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, ready made/ instant food powder, mineral water, computer stationary and leather products have been included in manufactured products. We welcome the change.
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Wednesday, March 16, 2011
2011 MAY NOT AS REWARDING FINANCIALLY AS LAST YEAR
The new year has brought lots of hope for everybody. Yet it most market specialists predicted a dormant year for the investor.Should middle class invest or not? It is a big question and we must address the issue with lot of foresight. According to me none should invest this year if they are investing only for two to three years. in case they ar prepared to keep the money aside for at least five years it would be good year to carry out investment programme through systematic investment plan. Although making resolutions to improve your financial situation is a good thing to do at any time of year, many people find it easier at the beginning of a new year. Regardless of when you begin, the basics remain the same. So, let us resolve during the first week of the year that we need to plan for personal financial goal to secure a great future! Though the year 2009 provided very good return on investment and 2010 provided somewhat good return beaware the current year may not as rewarding. Yet we should not stop saving and investment and plan for better tomorrow. The new year has brought lots of hope for everybody. Yet it most market specialists predicted a dormant year for the investor.Should middle class invest or not? It is a big question and we must address the issue with lot of foresight. According to me none should invest this year if they are investing only for two to three years. in case they ar prepared to keep the money aside for at least five years it would be good year to carry out investment programme through systematic investment plan
Make sure you know what your job is worth in the market place. No matter how much or how little you earn, you'll never get ahead if you spend more than you earn. Often it's easier to spend less than it is to earn more, and a little cost-cutting effort in a number of areas can result in big savings. It doesn't always have to involve making big sacrifices. Have you ever thought of how you want to be financially placed in the coming year and not repeat your mistakes? Would you like to be free from debt and still fulfill your goals and dreams? This New Year, resolve to be financially planned and independent, to avoid making the same mistakes you made last year.
According to me, the most important resolve should be to plan for a budget. You need to know how much you are earning and where your Money is going. Unless you budget you would not know where money is going. How can you set spending and saving unless you budget? The most important resolve needs to be to stick to the budget. Keep it in mind not to spend more than you earn in a month. Even do not take a loan to build your house f you have to struggle to pay the Equated Monthly Installment. Spending does not mean only monthly expenses for the family. It includes saving for your retirement, building your own house, own and children’s marriage expenses, education of your children, insurance for security of the family, occasional holiday break, medical care for parents and occasional charity for peace of mind.
The second most important resolve for the year should be to clean the debt. The Credit card debt is the number one obstacle to getting ahead financially. Those little pieces of plastic are so easy to use, and it's so easy to forget that it's real money we're dealing with when we whip them out to pay for a purchase, large or small. Despite our good resolves to pay the balance off quickly, the reality is that we often don't, and end up paying far more for things than we would have paid if we had used cash. Pay the full amount immediately and do not pay in instilments. It is hugely expensive.
If you are a self employed , doctor, advocate or artist, think of a retirement plan. If your are an employee like journalist, private sector employee and have no retirement plan subscribe to NPS or Retirement of Insurance company or Mutual funds. If you're already contributing, try to increase your contribution from 10% to 20%. If your employer doesn't offer a retirement plan, consider NPS, pension plus of L:IC or Templeton pension plan. These are great product.
You've heard it before: Pay yourself first! Before you think of your children’s higher education think of yourself. If you wait until you've met all your other financial obligations before seeing what's left over for saving, chances are you'll never have a healthy savings account or investments. Resolve to set aside a minimum of 5% to 10% of your salary for savings BEFORE you start paying your bills. Better yet, have money automatically deducted from your paycheck and deposited into a separate account. Resolve to invest in tax saving instruments first like PPF, life insurance, NSC and pension funds to maximize your earnings.
If you have a family to support life insurance is a must. If you have none do it this year .To economize your expenses take a term insurance combined with pension plan That would be cost effective now. All self employed persons including traders, contractors and doctors must have Health insurance plan, during the year. Do not ignore illness may strike without notice.
.
Have you written a will? The 90% people of Northeast India don't have a will. If you have dependents, no matter how little or how much you own, you need a will. If your situation isn't too complicated you can even do your own with software like WillMaker from Nolo Press. Protect your loved ones. Write a will. Think of your spouse first even before considering children.
Make financial planning a priority and understand the importance of the same. This will be the first step that will pave the way for you to achieve goals that you and your partner plan to fulfil. Not every want is a need. Distinguish between the two and accordingly plan your finances. A need is a necessity; something that you cannot do without, everything else is a desire or want. If you set out to fulfill every want you have, you will find yourself in a dilemma, as you then won't be able to satisfy the goals and dreams that will make you happy.
Involve your family and children in financial planning. Teach your children the importance of money and planning, as this will lead to greater financial responsibility for them in the future. Discuss and debate your financial goals with your spouse for the coming year as this will help ma king a cohesive plan that will help attaining family goals. Consult a financial planner to begin the process with the entire family.
Be frugal when it comes to spending. You don't always have to buy expensive things all the time. Usually, there is an alternative. Avoid the debt trap. Often, we take loans to finance that big dream house or car without considering the impact of the loan on regular finances. If the burden of the loan becomes too large, you cannot enjoy your life at all, since you will be using your money to only pay off debts/loans.
The path to your financial freedom lies in your hands. So, this New Year, create your own freedom; from the daily hassles of planning your money and watch yourself fulfill your dreams and desires! Remember, failing to plan is planning to fail.
---------------------------------------
Make sure you know what your job is worth in the market place. No matter how much or how little you earn, you'll never get ahead if you spend more than you earn. Often it's easier to spend less than it is to earn more, and a little cost-cutting effort in a number of areas can result in big savings. It doesn't always have to involve making big sacrifices. Have you ever thought of how you want to be financially placed in the coming year and not repeat your mistakes? Would you like to be free from debt and still fulfill your goals and dreams? This New Year, resolve to be financially planned and independent, to avoid making the same mistakes you made last year.
According to me, the most important resolve should be to plan for a budget. You need to know how much you are earning and where your Money is going. Unless you budget you would not know where money is going. How can you set spending and saving unless you budget? The most important resolve needs to be to stick to the budget. Keep it in mind not to spend more than you earn in a month. Even do not take a loan to build your house f you have to struggle to pay the Equated Monthly Installment. Spending does not mean only monthly expenses for the family. It includes saving for your retirement, building your own house, own and children’s marriage expenses, education of your children, insurance for security of the family, occasional holiday break, medical care for parents and occasional charity for peace of mind.
