Thursday, December 31, 2009
Finance panel report suggests new path for fiscal prudence
Finance panel report suggests new path for fiscal prudence
Business Standard, December 31, 2009, Page 5
BS Reporter / New Delhi
The Thirteenth Finance Commission has suggested the path of fiscal consolidation and sharing of tax revenues between the Centre and the states, in its report submitted to President Pratibha Patil today.
The report has assessed the impact of the proposed goods and services tax (GST) on trade. It has also suggested steps to deal with the growing off-Budget expenditure, especially, oil bonds, the implications of environment and climate change, and ways to improve outcomes and outputs of public expenditure.
The report of the Thirteenth Finance Commission, headed by former finance secretary Vijay Kelkar, will be given by the President to the finance ministry, which will take it up with the Cabinet.
The recommendations of the report, which covers the period between 2010 and 2015, will be reflected in the Budget for 2010-11, Finance Minister Pranab Mukherjee said today on the sidelines of a function. “The report will be tabled in Parliament as per the system,” Mukherjee told reporters.
Currently, states and the Union Territories (UTs) get Rs 1.64 lakh crore a year, or around 30 per cent of the shareable taxes collected by the Centre. The total tax revenue of the government, which include shareable and non-shareable taxes, has been estimated at Rs 6,41,079 crore during 2009-10. The Twelfth Finance Commission had recommended that 30.5 per cent of the shareable central taxes should be shared among the states and the UTs.
The recommendations of Thirteenth Finance Commission assumes importance since the government has declared its intention to return to the path of fiscal prudence and an increase in devolution of revenue to the states could hit the Union government kitty further.
Earlier in the day, Kelkar and other members of the commission, including B K Chaturvedi, Indira Rajaraman, Atul Sarma and Sanjiv Misra, met the President and briefed her on the recommendations of the report. “We had been asked to suggest new path for fiscal consolidation...We have recommended the fiscal path for the next five years,” Kelkar told reporters.
The Commission, set up in November 2007, was asked to make recommendations on tax-related issues and look into a new Fiscal Responsibility and Budget Management roadmap.
The report was submitted a day before the extended tenure of the Finance Commission came to an end. Earlier, the report was to be submitted by October 31, 2009, but the Commission sought a three-month extension to submit it by December 31, 2009.
Business Standard, December 31, 2009, Page 5
BS Reporter / New Delhi
The Thirteenth Finance Commission has suggested the path of fiscal consolidation and sharing of tax revenues between the Centre and the states, in its report submitted to President Pratibha Patil today.
The report has assessed the impact of the proposed goods and services tax (GST) on trade. It has also suggested steps to deal with the growing off-Budget expenditure, especially, oil bonds, the implications of environment and climate change, and ways to improve outcomes and outputs of public expenditure.
The report of the Thirteenth Finance Commission, headed by former finance secretary Vijay Kelkar, will be given by the President to the finance ministry, which will take it up with the Cabinet.
The recommendations of the report, which covers the period between 2010 and 2015, will be reflected in the Budget for 2010-11, Finance Minister Pranab Mukherjee said today on the sidelines of a function. “The report will be tabled in Parliament as per the system,” Mukherjee told reporters.
Currently, states and the Union Territories (UTs) get Rs 1.64 lakh crore a year, or around 30 per cent of the shareable taxes collected by the Centre. The total tax revenue of the government, which include shareable and non-shareable taxes, has been estimated at Rs 6,41,079 crore during 2009-10. The Twelfth Finance Commission had recommended that 30.5 per cent of the shareable central taxes should be shared among the states and the UTs.
The recommendations of Thirteenth Finance Commission assumes importance since the government has declared its intention to return to the path of fiscal prudence and an increase in devolution of revenue to the states could hit the Union government kitty further.
Earlier in the day, Kelkar and other members of the commission, including B K Chaturvedi, Indira Rajaraman, Atul Sarma and Sanjiv Misra, met the President and briefed her on the recommendations of the report. “We had been asked to suggest new path for fiscal consolidation...We have recommended the fiscal path for the next five years,” Kelkar told reporters.
The Commission, set up in November 2007, was asked to make recommendations on tax-related issues and look into a new Fiscal Responsibility and Budget Management roadmap.
The report was submitted a day before the extended tenure of the Finance Commission came to an end. Earlier, the report was to be submitted by October 31, 2009, but the Commission sought a three-month extension to submit it by December 31, 2009.
Fiscal deficit can't be sustained for long: Pranab
Fiscal deficit can't be sustained for long: Pranab
The Hindu Business Line, December 31, 2009, Page 14
However, it is still too early to exit stimulus.
Our Bureau, New Delhi
Stating that the Indian economy cannot sustain a high fiscal deficit for very long, the Finance Minister, Mr Pranab Mukherjee, said on Wednesday that it is, however, still too early to pull out of the fiscal stimulus.
“We shall have to strike a balance between the requirement of the economy and also the capacity of the economy to bear this level of fiscal deficit and borrowing,” the Finance Minister said on the sidelines of a Corporation Bank event.
In December 2008 and later in February this year, the Government had cut its key duty rates, such as excise duty and service tax, in order to propel domestic demand and mitigate the adverse effect of the global slowdown on domestic industry. The excise duty was cut to 8 per cent from 14 per cent, while service tax was reduced to 10 per cent from 12 per cent. Burdened by a growing fiscal deficit due to extensive borrowing to meet the budgetary requirements, the Government has since been looking to exit the stimulus policy and bring its revenues closer to the earlier levels by maintaining fiscal discipline.
Cautioning that any hasty move in either direction could lead to bigger problems, Mr Mukherjee said, “Immediately coming out of (a) stimulus package, [an] exit policy might not be the best approach. There may be an adverse impact. The economy has suffered. We ended 2008-09 at a GDP growth rate of 6.7 per cent, but the price we had to pay was a high fiscal deficit at 6.8 per cent of GDP. I have said earlier that this was not sustainable – fiscal prudence is necessary, borrowing cannot go on indefinitely.”
