now days declared that the time has arrived when Gold needs to be considered as the savior during financial disaster. According to those experts days of Gold as a mainstream financial investment, have arrived .But we do not think so. We would like to forewarn our readers that gold is of course a valuable metal but cannot be considered as the savior of life during financial deluge. Or is it a hype only ? Will gold live up to the hype created by some of the fiscal experts? I do not think so .According Dhirendra Kumar, an honest and sincere expert on the field “the hype has now reached impressive levels. On the internet, it’s not difficult to find apparently sane analysts who say that gold could rise to four times today’s price in five years.” But does he believe it? I do not I am sure Dhirendra Kumar too does not believe.
Projections of two to three times today’s price levels in a year or two are commonplace. Is this a bubble? The gold of today is not the gold of old — a largely physical asset that was a safe haven in troubled times. The has turned into a commodity and is a paper asset too, with highly liquid and highly leveraged markets where derived proxies of gold trade in much larger quantities than any underlying demand. This bubble is likely to burst as was the case of Liquid Black Gold. The crude oil also crated a bubble few years back. Over the past few years, oil, copper, nickel, wheat took its turn in creating buble.We think this the turn of yellow metal to create bubble. We need to be aware of such a situation and try to salvage our own position before the Gold bubble is burst.
One Financial experts did say “in fact, gold is even more of a bubble because it is an inherently useless material, earning no dividends or interest. There’s no industrial consumption story like copper or nickel here, and unlike oil, there isn’t any danger of ‘peak gold’ laying waste to the world economy. Gold is the purest of all bubbles—where even the story being told by its proponents is that they expect its price to rise because everyone expects it to rise”. We do believe that Gold is valuable metal but do not believe that Gold can act the savior of humanity. It has never saved humanity during even great depression it would not save even now. Yes we can buy Gold metal for our ceremonies of future . We can at best invest in Gold surely only up to 10 percent of our total investing asset.
Of course the present bubble will continue, and brave persons can find this opportunity to milk yellow cow for all it is worth. Bubbles are, by definition, irrational and emotional. Due to psychological effect and due to trick of the traders gold’s price might go up phenomenally within a few years. But It is not worth taking the risk unless you are either fool or too intelligent to exit just before the bubble is burst. A few readers asked us whether it is worth taking the risk? My reply would be similar to an up country Economist who said “ if you invest in it today, have no illusions that you are putting away money for a rainy day”. Buying Gold more than your own needs would be actually a speculation. The buying of the yellow metal in large volume is only a madness of th4 market. And this madness may continue for a while. A day is not far off when this madness will end suddenly, and then the experts on yellow metal shall have to run away never to return back to the market. Our advice to our readers are be vigilant invest in Gold in moderation. It is a valuable product but it would neither make you super rich nor support you as the savior during financial deluge. Your portfolio should surely consist of Gold and Gold ETF but not more than 10% to 15% of your total asset.
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Gold prices today seem unstoppable. They’ve reached levels that would have been unimaginable a few years ago and gold cheerleaders say they are on their way to levels that are unimaginable today.
When investors go and look for information on whether gold is still a good bet, there are experts who loudly proclaim that Gold is the only commodity which will save the financial crisis of the world. They recommend buying of Gold ETF or Gold ornaments so that during the financial deluge they would survive better than their neighbours. Many experts do advocate well-reasoned arguments supporting as to why the yellow metal prices would continue to move northwards. Gold is generally accepted by all. Hence demad of Gold is unending. There are shortages of Gold in the market and demand moves up as more and more countries would like to hoard it. There are many variations to these arguments, but basically, they all boil down to the age old theory of ‘safe haven’ t, viz. that investors are scared of the bleak future of stocks, bonds, currencies and all other kinds of financial investment. They are absolutely scared that there would be another financial crisis. To survive such financial catastrophe it would be desirable to act smart now itself and need to rush in to acquire an asset type that has a historical reputation of crating and protecting wealth in worst times.
Now a days it is not just the financial experts, but even the print and electronic media also carries stories and articles recommending gold as a significant chunk of the individual’s investment portfolio. They now days declared that the time has arrived when Gold needs to be considered as the savior during financial disaster. According to those experts days of Gold as a mainstream financial investment, have arrived .But we do not think so. We would like to forewarn our readers that gold is of course a valuable metal but cannot be considered as the savior of life during financial deluge. Or is it a hype only ? Will gold live up to the hype created by some of the fiscal experts? I do not think so .According Dhirendra Kumar, an honest and sincere expert on the field “the hype has now reached impressive levels. On the internet, it’s not difficult to find apparently sane analysts who say that gold could rise to four times today’s price in five years.” But does he believe it? I do not I am sure Dhirendra Kumar too does not believe.
Projections of two to three times today’s price levels in a year or two are commonplace. Is this a bubble? The gold of today is not the gold of old — a largely physical asset that was a safe haven in troubled times. The has turned into a commodity and is a paper asset too, with highly liquid and highly leveraged markets where derived proxies of gold trade in much larger quantities than any underlying demand. This bubble is likely to burst as was the case of Liquid Black Gold. The crude oil also crated a bubble few years back. Over the past few years, oil, copper, nickel, wheat took its turn in creating buble.We think this the turn of yellow metal to create bubble. We need to be aware of such a situation and try to salvage our own position before the Gold bubble is burst.
One Financial experts did say “in fact, gold is even more of a bubble because it is an inherently useless material, earning no dividends or interest. There’s no industrial consumption story like copper or nickel here, and unlike oil, there isn’t any danger of ‘peak gold’ laying waste to the world economy. Gold is the purest of all bubbles—where even the story being told by its proponents is that they expect its price to rise because everyone expects it to rise”. We do believe that Gold is valuable metal but do not believe that Gold can act the savior of humanity. It has never saved humanity during even great depression it would not save even now. Yes we can buy Gold metal for our ceremonies of future . We can at best invest in Gold surely only up to 10 percent of our total investing asset.
Of course the present bubble will continue, and brave persons can find this opportunity to milk yellow cow for all it is worth. Bubbles are, by definition, irrational and emotional. Due to psychological effect and due to trick of the traders gold’s price might go up phenomenally within a few years. But It is not worth taking the risk unless you are either fool or too intelligent to exit just before the bubble is burst. A few readers asked us whether it is worth taking the risk? My reply would be similar to an up country Economist who said “ if you invest in it today, have no illusions that you are putting away money for a rainy day”. Buying Gold more than your own needs would be actually a speculation. The buying of the yellow metal in large volume is only a madness of th4 market. And this madness may continue for a while. A day is not far off when this madness will end suddenly, and then the experts on yellow metal shall have to run away never to return back to the market. Our advice to our readers are be vigilant invest in Gold in moderation. It is a valuable product but it would neither make you super rich nor support you as the savior during financial deluge. Your portfolio should surely consist of Gold and Gold ETF but not more than 10% to 15% of your total asset.
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RISK AVERSE INVESTORS CAN SUBSCRIBE STATE BANK'S BOND ISSUE
Country's largest lender State Bank of India's first retail bond issue of Rs. 1,000 crore was subscribed over 17 times on the opening day, showing enthused participation from investors. Many of our readers have enquired whether it would be prudent to subscribe to the bonds as it is a long term saving proposal.
We would like to reassure our readers that the bond issue of
SBI is one of the finest saving proposal for common people as well as for high net worth people who would like to have extreme safety and security of their money . In many years to come such high rate of interest from any fixed income securities may not be available. In spite of the fact that there would be no income tax concession on the product it is a good saving option, according to most economists. The return is even better than Senior citizen’s Saving scheme. The SCSS has 9% return whereas the SBI bond has return limit of 9.25 % to 9.50% return depending on the length of the saving period. The best Saving option is PPF. This is issue next best option for all risk averse investors.
I would like to recommend risk averse senior citizens as well as young investors to subscribe to the bond issue. My only apprehension was that many of the applicants may not be able to get the desired number of bonds as the issue is bound to be heavily oversubscribed.
The issue, which opened for subscription yesterday, was supposed to remain open till October 25. Market sources said that in the bond sale, the portion reserved for wealthy individuals (High Net worth Individuals) was subscribed by over 16 times, while that reserved for retail investors was oversubscribed 6.4 times already.
The offering comprises issue of bonds worth Rs. 500 crore, with an option to raise it further upto Rs. 500 crore by issuing additional bonds, with the total aggregating to Rs. 1,000 crore.
Our readers need not worry if they miss the bond issue because the issue is going to be listed in the stock market later.
This listing arrangement would provide an opportunity to all investors to buy the bond from open market if they miss the issue now. The bond may be available in premium or in discount below the issue price depending on the trend of bank interest. If the bank interest goes up the cost of the bond would go down and if the rate of bank interest goes down the bond would be available in premium. There is a strong possibility of bank interest going up in near future hence investors who miss the opportunity now may be getting the the same bond in discount and so actual interest return would be higher.
The bonds would offer an interest of 9.25 per cent for 10 years and 9.5 per cent for 15 years. Citigroup, Kotak Mahindra Capital and SBI Capital Markets are the managers for the issue. The bonds are proposed to be listed on the National Stock Exchange of India (NSE).
The bonds would be allotted to all categories on “first come first serve basis” based on the date of application. So It would be prudent to rush to the bank and subscribe the issue since according to us this is one of the best option for safe and quality saving procedure
We would like to reassure our readers that the bond issue of
SBI is one of the finest saving proposal for common people as well as for high net worth people who would like to have extreme safety and security of their money . In many years to come such high rate of interest from any fixed income securities may not be available. In spite of the fact that there would be no income tax concession on the product it is a good saving option, according to most economists. The return is even better than Senior citizen’s Saving scheme. The SCSS has 9% return whereas the SBI bond has return limit of 9.25 % to 9.50% return depending on the length of the saving period. The best Saving option is PPF. This is issue next best option for all risk averse investors.
I would like to recommend risk averse senior citizens as well as young investors to subscribe to the bond issue. My only apprehension was that many of the applicants may not be able to get the desired number of bonds as the issue is bound to be heavily oversubscribed.
The issue, which opened for subscription yesterday, was supposed to remain open till October 25. Market sources said that in the bond sale, the portion reserved for wealthy individuals (High Net worth Individuals) was subscribed by over 16 times, while that reserved for retail investors was oversubscribed 6.4 times already.
The offering comprises issue of bonds worth Rs. 500 crore, with an option to raise it further upto Rs. 500 crore by issuing additional bonds, with the total aggregating to Rs. 1,000 crore.
Our readers need not worry if they miss the bond issue because the issue is going to be listed in the stock market later.
This listing arrangement would provide an opportunity to all investors to buy the bond from open market if they miss the issue now. The bond may be available in premium or in discount below the issue price depending on the trend of bank interest. If the bank interest goes up the cost of the bond would go down and if the rate of bank interest goes down the bond would be available in premium. There is a strong possibility of bank interest going up in near future hence investors who miss the opportunity now may be getting the the same bond in discount and so actual interest return would be higher.
The bonds would offer an interest of 9.25 per cent for 10 years and 9.5 per cent for 15 years. Citigroup, Kotak Mahindra Capital and SBI Capital Markets are the managers for the issue. The bonds are proposed to be listed on the National Stock Exchange of India (NSE).
The bonds would be allotted to all categories on “first come first serve basis” based on the date of application. So It would be prudent to rush to the bank and subscribe the issue since according to us this is one of the best option for safe and quality saving procedure
Friday, September 17, 2010
A NEW TAX REGIME WOULD GREET TAX PAYERS FROM 2012
With the introduction of Direct Tax Code a new tax regime would start from 2012. Uptill now new tax proposal were submitted to parliament every year at the time presentation of Budget. This would not be required now since that would be taken car of by Taxation Cod. The Direct Tax code is a valuable document of the country IPC or Cr. P. C. The government does not have to change it every year. It can be changed from time to time when circumstances changes.
The DTC has been introduced in parliament for debate and discussion. The Code aims at simplifying rules, improving efficiency and bringing about better compliance. It will replace the existing tax Act of 1957 effecting first April 2012.
DTC originally proposed to substantially raise the tax slab for individual taxpayers. While presenting the proposal in the parliament original proposed was revised yet it has given substantially gain to tax payers. The code stopped the differentiation between male and female taxpayers while proposing the rebate. The senior citizen have been given a minor relief of Rs 10,000/- more making the exemption limit of Rs2.50lakh.
The new tax law proposes to increase the income tax exemption limit from Rs 1.6 lakh to Rs 2 lakh. It also proposes three income tax slabs – 10 per cent on Rs 2-5 lakh annual income, 20 per cent on Rs 5-10 lakh and 30 per cent on annual income upwards Rs 10 lakh.( At present, income between Rs. 1.65 lakh and Rs 5 lakh is taxed at 10 per cent tax, income for Rs 5-8 lakh is taxed at 20 per cent and above Rs 8 lakh, the tax rate is 30 per cent).
DTC has linked the short-term capital gains tax to an investor’s annual income. A short-term capital gains tax of 5 per cent would be applicable for an investor in the income group of Rs 2-5 lakh, 10 per cent in the Rs 5-10 lakh bracket and 15 per cent for those with income over Rs 10 lakh.
Tax-free dividends on equity mutual funds would be a thing of past once theThe code proposes a 5 per cent dividend distribution tax on equity mutual funds and unit-linked insurance plans (ULIPs). At present, dividends on equity mutual funds are tax-free in the hands of investors.
The DTC also proposes a 15 per cent dividend distribution tax (DDT) on equities. However, it has excluded the dividend paid by a subsidiary company to its parent company from any tax liability. These exemptions make sense as dividend paid by a subsidiary to its parent company means the dividend stays within the group.
The most benefits that accrues from the proposal are (1) contribution of upto Rs one lakh in approved funds such as public provident funds would get tax deduction. ( The limit atpresent is Rs seventy thousand ) To enjoy deduction on insurance, the annual premium should not exceed 5 percent of the sum assured.(2) Pension funds have been made tax free and (3) long term capital gains tax would remain tax free. (4) the code proposes additional Rs 50,00 on investment in insurance including Health cover and tuition fees for children as exempt. However, DTC has maintained the status quo on securities transaction tax (STT) and long-term capital gains tax, that is, while STT stays, there would be no long-term capital gains tax on equity and equity related instruments. The original draft of DTC had proposed to do away with STT and levy long-term capital gains tax. One most important step taken in the code is to exemptHRA and LTA upto a prescribed limit. Income on House property will be taxed provided it is rented out actually. Till now it is taxed on notional basis.The proposl of introducing a fair market value in place of the actual rent recived has been done away with.
The threashold for payment of wealth tax has been enhanced to Rs One crore from rs Thirty lakh. The rate of wealth tax would remain one percent. This has been resented by High net worth people.
To us new tax code is welcome move. However tax exemption limt of Rs 2 LKH seemed to be meager because it would be implemented only after two years from now, by that time inflation would neutralize the benefit now given.
The new code proposes a 30 per cent corporate tax against the existing effective rate of 33.22 per cent on account of cess and surcharges. The DTC seeks to impose a minimum alternate tax (MAT) of 20 per cent of the book profit against the existing 18 per cent. The chambers are not very happy on this issue. Tough we can never have a tax code that would satisfy all, but surely the finance minister has tried to given enough reasons to cheer.
------------------------------------------
The DTC has been introduced in parliament for debate and discussion. The Code aims at simplifying rules, improving efficiency and bringing about better compliance. It will replace the existing tax Act of 1957 effecting first April 2012.
DTC originally proposed to substantially raise the tax slab for individual taxpayers. While presenting the proposal in the parliament original proposed was revised yet it has given substantially gain to tax payers. The code stopped the differentiation between male and female taxpayers while proposing the rebate. The senior citizen have been given a minor relief of Rs 10,000/- more making the exemption limit of Rs2.50lakh.
The new tax law proposes to increase the income tax exemption limit from Rs 1.6 lakh to Rs 2 lakh. It also proposes three income tax slabs – 10 per cent on Rs 2-5 lakh annual income, 20 per cent on Rs 5-10 lakh and 30 per cent on annual income upwards Rs 10 lakh.( At present, income between Rs. 1.65 lakh and Rs 5 lakh is taxed at 10 per cent tax, income for Rs 5-8 lakh is taxed at 20 per cent and above Rs 8 lakh, the tax rate is 30 per cent).