The second most important resolve for the year should be to clean the debt. The Credit card debt is the number one obstacle to getting ahead financially. Those little pieces of plastic are so easy to use, and it's so easy to forget that it's real money we're dealing with when we whip them out to pay for a purchase, large or small. Despite our good resolves to pay the balance off quickly, the reality is that we often don't, and end up paying far more for things than we would have paid if we had used cash. Pay the full amount immediately and do not pay in instilments. It is hugely expensive.
If you are a self employed , doctor, advocate or artist, think of a retirement plan. If your are an employee like journalist, private sector employee and have no retirement plan subscribe to NPS or Retirement of Insurance company or Mutual funds. If you're already contributing, try to increase your contribution from 10% to 20%. If your employer doesn't offer a retirement plan, consider NPS, pension plus of L:IC or Templeton pension plan. These are great product.
You've heard it before: Pay yourself first! Before you think of your children’s higher education think of yourself. If you wait until you've met all your other financial obligations before seeing what's left over for saving, chances are you'll never have a healthy savings account or investments. Resolve to set aside a minimum of 5% to 10% of your salary for savings BEFORE you start paying your bills. Better yet, have money automatically deducted from your paycheck and deposited into a separate account. Resolve to invest in tax saving instruments first like PPF, life insurance, NSC and pension funds to maximize your earnings.
If you have a family to support life insurance is a must. If you have none do it this year .To economize your expenses take a term insurance combined with pension plan That would be cost effective now. All self employed persons including traders, contractors and doctors must have Health insurance plan, during the year. Do not ignore illness may strike without notice.
.
Have you written a will? The 90% people of Northeast India don't have a will. If you have dependents, no matter how little or how much you own, you need a will. If your situation isn't too complicated you can even do your own with software like WillMaker from Nolo Press. Protect your loved ones. Write a will. Think of your spouse first even before considering children.
Make financial planning a priority and understand the importance of the same. This will be the first step that will pave the way for you to achieve goals that you and your partner plan to fulfil. Not every want is a need. Distinguish between the two and accordingly plan your finances. A need is a necessity; something that you cannot do without, everything else is a desire or want. If you set out to fulfill every want you have, you will find yourself in a dilemma, as you then won't be able to satisfy the goals and dreams that will make you happy.
Involve your family and children in financial planning. Teach your children the importance of money and planning, as this will lead to greater financial responsibility for them in the future. Discuss and debate your financial goals with your spouse for the coming year as this will help ma king a cohesive plan that will help attaining family goals. Consult a financial planner to begin the process with the entire family.
Be frugal when it comes to spending. You don't always have to buy expensive things all the time. Usually, there is an alternative. Avoid the debt trap. Often, we take loans to finance that big dream house or car without considering the impact of the loan on regular finances. If the burden of the loan becomes too large, you cannot enjoy your life at all, since you will be using your money to only pay off debts/loans.
The path to your financial freedom lies in your hands. So, this New Year, create your own freedom; from the daily hassles of planning your money and watch yourself fulfill your dreams and desires! Remember, failing to plan is planning to fail.
---------------------------------------
Literacy of investor is a must before starting investment
All investors are not always literate. Even a postgraduate in science, technology and arts may not be well versed in saving and investment. Before starting investment everyone must know where not to invest and where you must invest. Investment is a personal requirements depending on the goals of life. Beside investing in debt instrument it become imperative to invest some money in equity to beat the inflationary pressure. Befo9re jumping into share market all investors must learn to invest in equity through Mutual funds. Investment in equity is a long term requirement. No investment in equity should be done for short term. This is my sincere advice to keep away from Share market in March 2011 as a big fall is eminent. Let the fall start and stablise at lower value of Sensex and Nifty. Then investment should be done through Systematic Investment Route
We all tend to look at the returns of the mutual fund before taking a decision to invest our hard-earned money in it. The returns actually denote the appreciation/depreciation of the NAV of the fund. Unfortunately, NAV (Net Asset Value) of the fund is grossly misunderstood. Here we attempt to clear the myth surrounding NAV. More and more people have started investing in Mutual funds now a days. This is a good habit. But generally many investors make mistake by choosing low NAV product thinking that lower the the NAV greater is the return. This is a wrong perception. The NAV of a mutual fund is grossly misunderstood by the investors as well as the mutual fund distributors.The Low NAV does not indicate the fund is cheap, nor does it impact the returns in any way. So always remember this when selecting fund for investment. Rather focus on the quality of fund, which will greatly impact your returns. Always choose a fund house with long standing history of dividend and growth.Whenever a new fund is launched it cannot have past record or history of performance hence it is always better to rely on old faithfully fund who have done reasonably well over the years. Many investors subscribe to the new fund thinking low NAV is highly prized unit. It is not correct. It is to be understood that even high NAV might give better return most of the time. What is more important is to choose such a fund who have given consistent returns months after month and year after year.
The NAV or Net Asset Value is the aggregate of the market price of all the shares contained in the portfolio, inclusive of cash after deducting the liabilities divided by the sum of units issued. It can also be called as the book value of the unit of the fund.
NAV = sum of the shares in portfolio + cash - liabilities / sum of units issued .
Many people tend to think that the fund with low NAV is much cheaper than the NAV of fund with higher NAV. So people tend to think that if a fund has a NAV of Rs. 50, it is cheaper than the similar fund with the NAV of Rs. 80. This misconception stems from the fact that most people tend to equate NAV with the market price of the share. As a result, there have been instances when people have redeemed their investments in well performing funds to invest in NFOs. Even many mutual fund salesmen tend to mislead people by telling them that funds with low NAV are cheaper than those with high NAVs, thus enticing them to invest in the funds that they are selling.
There is a big difference between NAV of mutual fund and market price of the share market. In case of the share of the company, its market price is decided by the stock exchange. While deciding the price of the share, the company fundamentals, view of the company’s future performance and the demand-supply situation. Due to this, the market price of the share normally differs from its book value. But in case of a mutual fund, the concept of market value is absent. So when you purchase mutual fund units, you are buying at NAV, which is simply the book value. So it implies you are paying the correct price of the assets. This price could be Rs. 50 or Rs. 500, but the concept of higher or lower price is non-existent.
While it is commonly believed that funds with lower NAVs will yield better returns, it is not true. Suppose there are 2 funds, with NAVs of Rs. 50 and Rs. 100 respectively. You invest Rs. 1000 in both of them. So you get 20 and 10 units respectively. Assume both the funds give a return of 50% after one year. So the new NAVs of these funds become Rs. 75 and Rs. 150 respectively. Now the value of your investment in first fund becomes Rs. 1500 and that in the second fund also becomes Rs. 1500. Hence the returns in both the cases are same, irrespective of the NAV of the fund. Instead, it the quality of fund that will greatly impact your returns.