Mr Mukherjee had earlier said that the GDP growth rate for the current fiscal could touch 7.75 per cent, moving onto a 9 per cent after two years. In 2008-09, the economy grew 6.7 per cent.
He further added that the Ministry is also working with the Reserve Bank of India (RBI) to ensure that the credit needs of private players are not elbowed out with the huge borrowing programme in the current fiscal. “Credit availability is important, surely it has to be improved,” he said.
No hike in interest rates
Speaking on the sidelines of the event, the Bank Chairman and Managing Director, Mr J. M. Garg, said that even if the repo rate or the cash reserve ratio (CRR) is raised, banks may not actually increase interest rates as they have to meet their credit off take targets.
“Key policy rates should have small quantum changes. RBI may marginally increase the CRR in January. However, in the next three months interest rates may not pick up … because there is enough liquidity in the system. Even if repo rates are changed, interest rates may not pick up,” he said.
The Hindu Business Line, December 31, 2009, Page 14
However, it is still too early to exit stimulus.
Our Bureau, New Delhi
Stating that the Indian economy cannot sustain a high fiscal deficit for very long, the Finance Minister, Mr Pranab Mukherjee, said on Wednesday that it is, however, still too early to pull out of the fiscal stimulus.
“We shall have to strike a balance between the requirement of the economy and also the capacity of the economy to bear this level of fiscal deficit and borrowing,” the Finance Minister said on the sidelines of a Corporation Bank event.
In December 2008 and later in February this year, the Government had cut its key duty rates, such as excise duty and service tax, in order to propel domestic demand and mitigate the adverse effect of the global slowdown on domestic industry. The excise duty was cut to 8 per cent from 14 per cent, while service tax was reduced to 10 per cent from 12 per cent. Burdened by a growing fiscal deficit due to extensive borrowing to meet the budgetary requirements, the Government has since been looking to exit the stimulus policy and bring its revenues closer to the earlier levels by maintaining fiscal discipline.
Cautioning that any hasty move in either direction could lead to bigger problems, Mr Mukherjee said, “Immediately coming out of (a) stimulus package, [an] exit policy might not be the best approach. There may be an adverse impact. The economy has suffered. We ended 2008-09 at a GDP growth rate of 6.7 per cent, but the price we had to pay was a high fiscal deficit at 6.8 per cent of GDP. I have said earlier that this was not sustainable – fiscal prudence is necessary, borrowing cannot go on indefinitely.”
Mr Mukherjee had earlier said that the GDP growth rate for the current fiscal could touch 7.75 per cent, moving onto a 9 per cent after two years. In 2008-09, the economy grew 6.7 per cent.
He further added that the Ministry is also working with the Reserve Bank of India (RBI) to ensure that the credit needs of private players are not elbowed out with the huge borrowing programme in the current fiscal. “Credit availability is important, surely it has to be improved,” he said.
No hike in interest rates
Speaking on the sidelines of the event, the Bank Chairman and Managing Director, Mr J. M. Garg, said that even if the repo rate or the cash reserve ratio (CRR) is raised, banks may not actually increase interest rates as they have to meet their credit off take targets.
“Key policy rates should have small quantum changes. RBI may marginally increase the CRR in January. However, in the next three months interest rates may not pick up … because there is enough liquidity in the system. Even if repo rates are changed, interest rates may not pick up,” he said.
BPTP plans to use one fourth of IPO funds for debt repayment
BPTP plans to use one fourth of IPO funds for debt repayment
Business Standard, December 31, 2009, Page 4
Raghavendra Kamath / Mumbai
Delhi-based property developer BPTP plans to use over one-fourth of its initial public issue (IPO) proceeds towards repayment and prepayment of debt taken by the company, according to the draft red herring prospectus (DRHP) filed by the company with capital markets regulator Sebi.
BPTP, promoted by first-generation entrepreneur Kabul Chawla, shot to fame for winning the country’s largest land deal last year in Noida for Rs 5,006 crore and later surrendering 75 per cent of the land to New Okhla Industrial Development Authority (Noida) due to the meltdown in property markets. The company retained 21 acres, for which it paid Rs 1,300 crore to the authority.
Out of the Rs 1,500 crore it plans to raise from capital markets, the company says it will use Rs 325 crore towards debt prepayment and repayment, Rs 459.4 crore to finance construction and development costs for its Park Elite Floors, another Rs 514.3 crore for payment of development charges to the government authorities and the rest for general corporate purposes.
The company has a total debt of Rs 1,084 crore on books against a net worth of Rs 1476.76 crore, which translates into a debt-equity ratio of 0.73:1. The Rs 325-crore loan was selected for prepayment as it carried a high interest rate of 14 per cent, sources in the know said.
BPTP’s profits closely reflect the ups and downs in the property markets in the last couple of years. While net profit jumped 18 per cent in the financial year 2008, BPTP saw a net loss of Rs 84.69 crore in the current year, mainly due to allotment money of Rs 123.94 crore and Rs 29.32 crore forgone on account of interest paid on delayed payments in the Noida deal. But the company again posted a net profit of Rs 83.2 crore in just three months ending June 30, 2009.
Citigroup Property Investors (CPI), which has a stake of 5.98 per cent in the company, and JPMorgan, which has 3.68 per cent, are likely to continue in BPTP as investors as they have a lock-in period of one year after the listing of shares, according to sources in the know. Though CPI wanted to exit its investment through the special purpose vehicle (SPV) route, it has put the plan on hold, sources said.
As of December 2, 2009, the company had 17 ongoing projects with a saleable area of 39.39 million square feet and 40 new upcoming projects of 57.14 million square feet. The company says it has launched four residential projects in the low-rise segment and sold 7,398 apartments between July 2008 and September 2009. The company has a total land bank of around 1,800 acres, of which 1,415 acres form a part of Project Parklands in Faridabad.
“Till the time they come up with a price band and percentage dilution in the IPO, it will be difficult to comment on the IPO. But the Rs 1,175 crore that the company plans to utilise for construction and development charges is a significant amount. It shows the company plans to launch a lot of projects,” says an analyst at a Mumbai-based brokerage on condition of anonymity.
