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Investors have to be wooed and the government is likely to approach parliament next month to water down retrospective tax rules that damaged investor confidence!PM pitches for phased rationalisation of energy prices!

Troubled Galaxy Destroyed Dreams, Chapter: 832
Palash Biswas

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Investors have to be wooed and the government is likely to approach parliament next month to water down retrospective tax rules that damaged investor confidence, two finance ministry officials said on Monday, a move that may help settle The finance ministry is getting edgy over meeting its revised fiscal deficit target of 5.3% of GDP (gross domestic product) for 2012-13 ahead of the budget for the next fiscal year that would be presented next month.British-based Vodafone Group Plc's long-runnning $2 billion tax dispute.The government was heavily criticised by the corporate sector for introducing the tough tax rules last year at a time India was suffering a sharp economic slowdown and trying to encourage investment.Vodafone, the largest overseas corporate investor in India, has repeatedly clashed with Indian authorities over taxes since it bought Hutchison Whampoa's local mobile business in 2007.Meanwhile,an Empowered Group of Ministers (EGoM) has recommended a cut of up to 50 percent in the auction reserve price for airwaves used by phone carriers operating on the CDMA platform, raising the odds for the local unit of Russia's Sistema to continue operating in the world's second-biggest mobile phone market.Union Telecom Minister Kapil Sibal said that auction for unsold spectrum bands would begin soon at a reduced price of 30% from the previous auction after the empowered group of ministers (EGoM) meets to discuss a roadmap for spectrum that remained unsold.On the other hand, Bankers today demanded tax sops like increasing the TDS limit on fixed deposit to Rs 25,000, incentives for investment in infrastructure bonds and a reduction in the lock-in period for tax saving deposits to three years. Prime Minister Manmohan Singh on Monday pushed for phased rationalisation of energy prices to bring them in line with international prices to meet the targeted rapid inclusive and sustainable growth.

Industry body Assocham today demanded that the government should not reopen tax assessment cases which are beyond three years as it leads to unnecessary "harassment" of taxpayers.

Goldman Sachs on Monday said it expects the NSE Nifty index to cross the 7,000-mark by the end of the year.

In a note dated January 4, the US company said: "Given the inexpensive valuations and conservative investor positioning, we are overweight on India, China, Korea and Singapore, and tilted towards cyclicals."

It sees Nifty rallying 17 per cent in the year to cross 7,000 points (from 5,993 points on January 3), or a price-earnings multiple touching 14.5 times.

The 50-share National Stock Exchange index Nifty lost 27.75 points, or 0.46 per cent, to end at 5,988.40 on Monday.

Goldman's Asia-Pacific Outlook Report said Korean stocks will have the highest return in the year with a likely gain of 18 per cent.

Goldman has included Bajaj Auto and Tata Steel in Asia-Pacific "growth recovery" group of stocks that have favourable growth and valuations. The company also sees tech giant Infosys as a stock with a potential "catch-up" opportunity after lagging in 2012.

The report also lists Tata Motors, Sterlite and Hindalco as stocks with favourable macro exposure and attractive profiles.

The watchwords for 2013 are 'growth recovery' and accordingly Asian regional economic growth should improve to 6.9 per cent from 6.2 per cent in 2012, and corporate earnings growth should accelerate to 13 per cent and 14 per cent in 2013/14 after two years of stagnation, it said.

Domestic markets rallied close to 28 per cent in 2012, after a disastrous 2011 when the both the benchmarks tanked over 25 per cent.

On the global front, the report said, "In the five weeks since we published our 2013 views, US has reached a fiscal compromise, China's growth and policy outlook has firmed, and our marketing feedback shows investors to be under-risked relative to their views."

"We increase our sectoral growth tilt by raising autos and capital goods, and reducing telecoms." The report said 2014 should see a further pick up in regional growth to 7.4 per cent.

The main drivers of this outlook are a stabilisation and then improvement in developed markets growth; a recovery in Asian domestic demand facilitated by accommodative fiscal and monetary policy; and stable-to-softer energy prices, said the Goldman Sachs report.

