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.
------------------------------------------
Friday, September 17, 2010
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.
--------------------------------------------------------------------------
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.
--------------------------------------------------------------------------
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.
------------------------------------------------
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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