DTC has linked the short-term capital gains tax to an investor’s annual income. A short-term capital gains tax of 5 per cent would be applicable for an investor in the income group of Rs 2-5 lakh, 10 per cent in the Rs 5-10 lakh bracket and 15 per cent for those with income over Rs 10 lakh.
Tax-free dividends on equity mutual funds would be a thing of past once theThe code proposes a 5 per cent dividend distribution tax on equity mutual funds and unit-linked insurance plans (ULIPs). At present, dividends on equity mutual funds are tax-free in the hands of investors.
The DTC also proposes a 15 per cent dividend distribution tax (DDT) on equities. However, it has excluded the dividend paid by a subsidiary company to its parent company from any tax liability. These exemptions make sense as dividend paid by a subsidiary to its parent company means the dividend stays within the group.
The most benefits that accrues from the proposal are (1) contribution of upto Rs one lakh in approved funds such as public provident funds would get tax deduction. ( The limit atpresent is Rs seventy thousand ) To enjoy deduction on insurance, the annual premium should not exceed 5 percent of the sum assured.(2) Pension funds have been made tax free and (3) long term capital gains tax would remain tax free. (4) the code proposes additional Rs 50,00 on investment in insurance including Health cover and tuition fees for children as exempt. However, DTC has maintained the status quo on securities transaction tax (STT) and long-term capital gains tax, that is, while STT stays, there would be no long-term capital gains tax on equity and equity related instruments. The original draft of DTC had proposed to do away with STT and levy long-term capital gains tax. One most important step taken in the code is to exemptHRA and LTA upto a prescribed limit. Income on House property will be taxed provided it is rented out actually. Till now it is taxed on notional basis.The proposl of introducing a fair market value in place of the actual rent recived has been done away with.
The threashold for payment of wealth tax has been enhanced to Rs One crore from rs Thirty lakh. The rate of wealth tax would remain one percent. This has been resented by High net worth people.
To us new tax code is welcome move. However tax exemption limt of Rs 2 LKH seemed to be meager because it would be implemented only after two years from now, by that time inflation would neutralize the benefit now given.
The new code proposes a 30 per cent corporate tax against the existing effective rate of 33.22 per cent on account of cess and surcharges. The DTC seeks to impose a minimum alternate tax (MAT) of 20 per cent of the book profit against the existing 18 per cent. The chambers are not very happy on this issue. Tough we can never have a tax code that would satisfy all, but surely the finance minister has tried to given enough reasons to cheer.
------------------------------------------
A NEW TAX REGIME WOULD GRET TAX PAYERS FROM 2012
With the introduction of Direct Tax Code a new tax regime would start from 2012. Uptill now new tax proposal were submitted to parliament every year at the time presentation of Budget. This would not be required now since that would be taken car of by Taxation Cod. The Direct Tax code is a valuable document of the country IPC or Cr. P. C. The government does not have to change it every year. It can be changed from time to time when circumstances changes.
The DTC has been introduced in parliament for debate and discussion. The Code aims at simplifying rules, improving efficiency and bringing about better compliance. It will replace the existing tax Act of 1957 effecting first April 2012.
DTC originally proposed to substantially raise the tax slab for individual taxpayers. While presenting the proposal in the parliament original proposed was revised yet it has given substantially gain to tax payers. The code stopped the differentiation between male and female taxpayers while proposing the rebate. The senior citizen have been given a minor relief of Rs 10,000/- more making the exemption limit of Rs2.50lakh.
The new tax law proposes to increase the income tax exemption limit from Rs 1.6 lakh to Rs 2 lakh. It also proposes three income tax slabs – 10 per cent on Rs 2-5 lakh annual income, 20 per cent on Rs 5-10 lakh and 30 per cent on annual income upwards Rs 10 lakh.( At present, income between Rs. 1.65 lakh and Rs 5 lakh is taxed at 10 per cent tax, income for Rs 5-8 lakh is taxed at 20 per cent and above Rs 8 lakh, the tax rate is 30 per cent).
DTC has linked the short-term capital gains tax to an investor’s annual income. A short-term capital gains tax of 5 per cent would be applicable for an investor in the income group of Rs 2-5 lakh, 10 per cent in the Rs 5-10 lakh bracket and 15 per cent for those with income over Rs 10 lakh.
Tax-free dividends on equity mutual funds would be a thing of past once theThe code proposes a 5 per cent dividend distribution tax on equity mutual funds and unit-linked insurance plans (ULIPs). At present, dividends on equity mutual funds are tax-free in the hands of investors.
The DTC also proposes a 15 per cent dividend distribution tax (DDT) on equities. However, it has excluded the dividend paid by a subsidiary company to its parent company from any tax liability. These exemptions make sense as dividend paid by a subsidiary to its parent company means the dividend stays within the group.
The most benefits that accrues from the proposal are (1) contribution of upto Rs one lakh in approved funds such as public provident funds would get tax deduction. ( The limit atpresent is Rs seventy thousand ) To enjoy deduction on insurance, the annual premium should not exceed 5 percent of the sum assured.(2) Pension funds have been made tax free and (3) long term capital gains tax would remain tax free. (4) the code proposes additional Rs 50,00 on investment in insurance including Health cover and tuition fees for children as exempt. However, DTC has maintained the status quo on securities transaction tax (STT) and long-term capital gains tax, that is, while STT stays, there would be no long-term capital gains tax on equity and equity related instruments. The original draft of DTC had proposed to do away with STT and levy long-term capital gains tax. One most important step taken in the code is to exemptHRA and LTA upto a prescribed limit. Income on House property will be taxed provided it is rented out actually. Till now it is taxed on notional basis.The proposl of introducing a fair market value in place of the actual rent recived has been done away with.
The threashold for payment of wealth tax has been enhanced to Rs One crore from rs Thirty lakh. The rate of wealth tax would remain one percent. This has been resented by High net worth people.
To us new tax code is welcome move. However tax exemption limt of Rs 2 LKH seemed to be meager because it would be implemented only after two years from now, by that time inflation would neutralize the benefit now given.
The new code proposes a 30 per cent corporate tax against the existing effective rate of 33.22 per cent on account of cess and surcharges. The DTC seeks to impose a minimum alternate tax (MAT) of 20 per cent of the book profit against the existing 18 per cent. The chambers are not very happy on this issue. Tough we can never have a tax code that would satisfy all, but surely the finance minister has tried to given enough reasons to cheer.
------------------------------------------
Earlier, the Direct Tax Code was supposed to come into effect from April 1, 2011, but now it has been deferred by a year.
The DTC has been introduced in parliament for debate and discussion. The Code aims at simplifying rules, improving efficiency and bringing about better compliance. It will replace the existing tax Act of 1957 effecting first April 2012.
DTC originally proposed to substantially raise the tax slab for individual taxpayers. While presenting the proposal in the parliament original proposed was revised yet it has given substantially gain to tax payers. The code stopped the differentiation between male and female taxpayers while proposing the rebate. The senior citizen have been given a minor relief of Rs 10,000/- more making the exemption limit of Rs2.50lakh.
The new tax law proposes to increase the income tax exemption limit from Rs 1.6 lakh to Rs 2 lakh. It also proposes three income tax slabs – 10 per cent on Rs 2-5 lakh annual income, 20 per cent on Rs 5-10 lakh and 30 per cent on annual income upwards Rs 10 lakh.( At present, income between Rs. 1.65 lakh and Rs 5 lakh is taxed at 10 per cent tax, income for Rs 5-8 lakh is taxed at 20 per cent and above Rs 8 lakh, the tax rate is 30 per cent).
DTC has linked the short-term capital gains tax to an investor’s annual income. A short-term capital gains tax of 5 per cent would be applicable for an investor in the income group of Rs 2-5 lakh, 10 per cent in the Rs 5-10 lakh bracket and 15 per cent for those with income over Rs 10 lakh.
Tax-free dividends on equity mutual funds would be a thing of past once theThe code proposes a 5 per cent dividend distribution tax on equity mutual funds and unit-linked insurance plans (ULIPs). At present, dividends on equity mutual funds are tax-free in the hands of investors.
The DTC also proposes a 15 per cent dividend distribution tax (DDT) on equities. However, it has excluded the dividend paid by a subsidiary company to its parent company from any tax liability. These exemptions make sense as dividend paid by a subsidiary to its parent company means the dividend stays within the group.
The most benefits that accrues from the proposal are (1) contribution of upto Rs one lakh in approved funds such as public provident funds would get tax deduction. ( The limit atpresent is Rs seventy thousand ) To enjoy deduction on insurance, the annual premium should not exceed 5 percent of the sum assured.(2) Pension funds have been made tax free and (3) long term capital gains tax would remain tax free. (4) the code proposes additional Rs 50,00 on investment in insurance including Health cover and tuition fees for children as exempt. However, DTC has maintained the status quo on securities transaction tax (STT) and long-term capital gains tax, that is, while STT stays, there would be no long-term capital gains tax on equity and equity related instruments. The original draft of DTC had proposed to do away with STT and levy long-term capital gains tax. One most important step taken in the code is to exemptHRA and LTA upto a prescribed limit. Income on House property will be taxed provided it is rented out actually. Till now it is taxed on notional basis.The proposl of introducing a fair market value in place of the actual rent recived has been done away with.
The threashold for payment of wealth tax has been enhanced to Rs One crore from rs Thirty lakh. The rate of wealth tax would remain one percent. This has been resented by High net worth people.
To us new tax code is welcome move. However tax exemption limt of Rs 2 LKH seemed to be meager because it would be implemented only after two years from now, by that time inflation would neutralize the benefit now given.
The new code proposes a 30 per cent corporate tax against the existing effective rate of 33.22 per cent on account of cess and surcharges. The DTC seeks to impose a minimum alternate tax (MAT) of 20 per cent of the book profit against the existing 18 per cent. The chambers are not very happy on this issue. Tough we can never have a tax code that would satisfy all, but surely the finance minister has tried to given enough reasons to cheer.
------------------------------------------
Earlier, the Direct Tax Code was supposed to come into effect from April 1, 2011, but now it has been deferred by a year.
NEW BANK OR MORE BRANCHES NECESSARY IN REMOTE PLACES
WHETHER MORE BANKS OR GREATER BANKING PENETRATION IS REQUIRED IN INDIA
G.P.BAROOWAH
As declared earlier by government of India Reserve bank of India recently initiated action during the first week of August preparing to issue fresh licenses to set up new banks in private sector.
The RBI issued a discussion paper, seeking views of stakeholders on various issues such as minimum capital requirements for new banks and promoters’ contribution, minimum and maximum caps on promoter shareholding and other shareholders, and foreign shareholding in the new banks.
The Reserve Bank , in effect shook the business community and economists with a truly revolutionary discussion paper on how should new entrants be admitted into the Indian banking space. The discussion papers have not specified whether foreign banks would be asked to play a greater role in rural areas of India or not. This is an important issue that could be debated.
The questions has been raised by number of economist whether there are enough valid reason for issuing fresh licenses to start private Banks in the country? The past experience since 1963 of setting up of private sector banks has not been very encouraging. Only a very few survived. Some time it has become very difficult for RBI in allowing ailing bank to merge with a good nationalized bank to protect the interest of depositors. This action was taken in the case of Global Trust Bank.
RBI’s discussion paper seeks the views of public in general on the subject of entry of new bank in private sector
The central bank also sought views on whether industrial and business houses could be allowed to promote banks and should non-banking financial companies be allowed conversion into banks or to promote a bank. It is a fact that up till now no large industrial houses are allowed to setup bank in the country.
It invited views and comments of banks, non-banking financial institutions, industrial houses, other institutions and the public on these.
In his budget speech on Feb 26 this year, Finance Minister Pranab Mukherjee had announced that the government might issue more licenses to private sector banks.
Now question arises as to why Government of India is trying to issue more licenses in the banking sectors. Is it necessary? According to us expansion of banking system is necessary. But this did not mean more licenses need to be issued to new parties. It would have been wise to allow expansion of banking branch in those areas where banking facilities are not available. For example in state like Assam more and more branches could be opened. RBI should take conscious policy decision allowing existing banks to expand more branches in remoter areas of Northeast first. By merely giving more licenses for metropolitan cities would not help in all round development of industry and business of country as a whole. Though deposit rates of Northeast are high credit availability to weaker section of people is very low. It would be necessary first for RBI to over see that credit is made available in sufficient measures so that inclusive growth could be ushered in.
The banking should not be viewed only from the money lending business. think if you start looking at banking from the prism of asset management, from the prism of investment banking, from the prism of M&A, it becomes a serious contribution which foreign banks have been contributing to the country, leave alone the impact they have had on consumer banking here or in terms of some of the risk management tools
.
G.P.BAROOWAH
As declared earlier by government of India Reserve bank of India recently initiated action during the first week of August preparing to issue fresh licenses to set up new banks in private sector.
The RBI issued a discussion paper, seeking views of stakeholders on various issues such as minimum capital requirements for new banks and promoters’ contribution, minimum and maximum caps on promoter shareholding and other shareholders, and foreign shareholding in the new banks.
The Reserve Bank , in effect shook the business community and economists with a truly revolutionary discussion paper on how should new entrants be admitted into the Indian banking space. The discussion papers have not specified whether foreign banks would be asked to play a greater role in rural areas of India or not. This is an important issue that could be debated.
The questions has been raised by number of economist whether there are enough valid reason for issuing fresh licenses to start private Banks in the country? The past experience since 1963 of setting up of private sector banks has not been very encouraging. Only a very few survived. Some time it has become very difficult for RBI in allowing ailing bank to merge with a good nationalized bank to protect the interest of depositors. This action was taken in the case of Global Trust Bank.
RBI’s discussion paper seeks the views of public in general on the subject of entry of new bank in private sector
The central bank also sought views on whether industrial and business houses could be allowed to promote banks and should non-banking financial companies be allowed conversion into banks or to promote a bank. It is a fact that up till now no large industrial houses are allowed to setup bank in the country.
It invited views and comments of banks, non-banking financial institutions, industrial houses, other institutions and the public on these.
In his budget speech on Feb 26 this year, Finance Minister Pranab Mukherjee had announced that the government might issue more licenses to private sector banks.
Now question arises as to why Government of India is trying to issue more licenses in the banking sectors. Is it necessary? According to us expansion of banking system is necessary. But this did not mean more licenses need to be issued to new parties. It would have been wise to allow expansion of banking branch in those areas where banking facilities are not available. For example in state like Assam more and more branches could be opened. RBI should take conscious policy decision allowing existing banks to expand more branches in remoter areas of Northeast first. By merely giving more licenses for metropolitan cities would not help in all round development of industry and business of country as a whole. Though deposit rates of Northeast are high credit availability to weaker section of people is very low. It would be necessary first for RBI to over see that credit is made available in sufficient measures so that inclusive growth could be ushered in.
The banking should not be viewed only from the money lending business. think if you start looking at banking from the prism of asset management, from the prism of investment banking, from the prism of M&A, it becomes a serious contribution which foreign banks have been contributing to the country, leave alone the impact they have had on consumer banking here or in terms of some of the risk management tools
.
NEW WPI KEEPING IN TUNE WITH CHANGING TIMES
One of the most decisive acts of the Government in recent years on Economic front is to introduce the new WPI. Many critics felt that the Government is taking up the project just to keep away from the embarrassment of high rate of inflation .But this is not really true. The old system was getting tired with changing habits of consumers. The government has revamped the way it calculates inflation rate to effectively capture variation in prices in tune with the changing times. A number of new products have been included in the new series of Wholesale Price Index (WPI), while about 200 redundant items have been dropped. The new WPI augurs well for the country and for its citizens.
The new WPI series for August with additional 241 items and change in the base year from 1993-94 to 2004-05 has been released on 14th September 2010. The comparison of old WPI with that new WPI did not bring striking difference though new WPI is little lower than before. It is 8.5% against the inflation rate of 9%. This is not hailed by the industrial workers for they get increased compensation on the basis of consumer’s price index.
In twenty first century every modern middle class House hold uses the consumer items of the like ice-cream, mineral water, flowers, microwave oven, washing machine, gold and silver will be reflected in the new series. While during our youth in Guwahati hardly people sported air conditioners at home. They were hesitant to use ACs in their residential homes because neighborhood habits were frugal. The use of Air conditioners in the parental houses of many in Assam was almost taboo though they could afford it. This environment has changed. The cost of House building has changed. The interior decoration of house is now much more costly compared to cost of the building. With old index it never uses to get reflected.