In its pre-budget memorandum to Finance Minister P Chidambaram, it has sought "changes in Sections 147/148 of the Income Tax Act. These sections relate to the tax re-assessment on matters already examined or in a blanket manner".

The chamber said that the re-opening of cases leads to "extreme harassment of all assessees".

It said that in recent times, tax reopening notices under the sections have become very common and such notices are being served in thousands across the country.

"It appears that there is no consideration in following the principles on the subject laid down by the Supreme Court and High Courts over the years," it added.

Assocham President Rajkumar Dhoot said the provisions relating to reopening of tax assessments are being misused in different locations, particularly for salaried assessees, where scrutiny assessment is not possible as per the CBDT ( Central Board of Direct Tax) guidelines.

"This has become a breeding ground for corruption and harassment," he said.

Finance Minister P. Chidambaram has for several months been considering recommendations by a government panel that said past mergers and acquisitions should not be taxed.

Vodafone, the world's biggest mobile operator by revenue, said in a statement last week that it had received a reminder from Indian tax authorities on the disputed tax dues, adding it believed that no tax was payable on the deal.

"(The) Finance Minister is likely to approach the parliament next month on the retrospective issue," said a senior finance ministry official, who asked not to be identified because of the sensitivity of the issue.

He declined to say whether the government was considering a waiver of the entire tax bill or cancelling interest and penalty charges on the original tax demand.

However, the officials said Chidambaram was likely to introduce amendments in the 2013 Finance Bill to revise the amendments that were introduced last year along with the budget.

Then Finance Minister Pranab Mukherjee introduced an amendment enabling authorities to make retrospective tax claims on long-concluded corporate deals after the Supreme Court had quashed the government's tax demand on Vodafone.

A committee headed by the finance minister's economic adviser, Parthasarathi Shome, has recommended that past mergers and acquisitions should not be taxed, or the government should waive both interest and penalty.

The officials said Chidambaram was looking at the recommendations to work out a solution to the Vodafone dispute by considering its impact on revenue receipts as well as investor sentiment.

They said the government needed parliament's nod to provide tax relief to the company, as this would also affect tax demands amounting to at least $5.5 billion for other such deals.

On Saturday, the Economic Times reported that tax authorities had asked Vodafone to pay 140 billion rupees, including interest on the tax dues.

One official said the letter was just a reminder to Vodafone to pay the tax following last year's amendment in the Act. "It is not a fresh tax notice," the official said, adding the parliament could provide relief.

The official said Vodafone had also expressed willingness to hold talks, and a solution could soon be reached.

Last April, Vodafone threatened the Indian government with arbitration proceedings in its fight over the retrospective tax proposal.

With less than three months to go for the close of the current financial year, the disinvestment process is yet to gather steam, and there are concerns in North Block over revenues needed to bridge the deficit.

The government was betting on selling stakes in public sector companies and auctioning of spectrum for mobile telephony to bridge the gap between the government’s expenses and revenues.
The government is now banking on other avenues to generate revenue including special dividends from public sector undertakings and slashing expenditure wherever possible to adhere to the fiscal deficit target, said sources.

“The finance minister is very clear that the government needs to adhere to the projected target and the government is also looking at other ways to curb expenditure, though things look a little difficult at this point,” said a government official who did not want to be identified.

The only big-ticket disinvestment that is likely this fiscal is that of National Thermal Power Corp (NTPC), which is expected to fetch the government close to Rs.12,000 crore.

It is slated for the month-end or the first week of February. Before NTPC, the government has lined up 10% stake sale in Oil India sometime in January that is expected to rake in close to Rs. 2,700 crore.

The 9.5% stake sale in India’s biggest power company NTPC Ltd is likely to fetch the government between Rs.12,000 to Rs.13,000 crore.

Despite this, meeting the Rs.30,000-crore target in the next two-and-a-half months may be a tall order, the official said.

Other state-owned firms including Rashtriya Ispat Nigam, Hindustan Aeronautics have also been lined up disinvestment in the current fiscal year, but with less than three months to go, these  appear unlikely.