NAV of a mutual fund is grossly misunderstood by the investors as well as the mutual fund. Low NAV does not indicate the fund is cheap, nor does it impact the returns in any way. So always remember this when selecting fund for investment. Rather focus on the quality of fund, which will greatly impact your return.
The mutual fund is a good way of developing investment habits.Always mutual fund should be bought in terms of their star rating and not in the recommendation of brokers.Always depend on the recommendation of your advisers. But the best thing is to study and decide what is good for you. Always buy diversified mutual fund instead of thematic funds. Some time thematic funds give high return .The power sector once gave very high return but suddenly it might come down. The wise decision would be to rely on the value analysis of the rating agencies.The most neutral and wise agencies are Value research.com and Money control .com. Before investing study their rating and take a conscious decision. We need to keep it in mind low NAV don't provide us the scope of high return always!
-----------------------------------
We all tend to look at the returns of the mutual fund before taking a decision to invest our hard-earned money in it. The returns actually denote the appreciation/depreciation of the NAV of the fund. Unfortunately, NAV (Net Asset Value) of the fund is grossly misunderstood. Here we attempt to clear the myth surrounding NAV. More and more people have started investing in Mutual funds now a days. This is a good habit. But generally many investors make mistake by choosing low NAV product thinking that lower the the NAV greater is the return. This is a wrong perception. The NAV of a mutual fund is grossly misunderstood by the investors as well as the mutual fund distributors.The Low NAV does not indicate the fund is cheap, nor does it impact the returns in any way. So always remember this when selecting fund for investment. Rather focus on the quality of fund, which will greatly impact your returns. Always choose a fund house with long standing history of dividend and growth.Whenever a new fund is launched it cannot have past record or history of performance hence it is always better to rely on old faithfully fund who have done reasonably well over the years. Many investors subscribe to the new fund thinking low NAV is highly prized unit. It is not correct. It is to be understood that even high NAV might give better return most of the time. What is more important is to choose such a fund who have given consistent returns months after month and year after year.
The NAV or Net Asset Value is the aggregate of the market price of all the shares contained in the portfolio, inclusive of cash after deducting the liabilities divided by the sum of units issued. It can also be called as the book value of the unit of the fund.
NAV = sum of the shares in portfolio + cash - liabilities / sum of units issued .
Many people tend to think that the fund with low NAV is much cheaper than the NAV of fund with higher NAV. So people tend to think that if a fund has a NAV of Rs. 50, it is cheaper than the similar fund with the NAV of Rs. 80. This misconception stems from the fact that most people tend to equate NAV with the market price of the share. As a result, there have been instances when people have redeemed their investments in well performing funds to invest in NFOs. Even many mutual fund salesmen tend to mislead people by telling them that funds with low NAV are cheaper than those with high NAVs, thus enticing them to invest in the funds that they are selling.
There is a big difference between NAV of mutual fund and market price of the share market. In case of the share of the company, its market price is decided by the stock exchange. While deciding the price of the share, the company fundamentals, view of the company’s future performance and the demand-supply situation. Due to this, the market price of the share normally differs from its book value. But in case of a mutual fund, the concept of market value is absent. So when you purchase mutual fund units, you are buying at NAV, which is simply the book value. So it implies you are paying the correct price of the assets. This price could be Rs. 50 or Rs. 500, but the concept of higher or lower price is non-existent.
While it is commonly believed that funds with lower NAVs will yield better returns, it is not true. Suppose there are 2 funds, with NAVs of Rs. 50 and Rs. 100 respectively. You invest Rs. 1000 in both of them. So you get 20 and 10 units respectively. Assume both the funds give a return of 50% after one year. So the new NAVs of these funds become Rs. 75 and Rs. 150 respectively. Now the value of your investment in first fund becomes Rs. 1500 and that in the second fund also becomes Rs. 1500. Hence the returns in both the cases are same, irrespective of the NAV of the fund. Instead, it the quality of fund that will greatly impact your returns.
NAV of a mutual fund is grossly misunderstood by the investors as well as the mutual fund. Low NAV does not indicate the fund is cheap, nor does it impact the returns in any way. So always remember this when selecting fund for investment. Rather focus on the quality of fund, which will greatly impact your return.
The mutual fund is a good way of developing investment habits.Always mutual fund should be bought in terms of their star rating and not in the recommendation of brokers.Always depend on the recommendation of your advisers. But the best thing is to study and decide what is good for you. Always buy diversified mutual fund instead of thematic funds. Some time thematic funds give high return .The power sector once gave very high return but suddenly it might come down. The wise decision would be to rely on the value analysis of the rating agencies.The most neutral and wise agencies are Value research.com and Money control .com. Before investing study their rating and take a conscious decision. We need to keep it in mind low NAV don't provide us the scope of high return always!
-----------------------------------
PERSONAL TAXATION AND SENIOR CITIZEN
The expectations that there will be changes in the taxation avenues and their slabs, in the recent budget , have not been met. The Union Budget 2011-12 has given a marginal benefit on the tax slab for individuals. However, unexpectedly the benefits for very senior citizens are much higher.
The basic slab for income tax has been proposed to be raised to Rs 1.8 lakh (Rs 180,000) from the current Rs 1.6 lakh (Rs 160,000). This leads to a savings of Rs 2,000 for all tax payers. Yet most of the taxpayers are not a happier lot today.
Also for senior citizens the slab has been increased from Rs 2.4 lakh (Rs 240,000) to Rs 2.5 lakh (Rs 250,000).
The slab for women has not been changed from the earlier Rs 1.9 lakh (Rs 190,000). Though the finance Minister did not mention this in his Budget Speech, this has been included in the documents submitted along with the budget statement.
For the first time the finance ministry has aligned with other departments and has reduced the age for senior citizens from 65 years to 60 years. All the people who are in the verge of retirement and who are bellow sixty-five years of age are very happy. The Finance Minister has brought parity in finance bill this year redefining the age of senior citizen. For all other purpose the age for senior citizen was already considered as sixty save and except in Finance bill. Till now the age for senior citizens has been 60 for all departments (think about railway ticket booking, and senior citizens fixed deposit at banks) except the Income Tax Department.
Also the finance minister has created a new slab for Very Senior Citizens -- for people who are aged eighty years and above. The income tax exemption limit proposed for this group is Rs 5 lakh (Rs 500,000). T^his is an useless exercise for there are very few tax payers of significance above Eight years. It would have been real beneficial if this benefit could have started at 75 years. Alternately limit of benefit could have been staggered for senior citizens at the rate Rs. Two lakh fifty thousand at Sixty years, Rs. Three lakh from 70 years, Rs Four Lakh from 75 years and Rs Five lakh for 80 years and above. A little practicale approach would have helped one of the largest segment of gray citizen of the society.