Another analyst, who too declined to be identified, said the Rs 1,300 crore it paid for 21 acres was quite expensive in terms of current market conditions.
Business Standard, December 31, 2009, Page 4
Raghavendra Kamath / Mumbai
Delhi-based property developer BPTP plans to use over one-fourth of its initial public issue (IPO) proceeds towards repayment and prepayment of debt taken by the company, according to the draft red herring prospectus (DRHP) filed by the company with capital markets regulator Sebi.
BPTP, promoted by first-generation entrepreneur Kabul Chawla, shot to fame for winning the country’s largest land deal last year in Noida for Rs 5,006 crore and later surrendering 75 per cent of the land to New Okhla Industrial Development Authority (Noida) due to the meltdown in property markets. The company retained 21 acres, for which it paid Rs 1,300 crore to the authority.
Out of the Rs 1,500 crore it plans to raise from capital markets, the company says it will use Rs 325 crore towards debt prepayment and repayment, Rs 459.4 crore to finance construction and development costs for its Park Elite Floors, another Rs 514.3 crore for payment of development charges to the government authorities and the rest for general corporate purposes.
The company has a total debt of Rs 1,084 crore on books against a net worth of Rs 1476.76 crore, which translates into a debt-equity ratio of 0.73:1. The Rs 325-crore loan was selected for prepayment as it carried a high interest rate of 14 per cent, sources in the know said.
BPTP’s profits closely reflect the ups and downs in the property markets in the last couple of years. While net profit jumped 18 per cent in the financial year 2008, BPTP saw a net loss of Rs 84.69 crore in the current year, mainly due to allotment money of Rs 123.94 crore and Rs 29.32 crore forgone on account of interest paid on delayed payments in the Noida deal. But the company again posted a net profit of Rs 83.2 crore in just three months ending June 30, 2009.
Citigroup Property Investors (CPI), which has a stake of 5.98 per cent in the company, and JPMorgan, which has 3.68 per cent, are likely to continue in BPTP as investors as they have a lock-in period of one year after the listing of shares, according to sources in the know. Though CPI wanted to exit its investment through the special purpose vehicle (SPV) route, it has put the plan on hold, sources said.
As of December 2, 2009, the company had 17 ongoing projects with a saleable area of 39.39 million square feet and 40 new upcoming projects of 57.14 million square feet. The company says it has launched four residential projects in the low-rise segment and sold 7,398 apartments between July 2008 and September 2009. The company has a total land bank of around 1,800 acres, of which 1,415 acres form a part of Project Parklands in Faridabad.
“Till the time they come up with a price band and percentage dilution in the IPO, it will be difficult to comment on the IPO. But the Rs 1,175 crore that the company plans to utilise for construction and development charges is a significant amount. It shows the company plans to launch a lot of projects,” says an analyst at a Mumbai-based brokerage on condition of anonymity.
Another analyst, who too declined to be identified, said the Rs 1,300 crore it paid for 21 acres was quite expensive in terms of current market conditions.
Finance panel charts course to fiscal health
Finance panel charts course to fiscal health
The Economic Times, December 31, 2009, Page 9
Kelkar-Led Commission Proposes Hike In States’ Share Of Tax Revenues
Our Bureau NEW DELHI
THE Thirteenth Finance Commission submitted its report on Wednesday, recommending a five-year fiscal consolidation road map and a higher share for states in the tax revenues collected by the Centre over the next five years ending 2015.
The commission, chaired by former finance secretary Vijay Kelkar, has recommended a higher devolution to states from the current 30.5%, and a new methodology to deal with the off-budget expenditure, especially oil bonds.
“The recommendations (of the panel) will be reflected in the Budget,” finance minister Pranab Mukherjee told reporters, but declined to give details.
The government said it would table the report of the 13th Finance Commission in Parliament in due course.
The President constitutes the Finance Commission under Article 280 of the Constitution. The commission’s chief task is to recommend a formula for distribution of tax revenues between the Centre and the states and amongst the states themselves every five years.
Currently, the share of states and Union Territories in central taxes is 30.5% of the shareable taxes of the Centre. Mr Kelkar declined to give details on the revenue share. But a government official, who did not wish to be named, said it is proposed to be increased by about 2-3%.
The recommendations are unlikely to meet states’ expectations. State governments had asked for an increase in their share in the divisible pool of the central taxes to 50%. They had also demanded that all central surcharges and cesses be included in the divisible pool.
The recommendations are based on revenue neutral rates keeping 2008-09 as the base year. “Our assumption is revenue neutral. There will not be any impact as rates would be neutral, and the revenue of states and the Centre would be protected,” Mr Kelkar said.
The report, which will be made public only after it is tabled in Parliament, has refrained from recommending a rate for the proposed goods and services tax (GST). “There’s no recommendation on the tax structure. It’s on revenue sharing between the Centre and the states ... rates were not talked about, it’s the revenue sharing,” Mr Kelkar said.
The report will be given by the President to the finance ministry, which will take it up with the Cabinet. The Cabinet will then adopt the report after which it will be tabled in the Budget session of Parliament.
The commission’s suggestions, which will cover a five-year period starting from April 1, 2010, are not binding, but they are generally implemented by the government.
The shareable central taxes include corporation tax, income tax, wealth tax, Customs, excise duty and service tax. The taxes that are not shared with states include some cesses, like for education and road.
States are budgeted to get Rs 1.64 lakh crore as their share of taxes in the current fiscal, up only marginally from revised Rs 1.60 lakh crore in 2008-09.