Sale of government stakes in some blue-chip public sector firms including  sale of 10.82% in SAIL, 12.15% in Nalco, 9.33% in MMTC and 5% in BHEL also seem unlikely this fiscal year.

Panel for up to 50 percent cut in CDMA base price

An Empowered Group of Ministers (EGoM) has recommended a cut of up to 50 percent in the auction reserve price for airwaves used by phone carriers operating on the CDMA platform, raising the odds for the local unit of Russia's Sistema to continue operating in the world's second-biggest mobile phone market.

The panel on Monday recommended to the cabinet that the starting price for the airwaves be cut by 30-50 percent, two government officials told reporters. The cabinet has the final say on airwave prices.

India is betting on the revenue from phone airwave auctions and stake sales in state-run companies to plug its widening fiscal deficit. The government raised less than a quarter of its 400-billion-rupee target in a November auction.

The government is putting on the block GSM airwaves worth 200 billion rupees in the next auction, which Telecommunications Minister Kapil Sibal said is due to start from March 11. The CDMA airwaves auction will also happen in March after bidding for GSM, he said.

Sibal declined to comment on any recommendation for a cut in CDMA airwave reserve price.

India auctioned airwaves in November after a court revoked the permits of several cellular carriers and redistributed airwaves through open bidding.

The auction did not see any takers for CDMA (Code Division Multiple Access) airwaves, while only part of the airwaves for more popular GSM services were sold with carriers criticising the reserve price as too high.

The government had earlier set the reserve price of CDMA airwaves at 36.4 billion rupees per megahertz for all of India's 22 telecommunication zones, or 30 percent higher than that of GSM airwaves. CDMA operators need a minimum of 2.5 megahertz of spectrum to provide services.

The CDMA airwave auction is crucial for Sistema Shyam TeleServices Ltd, which has been ordered to shut operations in all but one of India's 22 zones because it did not participate in the last auction.

The dispute over Sistema's permits has strained ties between India and Russia, which has a 17 percent stake in the company's Indian venture.

Reliance Communications, India's No.3 carrier that operates on both GSM and CDMA technology platforms, rose as much as 3.5 percent after the news. The company has not said if it is looking to bid for CDMA airwaves, but will benefit from a lower surcharge for existing airwaves.

Tata Teleservices (Maharashtra) Ltd, the listed unit of India's sixth-biggest carrier Tata Teleservices, also rose 2.3 percent.

Companies, whose permits have been ordered to be revoked by the Supreme Court have been asked to shut down operations by January 18. But government officials have indicated that The telecommunications ministry might seek more time for them from the Supreme Court to attract bidders in the next auction.

Talking to reporters here on Monday, Sibal said: "The EGoM met this morning and took some vital decisions, the first was that the auction for the 1800 Mega Hertz band in four circles in which bids were not received in November 2012 will be put up for auction, the reserve price will be 30 percent lower than the reserve price that was fixed at that time.

The government had earlier set the reserve price of CDMA airwaves at Rs36.4 billion per megahertz for all 22 telecommunication zones of the country, 30 percent higher than that of GSM airwaves.

According to media reports, the high-powered panel in its last meeting on January 3, deliberated on the spectrum sale in 1800/900 MHz Bands but did not finalize a date for the start of auction process

"Decision two is to conduct auction in the 900 Mega Hertz band in the three metros that is New Delhi, Mumbai and Kolkata where licensees are due for renewal in 2013," said Sibal

He added that the auctions would begin in March 2013

The government auctioned airwaves in November after the Supreme Court revoked the permits of several cellular carriers and redistributed airwaves through open bidding.

In their pre-budget consultations with Finance Minister P Chidambaram, bankers also sought permission to issue tax-free bonds like other financial institutions for raising funds and augmenting business.

Representatives from 22 banks and financial institutions pitched for increasing the TDS limit on fixed deposit to Rs 25,000. At present, tax is deducted at source on interest earned from fixed deposits of Rs 10,000 and above.

They also sought tax exemption of Rs 20,000 under Section 80CCF for investing in infrastructure tax free bonds and suggested inclusion of housing sector in the infrastructure segment.