Over the years even food habits of Assamese people have undergone tremendous change. In most middle class now a day’s red, yellow and green capsicum, baby corn and button mushroom are common. It was unheard in fifties in the kitchen of Assamese household. The use of white oils was unheard. Only mustard oil ruled the kitchen in Assam. These new product must form the core of the food index. This would really keep the changing habits in reckoning so far as consumer’s price index is concerned. We welcome it surely.
The WPI inflation was 9.97% in July. August inflation data released on 14th September was 8.5%. With these items, the WPI will measure a total of 676 items against existing 435. "This would give better picture of the price variation. The weights assigned to commodity baskets such as primary articles, food & fuel and manufactured items have also been slightly tweaked. The number of quotations selected for collecting price data for the above items is 5482, up from 1918 quotations in the old series.
Readymade food, computer stationary, refrigerators, dish antenna, VCD, crude petroleum and computers would also be part of new series. Under primary article group of the new WPI, there would be 102 items against existing 98 while fuel and power category would remain static at 19. There is substantial increase in the number of items in manufactured products. In the new series, there would be 555 items compared to 318 items at the moment.
At the same time, weight of manufactured products would go up to 64.9% compared to 63.7% while primary articles group including food have come down to 20.1% against existing 22.02%.
The system dissemination with weekly release of primary (including food index) and fuel index would continue with the new base. Depending on the relevance of articles in the present economic condition about 200 items have been dropped from the new series, despite modernization of index. All India index does not provide a true picture of inflation in Northeast. In northeast vegetable and fish price are much more than compared to Kolkata, Madras, Kerala and even Chandigargh. The industrial workers are obviously not properly compensated by industrial houses because official consumer price index did not reflect the true inflation level of Northeast. It would be appropriate if a proper weight- age system is devised for calculating inflation rate of Northeast.
Some of the items like type-writers, video cassette recorders (VCRs) etc would not find place in the new series. A Committee of Secretaries in August, 2010 approved the release of new series of WPI with 2004-05 as its base. Inflation had been in double digits for five months till June. Planning Commission deputy chairman Montek Singh Ahluwalia said on Monday inflation would remain high in August but would start declining in subsequent months to reach a level of 6% by December-end.
Some of items included in the new series basket are flowers, lemon and crude petroleum in primary articles.
Items such as ice cream, canned meat, palm oil, readymade/instant food powder, mineral water, computer stationary and leather products have been included in manufactured products. We welcome the change.
------------------------------------------------------------------------
The new WPI series for August with additional 241 items and change in the base year from 1993-94 to 2004-05 has been released on 14th September 2010. The comparison of old WPI with that new WPI did not bring striking difference though new WPI is little lower than before. It is 8.5% against the inflation rate of 9%. This is not hailed by the industrial workers for they get increased compensation on the basis of consumer’s price index.
In twenty first century every modern middle class House hold uses the consumer items of the like ice-cream, mineral water, flowers, microwave oven, washing machine, gold and silver will be reflected in the new series. While during our youth in Guwahati hardly people sported air conditioners at home. They were hesitant to use ACs in their residential homes because neighborhood habits were frugal. The use of Air conditioners in the parental houses of many in Assam was almost taboo though they could afford it. This environment has changed. The cost of House building has changed. The interior decoration of house is now much more costly compared to cost of the building. With old index it never uses to get reflected.
Over the years even food habits of Assamese people have undergone tremendous change. In most middle class now a day’s red, yellow and green capsicum, baby corn and button mushroom are common. It was unheard in fifties in the kitchen of Assamese household. The use of white oils was unheard. Only mustard oil ruled the kitchen in Assam. These new product must form the core of the food index. This would really keep the changing habits in reckoning so far as consumer’s price index is concerned. We welcome it surely.
The WPI inflation was 9.97% in July. August inflation data released on 14th September was 8.5%. With these items, the WPI will measure a total of 676 items against existing 435. "This would give better picture of the price variation. The weights assigned to commodity baskets such as primary articles, food & fuel and manufactured items have also been slightly tweaked. The number of quotations selected for collecting price data for the above items is 5482, up from 1918 quotations in the old series.
Readymade food, computer stationary, refrigerators, dish antenna, VCD, crude petroleum and computers would also be part of new series. Under primary article group of the new WPI, there would be 102 items against existing 98 while fuel and power category would remain static at 19. There is substantial increase in the number of items in manufactured products. In the new series, there would be 555 items compared to 318 items at the moment.
At the same time, weight of manufactured products would go up to 64.9% compared to 63.7% while primary articles group including food have come down to 20.1% against existing 22.02%.
The system dissemination with weekly release of primary (including food index) and fuel index would continue with the new base. Depending on the relevance of articles in the present economic condition about 200 items have been dropped from the new series, despite modernization of index. All India index does not provide a true picture of inflation in Northeast. In northeast vegetable and fish price are much more than compared to Kolkata, Madras, Kerala and even Chandigargh. The industrial workers are obviously not properly compensated by industrial houses because official consumer price index did not reflect the true inflation level of Northeast. It would be appropriate if a proper weight- age system is devised for calculating inflation rate of Northeast.
Some of the items like type-writers, video cassette recorders (VCRs) etc would not find place in the new series. A Committee of Secretaries in August, 2010 approved the release of new series of WPI with 2004-05 as its base. Inflation had been in double digits for five months till June. Planning Commission deputy chairman Montek Singh Ahluwalia said on Monday inflation would remain high in August but would start declining in subsequent months to reach a level of 6% by December-end.
Some of items included in the new series basket are flowers, lemon and crude petroleum in primary articles.
Items such as ice cream, canned meat, palm oil, readymade/instant food powder, mineral water, computer stationary and leather products have been included in manufactured products. We welcome the change.
------------------------------------------------------------------------
FARMLAND REFORM IS A MUST FOR ECONOMIC GROWTH
The former Federal Reserve Chairman Allan Greenspan of USA recently reiterated that India has potential for the robust economic growth and thereby change the face of the world provided it takes up the agriculture reform in proper perspective. It is the productivity of the Farmland sector that has to be enhanced first, he felt. In a state like Assam which is endowed with great water resources and fertile land the enhanced productivity would set in motion great growth rate. There would be surplus land if productivity is ensured. By utilizing 20% of this excess land the capital intensive manufacturing enterprises could be ushered in unleashing chain reaction that would create near full employment situation.. This is not a euphoric dream but a possible hard life reality. India’s potential for growth is awesome, according to Dr. Greenspan.
The foremost requirement would be to overhaul the entire structure of Indian agriculture. To achieve the enhanced productivity three elements would be required i.e. (a ) developed infrastructure, (b) consolidation of fragmented holdings and (c) better varieties of seeds suiting Indian condition .Primarily the agricultural land valuation need to be enhanced first. The archaic land valuation needs to be looked at. The rate of premium payment of 25% cost of agriculture to land less cultivator must be enhanced whenever the land is acquired by government or sold by the landowners for the purpose industrial development. The Government need to pass a law revaluing the cost of land of the state and the rate of payment to landless agricultural workers whenever land changes hand. The landless workers or his nominee must be made employees of the new enterprise whenever agriculture land is made to surrender for development, till he is sixty years old. In North India value of farm land have gone up by 5000% n ten years. Real Estate agents have made money while poor agriculturists have remained poor. This situation needs to be salvaged.
It is an accepted practice of industry for revaluation of asset from time to time. Why not this practice should be adhered to in case of agriculture now ? For the revaluation of agricultural land the authority could be handed over specialist bank like NABARD. The land could be revalued in terms of inflation rate, utilization purpose and potential to earn out of that property for next twenty years. It is a fact that land would be required for industrial development. None can stop that process if high economic growth needs to be achieved. Agriculture alone cannot give the required economic boost. In modern time secondary sector and service sector would play the greater role. But initially the primary sector have to provide push by enhancing the productivity of land. To enhance the productivity and reset agricultural infrastructure the private sector could be made the partner of progress.
.Now, government should encourage joint sector farming, providing power and irrigational facilities to the farmers. The easy financial access alone would not help unless backed by infrastructure. The developed nations are using laser technology instead of tractors to till the lands. This helps in optimizing the use of various inputs such as water, seeds, fertilizers, etc. The problem is that Indian farmers cannot afford this technology and unless government and corporate sectors comes in support for agricultural infrastructure. The development of agriculture would remain a dream only ,if involvement of corporate sector is denied as a joint sector partners of landless laborer and that of land lords.
.Now, government should encourage joint sector farming, providing power and irrigational facilities to the farmers. The easy financial access alone would not help unless backed by infrastructure. The involvement of would generate employment for educated class.
The developed nations are using laser technology instead of tractors to till the lands. This helps in optimizing the use of various inputs such as water, seeds, fertilizers, etc. The problem is that Indian farmers cannot afford this technology and unless government and corporate sectors comes in support for agricultural infrastructure. The development of agriculture would remain a dream only ,if involvement of corporate sector is denied as a joint sector partners of landless laborer and that of land lords.
. In India the subsidy amount is very high and investment is too low. The investment in Agriculture is only 20% of Agriculture GDP. The Government has always considered increasing the subsidy but did not care enough for the enhancement of investment. The procurement prices were revised from time to time. The cultivator should get fair price no doubt. But market should be allowed to settle the Fair prices when subsidy have been given .More importantly the role of middlemen could be controlled. The need of the Day now is to see that AGRICULTURAL COMMODITIES FLOW DIRECTLY FROM Cultivator to market without much intervention of the middlemen. Perhaps elimination of middlemen would be impossible task for State Government due to political compulsion .This is the reason why in some of the states large scale grocery stores have become unsuccessful despite involvement of big industrial houses...
The Economic Advisory Council to the Prime Minister advocates the role of corporate sector in agriculture and says that activities other than food grain production like commercial crops, horticulture etc. have contributed most to agricultural GDP. The council recommends removal of subsidies related to grain procurement and REVAMPING of Public Distribution System.
From Africa to Asia, countries are scrambling to buy or lease land overseas to grow crops and feed their people. China, which has to feed the world’s largest population, has taken the lead by contracting land in Tanzania, Laos, Kazakhstan, Brazil and others. India has set its eyes on Uruguay and Paraguay, while South Korea is looking for farming deals in Sudan and Siberia. Libya and Egypt for their part have been negotiating deals to lease land in Ukraine. Assam Government must enhance the value of Farm land. The large entrepreneurs must be encouraged to cultivate in collaboration with local land lords and cultivators. Agricultural sector of India is mainly covered by small and marginal farmers, so our government should promote small scale agriculture. Corporate sector could be ushered in as an experiment in joint sector basis where land lord and cultivators becoming partners with corporate HOUSES on a selective basis. Assam can experiment with this model and outshine Hariyana and Punjab.
___________
The foremost requirement would be to overhaul the entire structure of Indian agriculture. To achieve the enhanced productivity three elements would be required i.e. (a ) developed infrastructure, (b) consolidation of fragmented holdings and (c) better varieties of seeds suiting Indian condition .Primarily the agricultural land valuation need to be enhanced first. The archaic land valuation needs to be looked at. The rate of premium payment of 25% cost of agriculture to land less cultivator must be enhanced whenever the land is acquired by government or sold by the landowners for the purpose industrial development. The Government need to pass a law revaluing the cost of land of the state and the rate of payment to landless agricultural workers whenever land changes hand. The landless workers or his nominee must be made employees of the new enterprise whenever agriculture land is made to surrender for development, till he is sixty years old. In North India value of farm land have gone up by 5000% n ten years. Real Estate agents have made money while poor agriculturists have remained poor. This situation needs to be salvaged.
It is an accepted practice of industry for revaluation of asset from time to time. Why not this practice should be adhered to in case of agriculture now ? For the revaluation of agricultural land the authority could be handed over specialist bank like NABARD. The land could be revalued in terms of inflation rate, utilization purpose and potential to earn out of that property for next twenty years. It is a fact that land would be required for industrial development. None can stop that process if high economic growth needs to be achieved. Agriculture alone cannot give the required economic boost. In modern time secondary sector and service sector would play the greater role. But initially the primary sector have to provide push by enhancing the productivity of land. To enhance the productivity and reset agricultural infrastructure the private sector could be made the partner of progress.
.Now, government should encourage joint sector farming, providing power and irrigational facilities to the farmers. The easy financial access alone would not help unless backed by infrastructure. The developed nations are using laser technology instead of tractors to till the lands. This helps in optimizing the use of various inputs such as water, seeds, fertilizers, etc. The problem is that Indian farmers cannot afford this technology and unless government and corporate sectors comes in support for agricultural infrastructure. The development of agriculture would remain a dream only ,if involvement of corporate sector is denied as a joint sector partners of landless laborer and that of land lords.
.Now, government should encourage joint sector farming, providing power and irrigational facilities to the farmers. The easy financial access alone would not help unless backed by infrastructure. The involvement of would generate employment for educated class.
The developed nations are using laser technology instead of tractors to till the lands. This helps in optimizing the use of various inputs such as water, seeds, fertilizers, etc. The problem is that Indian farmers cannot afford this technology and unless government and corporate sectors comes in support for agricultural infrastructure. The development of agriculture would remain a dream only ,if involvement of corporate sector is denied as a joint sector partners of landless laborer and that of land lords.
. In India the subsidy amount is very high and investment is too low. The investment in Agriculture is only 20% of Agriculture GDP. The Government has always considered increasing the subsidy but did not care enough for the enhancement of investment. The procurement prices were revised from time to time. The cultivator should get fair price no doubt. But market should be allowed to settle the Fair prices when subsidy have been given .More importantly the role of middlemen could be controlled. The need of the Day now is to see that AGRICULTURAL COMMODITIES FLOW DIRECTLY FROM Cultivator to market without much intervention of the middlemen. Perhaps elimination of middlemen would be impossible task for State Government due to political compulsion .This is the reason why in some of the states large scale grocery stores have become unsuccessful despite involvement of big industrial houses...
The Economic Advisory Council to the Prime Minister advocates the role of corporate sector in agriculture and says that activities other than food grain production like commercial crops, horticulture etc. have contributed most to agricultural GDP. The council recommends removal of subsidies related to grain procurement and REVAMPING of Public Distribution System.
From Africa to Asia, countries are scrambling to buy or lease land overseas to grow crops and feed their people. China, which has to feed the world’s largest population, has taken the lead by contracting land in Tanzania, Laos, Kazakhstan, Brazil and others. India has set its eyes on Uruguay and Paraguay, while South Korea is looking for farming deals in Sudan and Siberia. Libya and Egypt for their part have been negotiating deals to lease land in Ukraine. Assam Government must enhance the value of Farm land. The large entrepreneurs must be encouraged to cultivate in collaboration with local land lords and cultivators. Agricultural sector of India is mainly covered by small and marginal farmers, so our government should promote small scale agriculture. Corporate sector could be ushered in as an experiment in joint sector basis where land lord and cultivators becoming partners with corporate HOUSES on a selective basis. Assam can experiment with this model and outshine Hariyana and Punjab.
___________
SHARE MARKET BOOMS BUT NEEDS CAUTIOUS STEPS NOW
After along time most middle class investors are smiling again. The flood gates of telephone calls have started pouring in from our readers. “What should I do? I have doubled the amount. Should I redeem it or keep the money invested”? My reply to young investors was to stay invested if they do not want the money for next four years. There would be correction but again the market would go up. For seniors, whose risk appetite are low, they need to switch money to liquid fund and park the money for a while to invest when market correct after sometime. Another gentleman asked “Can I redeem the money and keep it in debt fund for a while and reinvest when market goes down”? It is a good idea no doubt, but if money is kept invested in Debt fund you cannot shift to another fund within one year without paying exit load. So if you redeem it now keep in saving bank or in liquid fund so that you can switch moment market goes down. The pessimism in the investment community is understandable as markets are nowhere near being called cheap. The price to earnings (PE) ratios are well over 22-23 and the continued fund flows has made sure the selling pressures from domestic fund houses hasn't been a deterrent for bulls. The new action on rep rate by RBI would also hit the Mutual Fund market, Debt funds and MIPs, which in turn would affect the senior citizens.
According to mutual fund industry sources, the selling pressures from domestic institutions have been on account of redemption pressures from individual investors.
In fact, individual investor behaviour has been that of caution in the last two years. Having been caught on the wrong foot in 2008, the small investor is in no mood to think long-term . As a result, during every uptrend many have been quick to encash profits or cut down losses (those who built portfolio in 2007-08 ). In the process, they failed to ride on the good market mood of the last few years.