Time not ripe to exit stimulus measures: FM
Time not ripe to exit stimulus measures: FM
The Economic Times, December 31, 2009, Page 9
NEW DELHI: India will have to strike a balance between the needs of the economy and urgency to improve government’s finances, finance minister Pranab Mukherjee said on Wednesday. The fiscal stimulus measures announced in the last financial year, which included cuts in indirect taxes such as excise duty and service tax and extra borrowings-funded increased expenditure, had boosted the slowing economy. The measures, however, pushed up fiscal deficit to 6.2% in the previous fiscal and a projected 6.8% in the current year—a 16-year high. The finance minister pointed out that it is too early to comment on the timing of the rollback of stimulus measures. “Exiting from the stimulus packages now may not be the correct approach because if the world economy collapses, the depression would be deeper,” Mr Mukherjee said.
The Economic Times, December 31, 2009, Page 9
NEW DELHI: India will have to strike a balance between the needs of the economy and urgency to improve government’s finances, finance minister Pranab Mukherjee said on Wednesday. The fiscal stimulus measures announced in the last financial year, which included cuts in indirect taxes such as excise duty and service tax and extra borrowings-funded increased expenditure, had boosted the slowing economy. The measures, however, pushed up fiscal deficit to 6.2% in the previous fiscal and a projected 6.8% in the current year—a 16-year high. The finance minister pointed out that it is too early to comment on the timing of the rollback of stimulus measures. “Exiting from the stimulus packages now may not be the correct approach because if the world economy collapses, the depression would be deeper,” Mr Mukherjee said.
Where are the skilled Indians?
Where are the skilled Indians?
The Economic Times, December 31, 2009, Page 12
The sooner we build quality educational institutions that can churn out professionals to help propel economic growth to 8-9%, the sooner we can eradicate illiteracy and poverty, says Neeraj Kaushal.
THERE are two prevalent perceptions about India in the west. On the one hand, people scoff at India’s failure to reduce poverty and illiteracy in a substantial manner even as many Asian countries have made successful strides into lowering both. On the other, there is widespread admiration, bordering on envy, about the nation’s immense pool of highly-skilled professionals who have become important players in the global economy. In the western view, there are two Indias: the Poor and Illiterate India, and India of its highly-skilled professionals.
It is the second India that is focus of this column. In the last two decades, the number of skilled Indian professionals working abroad has grown many times. Indians are the most educated ethnic group in the US and one of the richest too. A quarter of all H1B visas for professionals to work in the US are issued to Indians. Many industrialised countries like Canada, Germany, the UK, the US and Japan have been competing to attract skilled workers from India and other developing countries. India, along with other large emerging economies, has become a major source of skilled workforce for several industrialised countries.
Ironically, India does not have enough high-skilled professionals to fulfill its domestic needs. Years of brain drain may have played a tiny role in this. But the primary cause of skill shortage is the sudden surge in growth in the nation’s economy and increased investments in several sectors. Indeed, there is some evidence of the start of a reversal of brain drain in recent years as many professionals return to India after a stint abroad for better economic opportunities.
Yet, skill shortages remain acute in several areas. India may be a major source of talent for the global economy, it produces far less talent than what is required to meet the needs of its fast-expanding economy. Consider this: Indian engineering schools produce around 12,000 new civil engineers a year. The country needs at least 70,000 additional civil engineers to meet its massive infrastructure needs! Currently, Indian engineering schools produce civil engineers that meet just about a sixth of the industry’s additional needs. These shortages have become the biggest obstacle to investment in infrastructure.
Several factors explain this scarcity. During the 1990s, as the world economy was experiencing an internet boom, the demand for Indian IT engineers increased and salaries of IT professionals skyrocketed. Many were being hired by foreign companies even before they finished schooling. In response, students started opting for engineering courses in IT, communications and electronics, and the number opting for civil and mechanical engineering plummeted. Engineering colleges reacted to these changes in supply and demand by shutting down civil engineering departments and expanding or creating departments of communications, IT and electronics. Of the 1,700 engineering schools approved by the All India Council for Technical Education, only 200 offer civil engineering degrees today.
During most of the past two decades, a substantial proportion of the investment in the schools of engineering was to cater to the demand from the IT and communications industry, Indian as well as foreign. No one even considered that there would be demand resurgence in traditional fields of engineering such as mechanical or civil. Not many during the 1990s believed that the Indian economy would grow at 8-9% a year and the infrastructure sector would need to expand at 30% a year to sustain long-term growth. All this has changed with the government and the private sector investing billions in national highways, airports, railway stations, ports, commercial real estate and housing.
WITH growing prosperity, more people can now buy high-duty consumer durables including electronic goods, in turn, raising demand for mechanical and electrical engineers who can manufacture these goods. In 2007, Global Survey of Business Executives by McKinsey found that Indian executives were not very confident in finding suitable talent in India. The current year does not seem to be much different. There are shortages of doctors, nurses, scientists, pilots, and teachers in schools and colleges. And there are shortages of CEOs as well.
These shortages are a good sign. They indicate that the economy is growing. The shortages would encourage private and public sector investment in technical education; build schools and colleges across the country that will train professionals who will, in turn, modernise the Indian economy.
The Indian society has suffered a great deal from a criminal neglect of investment in human capital. The neglect has been at all levels: primary, secondary, tertiary and technical education. Currently, India’s colleges and universities enrol only 10% of the college-going population (aged 18-24 years) against 20% in China, over 15% among Asean countries and about 60% in the US. Raising college enrolment to 15%, the stated target of the 11th Five-Year Plan, would mean increasing the number of schools and colleges in the country by 50%.
The Indian higher education system suffers even more due to poor quality. As Prime Minister Manmohan Singh said two years ago, more than 60% of Indian universities and 90% of colleges are of belowaverage quality. More than three million students graduate every year from these universities, but only 10-15% are equipped with skills to start work. Among engineers who graduate, only a quarter have the skills to start work in a global standard industry. According to a World Bank report, India would suffer a shortfall of more than half in the skilled human resources needed to modernise its economy.
Education can be the next big area of economic growth in the country. Population dividend that everyone keeps talking about cannot be reaped unless we invest in people, train them to work in Indian companies that have global standards. Despite promises by the policy planners to raise investment in education to 6% of GDP, state and central governments together have spent less than 4% of GDP on education. The 11th Five-Year Plan has proposed a four-fold increase in investment in education. Anything less than that would mean further delays in eradicating illiteracy and poverty.