The finance minister has not proposed to change any of the tax savings instruments this year before the DTC gets implemented next year. This is understandable .
The investment in infrastructure bonds upto Rs 20,000 over and above the Rs 1 lakh (Rs 100,000) limit in Section 80C, which was introduced last year, continues for the next year too.
The finance minister has proposed to allow selected government undertakings to borrow up to Rs 30,000 crore (Rs 300 billion) for the development of infrastructure.
These borrowings will be in the form of tax free bonds. Individuals can look to investing in these bonds for tax free returns. The limits set for different government organizations are: Railway Finance Corporation -- Rs 10,000 crore (Rs 100 billion); National Highways Authority of India -- Rs 10,000 crore (Rs 100 billion); HUDCO -- Rs 5,000 crore (Rs 50 billion) and Ports -- Rs 5,000 crore (Rs 50 billion).
For self employed professionals and small business people, the process of doing an audited filing is very time consuming.
The finance minister has recognised this and has extended the limit of self assessment to Rs 60 lakh (Rs 6 million). This will be a big relief to many professionals and proprietorship companies.
To extend the benefit further, the finance minister has proposed to forgo the interest penalty on delayed filing of taxes to an extent of 3%.
Though there were many expectations in the personal income tax front from the budget, the finance minister has been docile in not changing much.
There have not been any significant changes either in the personal income tax slabs or in tax saving avenues.
However introduction of the very senior citizen category and reducing the age for the senior citizens' slab are welcome measures. We felt instead of the giving tax benefit to eighty years and above the finance Minister could have given all the citizen two important benefits. Those benefits are higher tax benefit on the policy of Health Insurance p remium and secondly one percent higher return on deposit of PPF. If Government of India can concede to pay higher interst rate to EPF and GPF why not they can consider the case of senior citizens subscribing to PPF. Perhaps vast majority of senior citizens of country do not have a common platform to raise their weak voice.
----------------------------------------------------------
The basic slab for income tax has been proposed to be raised to Rs 1.8 lakh (Rs 180,000) from the current Rs 1.6 lakh (Rs 160,000). This leads to a savings of Rs 2,000 for all tax payers. Yet most of the taxpayers are not a happier lot today.
Also for senior citizens the slab has been increased from Rs 2.4 lakh (Rs 240,000) to Rs 2.5 lakh (Rs 250,000).
The slab for women has not been changed from the earlier Rs 1.9 lakh (Rs 190,000). Though the finance Minister did not mention this in his Budget Speech, this has been included in the documents submitted along with the budget statement.
For the first time the finance ministry has aligned with other departments and has reduced the age for senior citizens from 65 years to 60 years. All the people who are in the verge of retirement and who are bellow sixty-five years of age are very happy. The Finance Minister has brought parity in finance bill this year redefining the age of senior citizen. For all other purpose the age for senior citizen was already considered as sixty save and except in Finance bill. Till now the age for senior citizens has been 60 for all departments (think about railway ticket booking, and senior citizens fixed deposit at banks) except the Income Tax Department.
Also the finance minister has created a new slab for Very Senior Citizens -- for people who are aged eighty years and above. The income tax exemption limit proposed for this group is Rs 5 lakh (Rs 500,000). T^his is an useless exercise for there are very few tax payers of significance above Eight years. It would have been real beneficial if this benefit could have started at 75 years. Alternately limit of benefit could have been staggered for senior citizens at the rate Rs. Two lakh fifty thousand at Sixty years, Rs. Three lakh from 70 years, Rs Four Lakh from 75 years and Rs Five lakh for 80 years and above. A little practicale approach would have helped one of the largest segment of gray citizen of the society.
The finance minister has not proposed to change any of the tax savings instruments this year before the DTC gets implemented next year. This is understandable .
The investment in infrastructure bonds upto Rs 20,000 over and above the Rs 1 lakh (Rs 100,000) limit in Section 80C, which was introduced last year, continues for the next year too.
The finance minister has proposed to allow selected government undertakings to borrow up to Rs 30,000 crore (Rs 300 billion) for the development of infrastructure.
These borrowings will be in the form of tax free bonds. Individuals can look to investing in these bonds for tax free returns. The limits set for different government organizations are: Railway Finance Corporation -- Rs 10,000 crore (Rs 100 billion); National Highways Authority of India -- Rs 10,000 crore (Rs 100 billion); HUDCO -- Rs 5,000 crore (Rs 50 billion) and Ports -- Rs 5,000 crore (Rs 50 billion).
For self employed professionals and small business people, the process of doing an audited filing is very time consuming.
The finance minister has recognised this and has extended the limit of self assessment to Rs 60 lakh (Rs 6 million). This will be a big relief to many professionals and proprietorship companies.
To extend the benefit further, the finance minister has proposed to forgo the interest penalty on delayed filing of taxes to an extent of 3%.
Though there were many expectations in the personal income tax front from the budget, the finance minister has been docile in not changing much.
There have not been any significant changes either in the personal income tax slabs or in tax saving avenues.
However introduction of the very senior citizen category and reducing the age for the senior citizens' slab are welcome measures. We felt instead of the giving tax benefit to eighty years and above the finance Minister could have given all the citizen two important benefits. Those benefits are higher tax benefit on the policy of Health Insurance p remium and secondly one percent higher return on deposit of PPF. If Government of India can concede to pay higher interst rate to EPF and GPF why not they can consider the case of senior citizens subscribing to PPF. Perhaps vast majority of senior citizens of country do not have a common platform to raise their weak voice.
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WOULD GOLD RULE THE WORLD ALSO IN FUTURE
The Gold at present rules the monetary system of the world only indirectly. All the countries though depend on the deposit of gold in their vault to produce legal tender required by them yet pure gold standard is almost obsolete now.. The world has abandoned the gold standard in favour of so-called "paper money," and only a diminishing group on the far right continues to call for its return. However, if mainstream economists (on both the left and the right) have anything to say about it, there will never be a return to "that barbarous relic," as John Maynard Keynes called gold over 60 years ago. However, many countries buy and sale gold as the situation demands. India once sold out their Gold deposit to meet the monetary contingency and recently it did buy gold twice from Russia to strengthen its power to produce more legal tender. Though there are costlier commodities like diamond and platinum yet only Gold has become synonym with power. The Gold has reached this position of strength due to both practical and psychological value. Many people also relate with Gold better than any other commodities. If Gold is require by most nations, it is also favorites of vast number of Indian population
Now, the questions arises whether buying of Gold is a better personal investment strategy as the share market is not doing well for sometime now. On the contrary the gold prices have steadily gone up. Many investors have asked whether to buy Gold coins or Gold ETF... I always recommended individual citizens that for investment purpose the buying of GOLD ETF is better than buying solid Gold. It remains secure at least cost. But in case of marriage and life style enhancement, it is better to buy solid Gold.