The Bombay Stock Exchange (BSE) Sensex and the National Stock Exchange Nifty crossed a landmark each during the early session of trading on Monday. While the Sensex breached the 19,500 level, the Nifty crossed 5,800 marks on strong industrial output numbers from Asian and the US economies. But keep it in Mind that P/E ratio is not as high as it was during January 2008. At that time P/E ratio was 28. So there is actually still steam there and market may go up further. The market is sure to correct as soon as liquidity would come down.
At 11 am on Monday, the Sensex was 288 points up at 19,088, while the Nifty was 85 point up at 5,725. Banking stocks showed the sharpest jump in the early session as BSE Bankex and Bank Nifty had risen by close 3 per cent at 11 am. The small and mid cap stocks, however, lagged both the Nifty and the Sensex.
This rally is liquidity driven and is not fundamental driven alone. The participation from retail investors of the country is minimal. They remained hesitant even now to invest. Of course, there is a strong possibility of a deep correction at any time fro 10 to 20% at any time. So our advice to hesitant lot is to keep away from equity mutual fund. Perhaps they can invest in Long term MIPs where return is around 9 to 12% from time to time. There are three good funds in this segment according to value research, Birla sunlife MIP .5, Reliance MIP and HDFC MIP. These funds have got 5 to 25% equity and balance is in debt. My personal favourites are HDFC and Reliance MIP for retired person. HDFC MIP has paid in 71 times dividend in 77 months. The average annual dividends for last six years are around 11%, much more than bank FD, Company FD and SCSS but with little risk.
My sincere advice to our readers is not to invest any more once the sensex reaches 20,000 marks or little lower. That would be time to redeem the investment if they have earned good profit and have completed at least one year or more. Keep your money handy to invest when market goes down. There is a strong possibility of correction. Invest all the money when correction set in. People who have done STP or SIP do not have to worry at all. They should keep on investing while share market goes down. The long term investors should not be afraid of. They would surely make money.
Dinesh Thakkar, chairman and managing director, Angel Broking said: “Strong IIP numbers, better than expected month of July 2010 fired the bourse, which inched up to cross the 19,000 mark. Going forward, with the Agriculture growth accelerating on back of good monsoons, which along with the robust growth in the manufacturing and the services sector should aid Indian economy to deliver an 8.5 per cent GDP growth in FY2011.”
We need to understand that share market is a risky field and correction is inevitable. Warren buffet makes money because the share market is a volatile field and he enters the market when others fly away. He invests in companies whose functioning he understand well. It is impossible for common people to understand so it would be wise to depend on their personal financial advisers always. Investors need to study well the money magazine and business pages of news papers and form their own opinion. On the flip side the key concern area inflation is also likely to moderate as we go forward, resulting in most of the monetary tightening measures being front ended. This along with the strong earnings growth momentum, wherein the Sensex earnings are expected to grow at a 18 per cent CAGR over FY2010-12, the Indian equities would continue to be sweet spot and continue to gradually move upwards in the long run. It short and medium term there could be correction.
It is necessary for senior citizen to understand that they need not invest all the money in equity related instrument . They can invest only 20 to 30% money in equity. The balance money could be kept invested in PPF, SCSS and Banks FD and long term debt fund. While investing in equity they should invest mostly in balanced fund like HDFC prudence or Reliance balanced fund. They can invest also in MIP of HDFC and Reliance or in Birla.
Younger readers can take risk and can invest a larger amount in equity. But they too need not put all the eggs in one basket. The good diversified funds are IDFC premier equity, HDFC equity and top 200 beside Reliance growth and Birla Dividend yield.
According to mutual fund industry sources, the selling pressures from domestic institutions have been on account of redemption pressures from individual investors.
In fact, individual investor behaviour has been that of caution in the last two years. Having been caught on the wrong foot in 2008, the small investor is in no mood to think long-term . As a result, during every uptrend many have been quick to encash profits or cut down losses (those who built portfolio in 2007-08 ). In the process, they failed to ride on the good market mood of the last few years.
The Bombay Stock Exchange (BSE) Sensex and the National Stock Exchange Nifty crossed a landmark each during the early session of trading on Monday. While the Sensex breached the 19,500 level, the Nifty crossed 5,800 marks on strong industrial output numbers from Asian and the US economies. But keep it in Mind that P/E ratio is not as high as it was during January 2008. At that time P/E ratio was 28. So there is actually still steam there and market may go up further. The market is sure to correct as soon as liquidity would come down.
At 11 am on Monday, the Sensex was 288 points up at 19,088, while the Nifty was 85 point up at 5,725. Banking stocks showed the sharpest jump in the early session as BSE Bankex and Bank Nifty had risen by close 3 per cent at 11 am. The small and mid cap stocks, however, lagged both the Nifty and the Sensex.
This rally is liquidity driven and is not fundamental driven alone. The participation from retail investors of the country is minimal. They remained hesitant even now to invest. Of course, there is a strong possibility of a deep correction at any time fro 10 to 20% at any time. So our advice to hesitant lot is to keep away from equity mutual fund. Perhaps they can invest in Long term MIPs where return is around 9 to 12% from time to time. There are three good funds in this segment according to value research, Birla sunlife MIP .5, Reliance MIP and HDFC MIP. These funds have got 5 to 25% equity and balance is in debt. My personal favourites are HDFC and Reliance MIP for retired person. HDFC MIP has paid in 71 times dividend in 77 months. The average annual dividends for last six years are around 11%, much more than bank FD, Company FD and SCSS but with little risk.
My sincere advice to our readers is not to invest any more once the sensex reaches 20,000 marks or little lower. That would be time to redeem the investment if they have earned good profit and have completed at least one year or more. Keep your money handy to invest when market goes down. There is a strong possibility of correction. Invest all the money when correction set in. People who have done STP or SIP do not have to worry at all. They should keep on investing while share market goes down. The long term investors should not be afraid of. They would surely make money.
Dinesh Thakkar, chairman and managing director, Angel Broking said: “Strong IIP numbers, better than expected month of July 2010 fired the bourse, which inched up to cross the 19,000 mark. Going forward, with the Agriculture growth accelerating on back of good monsoons, which along with the robust growth in the manufacturing and the services sector should aid Indian economy to deliver an 8.5 per cent GDP growth in FY2011.”
We need to understand that share market is a risky field and correction is inevitable. Warren buffet makes money because the share market is a volatile field and he enters the market when others fly away. He invests in companies whose functioning he understand well. It is impossible for common people to understand so it would be wise to depend on their personal financial advisers always. Investors need to study well the money magazine and business pages of news papers and form their own opinion. On the flip side the key concern area inflation is also likely to moderate as we go forward, resulting in most of the monetary tightening measures being front ended. This along with the strong earnings growth momentum, wherein the Sensex earnings are expected to grow at a 18 per cent CAGR over FY2010-12, the Indian equities would continue to be sweet spot and continue to gradually move upwards in the long run. It short and medium term there could be correction.
It is necessary for senior citizen to understand that they need not invest all the money in equity related instrument . They can invest only 20 to 30% money in equity. The balance money could be kept invested in PPF, SCSS and Banks FD and long term debt fund. While investing in equity they should invest mostly in balanced fund like HDFC prudence or Reliance balanced fund. They can invest also in MIP of HDFC and Reliance or in Birla.
Younger readers can take risk and can invest a larger amount in equity. But they too need not put all the eggs in one basket. The good diversified funds are IDFC premier equity, HDFC equity and top 200 beside Reliance growth and Birla Dividend yield.
RBI'S ACTION INCREASES INTEREST RATES FOR BUSINESS
As expected by us in our earlier article the Reserve Bank of India today raised its key short-term lending rate by 25 basis points and borrowing rate by 50 basis points to check rising prices. “Inflation remains the dominant concern in macroeconomic management”, RBI said while raising the repo (lending) and reverse repo (borrowing) rates to 6 per cent and 5 per cent, respectively. It is good that they admitted their concern. Now government of India should come out with their supply side stance to neutralize different voltile price level in different state.
The new rates of RBI, which comes into effect immediately, were announced as part of the first scheduled mid-quarterly review of the monetary policy. The latest hike, fifth in a row, this year, in key policy rates will make loan expensive .tis does not augur well for growth. Now there will be pressure on the scheduled banks to increase rates in near terms.
The hike in rates will lead to a rise in cost of funds for the banks and eventually makes loans expensive, which will reduce consumption.
While inflation for August was 8.5 per cent (as per the new series with 2004-05 as Base Year), food inflation was at a high of 15.10 per cent for the week ended September 4.
To check inflation, the RBI had raised these key rates by an identical margin.He said, "End-user demand will remain intact. Investors in residential and commercial premises will find lesser arbitrage opportunities as the cost of funding purchases becomes higher. Banks will revise housing loan rates upwards. As for funding to developers, this will not be seriously compromised apart from the cost of borrowing going up. Some of the well-known Economist feels that the central bank is close to take a pause in its rate-hiking cycle. "With monetary conditions tightening and global demand still sluggish, we retain our view that growth and inflation are likely to moderate in the coming quarters and that the RBI is close to pausing in its rate-hiking cycle," said an expert from Financial circle. This can be true.
Our friend, Indranil Sen Gupta, economist, said, "We continue to expect the RBI to pause after hiking the LAF reverse repo rate by 25bps on 2nd November with inflation peaking off - because inflation will likely come down to 7% by December and 5.7% by March 2011."
"The focus of RBI policy will need turn, sooner than later, to injecting liquidity to fund loan demand. After all, deposit growth, at 14.4%, is trailing 20% credit off-take at a time of a high 8.2% of gross domestic product (GDP) fiscal deficit and a 2.9% of GDP current account deficit," he added.
We feel that real interest rates were likely to turn positive in India in late Q4, when inflation subsides to 6% or below by December 2010. In such an environment we believe inflation is unlikely to be the sole criteria for deciding monetary policy, as the underlying objectives of the RBI would be achieved.
Containing spiralling inflation which is hovering at double digits has been the RBI's top agenda. However, some analysts were thinking that taking IIP numbers alone into account, which have been quite volatile of late and have been revised downwards, the central bank may like to wait at least until the next policy meet for a more clear picture to emerge on the IIP growth front.
While acknowledging that inflation remains the 'dominant' concern in policy management, the RBI said recent monetary actions have helped in generating early signs of a downturn in non-food manufacturing inflation. In its first ever mid-quarter policy review, the RBI has narrowed the corridor between repo and reverse repo rate to 100bps, indicating the central bank's desire to reduce volatility in the overnight call rate.
"We believe the Reserve Bank has finished raising the repo rate, but has left a small window open for further action on the reverse repo rate, especially given the priority of narrowing the corridor. Ramanathan K, chief investment officer, ING Investment Management India, said, "The 50bps hike in the reverse repo rate should not be construed as hawkish aggression given that we are moving into the busy season where liquidity would continue to be tight. The rate changes from now on will depend on evolving macroeconomic conditions - both domestic and global."
. Though the RBI had raised the two key policy rates, it kept the bank rate, cash reserve ratio (the portion of deposits that banks are required to keep with the central bank) and statutory liquidity ratio or SLR, the portion of deposits that banks have to park in government securities, unchanged.
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The new rates of RBI, which comes into effect immediately, were announced as part of the first scheduled mid-quarterly review of the monetary policy. The latest hike, fifth in a row, this year, in key policy rates will make loan expensive .tis does not augur well for growth. Now there will be pressure on the scheduled banks to increase rates in near terms.
The hike in rates will lead to a rise in cost of funds for the banks and eventually makes loans expensive, which will reduce consumption.
While inflation for August was 8.5 per cent (as per the new series with 2004-05 as Base Year), food inflation was at a high of 15.10 per cent for the week ended September 4.
To check inflation, the RBI had raised these key rates by an identical margin.He said, "End-user demand will remain intact. Investors in residential and commercial premises will find lesser arbitrage opportunities as the cost of funding purchases becomes higher. Banks will revise housing loan rates upwards. As for funding to developers, this will not be seriously compromised apart from the cost of borrowing going up. Some of the well-known Economist feels that the central bank is close to take a pause in its rate-hiking cycle. "With monetary conditions tightening and global demand still sluggish, we retain our view that growth and inflation are likely to moderate in the coming quarters and that the RBI is close to pausing in its rate-hiking cycle," said an expert from Financial circle. This can be true.
Our friend, Indranil Sen Gupta, economist, said, "We continue to expect the RBI to pause after hiking the LAF reverse repo rate by 25bps on 2nd November with inflation peaking off - because inflation will likely come down to 7% by December and 5.7% by March 2011."
"The focus of RBI policy will need turn, sooner than later, to injecting liquidity to fund loan demand. After all, deposit growth, at 14.4%, is trailing 20% credit off-take at a time of a high 8.2% of gross domestic product (GDP) fiscal deficit and a 2.9% of GDP current account deficit," he added.
We feel that real interest rates were likely to turn positive in India in late Q4, when inflation subsides to 6% or below by December 2010. In such an environment we believe inflation is unlikely to be the sole criteria for deciding monetary policy, as the underlying objectives of the RBI would be achieved.
Containing spiralling inflation which is hovering at double digits has been the RBI's top agenda. However, some analysts were thinking that taking IIP numbers alone into account, which have been quite volatile of late and have been revised downwards, the central bank may like to wait at least until the next policy meet for a more clear picture to emerge on the IIP growth front.
While acknowledging that inflation remains the 'dominant' concern in policy management, the RBI said recent monetary actions have helped in generating early signs of a downturn in non-food manufacturing inflation. In its first ever mid-quarter policy review, the RBI has narrowed the corridor between repo and reverse repo rate to 100bps, indicating the central bank's desire to reduce volatility in the overnight call rate.
"We believe the Reserve Bank has finished raising the repo rate, but has left a small window open for further action on the reverse repo rate, especially given the priority of narrowing the corridor. Ramanathan K, chief investment officer, ING Investment Management India, said, "The 50bps hike in the reverse repo rate should not be construed as hawkish aggression given that we are moving into the busy season where liquidity would continue to be tight. The rate changes from now on will depend on evolving macroeconomic conditions - both domestic and global."
. Though the RBI had raised the two key policy rates, it kept the bank rate, cash reserve ratio (the portion of deposits that banks are required to keep with the central bank) and statutory liquidity ratio or SLR, the portion of deposits that banks have to park in government securities, unchanged.
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Sunday, September 5, 2010
GROWTH IS IMPORTANT COMPARED TO LOW INFLATION
The inflation is the greatest worry of the country now. We are though sure that inflation is bound to come down by year end yet it would require both monetary measures as well as fiscal and administrative measures on regular basis. The food inflation has again soared up during the second week of August. This has naturally upset government of India. At present the food inflation index is hovering around 10.7% to 12%. The higher inflation has embarrassed the ruling party as the opposition has been pointing out the failure to contain the inflation. But good news is that GDP growth reflected a very health picture, after 2008. But such an up charge in GDP figure is almost unbelievable. A thorough check up on demand side contribution could be reworked for reassurance of the genuine GDP figure.
In mainstream economics, the word “inflation” refers to a general rise in prices measured against a standard level of purchasing power. Previously the term was used to refer to an increase in the money supply, which is now referred to as expansionary monetary policy or monetary inflation. Inflation is measured by comparing two sets of goods at two points in time, and computing the increase in cost not reflected by an increase in quality. There are, therefore, many measures of inflation depending on the specific circumstances. The question of high inflation rate or low inflation rate is not be the actual point for our country. The actual point should be whether the rate of inflation is stable or not. In most developed country the price of food product are much higher compared to our country. When a kilogram of potato cost Rs.six in India, in USA it is $ 3 a pound meaning Rs 300 a KG. But the rate of price of food staff does not fluctuate as much as in India because the rate of inflation remains steady. The earning of people should match with the level of inflation. So when in India the bank deposit rate provides 8% to 9% interest but inflation rate remains at 4% to 5% then the level of sufferance of people go down. So what is more important is stability of inflation rate and enough purchasing power. In developing economy when the country develops to the next stage of growth it is bound to create inflation and that should be welcomed. When India reach the stage of quasi full employment situation due to higher growth the price line will increase but rate of inflation would stablise. People’s level of sufferance would go down despite high cost of goods and services because earning to inflation rate would remain higher or neutral. So stability of inflation and higher purchasing power should be the aim that cannot be achieved through monetary measures alone. Healthy GDP growth is a must and that would be possible provided agriculture sector contribute substantially. The farm out put is stabilizing and by December this year the3 country would see a robust growth in agriculture sector too.
