Byapaar.com -The Indian Business Blog

Indian economy has been one of the fastest growing economies in the world for last one decade or so. Its Gross Domestic Product (GDP) has been growing consistently over 7 percent. The India Central Government has finally decided to reward its 3.5 million strong civil servants by way of its Sixth Pay Commission recommending and increase of 30-40 percent salary hike.

But initial reactions to the recommendations are that of disappointment because in the words of Justice B.N. Srikrishna, chairman of the commission,

” I told the finance minister that my recommendations will displease everybody…… ”

But nobody - neither political parties nor employees’ unions have  commented so far on the 658 page report.

It seems that the biggest beneficiaries will be those in the higher echeleon  of the bureaucratic hierarchy. The contentious issue about the report is that - it recommended pay hike but at the same time it wants the government to trim its workforce. It also recommended downsizing the service tiers from 35 at present to 20 tiers. It also recommends for introducing 5 pay bands to cover all ranks.

The civil servants are to get rank pay along with basic salary. For example, the highest ranked officer in India, the Cabinet Secretary will get a consolidated monthly salary of Rs. 90,000 besides allowances and perks. But still it is far too low than those CEOs in private companies. What is attractive though is the position, security and other related benefits that come along with a government official.

PS: I’ll follow-up this post with Salary hike in PVT. sector within next few days and make a comparision.

In a recent survey by international consultancy major KPMG on corporate India ( “India Fraud Survey Report - 2008″ ) , it has been revealed that fraudulent activities have become a huge concern to companies. The study has revealed that, corporate fraud has increased 54 percent since a similar report was done in 2006. Financial sector is leading the pack followed by real estate and infrastructure sector.

The survey shows that companies pay bribe or other facilitation payment to do business in India. And senior management employees are most likely to get involved in these shadow dealings than other employees as they have access to sensitive company information and can override controls. The unethical behavior and lack of clearly laid down anti-fraud measures have made India Inc. a haven for thugs. Service providers are also involved with corruption in a big way. Its no surprise that losses caused due to fraud or corruption is mounting really high.

According to Deepankar Sanwalka, head of forensic services, KPMG India -

“With the increase in the number of business transactions combined with the lack of effective monitoring, frauds are a real time threat for most corporate houses in India. It comes as a surprise that even larger firms operating in India do not have adequate risk management strategies.”

Factfile of the Survey:

• 70 percent companies believe fraud will increase over the next 2 years.
• 75 percent respondents identified fraud as a matter of highest concern.
• 80 percent said fraud poses a big problem.
• 60 percent acknowledged fraud occuring in their own companies.
• 5 percent companies lost more than Rs. 100 millions due to fraud.
• 11 percent lost between Rs. 1 to 100 millions due to fraud.
• 53 percent reported loss less than Rs. 1 million.
• Unethical behavior of employees and inadequate anti-fraud measure main worrying factors.
• 60 percent respondents do not have adequate knowledge of anti-corruption law.
• Financial sector hit worst - followed by real estate & infrastructure - pushing IT & ITeS to third place.

The European Union (EU) and Indian government have been trying to come to a Free Trade Agreement for quite sometime now and it was to get formalized by the end of this year 2008. But what has been coming out of it has become a  big frustrating experience for the Union Government.

The main contentious issues are still to be addressed properly  and not only that, instead of problems being solved, they are mounting by the day. The negative list, non-tarrif barriers and other differences remain though time is running out. India wants its service industry to get more ground in the EU and the EU wants its products to have easy access to the vast Indian market.

A ministerial meeting is scheduled to be held next month between the two parties in order to sort out differences and exchange negative lists. But negative lists of both sides are growing by the day as more and more products and even allied industries  are seeking protection in the negative lists. The EU has already handed over its negative list that might affect India’’s export of goods primarily based on petrochemical products, not to mention textiles, cosmetics, glassware, fertilizers and pharmaceuticals. Originally, India and the EU were supposed to keep 90 percent of the products under the agreement. But it seems that the figure will decrease to a great extent. The finalization of India’s negative list is still going on as more Indian companies or products are lobbying to get into the negative list to protect their business. It should be mentioned that, goods falling under the negative list would cost more due to high tarrifs.