Now, it is quite likely that most advisers do brief investors that gold prices never fall; it is an ultra safe investment. The countries around the world have positioned their currencies on Gold exchange parity by printing money, therefore gold will never fall in value, and by virtue of these operation gold ETF is risk free. But, you need to be aware that these are merely opinions.
It is surely a fact that Gold prices could continue to rise, or they can drop like a stone.Investors can make money, but they can lose money as well. However, most times investors would make money – of course with moderate gains. It cannot match the return of equity in long run. So individual investors can invest in Gold only about 10% to 15% of your total investment portfolio
How much profit should be expected from Gold over a period of five years? My wild guess is 10% to 18%.The history and statistics told us that in ten years equity and art form are the best investment followed by houses and Gold.
There are several gold ETF in our country. With the exception of Quantum – 1 unit of every gold ETF represents 1 gram of gold. If that’s the case then why does the price of these gold ETFs differ?
Gold ETF owns Gold, debt and other liquid instruments and cash. The combined value of these assets divided by the number of units in the gold ETF constitutes the NAV of the ETF. The NAV of gold ETF can be seen on its website, so you can see that the Benchmark gold ETF GOLDBEES had a NAV of 20000 in March 2011 .However, since an ETF trades in the stock exchange and there is a different price at every tick the price of the ETF can be different from its NAV. The NSE website shows that the last traded price on that day for GOLDBEES was Rs.20010/-
This means that the ETF was going at a discount of about Rs. 10 at that point. There are big market participants who are engaged in actively trading the ETF to bring the market price closer to the NAV and gain from any arbitrage opportunities available.
All ETFs have expenses that are paid out by selling gold holdings or using the income from their debt holdings, so although theoretically one unit of gold ETF represents a gram of gold – in reality the gold holdings are slightly lower due to the expenses. The higher the expenses, the lower would be the NAV, and consequently the trading price of the ETF.
A good example of this is the Reliance gold ETF which had a NAV of 1920.20 on 13th Feb 2011, and was trading at Rs. 1913 on that date.So, expenses eat into the NAV of the various ETFs, and affect their prices.
This question keeps popping up from time to time which is the best gold ETF in India. According to me right now the Gold BeeS ETF from Benchmark Funds has the lowest expense ratio of 1%. Quantum Funds comes second with 1.25%. All the other funds charge higher expenses. The lower the expenses – the better it is because it leaves more on the table for investors.
I found that – Gold BeeS, which has the lowest expenses, also has the highest volume, and by a large margin too. If I had to invest in a Gold ETF – it would be this. In case someone does not have d’mat account then he should buy Gold funds from HDFC, Reliance or UTI. He can also think of buying Gold Coins as well from banks. However, the bank don’t buy back Gold. Investors need to sale it to Jewelers at lower than market cost despite its great purity.
Continued international depression has made Gold a hero presently. But a time may come when countries may not be required to depend on GOLD for their monetary policies a new commodity may take its place in future. What would be that product is not known to anyone yet. So the gold bugs would have to resolve historical and theoretical challenges of King-Midas proportions before they could ever reinstate the gold standard. But if a workable gold standard requires a tremendous amount of design, effort, regulation and safeguards, we might as well use fiat money, which is already simple and enjoys a successful track record.
Now, the questions arises whether buying of Gold is a better personal investment strategy as the share market is not doing well for sometime now. On the contrary the gold prices have steadily gone up. Many investors have asked whether to buy Gold coins or Gold ETF... I always recommended individual citizens that for investment purpose the buying of GOLD ETF is better than buying solid Gold. It remains secure at least cost. But in case of marriage and life style enhancement, it is better to buy solid Gold.
Now, it is quite likely that most advisers do brief investors that gold prices never fall; it is an ultra safe investment. The countries around the world have positioned their currencies on Gold exchange parity by printing money, therefore gold will never fall in value, and by virtue of these operation gold ETF is risk free. But, you need to be aware that these are merely opinions.
It is surely a fact that Gold prices could continue to rise, or they can drop like a stone.Investors can make money, but they can lose money as well. However, most times investors would make money – of course with moderate gains. It cannot match the return of equity in long run. So individual investors can invest in Gold only about 10% to 15% of your total investment portfolio
How much profit should be expected from Gold over a period of five years? My wild guess is 10% to 18%.The history and statistics told us that in ten years equity and art form are the best investment followed by houses and Gold.
There are several gold ETF in our country. With the exception of Quantum – 1 unit of every gold ETF represents 1 gram of gold. If that’s the case then why does the price of these gold ETFs differ?
Gold ETF owns Gold, debt and other liquid instruments and cash. The combined value of these assets divided by the number of units in the gold ETF constitutes the NAV of the ETF. The NAV of gold ETF can be seen on its website, so you can see that the Benchmark gold ETF GOLDBEES had a NAV of 20000 in March 2011 .However, since an ETF trades in the stock exchange and there is a different price at every tick the price of the ETF can be different from its NAV. The NSE website shows that the last traded price on that day for GOLDBEES was Rs.20010/-
This means that the ETF was going at a discount of about Rs. 10 at that point. There are big market participants who are engaged in actively trading the ETF to bring the market price closer to the NAV and gain from any arbitrage opportunities available.
All ETFs have expenses that are paid out by selling gold holdings or using the income from their debt holdings, so although theoretically one unit of gold ETF represents a gram of gold – in reality the gold holdings are slightly lower due to the expenses. The higher the expenses, the lower would be the NAV, and consequently the trading price of the ETF.
A good example of this is the Reliance gold ETF which had a NAV of 1920.20 on 13th Feb 2011, and was trading at Rs. 1913 on that date.So, expenses eat into the NAV of the various ETFs, and affect their prices.
This question keeps popping up from time to time which is the best gold ETF in India. According to me right now the Gold BeeS ETF from Benchmark Funds has the lowest expense ratio of 1%. Quantum Funds comes second with 1.25%. All the other funds charge higher expenses. The lower the expenses – the better it is because it leaves more on the table for investors.
I found that – Gold BeeS, which has the lowest expenses, also has the highest volume, and by a large margin too. If I had to invest in a Gold ETF – it would be this. In case someone does not have d’mat account then he should buy Gold funds from HDFC, Reliance or UTI. He can also think of buying Gold Coins as well from banks. However, the bank don’t buy back Gold. Investors need to sale it to Jewelers at lower than market cost despite its great purity.