Reserve Bank of India Governor D. Subbarao rightly said,” there is a need for policy action to manage inflation as demand-side pressures are building up.
Monetary policy of course is a right line of defense, it is our duty, our karma, to manage inflation and we have been doing so in the last few months," Subbarao said after delivering the C.D. Deshmukh memorial lecture.
India's headline inflation accelerated to 10.6% in June after moderating to 10.2% in May, data compiled by Ticker News Service showed. RBI hiked repo rate, or the rate at which it lends short-term funds to banks, by 25 basis points on Jul 27.Earlier too, it had hike repo rate by 25 bps on Jul 2.
According to us the action taken by RBI during second part of July was not enough .The Central Bank should have taken drastic measures in hiking repo rate further.
"Controlling inflation is a challenge for monetary policy although it is driven by supply-side factors. We can't sit in air-conditioned offices saying that this (inflation) is a supply-side factor," Subba Rao stated. The concern of Governor is appreciated but according to us he should have been able to deal with the issue with much more convincing aggression..
If inflation levels do not come down in the next four weeks, the Reserve Bank of India (RBI) may go for a rate hike in its September quarterly review of the monetary policy, hinted Prime Minister’s Economic Advisory Council (PMEAC) Chairman C. Rangarajan here on Saturday. But we feel RBI would now not be required to move up the repo rate any more. During Mid August inflation had gone up again to 10.75% According to our projections the result of a good monsoon will show up only in September . Except Assam the Eastern India has been deficient of monsoon by 30 %. With good showers in September the agriculture output will go up between 4 and 5 per cent this year and it will have a favourable affect on the availability of food grains. This would bring down the inflationary pressure. It is not only RBI but Government of India shall have to also take effective steps to make food grains available. The strengthening of public distribution system is also required. The most important requirements would be elimination of middlemen. The inflation cannot be controlled by RBI alone .Supply side must be improved and middle men must be tackled. This is not the duty of RBI but that of Government. The food inflation n Assam would have gone down if state Government would have controlled middlemen The prices of vegetable and Fish in Bengal have come down by 25% but have not stablised in Assam.. This is because government has not been able to take effective steps though RBI has taken proper monetary measures. However on the Last day of August the GDP growth was touching almost the target figure of 9%.
This seems to be a good news for the country. Planning commission’s Deputy chairman was not much concerned on show of decline in growth during July. He felt that a lot of individual components of economy are showing good growth. It would improve by the end of the fiscal. We wish him all the luck We feel with good monsoon the inflation would come down by the new year of 2011 only provided Government take effective administrative steps on demand side and RBI take aggressive monetary control in September.
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In mainstream economics, the word “inflation” refers to a general rise in prices measured against a standard level of purchasing power. Previously the term was used to refer to an increase in the money supply, which is now referred to as expansionary monetary policy or monetary inflation. Inflation is measured by comparing two sets of goods at two points in time, and computing the increase in cost not reflected by an increase in quality. There are, therefore, many measures of inflation depending on the specific circumstances. The question of high inflation rate or low inflation rate is not be the actual point for our country. The actual point should be whether the rate of inflation is stable or not. In most developed country the price of food product are much higher compared to our country. When a kilogram of potato cost Rs.six in India, in USA it is $ 3 a pound meaning Rs 300 a KG. But the rate of price of food staff does not fluctuate as much as in India because the rate of inflation remains steady. The earning of people should match with the level of inflation. So when in India the bank deposit rate provides 8% to 9% interest but inflation rate remains at 4% to 5% then the level of sufferance of people go down. So what is more important is stability of inflation rate and enough purchasing power. In developing economy when the country develops to the next stage of growth it is bound to create inflation and that should be welcomed. When India reach the stage of quasi full employment situation due to higher growth the price line will increase but rate of inflation would stablise. People’s level of sufferance would go down despite high cost of goods and services because earning to inflation rate would remain higher or neutral. So stability of inflation and higher purchasing power should be the aim that cannot be achieved through monetary measures alone. Healthy GDP growth is a must and that would be possible provided agriculture sector contribute substantially. The farm out put is stabilizing and by December this year the3 country would see a robust growth in agriculture sector too.
Reserve Bank of India Governor D. Subbarao rightly said,” there is a need for policy action to manage inflation as demand-side pressures are building up.
Monetary policy of course is a right line of defense, it is our duty, our karma, to manage inflation and we have been doing so in the last few months," Subbarao said after delivering the C.D. Deshmukh memorial lecture.
India's headline inflation accelerated to 10.6% in June after moderating to 10.2% in May, data compiled by Ticker News Service showed. RBI hiked repo rate, or the rate at which it lends short-term funds to banks, by 25 basis points on Jul 27.Earlier too, it had hike repo rate by 25 bps on Jul 2.
According to us the action taken by RBI during second part of July was not enough .The Central Bank should have taken drastic measures in hiking repo rate further.
"Controlling inflation is a challenge for monetary policy although it is driven by supply-side factors. We can't sit in air-conditioned offices saying that this (inflation) is a supply-side factor," Subba Rao stated. The concern of Governor is appreciated but according to us he should have been able to deal with the issue with much more convincing aggression..
If inflation levels do not come down in the next four weeks, the Reserve Bank of India (RBI) may go for a rate hike in its September quarterly review of the monetary policy, hinted Prime Minister’s Economic Advisory Council (PMEAC) Chairman C. Rangarajan here on Saturday. But we feel RBI would now not be required to move up the repo rate any more. During Mid August inflation had gone up again to 10.75% According to our projections the result of a good monsoon will show up only in September . Except Assam the Eastern India has been deficient of monsoon by 30 %. With good showers in September the agriculture output will go up between 4 and 5 per cent this year and it will have a favourable affect on the availability of food grains. This would bring down the inflationary pressure. It is not only RBI but Government of India shall have to also take effective steps to make food grains available. The strengthening of public distribution system is also required. The most important requirements would be elimination of middlemen. The inflation cannot be controlled by RBI alone .Supply side must be improved and middle men must be tackled. This is not the duty of RBI but that of Government. The food inflation n Assam would have gone down if state Government would have controlled middlemen The prices of vegetable and Fish in Bengal have come down by 25% but have not stablised in Assam.. This is because government has not been able to take effective steps though RBI has taken proper monetary measures. However on the Last day of August the GDP growth was touching almost the target figure of 9%.
This seems to be a good news for the country. Planning commission’s Deputy chairman was not much concerned on show of decline in growth during July. He felt that a lot of individual components of economy are showing good growth. It would improve by the end of the fiscal. We wish him all the luck We feel with good monsoon the inflation would come down by the new year of 2011 only provided Government take effective administrative steps on demand side and RBI take aggressive monetary control in September.
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Thursday, August 5, 2010
REVISED TAX CODE BRINGS SMILE TO MIDDLE CLASS
The second revised draft tax code is ready and it was unveiled recently for discussions and to get feed back so that it can be introduced in Parliament during the ensuing Monsoon session of Parliament by present Finance Minister, Pranab Mukherjee. The biggest relief, as per the revised draft, is that PPF and Bank FD will be tax free. The First draft envisaged taxes on both these items. The last date of sending suggestion by common people is 30th June 2010.
Mr. Chidambaram as then finance minister spent time and energy in creating a new code, and even guided a close-knit team of revenue officials on how to write a simplified version of an income tax code that would eventually replace five decades old Income-Tax Act. Recognising the pioneering effort, Pranab Mukherje brought in Mr. Chidambaram during last August when he unveiled the first draft tax code for the country..
But as Mr. Mukherjee launched the second version of the draft discussion paper this week( 18TH JUNE) which ultimately will be sent to Parliament for approval, there has been a paradigm shift from what Mr. Chidambaram and his team originally conceived. It’s now much simpler, but it has full of exemptions to make all stakeholders happy.
The new draft code has accommodated concerns of India Inc as companies would now pay minimum alternate tax (MAT) on book profits and not on gross assets as was originally proposed. Also, the salaried class which bears the brunt of the current tax regime has a sigh of relief as their tax savings schemes such as the public provident fund would remain intact.
These provisions would definitely mean loss of revenue for the exchequer and impact fiscal deficit situation, but the windfall of Rest 1 lakh crore from 3G and broadband auctions led the government ignore the macro economic scenario and create a feel-good situation among its constituents.
Yet upper middle class population remained unhappy as the revised draft did not exempt long term investment from Capital Gains tax.( At present there is no tax on long term capital gains) As per revised draft the long term capital gains will be applicable to all concerned at the applicable rate of income tax. This means if tax payer pay income at the rate of 10% he would have to pay long term capital gains tax at the same rate. Incase someone pay income tax at the rate of 20% or 30% his rate of capital gain tax to be charged would be at the same rate. This proposed draft provision has brought in anguish among the high middle class people. They felt investment by middle class would go down. The Indian Capital market would not take this provision kindly. The market would turn greatly volatile initially and later bull effect would not set in for quite sometime easily. Of course these are the proposal only and people can represent their case to enable Government in power to finalize the Code.
During the last few months, there were intense deliberations both inside and outside the North Block on whether tax saving retirement benefits should be done away with, as was conceived in the first draft of direct tax code. Finally, the argument that prevailed was to make a complete U-turn on the earlier provision of taxing the retirement benefits which would have forced the salaried class feel the heat.
Now, EEE (exempt) tax system on retirement benefits would surely help senior citizens in a country like India which is yet to adopt an effective social security mechanism. This provision will be applicable to select schemes like PPF, pension schemes, general provident funds, recognized provident funds, and pure life insurance and annuity schemes. Also, lesser tax burden on perks and tax exemption for single house owners are a few more positives for middle class families which have been hit hard by economic recession and food inflation during the last couple of years.
In fact, the code addressed 11 issues, including MAT, dilemma between EEE and EET, taxation of house property, capital gains tax, status of double taxation agreements and general anti-avoidance rules etc. The capital gains will now be added to an individual income, meaning that your tax liabilities from capital gains will be more than the one who has lesser income from other sources.
Also, securities transaction tax (STT) will stay though rates have not been announced so far, keeping in mind the market sensitivity over the issue. The revised paper has also attempted to end uncertainty over taxing the FIIs and tax rules regarding double taxation agreements. The first DTC draft, released in August, had proposed 10 per cent tax on the income of Rs 1.6 lakh-Rs 10 lakh, 20 per cent on Rs 10 lakh-Rs 25 lakh and 30 per cent beyond Rs 25 lakh in a year. At present, 10 per cent is levied on income between Rs 1.6 lakh-5 lakh, 20 per cent on Rs 5 lakh-8 lakh and 30 per cent over Rs 8 lakh.
The revised draft, on which the Finance Ministry has invited comments from the public till June 30, is silent on tax slabs. However, it did mention that tax slab and rates proposed in the first draft would be revised.
"The proposal in this Revised Discussion Paper would lead to a reduction in the tax base proposed in the DTC. The indicative tax slabs and tax rates and monetary limits for exemptions and deductions proposed in the DTC will, therefore, be calibrated accordingly while finalising the legislation," the revised draft had said.
Yet, the revised direct tax code has maintained silence over individual’s tax slabs making tax payers guessing whether it would be tweaked in every General Budget. Will tax payers be forced to wait for the last portion of FM’s Budget speech to know their tax liabilities?
Direct tax code is sincere attempt to reform the archaic tax rules and hope tax payers are greatly benefited from this revision.
____________________________________-
Mr. Chidambaram as then finance minister spent time and energy in creating a new code, and even guided a close-knit team of revenue officials on how to write a simplified version of an income tax code that would eventually replace five decades old Income-Tax Act. Recognising the pioneering effort, Pranab Mukherje brought in Mr. Chidambaram during last August when he unveiled the first draft tax code for the country..
But as Mr. Mukherjee launched the second version of the draft discussion paper this week( 18TH JUNE) which ultimately will be sent to Parliament for approval, there has been a paradigm shift from what Mr. Chidambaram and his team originally conceived. It’s now much simpler, but it has full of exemptions to make all stakeholders happy.
The new draft code has accommodated concerns of India Inc as companies would now pay minimum alternate tax (MAT) on book profits and not on gross assets as was originally proposed. Also, the salaried class which bears the brunt of the current tax regime has a sigh of relief as their tax savings schemes such as the public provident fund would remain intact.
These provisions would definitely mean loss of revenue for the exchequer and impact fiscal deficit situation, but the windfall of Rest 1 lakh crore from 3G and broadband auctions led the government ignore the macro economic scenario and create a feel-good situation among its constituents.
Yet upper middle class population remained unhappy as the revised draft did not exempt long term investment from Capital Gains tax.( At present there is no tax on long term capital gains) As per revised draft the long term capital gains will be applicable to all concerned at the applicable rate of income tax. This means if tax payer pay income at the rate of 10% he would have to pay long term capital gains tax at the same rate. Incase someone pay income tax at the rate of 20% or 30% his rate of capital gain tax to be charged would be at the same rate. This proposed draft provision has brought in anguish among the high middle class people. They felt investment by middle class would go down. The Indian Capital market would not take this provision kindly. The market would turn greatly volatile initially and later bull effect would not set in for quite sometime easily. Of course these are the proposal only and people can represent their case to enable Government in power to finalize the Code.
During the last few months, there were intense deliberations both inside and outside the North Block on whether tax saving retirement benefits should be done away with, as was conceived in the first draft of direct tax code. Finally, the argument that prevailed was to make a complete U-turn on the earlier provision of taxing the retirement benefits which would have forced the salaried class feel the heat.
Now, EEE (exempt) tax system on retirement benefits would surely help senior citizens in a country like India which is yet to adopt an effective social security mechanism. This provision will be applicable to select schemes like PPF, pension schemes, general provident funds, recognized provident funds, and pure life insurance and annuity schemes. Also, lesser tax burden on perks and tax exemption for single house owners are a few more positives for middle class families which have been hit hard by economic recession and food inflation during the last couple of years.
In fact, the code addressed 11 issues, including MAT, dilemma between EEE and EET, taxation of house property, capital gains tax, status of double taxation agreements and general anti-avoidance rules etc. The capital gains will now be added to an individual income, meaning that your tax liabilities from capital gains will be more than the one who has lesser income from other sources.
Also, securities transaction tax (STT) will stay though rates have not been announced so far, keeping in mind the market sensitivity over the issue. The revised paper has also attempted to end uncertainty over taxing the FIIs and tax rules regarding double taxation agreements. The first DTC draft, released in August, had proposed 10 per cent tax on the income of Rs 1.6 lakh-Rs 10 lakh, 20 per cent on Rs 10 lakh-Rs 25 lakh and 30 per cent beyond Rs 25 lakh in a year. At present, 10 per cent is levied on income between Rs 1.6 lakh-5 lakh, 20 per cent on Rs 5 lakh-8 lakh and 30 per cent over Rs 8 lakh.
The revised draft, on which the Finance Ministry has invited comments from the public till June 30, is silent on tax slabs. However, it did mention that tax slab and rates proposed in the first draft would be revised.
"The proposal in this Revised Discussion Paper would lead to a reduction in the tax base proposed in the DTC. The indicative tax slabs and tax rates and monetary limits for exemptions and deductions proposed in the DTC will, therefore, be calibrated accordingly while finalising the legislation," the revised draft had said.
Yet, the revised direct tax code has maintained silence over individual’s tax slabs making tax payers guessing whether it would be tweaked in every General Budget. Will tax payers be forced to wait for the last portion of FM’s Budget speech to know their tax liabilities?
Direct tax code is sincere attempt to reform the archaic tax rules and hope tax payers are greatly benefited from this revision.
____________________________________-
ALTERED CHEQUES WOULD BE HONOURED BY BANKS IN NORTHEAST
It has now been decided that genuine altered cheques would continue to be accepted in Northeast beyond First July 2010. The new provision of RBI would be applicable only after the image-based cheque truncation system (CTS) is introduced here. At present, the cheque truncation project is being run only in the Delhi area with Chennai expected to move on stream soon.
The circular of RBI issued in the month of February2010 on prohibiting alteration and correction of cheque has caused ripple effect in society and in trade circleall over the country. As per the notification any alternation, correction and cutting of cheque would not be honoured by banks. This steps was taken as the fraudulent withdrawal of money was of late rampant in some cities of the country. As a precaution to stop fraudulent dealing such steps were to be taken from First of July 2010, on the basis of recommendation received from the working group constituted for standardization of cheque and for security measures.
