30.10.2009

Finance & Economy

• Why would a rising US economy mean a fall in the value of the dollar?
• Restored confidence would reverse the flight to safety in the wake of the Lehman collapse in September 2008. The funds that had fled emerging and other markets to take refuge back home in the US in a bid to minimise uncertainty are now likely to retrace their steps back to markets where the returns are higher. Just as the influx to safety had driven up the dollar, the funds’ redeployment across the globe would drive down the dollar.
• On resident and non-resident asset holdings
• It is an article that gives some interesting interpretation to the FEMA. Take a look. For our purpose it may suffice to note the following two points:
• Sections 4 and 8 of Foreign Exchange Management Act (FEMA) don’t apply to them. They apply only to residents. These provisions impose restrictions on residents to acquire, hold, own, possess and transfer foreign assets, and require them to repatriate the proceeds of foreign assets to India.
• Even residents can now freely maintain and operate foreign assets. For example, a resident can freely hold, own, transfer and invest foreign assets provided these were acquired or held or owned when he was a non-resident. This follows from Section 6 (4) of FEMA.
• CCI frowns prepayment penalties by banks?
• The Competition Commission of India is reportedly not happy with the way prepayment penalties are being levied on borrowers by financial institutions.
• Let us get a peek into why the penalties are levied in the first place:
• The business of a bank/ financial institution involves borrowing and lending and in the process the lending institution tries to run a matched balance sheet of assets and liabilities. Prepayments are essentially accelerated payments before the schedule. Any prepayment will disturb the assetliability match and in order to mitigate the negative impact of the prepayments the institutions/banks charge a prepayment charge. Everytime when there is a prepayment from the borrowers it will not be feasible for the banks to prepay its lenders as its loan agreement with lenders may either not permit it or permit it only with certain charges, notice period and may be subject to other conditions.
• Centre not to force states to slash tax on imported spirits
• You might remember that we noted about this issue as far back as 3rd June 2007
• Now it is reported that EU may take India to WTO if it fails to bring down taxes in some states.
• According to the European Union, Maharashtra, Karnataka, Andhra Pradesh and Tamil Nadu have imposed local levies on imported liquor, which are much higher than those levied on locally produced liquor. This violates the WTO rule of national treatment that lays down that once imported, foreign products should be treated the same as domestically produced goods.
• As per EU calculations, incidences of taxes on foreign liquor are as high as 200%-790% of the sale price, depending on the type of liquor and its price and also the state in which it is being sold. The four states identified by the EU as the ones applying high taxes, together account for more than half of India’s consumption of wines and spirits. In 2008, EU’s export of wine to India totalled € 8 million while its export of spirits was to the tune of 52 million euros.

International

• US out of recession ahoy!
• THE US economy returned to growth in the third quarter after a year long contraction as government incentives spurred consumers to spend more on homes and cars. The world’s largest economy expanded at 3.5% from July through September. Household purchases climbed 3.4%, the most in two years.
• Policy makers will now focus on whether the recovery, supported by government spending and tax credits, can be sustained into 2010 and generate jobs. The record $1.4 trillion budget deficit means President Barack Obama has little room for manoeuvre as he tries to keep unemployment from rising above 10%, while Federal Reserve policy makers wind down emergency programmes in a bid to prevent a surge in inflation.
• Since the recession began in December 2007, the US has lost 7.2 million jobs. Payroll cuts peaked at 741,000 in January before falling to 263,000 job losses in September. The economy will likely grow at a 2.4% annual rate from October through December. GDP will also grow 2.4% next year and 2.8% in 2011, compared with an average of 3.4% growth over the past six decades.
• What does the recovery in US economy mean for India? Take a look at the expert-speak.

Language lessons

• Real McCoy: Idiom
• It is used throughout much of the English-speaking world to mean "the real thing" or "the genuine article" e.g., "he's the real McCoy". It is a corruption of the Scots "The real MacKay", first recorded in 1856 as: "A drappie o’ the real MacKay," (A drop of the real MacKay), and this is widely accepted as the origin.
• eg: The United States surprised the world with strong growth between July and September, but a wary India is waiting to see if the recovery is the Real McCoy.
• hubble-bubble: Noun
• An oriental tobacco pipe with a long flexible tube connected to a container where the smoke is cooled by passing through water