Continued international depression has made Gold a hero presently. But a time may come when countries may not be required to depend on GOLD for their monetary policies a new commodity may take its place in future. What would be that product is not known to anyone yet. So the gold bugs would have to resolve historical and theoretical challenges of King-Midas proportions before they could ever reinstate the gold standard. But if a workable gold standard requires a tremendous amount of design, effort, regulation and safeguards, we might as well use fiat money, which is already simple and enjoys a successful track record.
Friday, February 18, 2011
exhorbitant prices may de-stabilise socio-politcal situation
There is a strong possibility that the rising inflation may destabilize socio-political situation of the country sooner than later. Soaring onion and other vegetables’ prices led to a sharp rise in inflation at 18.32 per cent for the week ended December 25, a development that may prompt the Reserve Bank to tighten monetary policy to check further escalation in commodity costs.
Food inflation jumped up by 3.88 percentage points from 14.44 per cent recorded in the previous reporting week, and edged closer to the high level of 19.90 per cent, last witnessed a year ago. The rise in food inflation has been mainly on account of 58.58 per cent rise in prices of vegetables in the wholesale market. While the average inflation on National level is around 19% the actual rte of inflation in North-east is more than 20% already. Our research revealed that cost of food products in Assam are much higher than in Kolkata , Madras and Hyderabad and marginally higher even than in Delhi and Bombay. Tinsukia district is the costliest district in food prices followed by Guwahati and Jorhat. While the cost of Onions in Kolkata is around Rs 55 a kg it is Rs 70 in guwahati.
Among the individual items, onion became dearer by 82.47 per cent on annual basis, while egg, meat and fish became costlier by 20.83 per cent, fruits by 19.99 per cent and milk by 19.59 per cent. The data further reveals that onion prices during the one week period ending December 25, rose by 23.01 per cent in the wholesale market. With food inflation accelerating, RBI may take more measures in its forthcoming quarterly review of the monetary policy on January 25. The central bank during 2010 had raised short-term key policy rates six times to
tame inflation. Meanwhile, in the non-food category, the prices of fibers and minerals have climbed by 35.53 per cent and 30.58 per cent, respectively.
Rising food prices will reflect on the monthly inflation data for December, scheduled for announcement on January 14. The overall inflation in November had come down to 7.75 per cent from 8.58 per cent a month ago but all indication now reflect that overall inflation during January 2011 would be much higher.
We have earlier also pointed out that it would be almost impossible to control inflation just by increasing the interest rate by RBI to contai9n money supply. The supply side must be tackled by Government effectively. During September itself it was known that that onion cultivation in Saurastra belt have failed. It was the responsibility of the Government to make necessary arrangement to import onions then itself. Should Agriculture Ministry took required steps on time present impasse would not have occurred.
A Minister of Government of India has commented that the basic inflation has been effected due to rise in price of Onion. Now it is impossible to take reform measures in diesel and gas. We are not convinced at all. Some time back it was crude oil which brought in inflation. Today Onion is the product which created inflation. Tomorrow it would be Metal and Dafter it would be milk that would create widespread inflation, if arguments of the Government is to be believed.
According to us inflation has been created due to Management failure of the government to maintain steady supply of commodities with proper planning. We should not forget the lesson of Indonesia that due to uncontrolled food inflation some years ago there was a great political upheaval and Suhurto had to abandon his position as the president. If inflation keeps on rising gneraly peace loving Indians may rise in revolt bringing in political uncertainty.
We appreciate the views of Kaushik Basu when he said that the increase in prices has tyo be tackled.True. But we cannot tackle it with blunt instruments; “it will lead to slowdown in Growth.” But what is way out ? Even if RBI increases the rate of interest to tackle inflation that would not result in better supply of onions. Pakistan is unreliable supplier. Then what is the way out? Either Government has to find out alternative source or people in general must stop depending on onions. After all onion is only a spice and garnishing and enriching agents for curries .It is not a food item like cereals and pulses. Onions do not stop hunger. Possible steps include price controls, subsidies for shoppers, a crackdown on hoarding and price gouging as well as a system where District Magistrates are made responsible for supply of a basket of food items. There are many people who avoid onions. Even mostly 65% population of Northeast does not usually use onions in their food preparation. It is impossible to understand how rise in price of onion can usher in general inflation of the basic products, as claimed by the central Government.
As a long term policy, we need to take a number of steps to improve the health of our economy. On top is the introduction of modern farming technologies, revamping of the public distribution system to do away with the loopholes which lead to pilferages and tackling subsides which take away a large portion of our revenues. Blaming non availability of onion, due crop failure, is only an excuse. The government lacked foresight in this instance. All this calls for strong foresight, planning for better implementation of economic reforms that need to be undertaken sooner than later.
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Food inflation jumped up by 3.88 percentage points from 14.44 per cent recorded in the previous reporting week, and edged closer to the high level of 19.90 per cent, last witnessed a year ago. The rise in food inflation has been mainly on account of 58.58 per cent rise in prices of vegetables in the wholesale market. While the average inflation on National level is around 19% the actual rte of inflation in North-east is more than 20% already. Our research revealed that cost of food products in Assam are much higher than in Kolkata , Madras and Hyderabad and marginally higher even than in Delhi and Bombay. Tinsukia district is the costliest district in food prices followed by Guwahati and Jorhat. While the cost of Onions in Kolkata is around Rs 55 a kg it is Rs 70 in guwahati.
Among the individual items, onion became dearer by 82.47 per cent on annual basis, while egg, meat and fish became costlier by 20.83 per cent, fruits by 19.99 per cent and milk by 19.59 per cent. The data further reveals that onion prices during the one week period ending December 25, rose by 23.01 per cent in the wholesale market. With food inflation accelerating, RBI may take more measures in its forthcoming quarterly review of the monetary policy on January 25. The central bank during 2010 had raised short-term key policy rates six times to
tame inflation. Meanwhile, in the non-food category, the prices of fibers and minerals have climbed by 35.53 per cent and 30.58 per cent, respectively.
Rising food prices will reflect on the monthly inflation data for December, scheduled for announcement on January 14. The overall inflation in November had come down to 7.75 per cent from 8.58 per cent a month ago but all indication now reflect that overall inflation during January 2011 would be much higher.
We have earlier also pointed out that it would be almost impossible to control inflation just by increasing the interest rate by RBI to contai9n money supply. The supply side must be tackled by Government effectively. During September itself it was known that that onion cultivation in Saurastra belt have failed. It was the responsibility of the Government to make necessary arrangement to import onions then itself. Should Agriculture Ministry took required steps on time present impasse would not have occurred.