Tower of Babel | Too many government gurus confuse the market
Tower of Babel Too many government gurus confuse the market
Business Standard, December 31, 2009, Page 9
Business Standard / New Delhi
Economists are known to be a fairly harmless lot with a penchant for disagreeing with each other. This can be mildly annoying or simply amusing, depending on one’s perspective, and has given rise to a rather tame brand of “economist” jokes. But when the economists happen to belong to different agencies of the government and differ on their forecasts or their opinion on policy, the discord could have deeper consequences. Take the case of GDP growth forecasts for 2009-10. The Reserve Bank of India has a forecast of 6 per cent for the year. The Prime Minister’s Council of Economic Advisers (CEA) has an official forecast of 6.5 per cent, but recent statements by its chairman suggest that it could revise its forecast up to a range of 7-7.5 per cent. The deputy chairman of the Planning Commission believes that growth could be somewhat higher than 7 per cent. The mid-year review of the economy released by the finance ministry earlier this month forecasts growth at 7.75 per cent or more and the finance minister seems to believe that the economy will grow by 8 per cent.
One could argue that this difference is actually good for policy-making. Dissent rather than consensus creates awareness of the risks associated with policy choices and could make policy-making robust. The problem, however, is the fact that financial markets tend to take these forecasts quite seriously and base investment and trading decisions on them. They also, perhaps somewhat naively, expect the different agencies of the government to speak in a common voice. When the government appears to speak in a “babel” of voices instead, it confuses market participants, often leading to a rise in market volatility. The problem becomes even more acute when there are conflicting opinions on specific policy measures. The recent confusion in the government bond markets over the likely monetary response to food inflation is an example. Officials from both the finance ministry and the Reserve Bank of India have repeatedly emphasised that they view the current inflationary episode as essentially “supply-driven” and hurried monetary action would not have much impact. The chairman of the CEA on the other hand suggested a few days back that if food prices did not abate soon, an “early reversal” in monetary policy is warranted. This led to a sharp spike in bond yields. The 10-year bond yield (a commonly-used benchmark for the bond market), fearing an imminent rate hike, went up by almost a quarter of a percentage point in response to the CEA chairman’s statements. It settled down later as the monetary move did not come through and the fear abated. The global financial and economic environment remains fuzzy and financial markets have more than their fair share of risks and uncertainty to deal with. Government economic agencies might want to desist from adding to this with their cacophony of discordant views. This does not, of course, mean that there should be no difference of opinion between them. But it is perhaps best to keep these behind closed doors and present a more consistent view to the public.
Business Standard, December 31, 2009, Page 9
Business Standard / New Delhi
Economists are known to be a fairly harmless lot with a penchant for disagreeing with each other. This can be mildly annoying or simply amusing, depending on one’s perspective, and has given rise to a rather tame brand of “economist” jokes. But when the economists happen to belong to different agencies of the government and differ on their forecasts or their opinion on policy, the discord could have deeper consequences. Take the case of GDP growth forecasts for 2009-10. The Reserve Bank of India has a forecast of 6 per cent for the year. The Prime Minister’s Council of Economic Advisers (CEA) has an official forecast of 6.5 per cent, but recent statements by its chairman suggest that it could revise its forecast up to a range of 7-7.5 per cent. The deputy chairman of the Planning Commission believes that growth could be somewhat higher than 7 per cent. The mid-year review of the economy released by the finance ministry earlier this month forecasts growth at 7.75 per cent or more and the finance minister seems to believe that the economy will grow by 8 per cent.
One could argue that this difference is actually good for policy-making. Dissent rather than consensus creates awareness of the risks associated with policy choices and could make policy-making robust. The problem, however, is the fact that financial markets tend to take these forecasts quite seriously and base investment and trading decisions on them. They also, perhaps somewhat naively, expect the different agencies of the government to speak in a common voice. When the government appears to speak in a “babel” of voices instead, it confuses market participants, often leading to a rise in market volatility. The problem becomes even more acute when there are conflicting opinions on specific policy measures. The recent confusion in the government bond markets over the likely monetary response to food inflation is an example. Officials from both the finance ministry and the Reserve Bank of India have repeatedly emphasised that they view the current inflationary episode as essentially “supply-driven” and hurried monetary action would not have much impact. The chairman of the CEA on the other hand suggested a few days back that if food prices did not abate soon, an “early reversal” in monetary policy is warranted. This led to a sharp spike in bond yields. The 10-year bond yield (a commonly-used benchmark for the bond market), fearing an imminent rate hike, went up by almost a quarter of a percentage point in response to the CEA chairman’s statements. It settled down later as the monetary move did not come through and the fear abated. The global financial and economic environment remains fuzzy and financial markets have more than their fair share of risks and uncertainty to deal with. Government economic agencies might want to desist from adding to this with their cacophony of discordant views. This does not, of course, mean that there should be no difference of opinion between them. But it is perhaps best to keep these behind closed doors and present a more consistent view to the public.
Realty mutual funds, investment trusts to open up new channels of funding
Realty mutual funds, investment trusts to open up new channels of funding
The Financial Express, December 31, 2009, Page 6
Sajan C Kumar, Chennai
Initial public offerings (IPOs) in the near-term, real estate mutual funds (REMFs) and real estate investment trusts (REITs) in the medium-term are likely to emerge as new channels of real estate financing in the country. Property funds are also expected to enhance their activities in coming quarters.
The market capitalisation of country’s real estate firms, which equals to just 2.2% of the aggregate equity market capitalisation, far below than the 10-15% level found in advanced economies, is an indicator of the future potential, said Ramesh Nair, managing director (Chennai & Hyderabad), Jones Lang LaSalle Meghraj, a global realty consultancy firm.
According to estimates, the real estate sector will require an additional $3.66 billion to construct undertaken commercial projects and fulfil the unmet housing demand. While sources of funding have become scarce in the aftermath of the 2008 global financial crisis, there are some emerging channels, which are likely to help the sector continue its high-growth story.