According to a study by FICCI (Federation Of Indian Chambers Of Commerce and Industry), the Indo-EU trade could reach $572 billions by 2015 if the agreement is properly and timely  implemented. Naturally, Kamal Nath, the Indian Commerce Minister is very disappointed with the slow pace of talks.

On the other hand, some experts feel that India should forget these kind of agreements and look for more pacts which would be integrated with India’s reform policies and thuse bore more fruits.

it has been well documented by each and everybody concerned with Indian that the economic reform started in 1991 under the aegis of then Prime Minister P. V. Narasimha Rao and Finance Minister ( now Prime Minister) Dr. Manmohan Singh is irreversible whatever the political situation in the country is. It is just a case of different approach to carry on the national agenda! Nothing can prove this point more than the left front which are presumed to be the thorn in India’s progress, seeking private participation and foreign direct investment in their endeavor to bring to national prominence of the only significant state they rule i.i. West Bengal. They are even ready to get into collision with the poor ( for long they have claimed to be champion of the poor) in their drive for land acquisition for industrialization. This has been well documented by their brutal repression of poor farmers in an obscure but promising area called Nandigram.

Under all these circumstances, the Indian industry as a hole want broader understanding and collaboration by major political parties from broader spectrum to draw a common programme on economic and induatrial policies for India. Recently FICCI ( Federation of Indian Chambers of Commerce and Industry) has urged the political leaders in this regard and pledged to help them to draw a broader policy that would be acceptable to all parties concerned irrespective of their political affiliation.

The other major industry forum CII ( Confederation of Indian Industries) has also supported the move. In a statement Marut Sengupta, head of policy at CII said that

“If this happens, it will create a greater degree of understanding between industry and government.”

Rajeev Chandrashekar, the newly elected president of FICCI said that the policy would focus on the government’s role in strengthening independent regulators, increasing economic efficiency, improving institutional framework and restructuring government expenditure. The chamber plans to hold lots of seminars in this regard to promote their agenda.

This is to be noted that the present coalition UPA government is running on a Common Minimum Programe envisaged by the left front. So Industry proposal is nothing new and should find greater support that could probably usher in a new dynamism in India’s growth story.

In an unprecedented mood a world consortium of Central Banks from many leading countries led by the US Federal Reserve (Fed) have tried to infuse huge liquidity in the credit market which is starved of funds. This caused a positive response from the market which has been on a sustained bull runs for last few months. The DOW JONES immediately opened at 250 points higher than the previous closing.

The US Fed has declared on Tuesday that from now on financial firms can use home loan mortgages as collateral for the next 28 days. This released about $200 billion in the US liquidity market. On the other hand the European Central Bank, the Bank of Canada, Swiss national Bank and the Bank of England have also announced measures to infuse huge fund simultaneously to arrest the contraction of market trends every where. The burnt of these measures was felt by the bond market that has naturally crashed.

Martin Blum, head of emerging markets research at UniCredit in Vienna said

“In the near term, the Fed and global central banks have provided the thing everyone needed, and that’s cash”.

As part of latest policy updates, the Bank of Canada provided C$4 billion, Swiss National Bank $6 billion, and the European Central Bank said it would auction bonds for a term of 28 days thereby providing $15 billion to the credit market.

But some market analysts say that, these measures by the world consortium might revive the market immediately, however questions remains how far these soaps would go in reviving the world economy as a whole for a long duration that everyone longs for.

“The Fed action is good for a day or two”

according to Michael Cheah of AIG Sun America Market Management.

In the Indian context, the market which has been on a sustained bull run for nearly two months and lost almost 30% seems to be upbeat with the latest move which is evident from a jump of 1.25%  of share prices in the BSE Sensex .