A Minister of Government of India has commented that the basic inflation has been effected due to rise in price of Onion. Now it is impossible to take reform measures in diesel and gas. We are not convinced at all. Some time back it was crude oil which brought in inflation. Today Onion is the product which created inflation. Tomorrow it would be Metal and Dafter it would be milk that would create widespread inflation, if arguments of the Government is to be believed.
According to us inflation has been created due to Management failure of the government to maintain steady supply of commodities with proper planning. We should not forget the lesson of Indonesia that due to uncontrolled food inflation some years ago there was a great political upheaval and Suhurto had to abandon his position as the president. If inflation keeps on rising gneraly peace loving Indians may rise in revolt bringing in political uncertainty.
We appreciate the views of Kaushik Basu when he said that the increase in prices has tyo be tackled.True. But we cannot tackle it with blunt instruments; “it will lead to slowdown in Growth.” But what is way out ? Even if RBI increases the rate of interest to tackle inflation that would not result in better supply of onions. Pakistan is unreliable supplier. Then what is the way out? Either Government has to find out alternative source or people in general must stop depending on onions. After all onion is only a spice and garnishing and enriching agents for curries .It is not a food item like cereals and pulses. Onions do not stop hunger. Possible steps include price controls, subsidies for shoppers, a crackdown on hoarding and price gouging as well as a system where District Magistrates are made responsible for supply of a basket of food items. There are many people who avoid onions. Even mostly 65% population of Northeast does not usually use onions in their food preparation. It is impossible to understand how rise in price of onion can usher in general inflation of the basic products, as claimed by the central Government.
As a long term policy, we need to take a number of steps to improve the health of our economy. On top is the introduction of modern farming technologies, revamping of the public distribution system to do away with the loopholes which lead to pilferages and tackling subsides which take away a large portion of our revenues. Blaming non availability of onion, due crop failure, is only an excuse. The government lacked foresight in this instance. All this calls for strong foresight, planning for better implementation of economic reforms that need to be undertaken sooner than later.
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What to expect from Union budget 2011
While the Finance Ministry gives the final touches to the country's biggest financial planning exercise, people in general are anguish over the government's inability to tackle inflation, bring back black money banked overseas and keep fiscal deficit in check.
The Finance Minister no doubt has a tough job on hand to bring down inflation, curtail the rising fiscal deficit and at the same time ensure that the economic growth is on track while withdrawing the stimulus measures.
Double-digit inflation rates have stayed on for two years. Food inflation is at all-time highs. Will the Budget offer any respite to the common man? Does the Budget have a solid plan for India's one billion-plus population?
With mounting pressure on inflation, the government will take steps to bring down prices. The government has already deferred price hike in diesel as it can impact prices of essential commodities.
The ban on onion export has already brought down the prices. With more sops for agriculture sector, the government will focus on increasing productivity and balance the demand-supply chain.
Food inflation, which is at a record high of 17 per cent in January, will fall further as the government will take steps to ease supply constraints, Finance Minister Pranab Mukherjee said recently.
Led by a smart recovery in farm output, the economic growth rate for the current financial year stands at 8.6 per cent, as against 8 per cent a year ago.
Agriculture and allied activities are likely to grow at 5.4 per cent in 2010-11, compared to just 0.4 per cent in 2009-10, according to Advance Estimates released by the Central Statistical Organisation. The ban on onion export has already brought down the prices. With more sops for agriculture sector, the government will focus on increasing productivity and balance the demand-supply chain. Onion cultivators of Nasik protesting on the ban of onion export as the whole sale price has crashed to Rs 12 per kg. According to a few Economists, the economy may grow by 8.5 per cent despite rising inflation. The ban is going to be lifted soon. While contribution of agriculture to the gross domestic product (GDP) is 14.6 per cent, about 65 per cent of the population was dependent on it. Hence, it may get more Budgetary push for increasing productivity.
The funding may go to areas of research, as for a long time there has been little improvement in terms of new strains of crops, an official in the finance ministry said.
The agriculture sector is also anticipating tax benefits on import of agricultural tools and other mechanization equipment. The Budget will unveil several measures to boost infrastructure projects and further strengthen the economic growth.
The income tax would remain the same as is now. Currently, income between Rs 1.6-5 lakh (Rs 160,000-500,000) attracts 10 per cent tax; Rs 5-8 lakh (Rs 500,000-800,000)20 per cent and beyond Rs 8 lakh 30 per cent.
The government is likely to retain these rates and wait for DTC Act to come into force from April 1, 2012. Since it is also in talks with states to bring Goods and Services Tax from the same date, the government might also not change indirect tax rates.
However, it may tinker with threshold limit. The lower income group may get more relief.
The software industry has been hit by the double taxation issue on software packages.
This Budget is likely to bring cheer to the software industry by rationalizing the tax structure.
The imposition of service tax and countervailing duty for software packages sold with licenses is a deterrent for software companies.
In 2010, the Budget introduced conditional exemptions from countervailing duty or excise duty on the import/manufacture of packaged software if the importer/manufacturer is registered for service tax.
The Indian IT industry has sought extension of tax benefits under STPI and simplification of the tax structure to encourage investments in the sector, among others as part of its budget wish-list. Big incentives await Small and Medium industries. The most of the enterprises of Northeast are in small and medium sectors as such entrepreneurs of North east may be able to reap benefit in terms of cheaper finance.
The $76 billion software industry has requested the government to extend the Software Technology Parks of India (STPI) scheme till the Direct Tax Code (DTC), which is under consideration, is implemented.
RBI is considering allowing new private sector banks, including participation by big industrial houses. A roadmap for the same could be announced in the annual Union Budget to be presented later this month.
While the formal and final guidelines would be announced by the Reserve Bank of India on who should be allowed to set up new banks and what should be the terms and conditions for them, a roadmap on the subject could be announced in the Budget speech on February 28 by Finance Minister Pranab Mukherjee, according a knowledgeable circle of Economists In his Budget speech last year, Mukherjee had said that there was a need for extending the geographic coverage of banks and improving access to banking services.
To mobile better resources, the government will tighten service tax regime and remove loopholes in sectors like construction, oil and gas, telecom and construction. The government is also planning to bring many new services under the tax regime.
In view of the present inflationary pressures in a difficult macroeconomic environment, it is likely that the rate of basic customs duty, could be brought down.
Surely, the present duty structure on oil will undergo changes, given the present high prices and the significant quantities of oil imports. In any event, median customs duties must be brought down, if we are to reach ASEAN levels in the near future.
Higher education is likely to get a big boost in the Budget. The finance Ministry has been asked to double the budgetary allocation for the higher education to over Rs 30,000 crore (Rs 300 billion) in 2011-12. by the party in power.