After the meeting with the Finance Minister, SBIBSE -0.72 % Chairman Pratip Chaudhuri said: "There was a requirement that this lock-in period on tax savings deposits be reduced from five years to three years to bring it in line with tax saving ELSS (equity linked saving schemes)".

While seeking transparency in gold and real estate transactions at par with equity transaction, bankers suggested that any restriction on gold import should be done carefully and in a calibrated manner.

"Gold import has also a co-relation with jewellery export. So if we try to bring down gold import, it could also affect jewellery export," Chaudhuri told reporters

Chidambaram in his opening remarks said: "Without vibrant and viable financial market architecture, there cannot be any sustainable economic growth. Efficient intermediation by financial markets lead to higher economic growth by increasing savings and their optimal allocation for productive uses".

Govt to raise diesel, kerosene & cooking gas prices in a phased manner, indicates PM

NEW DELHI: Prime Minister Manmohan Singh has said the government must raise diesel, kerosene and cooking gas prices in a phased manner because coal, petroleum products and natural gas rates in the country are well below international prices.

PM's statement assumes significance as the government has initiated inter-departmental discussion to implement the Kelkar committee recommendation, to increase fuel prices, particularly diesel, by less than a rupee per month to pair it with market rates and eventually deregulate it by next fiscal year.

"To meet our target of rapid, inclusive and sustainable development we must undertake a phased rationalization of energy prices to bring them in line with global prices," Singh said at the foundation stone laying ceremony of an integrated refinery expansion project in Kochi on Monday.

The government is also working on a proposed to reduce one-third subsidy on kerosene by 2014-15 and on cooking gas by a quarter in this year, oil ministry officials said. State oil firms are losing Rs 9 a litre on diesel, Rs 30.60 on kerosene and Rs 490 per cylinder on cooking gas and they expect a revenue loss of about Rs 165,000 crore in 2012-13.

Raising diesel, kerosene and LPG prices in a staggered manner is part of the government's plan for fiscal consolidation and based on the Kelkar committee report, government officials said. The committee, mandated by the finance minister to outline a road map for fiscal consolidation in the medium term, suggested eliminating half of subsidy on diesel by March 31, and the remaining half over the next fiscal year.

Oil Minister Veerappa Moily had told reporters last week that the ministry was processing a proposal to hike fuel prices in-line with recommendations of the Kelkar Committee. Officials in finance and oil ministries say that curbing subsidy is a must for fiscal consolidation but they expect stiff political opposition to the move from ruling UPA and state governments.

"The central and the state government must work together to create awareness in the public on the need for curbing energy subsidies," Singh said. PM had drawn attention of chief ministers on this matter while delivering his speech at the National Development Council meeting on Dec 27.

"Oil and gas will continue to meet a very large part of our energy requirements for many years to come. As you all know we remain dependent on imports for meeting a major portion of our crude oil requirements," PM said. India imports over 80% of crude oil it processes.

7 JAN, 2013, 04.09PM IST, ET NOW
Government may fix a per litre subsidy on diesel

In lieu of the fact that diesel amounts for 60% of under-recoveries, the government may fix a per litre subsidy on this fuel to bring predictability in expenditure. According to ET Now sources in the government, a permanent solution for the approximately Rs 1,80,000 crore under-recoveries for this fiscal is being thought of.

A per litre subsidy on diesel will imply that oil marketing companies will not be reimbursed on an ad hoc basis for the losses that they incur. Instead a compensation of fixed amount on a per litre basis would be given. The relatively fixed subsidy burden can be brought down in case global crude oil prices decline.

Last year's economic survey and renowned economists like Kirit Parikh and Kaushik Basu have already recommended this form of subsidy in the past. This however, does not rule out the chances of a hike in diesel prices, reported ET Now.

A Re 1 hike on a ten-month basis is unlikely to find political favour. Government sources told ET Now the staggered hike would result in a cumulative increase of Rs 10 per litre at a time that is very close to the general elections.

