13.08.2009

Politics & the Nation

• Karat & Co see no need to respond to a Chinese think-tank's preposterous suggestions about dismembering India
• CPM has chosen to remain silent on the outrageous advocacy by a top Chinese think tank to seek the help of “friendly countries” to dismember India. CPM, which never misses an opportunity to put out its views on important foreign policy issues, is of the view that the suggestion of the think tank did not warrant a response.
• This is not surprising as pro-China stance is a matter of ideological conviction for CPM. There have been no instances in the past where CPM has taken a line that would have been even remotely offensive to Chinese sensibilities. It may be recalled that after the Chinese aggression in 1962, EMS Namboodiripad had refused to condemn Beijing’s bellicocity. In a defence of China that bordered on treason, Mr Namboodiripad had argued that the Chinese had entered a territory that they thought was theirs and hence there was no question of aggression as far as they were concerned. Mr Namboodiripad’s political legatees have been faithfully following this pro-China line in the CPM’s policy formulations.

• Caution urged on FTA signing spree
• In the context of signing the CEPA with South Korea and amid reports that negotiations for signing FTAs with countries as diverse as Australia, New Zealand, Indonesia and even China, today's ET urges caution on the following lines:
• We must not lose sight of the fact that they are a second-best option and unlike multilateral trade negotiations that level the playing field between our trading partners, are discriminatory. Hence, not only do they need to be negotiated with much more care, their impact is also more difficult to predict.
• Moreover, our experience with such agreements is limited and not entirely positive. Apart from the fairly successful FTA with Sri Lanka, the early-harvest programme entered into with Thailand in 2004 has benefited Thailand more than India. Even if you accept trade negotiations are about give and take and we cannot expect to emerge on top every time, the main drawback in the agreements being contemplated is their greater focus, at least to begin with, on trade in goods (not always our strong point) rather than on services where we have an advantage. Also, to the extent our tariffs are generally higher the net effect is to cede more than we get in return.