Sarva Shiksha Abhiyan, which has turned into a vehicle for implementing the Right to Education, has already got a boost in funding, as the Centre's share of funds has increased to 65 per cent from 50 per cent.
So, this year again, the allocation may see a slight increase from the Rs 31,000-crore (Rs 310 billion) allocation in 2010-11.It likely to get a 20 per cent increase each over their 2010-11 Budget allocations.
The government is likely to remove the loopholes in international taxation to add more money to the exchequer.
Black money has become a major headache for the government. With millions of dollars stashed away in foreign banks, Indian government is under pressure to stop the flow of money to tax havens. The Budget will bring about tax and administrative changes.The labour ministry may get a higher allocation for various programmes like the much-publicised health insurance for the poor.
Though social sector spending will continue to be the government's top priority with a major chunk of allocation expected to be made towards existing schemes like the Mahatma Gandhi Rural Employment Guarantee Scheme (MGREGS), many social sector ministries have got broad hints from the finance ministry that no new schemes would be entertained and the government's emphasis in the Budget is likely to be on the existing schemes in agriculture, education and infrastructure.
---------------
The Finance Minister no doubt has a tough job on hand to bring down inflation, curtail the rising fiscal deficit and at the same time ensure that the economic growth is on track while withdrawing the stimulus measures.
Double-digit inflation rates have stayed on for two years. Food inflation is at all-time highs. Will the Budget offer any respite to the common man? Does the Budget have a solid plan for India's one billion-plus population?
With mounting pressure on inflation, the government will take steps to bring down prices. The government has already deferred price hike in diesel as it can impact prices of essential commodities.
The ban on onion export has already brought down the prices. With more sops for agriculture sector, the government will focus on increasing productivity and balance the demand-supply chain.
Food inflation, which is at a record high of 17 per cent in January, will fall further as the government will take steps to ease supply constraints, Finance Minister Pranab Mukherjee said recently.
Led by a smart recovery in farm output, the economic growth rate for the current financial year stands at 8.6 per cent, as against 8 per cent a year ago.
Agriculture and allied activities are likely to grow at 5.4 per cent in 2010-11, compared to just 0.4 per cent in 2009-10, according to Advance Estimates released by the Central Statistical Organisation. The ban on onion export has already brought down the prices. With more sops for agriculture sector, the government will focus on increasing productivity and balance the demand-supply chain. Onion cultivators of Nasik protesting on the ban of onion export as the whole sale price has crashed to Rs 12 per kg. According to a few Economists, the economy may grow by 8.5 per cent despite rising inflation. The ban is going to be lifted soon. While contribution of agriculture to the gross domestic product (GDP) is 14.6 per cent, about 65 per cent of the population was dependent on it. Hence, it may get more Budgetary push for increasing productivity.
The funding may go to areas of research, as for a long time there has been little improvement in terms of new strains of crops, an official in the finance ministry said.
The agriculture sector is also anticipating tax benefits on import of agricultural tools and other mechanization equipment. The Budget will unveil several measures to boost infrastructure projects and further strengthen the economic growth.
The income tax would remain the same as is now. Currently, income between Rs 1.6-5 lakh (Rs 160,000-500,000) attracts 10 per cent tax; Rs 5-8 lakh (Rs 500,000-800,000)20 per cent and beyond Rs 8 lakh 30 per cent.
The government is likely to retain these rates and wait for DTC Act to come into force from April 1, 2012. Since it is also in talks with states to bring Goods and Services Tax from the same date, the government might also not change indirect tax rates.
However, it may tinker with threshold limit. The lower income group may get more relief.
The software industry has been hit by the double taxation issue on software packages.
This Budget is likely to bring cheer to the software industry by rationalizing the tax structure.
The imposition of service tax and countervailing duty for software packages sold with licenses is a deterrent for software companies.
In 2010, the Budget introduced conditional exemptions from countervailing duty or excise duty on the import/manufacture of packaged software if the importer/manufacturer is registered for service tax.
The Indian IT industry has sought extension of tax benefits under STPI and simplification of the tax structure to encourage investments in the sector, among others as part of its budget wish-list. Big incentives await Small and Medium industries. The most of the enterprises of Northeast are in small and medium sectors as such entrepreneurs of North east may be able to reap benefit in terms of cheaper finance.
The $76 billion software industry has requested the government to extend the Software Technology Parks of India (STPI) scheme till the Direct Tax Code (DTC), which is under consideration, is implemented.
RBI is considering allowing new private sector banks, including participation by big industrial houses. A roadmap for the same could be announced in the annual Union Budget to be presented later this month.
While the formal and final guidelines would be announced by the Reserve Bank of India on who should be allowed to set up new banks and what should be the terms and conditions for them, a roadmap on the subject could be announced in the Budget speech on February 28 by Finance Minister Pranab Mukherjee, according a knowledgeable circle of Economists In his Budget speech last year, Mukherjee had said that there was a need for extending the geographic coverage of banks and improving access to banking services.
To mobile better resources, the government will tighten service tax regime and remove loopholes in sectors like construction, oil and gas, telecom and construction. The government is also planning to bring many new services under the tax regime.
In view of the present inflationary pressures in a difficult macroeconomic environment, it is likely that the rate of basic customs duty, could be brought down.
Surely, the present duty structure on oil will undergo changes, given the present high prices and the significant quantities of oil imports. In any event, median customs duties must be brought down, if we are to reach ASEAN levels in the near future.
Higher education is likely to get a big boost in the Budget. The finance Ministry has been asked to double the budgetary allocation for the higher education to over Rs 30,000 crore (Rs 300 billion) in 2011-12. by the party in power.
Sarva Shiksha Abhiyan, which has turned into a vehicle for implementing the Right to Education, has already got a boost in funding, as the Centre's share of funds has increased to 65 per cent from 50 per cent.
So, this year again, the allocation may see a slight increase from the Rs 31,000-crore (Rs 310 billion) allocation in 2010-11.It likely to get a 20 per cent increase each over their 2010-11 Budget allocations.
The government is likely to remove the loopholes in international taxation to add more money to the exchequer.
Black money has become a major headache for the government. With millions of dollars stashed away in foreign banks, Indian government is under pressure to stop the flow of money to tax havens. The Budget will bring about tax and administrative changes.The labour ministry may get a higher allocation for various programmes like the much-publicised health insurance for the poor.
Though social sector spending will continue to be the government's top priority with a major chunk of allocation expected to be made towards existing schemes like the Mahatma Gandhi Rural Employment Guarantee Scheme (MGREGS), many social sector ministries have got broad hints from the finance ministry that no new schemes would be entertained and the government's emphasis in the Budget is likely to be on the existing schemes in agriculture, education and infrastructure.
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