The notification was interpreted by the social circle, trade circle and a few banks, as if, any alteration of a regular cheque by customers of banks will be punished . people of certain cities interpreted that if a bank customer had written ‘hundered’ instead of ‘hundred’ on a cheque, he should not just strike off the additional ‘e’ and issue the cheque. Instead, he should use a fresh leaf , or it could cost him Rs100-550. The trade circle made hue and cry and interpreted that the Reserve Bank of India (RBI) has notified banks in a recent circular not to accept cheques that have corrections or alterations in anything but the date. The intention of RBI actually was to “help banks identify and control fraudulent alterations”. A few banks interpreted the notification somewhat hastily and started informing customers about the policy change through mailers that no altered cheque would be accepted by bnaks with effect from First July 2010.
If a persons issue a cheque with corrections, he will be slapped with cheque return charges that are Rs100-250 for public sector banks and Rs350-550 for private banks. This interpretation has created panic in the mind of Bank’s customers.
“It is consumer protection that the RBI is looking at. Many a times cheques are stolen and encashed by other parties by making corrections,” said S Govindan, general manager (personal banking and operations), Union Bank of India .
Some of the bankers felt that the move is essential keeping in view the changes in the way cheques are dealt with now. “Earlier, banks used to tell people not to issue a bearer cheque and about some basic precautions. But now cheques get couriered. Also, they are deposited in drop boxes. So the possibility of them falling into the wrong hands is high.”
The RBI also wants to reduce and, if possible, eliminate transactions through cheques. “Now that daily interest rate calculation has come in, it works in your favour to keep money in your account for as long as possible. At least three days are wasted in the issuance of a cheque. Whereas netbanking is instant,” said a banker.
After getting notice from a few banks individual customers panicked. Some of them have written to RBI and trade circl represented their case against imposition of such a rule with out full scale debate. The situation became so tense that RBI had issued a clarification recently on the subject on June 22nd 2010.
We would like to assure the indivudal customers of banks residing in Northeast not to panic at all.
The notification issued during February have been wrongly interpreted and out of context. In fact the Reserve Bank of India has clarified that its directive to banks asking them not to honour cheques with alterations, will be applicable only for cheques cleared under the image-based cheque truncation system (CTS). At present, the cheque truncation project is being run only in the Delhi area with Chennai expected to move on stream soon.
The clarification paves the way for bank branches in metros like Mumbai where CTS is still not operational to accept corrected cheques. RBI's directive had created a flurry in trade circles and even among utilities that have been turning away cheques with any form of correction or alteration even if the changes were validated by the cheque drawer's signature.
In a notification RBI has clarified that its directive on prohibiting alterations/ corrections on cheques ``will be applicable only for cheques cleared under the image based Cheque Truncation System (CTS).
The directive given in February notification is not applicable to cheques cleared under other clearing arrangements such as MICR clearing,non-MICR clearing, over-the-counter collection (for cash payment), or even for direct collection of cheques outside the Clearing House arrangement.
It should be clearly understood that Cheque Truncation is a system of cheque clearing and settlement between banks based on electronic data/images or both without physical exchange of instrument. Here the cheque is scanned and electronically presented for settlement with the clearing house.
Our readers need to note that Assam is not under chque Truncation system hence the February notification is not applicable to Northeast. Currently, most of the clearing is done on the MICR system and banks often entertained cheques with alterations, be it the name of the party to whom the cheque is issued, or the date or the amount, provided the issuer of the cheques does is signature besides the correction.
In case any bank insists on the earlier stand the customers of bank can request the bankers to refer to the latest clarification of RBI vide their notification RBI2009-10/503dpss.co.chd.no2806/04.07.05/2009-10 and satisfy themselves.
__________________________________
The circular of RBI issued in the month of February2010 on prohibiting alteration and correction of cheque has caused ripple effect in society and in trade circleall over the country. As per the notification any alternation, correction and cutting of cheque would not be honoured by banks. This steps was taken as the fraudulent withdrawal of money was of late rampant in some cities of the country. As a precaution to stop fraudulent dealing such steps were to be taken from First of July 2010, on the basis of recommendation received from the working group constituted for standardization of cheque and for security measures.
The notification was interpreted by the social circle, trade circle and a few banks, as if, any alteration of a regular cheque by customers of banks will be punished . people of certain cities interpreted that if a bank customer had written ‘hundered’ instead of ‘hundred’ on a cheque, he should not just strike off the additional ‘e’ and issue the cheque. Instead, he should use a fresh leaf , or it could cost him Rs100-550. The trade circle made hue and cry and interpreted that the Reserve Bank of India (RBI) has notified banks in a recent circular not to accept cheques that have corrections or alterations in anything but the date. The intention of RBI actually was to “help banks identify and control fraudulent alterations”. A few banks interpreted the notification somewhat hastily and started informing customers about the policy change through mailers that no altered cheque would be accepted by bnaks with effect from First July 2010.
If a persons issue a cheque with corrections, he will be slapped with cheque return charges that are Rs100-250 for public sector banks and Rs350-550 for private banks. This interpretation has created panic in the mind of Bank’s customers.
“It is consumer protection that the RBI is looking at. Many a times cheques are stolen and encashed by other parties by making corrections,” said S Govindan, general manager (personal banking and operations), Union Bank of India .
Some of the bankers felt that the move is essential keeping in view the changes in the way cheques are dealt with now. “Earlier, banks used to tell people not to issue a bearer cheque and about some basic precautions. But now cheques get couriered. Also, they are deposited in drop boxes. So the possibility of them falling into the wrong hands is high.”
The RBI also wants to reduce and, if possible, eliminate transactions through cheques. “Now that daily interest rate calculation has come in, it works in your favour to keep money in your account for as long as possible. At least three days are wasted in the issuance of a cheque. Whereas netbanking is instant,” said a banker.
After getting notice from a few banks individual customers panicked. Some of them have written to RBI and trade circl represented their case against imposition of such a rule with out full scale debate. The situation became so tense that RBI had issued a clarification recently on the subject on June 22nd 2010.
We would like to assure the indivudal customers of banks residing in Northeast not to panic at all.
The notification issued during February have been wrongly interpreted and out of context. In fact the Reserve Bank of India has clarified that its directive to banks asking them not to honour cheques with alterations, will be applicable only for cheques cleared under the image-based cheque truncation system (CTS). At present, the cheque truncation project is being run only in the Delhi area with Chennai expected to move on stream soon.
The clarification paves the way for bank branches in metros like Mumbai where CTS is still not operational to accept corrected cheques. RBI's directive had created a flurry in trade circles and even among utilities that have been turning away cheques with any form of correction or alteration even if the changes were validated by the cheque drawer's signature.
In a notification RBI has clarified that its directive on prohibiting alterations/ corrections on cheques ``will be applicable only for cheques cleared under the image based Cheque Truncation System (CTS).
The directive given in February notification is not applicable to cheques cleared under other clearing arrangements such as MICR clearing,non-MICR clearing, over-the-counter collection (for cash payment), or even for direct collection of cheques outside the Clearing House arrangement.
It should be clearly understood that Cheque Truncation is a system of cheque clearing and settlement between banks based on electronic data/images or both without physical exchange of instrument. Here the cheque is scanned and electronically presented for settlement with the clearing house.
Our readers need to note that Assam is not under chque Truncation system hence the February notification is not applicable to Northeast. Currently, most of the clearing is done on the MICR system and banks often entertained cheques with alterations, be it the name of the party to whom the cheque is issued, or the date or the amount, provided the issuer of the cheques does is signature besides the correction.
In case any bank insists on the earlier stand the customers of bank can request the bankers to refer to the latest clarification of RBI vide their notification RBI2009-10/503dpss.co.chd.no2806/04.07.05/2009-10 and satisfy themselves.
__________________________________
NEW ULIP IS TRANSPARENT WITH VALUE ADDITION NOW
The Ulips were in the news for last six months over its control on market based returns. Two regulatory authorities i.e. IRDA and SEBI fought bitterly over its control. As predicated Finance Ministry stepped in and control was given to IRDA exclusively. But the revised guidelines on unit-linked insurance products (Ulips) by the Insurance Regulatory Development Authority (IRDA) made exit an easier affair only for those who remain invested for more than five years. This follows the regulator's decision to increase the minimum lock n from the current three years to five years, to encourage long term investment and stem the high rates of surrender. This is a good move. Why customers started leaving ULIPS with premature surrender? This was because the terms of the policy was not clearly stated that till fifth year it would not earn a decment return. Customer expected higher return on buying ULIPS and found there were negative growths for first few years due to heavy cost of acquiring. That peeved the customers and they choose to leave prematurely even with a loss of capital. This happened as the dealing of advisors was not transparent.
The Government and regulatory authority did realise the unhappiness of the general public on ULIP and wanted to remedy the situation. The recent action of IRDA is pragmatic and futuristic.
We have always been advocating in our column that customers of ULIP who want to exit between five and nine years would stand to benefit .Taking note of the surrender behaviour and with a view to smoothen cap on charges, IRDA has imposed limits on charges from the fifth anniversary of the policy. The maximum reduction in yield for a Ulip after five years shall not be more than 4%, IRDA said. ULIPS have become out and out a insurance product now and young people who keep invested for longer term would be benefited with insurance cover.
“Small regular premium (Ulips) policies may become unviable. A large proportion of people who were paying a premium of less than Rs 15,000 or so a year will suffer badly. Small-ticket policies of less than Rs 20,000 a year should have higher allowance to make them viable.
In July last year, the regulator had capped the charges on Ulips. It specified that the net reduction in yield for policies less than or equal to 10 years shall not be more than 3% at maturity. Ulip is a better long-term investment product and works well with a 7-year timeframe. "It (the new rules) would encourage investors to stay on for at least five years," according to experts of Insurance. This is true. Ulip is ideal for children marriage Planning or for children’s education fund. We had advised most of our readers not to surrender ULIP before seven years as that would mean loss . We forewarned our readers of ULIPS rather to maintain the plan once entered for longer time.
In a bid to eliminate high front ending of expenses, which are as high as 30%, the regulator has mandated that they should be evenly distributed during the lock in period. However, some experts are not happy as it would mean that investor would still have to shell out the same amount albeit over a longer period. But we feel while paying early the entire money the return in initial period get effected. It would be prudent to pay the cost in installments as higher amount available for investment may return higher amount initially .
.The most important Lacuna of ULIPS, we have always maintained, were lack of transparency.With more transparency coming in and disclosure of commission to be made mandatory , investors would be better informed now.. Ulip from now onward would be purely a product of insurance .From September this year it would cover life insurance automatically and it would be a powerful tool of Personal Finance hence forth. Instead of Mutual fund and term insurane combo ULIP would turn out to be a great product by itself. As on date it is not a great product but from September 2010 it has potential to be a product of importance.
Insurance sector regulator IRDA on EARLY JULY came out with a set of guidelines directing life insurers to offer unit-linked insurance plans (Ulips) at lower cost to buyers, while also providing higher life cover, though with a longer lock-in period.
While life insurance customers will benefit, the new rules could lead to a substantial cut in commission for insurance agents and force life insurance companies to drastically cut costs, leading to lower sales.
IRDA stated that insurers would be allowed to charge up to 4% on annual premium paid on Ulips for the first five years, and thereafter charges will be reduced during the tenure of the policy. For plans of 15 years and above, the charges will be restricted at 2.25% of annual premium.
These cuts in charges would make Ulips more attractive to buyers since they will have to pay lower charges for the same premium they paid earlier. In the long run, this will add to Ulip buyers’ funds. ‘‘Lower charges will benefit customers,’’ said GV Nageswara Rao, MD & CEO, IDBI Fortis Life Insurance. However, this could mean lower commission to agents which might affect Ulip sales, he added.
.
The insurance regulator has ordered life insurers to offer customers a guaranteed return of 4.5% per annum on pension and annuity plans as part of its new, tighter norms for the sector, a move that is expected to force companies to slash commissions to agents and invest more in government securities.
period. Insurance officials say a guaranteed interest rate would force them to have a predominantly debt-oriented portfolio, insulated from the high market volatility that accompanies investments in equities. Until now, over 30% of new business premium for life insurers have come from pension plans, a large part of which has been invested in equities. Insurance companies also fear that the new rules will adversely impact insurance distributors in the same way a Sebi ban on entry and exit loads hit mutual fund distributors.
Industry officials said the tighter norms on capping of expenses will have far-reaching consequences for the industry, as small regular premium policies will become unviable. It will especially hit a large proportion of policyholders paying premiums of less than Rs 15,000 or so a year. The new rules on commissions will hit distributors’ incomes.
“I hope we don’t land up in a situation where the product is very good but no one is willing to sell it,” said Kamesh Goyal, MD of Bajaj Allianz Life Insurance.
--------------------------------------------
The Government and regulatory authority did realise the unhappiness of the general public on ULIP and wanted to remedy the situation. The recent action of IRDA is pragmatic and futuristic.
We have always been advocating in our column that customers of ULIP who want to exit between five and nine years would stand to benefit .Taking note of the surrender behaviour and with a view to smoothen cap on charges, IRDA has imposed limits on charges from the fifth anniversary of the policy. The maximum reduction in yield for a Ulip after five years shall not be more than 4%, IRDA said. ULIPS have become out and out a insurance product now and young people who keep invested for longer term would be benefited with insurance cover.
“Small regular premium (Ulips) policies may become unviable. A large proportion of people who were paying a premium of less than Rs 15,000 or so a year will suffer badly. Small-ticket policies of less than Rs 20,000 a year should have higher allowance to make them viable.
In July last year, the regulator had capped the charges on Ulips. It specified that the net reduction in yield for policies less than or equal to 10 years shall not be more than 3% at maturity. Ulip is a better long-term investment product and works well with a 7-year timeframe. "It (the new rules) would encourage investors to stay on for at least five years," according to experts of Insurance. This is true. Ulip is ideal for children marriage Planning or for children’s education fund. We had advised most of our readers not to surrender ULIP before seven years as that would mean loss . We forewarned our readers of ULIPS rather to maintain the plan once entered for longer time.
In a bid to eliminate high front ending of expenses, which are as high as 30%, the regulator has mandated that they should be evenly distributed during the lock in period. However, some experts are not happy as it would mean that investor would still have to shell out the same amount albeit over a longer period. But we feel while paying early the entire money the return in initial period get effected. It would be prudent to pay the cost in installments as higher amount available for investment may return higher amount initially .
.The most important Lacuna of ULIPS, we have always maintained, were lack of transparency.With more transparency coming in and disclosure of commission to be made mandatory , investors would be better informed now.. Ulip from now onward would be purely a product of insurance .From September this year it would cover life insurance automatically and it would be a powerful tool of Personal Finance hence forth. Instead of Mutual fund and term insurane combo ULIP would turn out to be a great product by itself. As on date it is not a great product but from September 2010 it has potential to be a product of importance.
Insurance sector regulator IRDA on EARLY JULY came out with a set of guidelines directing life insurers to offer unit-linked insurance plans (Ulips) at lower cost to buyers, while also providing higher life cover, though with a longer lock-in period.
While life insurance customers will benefit, the new rules could lead to a substantial cut in commission for insurance agents and force life insurance companies to drastically cut costs, leading to lower sales.
IRDA stated that insurers would be allowed to charge up to 4% on annual premium paid on Ulips for the first five years, and thereafter charges will be reduced during the tenure of the policy. For plans of 15 years and above, the charges will be restricted at 2.25% of annual premium.
These cuts in charges would make Ulips more attractive to buyers since they will have to pay lower charges for the same premium they paid earlier. In the long run, this will add to Ulip buyers’ funds. ‘‘Lower charges will benefit customers,’’ said GV Nageswara Rao, MD & CEO, IDBI Fortis Life Insurance. However, this could mean lower commission to agents which might affect Ulip sales, he added.
.
The insurance regulator has ordered life insurers to offer customers a guaranteed return of 4.5% per annum on pension and annuity plans as part of its new, tighter norms for the sector, a move that is expected to force companies to slash commissions to agents and invest more in government securities.
period. Insurance officials say a guaranteed interest rate would force them to have a predominantly debt-oriented portfolio, insulated from the high market volatility that accompanies investments in equities. Until now, over 30% of new business premium for life insurers have come from pension plans, a large part of which has been invested in equities. Insurance companies also fear that the new rules will adversely impact insurance distributors in the same way a Sebi ban on entry and exit loads hit mutual fund distributors.