With several real estate players having submitted red herring prospectus to the Sebi, a total of $3.31 billion is expected to be raised in coming months. Given that the Sebi has recently allowed anchor investors to participate in this fund-raising channel, IPOs can be an attractive vehicle to tap domestic as well as foreign institutional investment. Additionally, they provide a good exit option for most PE investors that have a short-term to medium-term investment horizon, Nair told FE.
According to a study on emerging trends in real estate finance carried out by Jones Lang LaSalle Meghraj, REMFs and REITs have played an important role in institutionalising real estate investment in many countries. The essential difference between them is that while investment made by REITs are only permitted in income-generating physical real estate assets, REMFs can take exposure in securities of real estate companies as well. Currently, both of these vehicles remain a future prospect in India.
As per Sebi regulations, REMFs in India have to invest in direct ownership of real estate (that accrues rentals and capital appreciation), mortgage-backed securities and securities of companies dealing in the development of real estate. However, a minimum of 35% of net assets have to be invested in direct ownership, leaving an upper limit of 65% on security exposure by REMFs, says the study.
According to the study, real estate developers HDIL, HDFC, ICICI, L&T and Unitech are some of the players that have expressed interest in launching REMFs. While issues related to valuation and taxation are currently holding back this emerging vehicle, the government is expected to clear these uncertainties soon. Similarly, regarding REITs, many policy issues are yet to be resolved, and authorities concerned have yet to come up with clear regulations.
The study says there are challenges that must be addressed in order to bring about a smooth improvement in the sources of funding. Establishing a nodal real estate regulator will be a welcome step in enhancing transparency and making the sector more organised. Clarifications pertaining to taxation and valuation issues for existing REMF and REIT guidelines will also be expected in the coming quarters.
The Financial Express, December 31, 2009, Page 6
Sajan C Kumar, Chennai
Initial public offerings (IPOs) in the near-term, real estate mutual funds (REMFs) and real estate investment trusts (REITs) in the medium-term are likely to emerge as new channels of real estate financing in the country. Property funds are also expected to enhance their activities in coming quarters.
The market capitalisation of country’s real estate firms, which equals to just 2.2% of the aggregate equity market capitalisation, far below than the 10-15% level found in advanced economies, is an indicator of the future potential, said Ramesh Nair, managing director (Chennai & Hyderabad), Jones Lang LaSalle Meghraj, a global realty consultancy firm.
According to estimates, the real estate sector will require an additional $3.66 billion to construct undertaken commercial projects and fulfil the unmet housing demand. While sources of funding have become scarce in the aftermath of the 2008 global financial crisis, there are some emerging channels, which are likely to help the sector continue its high-growth story.
With several real estate players having submitted red herring prospectus to the Sebi, a total of $3.31 billion is expected to be raised in coming months. Given that the Sebi has recently allowed anchor investors to participate in this fund-raising channel, IPOs can be an attractive vehicle to tap domestic as well as foreign institutional investment. Additionally, they provide a good exit option for most PE investors that have a short-term to medium-term investment horizon, Nair told FE.
According to a study on emerging trends in real estate finance carried out by Jones Lang LaSalle Meghraj, REMFs and REITs have played an important role in institutionalising real estate investment in many countries. The essential difference between them is that while investment made by REITs are only permitted in income-generating physical real estate assets, REMFs can take exposure in securities of real estate companies as well. Currently, both of these vehicles remain a future prospect in India.
As per Sebi regulations, REMFs in India have to invest in direct ownership of real estate (that accrues rentals and capital appreciation), mortgage-backed securities and securities of companies dealing in the development of real estate. However, a minimum of 35% of net assets have to be invested in direct ownership, leaving an upper limit of 65% on security exposure by REMFs, says the study.
According to the study, real estate developers HDIL, HDFC, ICICI, L&T and Unitech are some of the players that have expressed interest in launching REMFs. While issues related to valuation and taxation are currently holding back this emerging vehicle, the government is expected to clear these uncertainties soon. Similarly, regarding REITs, many policy issues are yet to be resolved, and authorities concerned have yet to come up with clear regulations.
The study says there are challenges that must be addressed in order to bring about a smooth improvement in the sources of funding. Establishing a nodal real estate regulator will be a welcome step in enhancing transparency and making the sector more organised. Clarifications pertaining to taxation and valuation issues for existing REMF and REIT guidelines will also be expected in the coming quarters.
MCA wants India Inc to set aside part of budget for CSR
MCA wants India Inc to set aside part of budget for CSR
The Financial Express, December 31, 2009, Page 11
Neha Pal, New Delhi
“Companies should allocate a specific amount in their budget for corporate social responsibilty activities that may be related to profits after tax, cost of planned CSR activities and any other suitable parameter,” according to a ministry of corporate affairs report on voluntary corporate social responsibilities.
The report suggests that the corporate social responsibility (CSR) policy of the business entity should provide for an implementation strategy that should include identification of projects, time schedule and monitoring, setting measurable physical targets with time-frame, organisational mechanism and responsibilities.
“Companies may partner with local authorities, business associations and non-government organisations. They may influence the supply chain for CSR initiative and motivate employees for voluntary effort for social development,” says the report.
The report further suggests that companies may evolve a system of need assessment and impact assessment while undertaking CSR activities in a particular area. Independent evaluation may also be undertaken for selected projects from time to time. To share experiences and network with other organisations the company should engage with well established and recognised programmes or platforms which encourage responsible business practices and CSR activities. This would help companies improve on their CSR strategies and effectively project the image of being socially responsible.
The report also says that the companies should disseminate information on CSR policy, activities and progress in a structured manner to all their stakeholders and the public at large through their website, annual reports and other communication media.
As per the report, companies should respect the interests and be responsive to all stakeholders, including shareholders, employees, customers, suppliers, project affected people, society at large and create value for all of them. They should develop a mechanism to actively engage with all stakeholders, inform them of inherent risks and mitigate them where they occur.