“It will be certainly good for our markets. Some action was necessary from the Fed and they are going in the right direction. Our markets have been on a recovery path and additional support by the Fed will consolidate gains further in the domestic markets”

said Kunj Bansal, senior vice-president, portfolio management services at Kotak Securities. Evidently Indian market has recovered significantly since Tuesday.

Coupled with continued bull run in the Indian stock market, another problem is lurking that might hamper the country’s resolution to achieve higher economic growth with price stability. Inflation rate has just crossed the 5 percent mark for the first time in last 10 months. Week ending on 23rd February pegged the Wholesale Price index at 5.02 percent. Rising food price and increase in cost for manufacturing good are some reasons for the inflation to shoot up.

the apex bank in India is a bit worried about the recent spur in inflationary pressure. Mr YV Reddy, the Governor of Reserve Bank of India expressed his concern in a symposium held in Paris on “Globalization, Inflation and Monetary Policy” . According to him

“In the Indian context, considerable weight is currently accorded by the RBI to price and financial stability while recognizing it twin objectives of growth and stability”.

The Indian government is looking to control the the inflationary pressure below 5 percent and targeting to keep it around 4-5 percent. But still consumers are feeling the heat.

Just imagine what happens if the “title” of this post comes true sooner than later in India. Heard of Credit Rating? Being an Indian, I have only read about it on newspapers occasionally and sometimes found irritating SPAM mails on my inbox by some companies who were enticing me to make my credit score higher even if I had bad debt.

But don’t be surprised if you are denied a bank loan in the near future because of your bad credit score caused by intentional default or irresponsible financial management by you. On the other hand your loyal driver has been paying his mobile bills, gas bills regularly and hence he gets a a very high credit score. He gets cheaper bank loans, but you are denied.

Yes you guessed it right. If everything goes according to the plan the biggest names in credit rating industry ( such as Equifax and Experian ) will be opening their shops very soon infront of your office desk and decide on your eligibility for loans Quite scary! But thats what Indian government has been contemplating based on an assessment by a consortium of banks and financial institutions. They have already filed an application with the Reserve Bank Of India (RBI). So far there has only been one credit rating agency operating in India known s Credit Information Bureau Of India Ltd. (CIBIL). But its work has been limited due to absence of proper regulations. The government passed The Credit Information companies Act. only in 2005 that enables banks and financial institutions to reduce risks of bad debt and fraudulent activity. They can now share sensitive personal information of consumers with a recognized agency without taking permission from the person concerned. These agencies are to analyze the data and collect further information to build profiles of individuals to judge their eligibility for loans. People who gets higher score are to receive bank loans quicker and cheaper. On the other hand those with low scores might even get denied.

However the concept is still new in India and it remains to be seen how willing are banks and other institutions to part with the database. Another factor in this regard is how serious will the bank take on the analysis provided by these credit rating agencies. The government on the other-hand is trying to formulate a more detailed regulation making it mandatory for all banks to subscribe to at least one such agency.

So its going to be bad times for loan defaulter pretty soon. Be careful!

The Union Budget for the financial year 2008-09 has brought few smiles on the faces of middle class people. It is clear that, the UPA government has an eye for early national pools -may be by end of this year and hence there is lots of cheers for the all powerful middle class.

The Finance Minister has not only raised the taxable income level from that of last year, but it has also offered some schemes to lessen tax liability. For example, if someone is earning a monthly income of Rs. 25,00/month, his current tax liability is around Rs. 3,347.50/month. In the new taxation syste, the liability for the same income will be Rs. 1,287.50/month and that too without claiming any tax benefit on offer.

So how to save this extra money?

The best way, according to analysts is to invest in real estate. Due to higher interest rates - the rela estate market has been going through aprice adjustment or correctional phase over the last few months. So price is quite stable at the moment. The new budget is not offering any extra benefit under Sec. 80 C or Sec 80 D - but due to lower tax liability, the taxpayer can easily utilize the fund judiciously.