Industry officials said the tighter norms on capping of expenses will have far-reaching consequences for the industry, as small regular premium policies will become unviable. It will especially hit a large proportion of policyholders paying premiums of less than Rs 15,000 or so a year. The new rules on commissions will hit distributors’ incomes.
“I hope we don’t land up in a situation where the product is very good but no one is willing to sell it,” said Kamesh Goyal, MD of Bajaj Allianz Life Insurance.
--------------------------------------------
NEW CAPITAL GAINS TAX REDUCES THE EARNING FROM NEXT YEAR
The revised draft tax code has stipulated that though the pension to be received by individual, interest to be received from PPF and dividend paid out of equity or mutual funds would be free of income tax yet the capital gains would be taxed at the same rate of the income tax from individual tax payer. That means capital gain tax will be realized at 10%,20% and 30% as the case may be. At present capital Gains is exempt from tax after one year of investment.
The new provision is going to be harsh news for any middle class investors. There are many investors who do not prefer dividend option because they would rather like to have more money in future than during the present time. Why many people do not want dividend option? They do not prefer dividend option because during the working life they continue to get steady income from their employment or from business and profession. An employee of private institute gets salary monthly and that would be sufficient for them to cover their monthly expenses. They would need extra money only after they retire for their livelihood then. Though all government employees, teachers of Colleges and schools, now a days, get pension to take care of their life after retirement yet non governmental professionals including journalist, lawyers, doctors, artists, singers, Painters and nurses in non governmental organization do not get any pension. These people always invest and opt for growth mode for they want larger income after retirement. The new revised draft tax code has demolishes and ignores this perception of Middle class. How?
The tax on capital gains from long-term equity holdings, as described above, bound to drastically reduce the returns of equity. This reduction will go far beyond the actual percentage of tax that will be paid. For example, over a ten year period, an effective capital gains tax rate of ten to fifteen per cent could reduce a typical investor's returns by above 40 per cent , perhaps at times it would be much more than that . If investors are to limit the damage, then they will have to understand how this tax will actually affect them. Can middle class investors be able to avoid this stipulation? Prima facie it would be difficult unless they switch to Dividend option. But that is no solution since they do not need the money presently.
How a long-term capital gains tax rate of just 10/15 per cent can cause far greater damage to their returns? This is because over the years all the mutual funds or shares do not perform consistently all the time. Magnum vision fund was doing exceedingly well till 2006 . But thereafter it became a laggard fund due to various reasons. Many investors switched to Magnum contra fund for better returns without any harm to their investment. This is how even a long-term investor would need to switch between investments at some point. Today, as long as investors do hold a stock (or an equity mutual fund) for more than a year, the gains are tax-free and so he can happily sell his holdings and put the money in another investment.
But once the long-term capital gains tax, as per the revised tax draft, is implemented, investors are bound to get a tax hit on the returns every time he redeem the investment. A fine example has been illustrated by Value research. Let us analyse the example. “Consider a ten year investment that is yielding 20 per cent an year. In ten years an investment of Rs 1 lakh at this rate would grow to Rs 6.19 lakh. If the long-term capital gains are taxed at 15 per cent for your income bracket, you would end up with Rs 4.41 lakh post tax returns, an effective rate of return of 18.3 per cent. But if this investment was switched to a different share or fund just twice in those ten years, the final post tax return would be just Rs 2.24 lakh “. How our readers would like that? Is it not a kind of robbery? Person who opted for dividend would get much more return .The person preferring for growth mode would get less. So in the process the money set aside for his old age would get robbed due to new tax burden. So under the circumstances what is to be done? I have a definite suggestion to our readers in case revised tax code is implemented and Capital gains tax is taxed as stipulated.
While selecting Mutual funds or shares please ensure that you subscribe to the funds/shares which have given consistent returns( opt for four star or five star funds) for over last five years at least. Please do not change the boat of investment in mid stream. Select only a few shares or a few Mutual funds. The portfolios should not be more than six funds and/ or six shares. Hold on to those shares for a period of ten years. You would be able to gain that way. If you do not switch more than once you would gain substantially as per the example given above. One our readers asked me whether do I have any alternative suggestion? Yes, here is an alternative suggestion:
The middle class people can opt for Dividend option and whenever he gets dividend the same amount can be saved in his PPF account up to the limit. In that event he neither have to pay tax either in case of equity dividend or incase of PPF. He would be the winner all the way. That is why when you invest in modern time you should have your own financial advisor or read books on Personal Finance that would guide you to steer clear of the hurdles of investment hassles.
The statement of Value research is prophetic that the real gains of long-term investments come from compounding of returns, and repeated taxation would have a strong de-compounding effect. This pattern of taxation would reward not long-term investment per se, but only being long-term in the very same investment. However, keep it in mind two suggestions given by us to tackle your investment and you would be the winner surely
_____________________________
The new provision is going to be harsh news for any middle class investors. There are many investors who do not prefer dividend option because they would rather like to have more money in future than during the present time. Why many people do not want dividend option? They do not prefer dividend option because during the working life they continue to get steady income from their employment or from business and profession. An employee of private institute gets salary monthly and that would be sufficient for them to cover their monthly expenses. They would need extra money only after they retire for their livelihood then. Though all government employees, teachers of Colleges and schools, now a days, get pension to take care of their life after retirement yet non governmental professionals including journalist, lawyers, doctors, artists, singers, Painters and nurses in non governmental organization do not get any pension. These people always invest and opt for growth mode for they want larger income after retirement. The new revised draft tax code has demolishes and ignores this perception of Middle class. How?
The tax on capital gains from long-term equity holdings, as described above, bound to drastically reduce the returns of equity. This reduction will go far beyond the actual percentage of tax that will be paid. For example, over a ten year period, an effective capital gains tax rate of ten to fifteen per cent could reduce a typical investor's returns by above 40 per cent , perhaps at times it would be much more than that . If investors are to limit the damage, then they will have to understand how this tax will actually affect them. Can middle class investors be able to avoid this stipulation? Prima facie it would be difficult unless they switch to Dividend option. But that is no solution since they do not need the money presently.
How a long-term capital gains tax rate of just 10/15 per cent can cause far greater damage to their returns? This is because over the years all the mutual funds or shares do not perform consistently all the time. Magnum vision fund was doing exceedingly well till 2006 . But thereafter it became a laggard fund due to various reasons. Many investors switched to Magnum contra fund for better returns without any harm to their investment. This is how even a long-term investor would need to switch between investments at some point. Today, as long as investors do hold a stock (or an equity mutual fund) for more than a year, the gains are tax-free and so he can happily sell his holdings and put the money in another investment.
But once the long-term capital gains tax, as per the revised tax draft, is implemented, investors are bound to get a tax hit on the returns every time he redeem the investment. A fine example has been illustrated by Value research. Let us analyse the example. “Consider a ten year investment that is yielding 20 per cent an year. In ten years an investment of Rs 1 lakh at this rate would grow to Rs 6.19 lakh. If the long-term capital gains are taxed at 15 per cent for your income bracket, you would end up with Rs 4.41 lakh post tax returns, an effective rate of return of 18.3 per cent. But if this investment was switched to a different share or fund just twice in those ten years, the final post tax return would be just Rs 2.24 lakh “. How our readers would like that? Is it not a kind of robbery? Person who opted for dividend would get much more return .The person preferring for growth mode would get less. So in the process the money set aside for his old age would get robbed due to new tax burden. So under the circumstances what is to be done? I have a definite suggestion to our readers in case revised tax code is implemented and Capital gains tax is taxed as stipulated.
While selecting Mutual funds or shares please ensure that you subscribe to the funds/shares which have given consistent returns( opt for four star or five star funds) for over last five years at least. Please do not change the boat of investment in mid stream. Select only a few shares or a few Mutual funds. The portfolios should not be more than six funds and/ or six shares. Hold on to those shares for a period of ten years. You would be able to gain that way. If you do not switch more than once you would gain substantially as per the example given above. One our readers asked me whether do I have any alternative suggestion? Yes, here is an alternative suggestion:
The middle class people can opt for Dividend option and whenever he gets dividend the same amount can be saved in his PPF account up to the limit. In that event he neither have to pay tax either in case of equity dividend or incase of PPF. He would be the winner all the way. That is why when you invest in modern time you should have your own financial advisor or read books on Personal Finance that would guide you to steer clear of the hurdles of investment hassles.
The statement of Value research is prophetic that the real gains of long-term investments come from compounding of returns, and repeated taxation would have a strong de-compounding effect. This pattern of taxation would reward not long-term investment per se, but only being long-term in the very same investment. However, keep it in mind two suggestions given by us to tackle your investment and you would be the winner surely
_____________________________
Monday, July 5, 2010
Altered cheque will be honoured by banks in Northeast
"
It has now been decided that genuine altered cheques would continue to be accepted in Northeast beyond First July 2010. The new provision of RBI would be applicable only after the image-based cheque truncation system (CTS) is introduced here. At present, the cheque truncation project is being run only in the Delhi area with Chennai expected to move on stream soon.
The circular of RBI issued in the month of February2010 on prohibiting alteration and correction of cheque has caused ripple effect in society and in trade circleall over the country. As per the notification any alternation, correction and cutting of cheque would not be honoured by banks. This steps was taken as the fraudulent withdrawal of money was of late rampant in some cities of the country. As a precaution to stop fraudulent dealing such steps were to be taken from First of July 2010, on the basis of recommendation received from the working group constituted for standardization of cheque and for security measures.
The notification was interpreted by the social circle, trade circle and a few banks, as if, any alteration of a regular cheque by customers of banks will be punished . people of certain cities interpreted that if a bank customer had written ‘hundered’ instead of ‘hundred’ on a cheque, he should not just strike off the additional ‘e’ and issue the cheque. Instead, he should use a fresh leaf , or it could cost him Rs100-550. The trade circle made hue and cry and interpreted that the Reserve Bank of India (RBI) has notified banks in a recent circular not to accept cheques that have corrections or alterations in anything but the date. The intention of RBI actually was to “help banks identify and control fraudulent alterations”. A few banks interpreted the notification somewhat hastily and started informing customers about the policy change through mailers that no altered cheque would be accepted by bnaks with effect from First July 2010.
If a persons issue a cheque with corrections, he will be slapped with cheque return charges that are Rs100-250 for public sector banks and Rs350-550 for private banks. This interpretation has created panic in the mind of Bank’s customers.
“It is consumer protection that the RBI is looking at. Many a times cheques are stolen and encashed by other parties by making corrections,” said S Govindan, general manager (personal banking and operations), Union Bank of India .
Some of the bankers felt that the move is essential keeping in view the changes in the way cheques are dealt with now. “Earlier, banks used to tell people not to issue a bearer cheque and about some basic precautions. But now cheques get couriered. Also, they are deposited in drop boxes. So the possibility of them falling into the wrong hands is high.”
The RBI also wants to reduce and, if possible, eliminate transactions through cheques. “Now that daily interest rate calculation has come in, it works in your favour to keep money in your account for as long as possible. At least three days are wasted in the issuance of a cheque. Whereas netbanking is instant,” said a banker.
After getting notice from a few banks individual customers panicked. Some of them have written to RBI and trade circl represented their case against imposition of such a rule with out full scale debate. The situation became so tense that RBI had issued a clarification recently on the subject on June 22nd 2010.
We would like to assure the indivudal customers of banks residing in Northeast not to panic at all.
The notification issued during February have been wrongly interpreted and out of context. In fact the Reserve Bank of India has clarified that its directive to banks asking them not to honour cheques with alterations, will be applicable only for cheques cleared under the image-based cheque truncation system (CTS). At present, the cheque truncation project is being run only in the Delhi area with Chennai expected to move on stream soon.
The clarification paves the way for bank branches in metros like Mumbai where CTS is still not operational to accept corrected cheques. RBI's directive had created a flurry in trade circles and even among utilities that have been turning away cheques with any form of correction or alteration even if the changes were validated by the cheque drawer's signature.
In a notification RBI has clarified that its directive on prohibiting alterations/ corrections on cheques ``will be applicable only for cheques cleared under the image based Cheque Truncation System (CTS).
The directive given in February notification is not applicable to cheques cleared under other clearing arrangements such as MICR clearing,non-MICR clearing, over-the-counter collection (for cash payment), or even for direct collection of cheques outside the Clearing House arrangement.
It should be clearly understood that Cheque Truncation is a system of cheque clearing and settlement between banks based on electronic data/images or both without physical exchange of instrument. Here the cheque is scanned and electronically presented for settlement with the clearing house.
Our readers need to note that Assam is not under chque Truncation system hence the February notification is not applicable to Northeast. Currently, most of the clearing is done on the MICR system and banks often entertained cheques with alterations, be it the name of the party to whom the cheque is issued, or the date or the amount, provided the issuer of the cheques does is signature besides the correction.
In case any bank insists on the earlier stand the customers of bank can request the bankers to refer to the latest clarification of RBI vide their notification RBI2009-10/503dpss.co.chd.no2806/04.07.05/2009-10 and satisfy themselves.
__________________________________
It has now been decided that genuine altered cheques would continue to be accepted in Northeast beyond First July 2010. The new provision of RBI would be applicable only after the image-based cheque truncation system (CTS) is introduced here. At present, the cheque truncation project is being run only in the Delhi area with Chennai expected to move on stream soon.
The circular of RBI issued in the month of February2010 on prohibiting alteration and correction of cheque has caused ripple effect in society and in trade circleall over the country. As per the notification any alternation, correction and cutting of cheque would not be honoured by banks. This steps was taken as the fraudulent withdrawal of money was of late rampant in some cities of the country. As a precaution to stop fraudulent dealing such steps were to be taken from First of July 2010, on the basis of recommendation received from the working group constituted for standardization of cheque and for security measures.
The notification was interpreted by the social circle, trade circle and a few banks, as if, any alteration of a regular cheque by customers of banks will be punished . people of certain cities interpreted that if a bank customer had written ‘hundered’ instead of ‘hundred’ on a cheque, he should not just strike off the additional ‘e’ and issue the cheque. Instead, he should use a fresh leaf , or it could cost him Rs100-550. The trade circle made hue and cry and interpreted that the Reserve Bank of India (RBI) has notified banks in a recent circular not to accept cheques that have corrections or alterations in anything but the date. The intention of RBI actually was to “help banks identify and control fraudulent alterations”. A few banks interpreted the notification somewhat hastily and started informing customers about the policy change through mailers that no altered cheque would be accepted by bnaks with effect from First July 2010.
If a persons issue a cheque with corrections, he will be slapped with cheque return charges that are Rs100-250 for public sector banks and Rs350-550 for private banks. This interpretation has created panic in the mind of Bank’s customers.
“It is consumer protection that the RBI is looking at. Many a times cheques are stolen and encashed by other parties by making corrections,” said S Govindan, general manager (personal banking and operations), Union Bank of India .
Some of the bankers felt that the move is essential keeping in view the changes in the way cheques are dealt with now. “Earlier, banks used to tell people not to issue a bearer cheque and about some basic precautions. But now cheques get couriered. Also, they are deposited in drop boxes. So the possibility of them falling into the wrong hands is high.”
The RBI also wants to reduce and, if possible, eliminate transactions through cheques. “Now that daily interest rate calculation has come in, it works in your favour to keep money in your account for as long as possible. At least three days are wasted in the issuance of a cheque. Whereas netbanking is instant,” said a banker.
After getting notice from a few banks individual customers panicked. Some of them have written to RBI and trade circl represented their case against imposition of such a rule with out full scale debate. The situation became so tense that RBI had issued a clarification recently on the subject on June 22nd 2010.
We would like to assure the indivudal customers of banks residing in Northeast not to panic at all.
The notification issued during February have been wrongly interpreted and out of context. In fact the Reserve Bank of India has clarified that its directive to banks asking them not to honour cheques with alterations, will be applicable only for cheques cleared under the image-based cheque truncation system (CTS). At present, the cheque truncation project is being run only in the Delhi area with Chennai expected to move on stream soon.
The clarification paves the way for bank branches in metros like Mumbai where CTS is still not operational to accept corrected cheques. RBI's directive had created a flurry in trade circles and even among utilities that have been turning away cheques with any form of correction or alteration even if the changes were validated by the cheque drawer's signature.