The Financial Express, December 31, 2009, Page 11
Neha Pal, New Delhi
“Companies should allocate a specific amount in their budget for corporate social responsibilty activities that may be related to profits after tax, cost of planned CSR activities and any other suitable parameter,” according to a ministry of corporate affairs report on voluntary corporate social responsibilities.
The report suggests that the corporate social responsibility (CSR) policy of the business entity should provide for an implementation strategy that should include identification of projects, time schedule and monitoring, setting measurable physical targets with time-frame, organisational mechanism and responsibilities.
“Companies may partner with local authorities, business associations and non-government organisations. They may influence the supply chain for CSR initiative and motivate employees for voluntary effort for social development,” says the report.
The report further suggests that companies may evolve a system of need assessment and impact assessment while undertaking CSR activities in a particular area. Independent evaluation may also be undertaken for selected projects from time to time. To share experiences and network with other organisations the company should engage with well established and recognised programmes or platforms which encourage responsible business practices and CSR activities. This would help companies improve on their CSR strategies and effectively project the image of being socially responsible.
The report also says that the companies should disseminate information on CSR policy, activities and progress in a structured manner to all their stakeholders and the public at large through their website, annual reports and other communication media.
As per the report, companies should respect the interests and be responsive to all stakeholders, including shareholders, employees, customers, suppliers, project affected people, society at large and create value for all of them. They should develop a mechanism to actively engage with all stakeholders, inform them of inherent risks and mitigate them where they occur.
Roadmap for CSR initiatives
Roadmap for CSR initiatives
The Hindu Business Line, December 31, 2009, Page 7
--------------------------------------------------------------------------------
The Ministry of Corporate Affairs has brought out guidelines that identify six core elements as essential to any CSR policy.
--------------------------------------------------------------------------------
The CSR guidelines exhort companies to function ethically.
Mohan R. Lavi
A company recruiting a candidate stated that it was looking for a responsible person, to which the candidate replied that he was the perfect fit as in all his previous organisations whenever something went wrong he was held responsible.
A series of corporate slip-ups over the past 6-7 years have forced regulators to draw up a series of corporate governance measures which were basically rule-based. None of these however tackled the intent behind the slip-up — a wanton desire to mislead shareholders and, thereby, society.
The Ministry of Corporate Affairs (MCA), at the conclusion of the India Governance Week, has come out with Corporate Social Responsibility Voluntary Guidelines 2009 as a partner to its Corporate Governance Guidelines 2009.
Corporate Social Responsibility
The Guidelines open well by stating that each business entity should formulate a CSR policy to guide its strategic planning and provide a roadmap for its CSR initiatives, which should be an integral part of overall business policy and aligned with its business goals.
The policy should be framed with the participation of executives at various levels and be approved by the board. Six core elements have been identified as essential to any CSR policy — care for all stakeholders, ethical functioning, respect for workers' rights and welfare, respect for human rights, respect for environment and activities for social and inclusive development.
Care for all stakeholders is meant to respect the interests of and be responsive towards all stakeholders, including shareholders, employees, customers, suppliers, project affected people, society at large, etc., and create value for all of them. They should develop mechanism to actively engage with all stakeholders, inform them of inherent risks and mitigate them where they occur. Ethical functioning is meant to be that their governance systems should be underpinned by ethics, transparency and accountability. They should not engage in business practices that are abusive, unfair, corrupt or anti-competitive. Also, companies should provide a workplace environment that is safe, hygienic and humane and which upholds the dignity of employees. They should provide all employees with access to training and development of necessary skills for career advancement, on an equal and non-discriminatory basis.
Companies should respect human rights for all and avoid complicity with human rights abuses by them or by third party. Companies should take measures to check and prevent pollution recycle, manage and reduce waste, manage natural resources in a sustainable manner and ensure optimal use of resources such as land and water, proactively respond to the challenges of climate change by adopting cleaner production methods, and promote efficient use of energy and environment friendly technologies.
Finally, the guidelines state what was perceived to be CSR till date — depending on their core competency and business interest — companies should undertake activities for economic and social development of communities and geographical areas, particularly in the vicinity of their operations. These could include education, skill building for livelihood of people, health, cultural and social welfare, etc., particularly targeting at disadvantaged sections of society.
Implementation Guidance
The CSR policy of the business entity should provide for an implementation strategy which should include identification of projects/activities, setting measurable physical targets with timeframe, organisational mechanism and responsibilities, time schedules and monitoring.
Companies should allocate specific amount in their budgets for CSR activities. This amount may be related to profits after tax, cost of planned CSR activities or any other suitable parameter. Companies are also advised to network with other companies on CSR initiatives and disseminate information on CSR policy, activities and progress in a structured manner to all their stakeholders and the public at large through their Web site, annual reports, and other communication media.
A spate of corporate governance guidelines over the past few years have prescribed rules for entities to follow — the CSR guidelines exhort companies to think and act good. Together, they should be a force to reckon with in the years to come.
The Hindu Business Line, December 31, 2009, Page 7
--------------------------------------------------------------------------------
The Ministry of Corporate Affairs has brought out guidelines that identify six core elements as essential to any CSR policy.
--------------------------------------------------------------------------------
The CSR guidelines exhort companies to function ethically.
Mohan R. Lavi
A company recruiting a candidate stated that it was looking for a responsible person, to which the candidate replied that he was the perfect fit as in all his previous organisations whenever something went wrong he was held responsible.
A series of corporate slip-ups over the past 6-7 years have forced regulators to draw up a series of corporate governance measures which were basically rule-based. None of these however tackled the intent behind the slip-up — a wanton desire to mislead shareholders and, thereby, society.
The Ministry of Corporate Affairs (MCA), at the conclusion of the India Governance Week, has come out with Corporate Social Responsibility Voluntary Guidelines 2009 as a partner to its Corporate Governance Guidelines 2009.
Corporate Social Responsibility
The Guidelines open well by stating that each business entity should formulate a CSR policy to guide its strategic planning and provide a roadmap for its CSR initiatives, which should be an integral part of overall business policy and aligned with its business goals.