Finance & Economy

• New direct tax code to replace Income Tax Act
• The government unveiled the draft of a brand new direct tax law that would represent a radical review of the Income-Tax Act, 1961. The purpose is to improve the efficiency and equity of our tax system by eliminating distortions in the tax structure, introducing moderate levels of taxation and expanding the tax base.
• The tax code makes radical changes in all areas of taxation: it lowers the incidence of tax on corporate and individual incomes but reintroduces wealth tax on all assets and tax on long-term capital gains, albeit at lower levels. It also proposes to bring a uniform pattern of taxation to bear on all long-term savings: EET, which is exempt at the stage of contribution, exempt during accumulation and taxed during withdrawal. The tax measures would impact personal incomes, companies and investors.
• A bill could be placed in the winter session of Parliament if all goes as planned. The government is hoping to implement the new code from 2011.
• Some salient features of the proposed code:
• Tax slabs pushed up sharply for individuals. Peak 30% rate proposed on income above Rs 25 lakh, 20% on income between Rs 10 lakh & Rs 25 lakh, 10% on income between Rs1.6 lakh & Rs 10 lakh. But scope of income expanded to include value of perks, gifts, profits in lieu of salary & capital gains but excludes farm income.
• Wealth to be taxed on a net basis; asset value less debt in respect of that asset; to include all assets including shares, amount in excess of Rs 50 crore to be taxed at 0.25%
• Deductions in respect of savings proposed to be hiked to Rs 3 lakh from current Rs 1 lakh, but tax breaks on housing knocked off
• All long-term savings schemes to move to an EET regime of taxation
• Dividends will continue to be tax-free in the hands of investors
• Corporate tax rate to drop to 25%, no surcharge/cess
• MAT to be levied on gross assets as against book profits now, 0.25% for banking companies, 2% for others
• Business losses will be allowed to be carried forward indefinitely
• Profit-linked incentives to give way to investment-linked incentives
• Abolition of distinction between long-term and short-term capital gains to encourage trading
• Financial intermediaries such as mutual funds, venture capital funds and life insurance companies will have a passthrough status. Income they receive will be tax-free
• Securities transactions tax abolished
• Distinction between short and long term capital gains abolished
• Capital gains (losses) will be included in the total income of the financial year in which asset is transferred not when consideration received
• Financial year' to replace concepts of 'previous year' and 'assessment year'
• A new tax regime for all institutions carrying on charitable activities
• Change in the definition of 'assessee' to facilitate refund of TDS, allow a track record of filing for those not required to file returns
• General anti-avoidance rule introduced to combat tax avoidance
• IIP numbers stun economists
• Industrial output jumped by a greater-than-expected 7.8% in June, its highest since February 2008, bringing cheer to an economy whose recovery after last year’s slowdown has been rudely jolted by poor monsoon rains. Economists said the lift-off in factory output pointed to a broader recovery in capital goods and consumer durables despite shrinking exports, and would help India offset the impact of deficient rains. The higher-than-expected IIP numbers combined with a growth in the services sector will more than offset the impact of poor rains, feel economists.
• Although 24 crore Indians have agriculture as their primary source of livelihood, the sector carries only a 17.1% weightage in the country’s GDP. The manufacturing and services sectors account for 17% and 54%, respectively, of the GDP.
• Corporate India to step up hiring soon
• India Inc is hiring again. After months of rigorous cost-cutting, which included recruitment freeze and even downsizing of workforce in some cases, several Indian employers are looking to increase hiring in coming months, according to different surveys.
• The results show that Corporate India is upbeat on the economy in spite of the looming threat of a drought due to shortage of rains in this monsoon season and the fears of swine flu that has sparked panic in several cities.
• Why is that the US and India have not been able to conclude a BIPA between them?
• BIPA: Bilateral Investment Promotion Agreement
• India and the US have been negotiating a BIPA since Bush presidency. The talks got bogged down due to the issue of providing national treatment i.e., treating foreign investors on a par with the domestic lot.
• While India has no problems giving post-investment national treatment to the US side, which basically means that foreign investors will be subjected to the same investment protection laws as their domestic counterparts—it does not want to extend national treatment before investments are actually made.
• When a country agrees to give pre-investment national treatment, it takes responsibility for the losses suffered by the investor before it actually invests in the country, if the loss takes place due to a policy change. So, if a firm spends money in carrying out studies and activities such as market research before investing, India will be responsible for making good the losses if that firm is unable to invest due to policy changes.
• US investment in India stood at $1,802 million in the financial year ended March 2009.

International

• Global confidence surges
• Confidence in the world economy surged to a 22-month high in August on signs the worst global recession since World War II is coming to an end, a Bloomberg survey of users on six continents showed. The Bloomberg Professional Global Confidence Index jumped to 58.12 this month from 39.13 in July. It is the first time the reading exceeded 50, which means optimists outnumber pessimists. A measure of US participants’ confidence in the world’s largest economy rose to 47.3 from 29.5, the survey showed.

Language lessons

• What is meant by gradfathered?
• A grandfather clause is an exception that allows an old rule to continue to apply to some existing situations, when a new rule will apply to all future situations.
• To understand this better, take a look at this excerpt from today's news report on the new Direct taxes code:
• "The most important change impacting individuals is introduction of EET (exempt exempt taxed) scheme under which investments made in saving instruments such as provident fund, life insurance etc., shall be taxable on withdrawal. This shall apply only to new contributions after the commencement of the code. Hence, existing instruments seem to have been grandfathered."
• So now you know what is meant by grandfathered; don't you?
• While reading today's ET editorial, we were confounded with the use of the words -- fable, satire and allegory. At first look many of us could have thought of them as more or less synonymous with each other; couldn't we? Let's try to understand the nuances:
• fable: A deliberately false or improbable account; A short moral story (often with animal characters); A story about mythical or supernatural beings or events
• satire: Witty language used to convey insults or scorn
• allegory: A visible symbol representing an abstract idea; An expressive style that uses fictional characters and events to describe some subject by suggestive resemblances; an extended metaphor
• metaphor: A figure of speech in which an expression is used to refer to something that it does not literally denote in order to suggest a
• gripe:
• Verb: complain
• Noun: Informal term for objecting
• masque: Noun
• A party of guests wearing costumes and masks
• cower: Verb
• Crouch or curl up; Show submission or fear