In a notification RBI has clarified that its directive on prohibiting alterations/ corrections on cheques ``will be applicable only for cheques cleared under the image based Cheque Truncation System (CTS).
The directive given in February notification is not applicable to cheques cleared under other clearing arrangements such as MICR clearing,non-MICR clearing, over-the-counter collection (for cash payment), or even for direct collection of cheques outside the Clearing House arrangement.
It should be clearly understood that Cheque Truncation is a system of cheque clearing and settlement between banks based on electronic data/images or both without physical exchange of instrument. Here the cheque is scanned and electronically presented for settlement with the clearing house.
Our readers need to note that Assam is not under chque Truncation system hence the February notification is not applicable to Northeast. Currently, most of the clearing is done on the MICR system and banks often entertained cheques with alterations, be it the name of the party to whom the cheque is issued, or the date or the amount, provided the issuer of the cheques does is signature besides the correction.
In case any bank insists on the earlier stand the customers of bank can request the bankers to refer to the latest clarification of RBI vide their notification RBI2009-10/503dpss.co.chd.no2806/04.07.05/2009-10 and satisfy themselves.
__________________________________
Wednesday, June 30, 2010
DR. BHUPEN HAZARIKA: A CULT FIGURE BEYOUND OUR TIME
“Give me a white man whose blood is white
Give me a Black man whose blood is black
You would get whatever you want
If you can give me in return”
(Jonab Fakir of Bangladesh)
The song reverberated from the voice of Dr. Bhupen Hazarika of Assam long before Dr. Martin Luther King was assassinated in America. Dr. Hazarika was a true disciple of the great Saint Sankardeva of Assam and was later influenced by the philosophy of the greatest cult singer Paul Robson of USA. He transcended the walls of his classroom at the University of Gauhati, India in fifties of the last century and took the high road to various corners of the world. He traveled the world from Arunachal to Chicago, from Ottawa to Austria. He spoke of Gorky while sitting at the grave of Mark Twain. He not only acquired degrees from Guwahati, Benares, and New York (Columbia University), but learnt from the streets of the world. Calling himself a gypsy, he moved from place to place not in search of a dream house but to spread the message of happiness of life to humanity. He always spread the message of universal fraternity, brotherhood, and emotional understanding.
I met Bhupen Dada, for the first time, in 1955 at Calcutta Movietone Studio. He was in Calcutta those days to score the music of “Piyali Phookan”, a film directed by another giant Phani sharma. I was brought to Calcutta by Lakshydhar Chowdhury to act in his film “Nimila Anka”. From that day onward I became a fan of Bhupenda and our association lasted till date.
To many people in India he is a great singer. To some people he is a wonderful film maker, to some he is an excellent lyricist. For some he was a dear and respected teacher. But to us he has been a cult figure who empowered our generation with his voice, deeds and writings. Whenever the country is in turmoil he has been there to raise his voice for the upliftment of the downtrodden. He is a humanist per excellence. The lyrics are his bullets and his voice is the machine gun. He has inspired several generations in India through his lyrics, songs, films and writings. Even in his late seventies, when his comrades in arms like Hemanta Kumar, Salil Chowdhury and Naushad sahib retired as musician, his “Dil Hum Hum Kare” took India by rage. Unknowingly people started humming the song from slums to palaces. His greatest weapon is his system of communication. He can communicate with everyone of every age and can persuade to his point of view at ease. The mother and the daughter, the father and the son are always competing with one other to have a share of Dr. Hazarika’s vocal tonic, companionship and friendship. He was an amazing personality. Dear to every one. Anuradha Sharma Pujari once wrote that Bhupen Da was not very happy of his statue erected at the southern fringe of Dighali Tank., Guwhati .He would have been happy if the statue could be remade,as told by Anuradha.
It was his eightieth birthday celebration at Guwahati in the year 2003. A lot of his admirers attended a function atop a steamer on the mighty river Brahmaputra. On that day my poem, especially written on Dr. Bhupen Hazarika, was published by Homen Borgohain in his daily newspaper Ajar Asom. The distinguished novelist, playwright and dramatist Arun Sharma called me and said that he wanted to recite the poem that evening. It was a matter of great pride to me that one giant was paying respect to the other all-time-great through the conduit of my poem. I told Arun Sharma that it would be an honor for me as well. After the poem was recited, Bhupen Da started his speech. As he completed his speech a few people went up to the dais to congratulate Dr. Hazarika. We were sitting in the audience that included Pradip Baruah of Prantik, Pulak Lahiri, Ishan Barua and many others. A young boy of around 12 years came to us and asked:
“Hello Koka, (Grandpa) can I be excused?”
“Yes my son, tell me what do you want?” quipped, Pradip Baruah.
“I want to get ahead a bit and…”, the child told
“And where do you want to get to?” Pradip asked.
“I want to meet “Bhupen Dada.”"
We were not surprised. Always Bhupen Hazarika had remained Dada. He has retained eternal youth. Even a child can communicate with him as Dada but we have become “grandfather”. Though biologically we were almost nineteen years younger! This is the charisma of Dr. Hazarika. In1956 his radio play “ERA Bator Sur” was broadcast through All India Radio. Bupenda selected me do a role in the radio play. Later when he made a film out of it, Mridul Baruah played the role instead of me! In 1977 when the Gramophone Company of India brought a record of Assamese recitation the responsibility was given to me. I requested Bhupenda to score the music of “Saptarshi” and to recite a poem. He readily agreed and never charged a fee. At that time he was the most sought after singer of Calcutta. “Moi Ek Jajabar” was all over the country then:-
“I am a gipsy
I scour the ends of the earth
But wouldn’t look for a home
From Luit to the Mississippi
I marveled at the Volga
From Ottawa through Austria
I made Paris my own.”
(Moi ek jajabar)
Often we marveled at how he managed his time. He was sought after by the communists in West Bengal, the Congress always wanted him and the BJP asked him to come to their side. But Bhupenda always remained with the mass. No Bihu celebration was complete in Assam without Bhupendsa and no freshman social was a resounding success in Bengal. In Calcutta all the employees associations of merchant offices wanted Dr. Hazarika in their cultural shows. On many occasions I was approached by the McLeod Russell cultural association to put a word to Bhupenda so that he can accept the invitation to their cultural bash. Bhupenda always obliged. One day I asked him where from he got so much vitality. He replied through a lyric of his:
“The raging storm questioned
Tell me your due
I boldly opened the door of my mind and said
“Give me your prowess”
The thunder roared:
“Tell me your desire”
I said- “Give me your powerful free voice” ( Prasanda Dhumuhai Prasna Korile Mok)
Perhaps Nature did accede to his demand for it bestowed him his powerful voice. It came naturally to him. Whenever there was turmoil in Assam, nay in the country he raised his voice:
“Let my songs be
A profound assurance
Against the pervading lack of trust.
Let my songs be
A hymn to truth
Against false imaginings”. ( Mor Gan Hok)
His songs empowered us to raise our voice. We were motivated to fight back against corruption, terrorism and social degeneration and poverty. Dr. Hazarika is taking life easy now. He is mostly in Bombay in the loving care of Kalpana Lazmi. He feels reassured there. But his mind always travels to Assam. He keeps visiting the state to meet his admirers and his sisters and brothers. His sense of humor and wit are as strong as before. Physically he feels sometime weak but mentally as strong as steel. Long live Bhupenda!, our cult figure from Assam. Bhupenda is as iconic to Assam as Rabindranath is to Bengal and Robert Burns is to Scotland, Tolstoy to Russian and Mark Twain to America. He is a phenomenon which arrives once in a blue moon in a society. I was asked by a Bengali journalist friend of mine to identify the best song of Bhupen Hazarika. I replied that to us all his lyrics are excellent because he spoke the language of humanity. But to me his most outstanding song is: “Bimurta Nishate”…
“This my ethereal Night
Is a blue scarf
Woven of silence
In its folds
Tender breathing
And live warmth”.
This is the song Bhupen Da also loves most. He loves all his creations. But this song appeals to him the most.He was 86 years young man in 2010 but remained romantic. He has been young at heart all the time. Perhaps he does not sing in concert now yet his creativity continues. He wrote a poem sitting in his home at Guwahati during the month of June 2010. It is almost impossible to bind Hazarika’s personality to any dogma. He is free as a bird yet he would always like to live amidst the humanity like Wordsworth’s Cuckoo. It is not important where he lives now. But for whom he stands today? The answer is simply he wants to live for the wellbeing of humanity. Every Assamese loves him and wants him back in Assam but is there anyone to willingly take full responsibility of his cerebral food, mental agony and physically incapacity? Yes, there is one who is an admirer of his from her childhood. Kalpana is misunderstood by most, but is admired by Bhupen Dada. She is now a friend philosopher and guide all combined together. Despite opposition of a section of well wisher Bhupenda admires her relations with him. Let Bhupenda pass his days with a sense of pride and happiness. That would be a real tribute to his personality who made world his home.
______________________________________________________________________
Give me a Black man whose blood is black
You would get whatever you want
If you can give me in return”
(Jonab Fakir of Bangladesh)
The song reverberated from the voice of Dr. Bhupen Hazarika of Assam long before Dr. Martin Luther King was assassinated in America. Dr. Hazarika was a true disciple of the great Saint Sankardeva of Assam and was later influenced by the philosophy of the greatest cult singer Paul Robson of USA. He transcended the walls of his classroom at the University of Gauhati, India in fifties of the last century and took the high road to various corners of the world. He traveled the world from Arunachal to Chicago, from Ottawa to Austria. He spoke of Gorky while sitting at the grave of Mark Twain. He not only acquired degrees from Guwahati, Benares, and New York (Columbia University), but learnt from the streets of the world. Calling himself a gypsy, he moved from place to place not in search of a dream house but to spread the message of happiness of life to humanity. He always spread the message of universal fraternity, brotherhood, and emotional understanding.
I met Bhupen Dada, for the first time, in 1955 at Calcutta Movietone Studio. He was in Calcutta those days to score the music of “Piyali Phookan”, a film directed by another giant Phani sharma. I was brought to Calcutta by Lakshydhar Chowdhury to act in his film “Nimila Anka”. From that day onward I became a fan of Bhupenda and our association lasted till date.
To many people in India he is a great singer. To some people he is a wonderful film maker, to some he is an excellent lyricist. For some he was a dear and respected teacher. But to us he has been a cult figure who empowered our generation with his voice, deeds and writings. Whenever the country is in turmoil he has been there to raise his voice for the upliftment of the downtrodden. He is a humanist per excellence. The lyrics are his bullets and his voice is the machine gun. He has inspired several generations in India through his lyrics, songs, films and writings. Even in his late seventies, when his comrades in arms like Hemanta Kumar, Salil Chowdhury and Naushad sahib retired as musician, his “Dil Hum Hum Kare” took India by rage. Unknowingly people started humming the song from slums to palaces. His greatest weapon is his system of communication. He can communicate with everyone of every age and can persuade to his point of view at ease. The mother and the daughter, the father and the son are always competing with one other to have a share of Dr. Hazarika’s vocal tonic, companionship and friendship. He was an amazing personality. Dear to every one. Anuradha Sharma Pujari once wrote that Bhupen Da was not very happy of his statue erected at the southern fringe of Dighali Tank., Guwhati .He would have been happy if the statue could be remade,as told by Anuradha.
It was his eightieth birthday celebration at Guwahati in the year 2003. A lot of his admirers attended a function atop a steamer on the mighty river Brahmaputra. On that day my poem, especially written on Dr. Bhupen Hazarika, was published by Homen Borgohain in his daily newspaper Ajar Asom. The distinguished novelist, playwright and dramatist Arun Sharma called me and said that he wanted to recite the poem that evening. It was a matter of great pride to me that one giant was paying respect to the other all-time-great through the conduit of my poem. I told Arun Sharma that it would be an honor for me as well. After the poem was recited, Bhupen Da started his speech. As he completed his speech a few people went up to the dais to congratulate Dr. Hazarika. We were sitting in the audience that included Pradip Baruah of Prantik, Pulak Lahiri, Ishan Barua and many others. A young boy of around 12 years came to us and asked:
“Hello Koka, (Grandpa) can I be excused?”
“Yes my son, tell me what do you want?” quipped, Pradip Baruah.
“I want to get ahead a bit and…”, the child told
“And where do you want to get to?” Pradip asked.
“I want to meet “Bhupen Dada.”"
We were not surprised. Always Bhupen Hazarika had remained Dada. He has retained eternal youth. Even a child can communicate with him as Dada but we have become “grandfather”. Though biologically we were almost nineteen years younger! This is the charisma of Dr. Hazarika. In1956 his radio play “ERA Bator Sur” was broadcast through All India Radio. Bupenda selected me do a role in the radio play. Later when he made a film out of it, Mridul Baruah played the role instead of me! In 1977 when the Gramophone Company of India brought a record of Assamese recitation the responsibility was given to me. I requested Bhupenda to score the music of “Saptarshi” and to recite a poem. He readily agreed and never charged a fee. At that time he was the most sought after singer of Calcutta. “Moi Ek Jajabar” was all over the country then:-
“I am a gipsy
I scour the ends of the earth
But wouldn’t look for a home
From Luit to the Mississippi
I marveled at the Volga
From Ottawa through Austria
I made Paris my own.”
(Moi ek jajabar)
Often we marveled at how he managed his time. He was sought after by the communists in West Bengal, the Congress always wanted him and the BJP asked him to come to their side. But Bhupenda always remained with the mass. No Bihu celebration was complete in Assam without Bhupendsa and no freshman social was a resounding success in Bengal. In Calcutta all the employees associations of merchant offices wanted Dr. Hazarika in their cultural shows. On many occasions I was approached by the McLeod Russell cultural association to put a word to Bhupenda so that he can accept the invitation to their cultural bash. Bhupenda always obliged. One day I asked him where from he got so much vitality. He replied through a lyric of his:
“The raging storm questioned
Tell me your due
I boldly opened the door of my mind and said
“Give me your prowess”
The thunder roared:
“Tell me your desire”
I said- “Give me your powerful free voice” ( Prasanda Dhumuhai Prasna Korile Mok)
Perhaps Nature did accede to his demand for it bestowed him his powerful voice. It came naturally to him. Whenever there was turmoil in Assam, nay in the country he raised his voice:
“Let my songs be
A profound assurance
Against the pervading lack of trust.
Let my songs be
A hymn to truth
Against false imaginings”. ( Mor Gan Hok)
His songs empowered us to raise our voice. We were motivated to fight back against corruption, terrorism and social degeneration and poverty. Dr. Hazarika is taking life easy now. He is mostly in Bombay in the loving care of Kalpana Lazmi. He feels reassured there. But his mind always travels to Assam. He keeps visiting the state to meet his admirers and his sisters and brothers. His sense of humor and wit are as strong as before. Physically he feels sometime weak but mentally as strong as steel. Long live Bhupenda!, our cult figure from Assam. Bhupenda is as iconic to Assam as Rabindranath is to Bengal and Robert Burns is to Scotland, Tolstoy to Russian and Mark Twain to America. He is a phenomenon which arrives once in a blue moon in a society. I was asked by a Bengali journalist friend of mine to identify the best song of Bhupen Hazarika. I replied that to us all his lyrics are excellent because he spoke the language of humanity. But to me his most outstanding song is: “Bimurta Nishate”…
“This my ethereal Night
Is a blue scarf
Woven of silence
In its folds
Tender breathing
And live warmth”.
This is the song Bhupen Da also loves most. He loves all his creations. But this song appeals to him the most.He was 86 years young man in 2010 but remained romantic. He has been young at heart all the time. Perhaps he does not sing in concert now yet his creativity continues. He wrote a poem sitting in his home at Guwahati during the month of June 2010. It is almost impossible to bind Hazarika’s personality to any dogma. He is free as a bird yet he would always like to live amidst the humanity like Wordsworth’s Cuckoo. It is not important where he lives now. But for whom he stands today? The answer is simply he wants to live for the wellbeing of humanity. Every Assamese loves him and wants him back in Assam but is there anyone to willingly take full responsibility of his cerebral food, mental agony and physically incapacity? Yes, there is one who is an admirer of his from her childhood. Kalpana is misunderstood by most, but is admired by Bhupen Dada. She is now a friend philosopher and guide all combined together. Despite opposition of a section of well wisher Bhupenda admires her relations with him. Let Bhupenda pass his days with a sense of pride and happiness. That would be a real tribute to his personality who made world his home.
______________________________________________________________________
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