The petroleum ministry has proposed a gradual rise in diesel prices, by 1 per litre every month over a 10-month period, in order to avoid controversy engendered by steep hikes in infrequent revisions. The ministry's timetable for a rise in kerosene prices is even more glacial, 10 per litre over a two-year period.

"We are pushing for a 10-per-litre increase in diesel prices over next 10 months," said a senior petroleum ministry official last week.

The under-recovery on subsidised diesel is Rs 9.28/litre. Prices of diesel, which currently costs Rs 47.15 per litre in Delhi, were last revised on September 14 when they were raised by a steep Rs 5.63 per litre, provoking massive protests.

But, with India facing the possibility of a downgrade by global rating agencies unless it takes steps to rein in fiscal deficit, the government has no option but to bring down subsidies to meet milestones promised in its fiscal consolidation road map. The government plans to cut fiscal deficit to 4.8% of GDP for the year ending March 31, 2014, from 5.3% of GDP this fiscal.

CAG to begin KG-D6 audit on January 9
After protracted wrangling, the Comptroller and Auditor General (CAG) will on Wednesday begin the second round of audit of Reliance Industries spending on the flagging eastern offshore KG-D6 gas block.

CAG officials are scheduled to reach RIL's Navi Mumbai office on January 9 to begin the scrutiny, sources privy to the development said.

The audit was initially scheduled to begin on January 2 but was deferred to January 9.

It had agreed in May to do a second round of audit of spending in KG-D6 block for years 2008-09 to 2011-12 but that could not start due to differences over scope with RIL.

RILBSE -0.65 % had insisted that government can appoint any auditor including CAG to do a financial audit of its spending in KG-DWN-98/3 or KG-D6 block in Bay of Bengal but the Production Sharing Contract (PSC) does not allow a performance audit.

CAG on the other hand believed that its constitutional mandate does not provide for any restrictions on the nature of audit.

Sources said the Oil Ministry had given in writting to RIL that CAG audit will be strictly as per Section 1.9 of the Accounting Procedure to the Production Sharing Contract (PSC).

Following this, RIL has agreed to cooperate and provide full access of its books of accounts to CAG. It has also dropped its contention that report of CAG be not made public.

The PSC provides for a financial audit -- checking of the contractor's accounts in order to verify the charges and credits, but not a performance audit that scrutinises efficacies of processes or technology used in the complex deep sea operations.

CAG has agreed for a financial audit of RIL's KG-D6 spendings and a performance audit if it has to be conducted will be done of the Petroleum Ministry and/or the Directorate General of Hydrocarbons (DGH), sources said adding RIL will provide any document needed in doing such an audit.

Sources however did not rule out more scrimmages. RIL, to be begin with, may refuse to provide documents related to the tendering process it followed for buying equipments or in selection of service providers, something which is unlikely to be acceptable to CAG, they said.

The auditor may want to examine whether government's profit take from KG-D6 and its subsidy output on power and fertiliser increased on account of use of imported LNG due to KG-D6 output of just 20 million standard cubic meters per day not matching the projected profile of 80 mmscmd.

CAG had in its first round of KG-D6 audit begun on the premise of doing a financial audit but the report tabled in Parliament last year stated that the auditor had conducted a performance audit.

CAG has power to audit oil & gas blocks: Rangarajan

The Prime Minister-appointed Rangarajan Committee, which went into oil and gas contracts, today said CAG's authority to audit expenses was unquestionable.

"Audit is prerogative of CAG and so the power of audit remains with CAG," C Rangarajan said after the report of the panel, headed by him, was made public.

The comments come in the backdrop of intense bickering over the scope of CAG audit of Reliance Industries' spending on the flagging eastern offshore KG-D6 gas fields.

RILBSE -0.65 % has argued that while it is open to CAG doing a financial scrutiny as provided, the Production Sharing Contract does not provide a performance audit by the official auditor.

Rangarajan said blocks with low value can be audited by panel of auditors formed by CAG and for high value blocks, the official auditor should audit directly.

The CAG have the power to decide the value of the block that will be audited by it directly, he said.