The Sec. 80 C has been facilitating tax benefits for certain saving instruments including repayment of home loans. But only Rs. 1,00,000/annum can be accounted for this purpose. One can also claim benefit for Rs.1,50,000/annum as repayment of interest for the housing loan. So thats a cool benefit for Rs. 2,50,000/annum.

Another attractive factor in this regard is that, some banks are already lowering interest rates for housing loans and it seems that, the home loan iterest rate might come down further due to global meltdown trend.

Now, we may consider how one gains through investment in real estate properties. Studies have shown that value of Indian real estate properties has seen a compunded annual growth rate of around 15-18 percent. S, the value is always increasing.

Just one point to be cautious is that, the government is giving these sops for personal or live in properties only. If some one buys a property and sells it within next five years, then he/she will have to pay taxes for all these years.

If you have a house and are pondering at what to do - just go ahead, take home loans, buy a nice property and rent it out. The rent will help you pay the EMI (Easy Monthly Installment) and by the time you are ready to settle down, your home loan liability will be NIL. You can enjoy your superannuiation benefits for your recreations. Just remember one thing - the tax implications in this case will have to be worked out after deducting the rent you get. Stil you are the winer.

True to its name, the booming Indian economy has demonestrated its strength once again by putting four Indians in the top 10 of Forbe’s list of top 10 wealthiest people in the world. Just for information, Warren Buffet, Chairman of Berkshire Hathaway Inc. and the Bridge partner and fellow philanthropist pal of Bill Gates, the Microsoft Founder has pushed his friend to third position to claim the title of world’s richest man with a net worth of a staggering $ 62 billion, an increase of $10 billion over last 12 months. The Mexican telecommunication tycoon Mr. Carlos Slim is estimated to be worth $60 billion enabling him to surge ahead of Bill Gates, worth $58 billion.

But there is no surprise in the list which has seen lots of changes in the top 10 over the last 13 years except Bill Gates holding the number one position during this long period. The surprising element is the rise of four Indian into the top 10 richest billionaires club. The booming Indian economy has resulted into a scorching stock market that shored up values of these four Indian business moguls. Heading the list of Indians at number four in the Forbe’s list is L.N. Mittla, the steel baron ( ArcelorMittal) with a net worth of $ 45 billion. Following him at number five is Mukesh Ambani, Chairman of RIL at $43 billion thus making him the richest resident Asian. His estranged sibling Anil Ambani who broke away from the main RIL group is the sixth richest person in the world worthy of $ 42 billion a net gain of 12 places and $23.8 billion during last 12 months. K.P Singh, who is leading Indian real estate boom with DLF has become the fourth Indian in the top ten ( at number eight) as his fortune rose to $30 billion due to stock market boom.

The list of Billionaires club is now pegged at 1,125  and not surprisingly the US heads the list with 475 billionaires, followed by Russia (87) and Germany (59). India heads the list of billionaires in Asia with 53, 19 of them making their debut. This takes India to fourth in overall position in the Forbe’s list.

The US greenbuck sank to a historic low beyond 1.53 mark against the stronger Euro ahead of the ECB meeting on Thursday. This has rattled investors worldwide and pushed gold prices at an all time high. The European Central Bank is expected to keep the interest rate at the same level as this higher interest rates over the US rates is the source of Euro’s strength.

Tomoko Fujii, the head of economics and strategy for Japan at Bank of America in Tokyo says -

“There are pretty clear expectations for a widening in interest rate differentials, keeping the dollar at a disadvantage,”

Analysts feel that, it is not only the interest rate for which investors are dumping the US Dollar for the Euro, but there are other factors as well. Recent data coming out of US points towards an economic contraction that has made people weary to put their money on the greenbuck. According to the ADP Employer Services, the US private sector has cut 23,000 jobs during February and coming employment data update also seems to hold bleak prospect.
On the other hand European stocks are coming under severe pressure due to the competitiveness factor caused by a soaring Euro. Banks are the worst hit despite stock markets saw a slight gain yesterday after loss for five straight days  . The Japanese Nikkei also gained 1.9 percent on Thursday.