The policy should be framed with the participation of executives at various levels and be approved by the board. Six core elements have been identified as essential to any CSR policy — care for all stakeholders, ethical functioning, respect for workers' rights and welfare, respect for human rights, respect for environment and activities for social and inclusive development.
Care for all stakeholders is meant to respect the interests of and be responsive towards all stakeholders, including shareholders, employees, customers, suppliers, project affected people, society at large, etc., and create value for all of them. They should develop mechanism to actively engage with all stakeholders, inform them of inherent risks and mitigate them where they occur. Ethical functioning is meant to be that their governance systems should be underpinned by ethics, transparency and accountability. They should not engage in business practices that are abusive, unfair, corrupt or anti-competitive. Also, companies should provide a workplace environment that is safe, hygienic and humane and which upholds the dignity of employees. They should provide all employees with access to training and development of necessary skills for career advancement, on an equal and non-discriminatory basis.
Companies should respect human rights for all and avoid complicity with human rights abuses by them or by third party. Companies should take measures to check and prevent pollution recycle, manage and reduce waste, manage natural resources in a sustainable manner and ensure optimal use of resources such as land and water, proactively respond to the challenges of climate change by adopting cleaner production methods, and promote efficient use of energy and environment friendly technologies.
Finally, the guidelines state what was perceived to be CSR till date — depending on their core competency and business interest — companies should undertake activities for economic and social development of communities and geographical areas, particularly in the vicinity of their operations. These could include education, skill building for livelihood of people, health, cultural and social welfare, etc., particularly targeting at disadvantaged sections of society.
Implementation Guidance
The CSR policy of the business entity should provide for an implementation strategy which should include identification of projects/activities, setting measurable physical targets with timeframe, organisational mechanism and responsibilities, time schedules and monitoring.
Companies should allocate specific amount in their budgets for CSR activities. This amount may be related to profits after tax, cost of planned CSR activities or any other suitable parameter. Companies are also advised to network with other companies on CSR initiatives and disseminate information on CSR policy, activities and progress in a structured manner to all their stakeholders and the public at large through their Web site, annual reports, and other communication media.
A spate of corporate governance guidelines over the past few years have prescribed rules for entities to follow — the CSR guidelines exhort companies to think and act good. Together, they should be a force to reckon with in the years to come.
Retail realty yet to recover fully
Retail realty yet to recover fully
The Economic Times, December 31, 2009, Page 24
PTI MUMBAI
INDIAN retailers may be rejoicing at better sales in the October-December festive season, but a full recovery of the retail real estate sector still hinges on availability of spaces at competitive rates and improvement in consumption, global consultant C B Richard Ellis has said.
“The retail sector will take some time to fully recover, depending on the economic growth or improvement in domestic consumption, consumer sentiment and availability of retail space at competitive costs,” CB Richard Ellis (South Asia) chairman and managing director Anshuman Magazine said in a statement here on Wednesday.
Improving consumer sentiment and competitive retail rentals had, however, resulted in the sector “ambling towards better activity levels, especially in Tier I cities”, he added.
The global real estate consultancy firm also expects an oversupply of new office spaces across the country, which will keep rentals flat in 2010 despite positive indicators that demand for commercial real estate was improving.
“On the office market front, demand is expected to improve although the rentals are expected to remain flat in the medium term due to the forecasted large supply of office space,” Magazine said.
The year 2010 may, however, see “some sustainability in the residential market as activity levels have improved,” he said.
Prices for residential, retail and commercial real estate across the country plummeted in 2009 as a global economic meltdown and tight liquidity froze demand.
Residential sales declined significantly and demand for office spaces saw a substantial drop, triggering a decline in rentals and postponement or cancellation of projects, while retail real estate was also significantly impacted.
However, each of these three segments have witnessed an improvement since the previous year as reduction in prices, softening of interest rates and an improvement in the economic sentiments led buyers back to the market, the consultancy firm said.
MIXED FORECAST
Improving consumer sentiment and competitive retail rentals resulted in the sector ambling towards better activity levels, especially in Tier I cities
On the office market front, demand is expected to improve but global consultant C B Richard Ellis expects rentals to be flat in 2010 on back of oversupply of office spaces.
The Economic Times, December 31, 2009, Page 24
PTI MUMBAI
INDIAN retailers may be rejoicing at better sales in the October-December festive season, but a full recovery of the retail real estate sector still hinges on availability of spaces at competitive rates and improvement in consumption, global consultant C B Richard Ellis has said.
“The retail sector will take some time to fully recover, depending on the economic growth or improvement in domestic consumption, consumer sentiment and availability of retail space at competitive costs,” CB Richard Ellis (South Asia) chairman and managing director Anshuman Magazine said in a statement here on Wednesday.
Improving consumer sentiment and competitive retail rentals had, however, resulted in the sector “ambling towards better activity levels, especially in Tier I cities”, he added.
The global real estate consultancy firm also expects an oversupply of new office spaces across the country, which will keep rentals flat in 2010 despite positive indicators that demand for commercial real estate was improving.
“On the office market front, demand is expected to improve although the rentals are expected to remain flat in the medium term due to the forecasted large supply of office space,” Magazine said.
The year 2010 may, however, see “some sustainability in the residential market as activity levels have improved,” he said.
Prices for residential, retail and commercial real estate across the country plummeted in 2009 as a global economic meltdown and tight liquidity froze demand.
Residential sales declined significantly and demand for office spaces saw a substantial drop, triggering a decline in rentals and postponement or cancellation of projects, while retail real estate was also significantly impacted.
However, each of these three segments have witnessed an improvement since the previous year as reduction in prices, softening of interest rates and an improvement in the economic sentiments led buyers back to the market, the consultancy firm said.
MIXED FORECAST
Improving consumer sentiment and competitive retail rentals resulted in the sector ambling towards better activity levels, especially in Tier I cities
On the office market front, demand is expected to improve but global consultant C B Richard Ellis expects rentals to be flat in 2010 on back of oversupply of office spaces.
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