In its report, the Rangarajan Committee has suggested shunning the present cost recovery model that allows operators like RIL to first recover all their investment before sharing profits with the government.

This model had come in for criticism from CAG which said it encouraged companies to keep raising cost to defer higher profit for the government.

"We want to move from the present format of contracts," he said adding the present system has run into lot of dispute.

These disputes have led to delay of implementation of contract, he said adding under the new system both govt and contractor will have revenue share from day one of production.

For the future, the panel suggested bidding out the blocks based on the highest production share offered.

Budget 2013: NMC seeks enhancement of I-T exemption limit to Rs 5 lakh

JAMMU: National Mazdoor Conference (NMC) on Sunday sought raising the Income Tax exemption limit from Rs 2 lakh to Rs 5 lakh for salaried class and urged Finance Minister P Chidambaram to announce this in the 2013-14 Union budget.

NMC President Subash Shastri said that with price rise and inflation, every salaried class is facing a lot of economic hardships and raising the I-T limit to Rs 5 lakh would be a genuine measure to provide some relief to them.

He also demanded early sanction of 20 per cent interim relief and merging of 50 per cent DA in to their basic pay and pension to offset the economic hardships of salaried class in view of steep hike in the prices of all essential commodities.

Shastri said the Centre should provide special package to all states for meeting the expenditure on account of interim relief so that there is no financial burden on them.

Plan expenditure may face axe in Budget 2013
NEW DELHI: The finance ministry has decided to axeexpenditure massively as it makes a frantic bid to stay within the revised fiscal deficit target of 5.3% announced by finance minister P Chidambaram. Some ministries and departments could face cuts of as much as 20% of their allocation, which means they may not have much to do in the last quarter of the current fiscal.

"The target of 5.3% fiscal deficit in 2012-13 is sacrosanct and all effort will be made to ensure that there is no slippage," said a ministry official, who did not wish to be named, adding that the move comes as the international agencies are keeping a close watch on India's finances.

Finance minister P Chidambaram has proposed a five-year fiscal consolidation plan that proposes to restrict fiscal deficit to 5.3% in 2012-13 and bring it down to 3% by 2016-17.

Chidambaram, who had promised a credible and feasible fiscal consolidation programme, had revised the original fiscal deficit target set in the budget at 5.1% to 5.3% in view of the fiscal challenges posed by slowing revenues and higher subsidy burden.

Sluggish tax revenues in a slowing economy and non-tax revenues such as those from spectrum sale way less from the budgeted Rs 40,000 crore have only made the government's task tougher, making it imperative to cutplan expenditure.

Ministries such as space, atomic energy, information and broadcasting, communications and IT, home affairs, rural development, panchayati raj and power can see their allocations trimmed when the government presents the revised estimates in the budget.


A cut of up to 20% may yield a saving of over Rs 25,000 crore while it could touch Rs 35,000-40,000 crore with a sharper cut.

The plan spend, as per the latest data from the controller general of accounts, stood at 46.7% of the budget estimate of Rs 5.51 lakh crore, compared with 50.1% in the previous fiscal. A few ministries have seen a plan spending as low as 17% of the budget estimate.

The Planning Commission has proposed to trim centrally-sponsored schemes from next fiscal to 59 from 147. This initiative will help the finance ministry keep its fiscal deficit tamed in at 4.8% of GDP in 2013-14 as targeted in the consolidation plan.

The finance ministry had effected a 10% mandatory cut in non-plan expenditure in the beginning of the fiscal to contain the non-plan spending. Increase in diesel prices and capping of subsidised LPG cylinders will help contain petroleum subsidy to some extent.

Independent analysts are, however, maintaining a fiscal deficit target of 5.5-5.6% of GDP for the current fiscal as they expect a shortfall of about Rs 20,000 crore on spectrum sales and Rs 20,000-25,000 crore on tax revenues.

"Markets are expecting fiscal deficit at 5.5% and are reasonably sure that any additional borrowing will not be through dated securities...But 5.3% is also not completely outside the realm of possibility with stringent expenditure cuts," said Abheek Barua, chief economist at HDFC BankBSE -1.64 %.

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