Category: Excerpts

India said it may seize Vodafone Group Plc’s assets in the country if the company doesn’t pay a disputedRs.14,200 crore tax bill that’s still undergoing international arbitration proceedings, according to a copy of the notice that was sent to the company this month.

Anil Sant, deputy commissioner of income tax, informed the company’s Vodafone International Holdings BV Dutch unit of its dues in a letter dated 4 February, according to the document, a copy of which was seen by Bloomberg News. Spokesman Ben Padovan at Vodafone and a representative at India’s tax department declined to comment.

Any overdue amounts, even from overseas companies, may be recovered “from any assets of the non-resident which are, or may at any time come, within India,” according to the letter.

Vodafone has been fighting Indian tax authorities for years over its purchase of billionaire Li Ka-shing’s mobile-phone business in the country during 2007 in a case that analysts have said may influence foreign investors’ perceptions about India.

It’s not immediately clear what the government’s next steps would be if Vodafone were to decline the payment request.-from Mint

In his biography The Z Factor, television mogul Subhash Chandra has been extraordinarily candid about his past.

He acknowledges what was long suspected: that he profiteered enormously from dubious rice deals with the Soviets in the early 1980s. He was awarded a lucrative contract to export basmati to Russia, on the understanding that he would share 50 per cent of his profit with his benefactors in the Congress party.

Chandra confesses that it was Rajiv Gandhi who steered the deal his way through his aide Vijay Dhar. Chandra writes that he deposited half the share of profits, first with Dhirendra Brahmachari, then with Sitaram Kesri and finally with Arun Nehru.

An interesting sidelight to the story is that while the Soviets were paying for expensive basmati rice, Goyal cut corners by mixing basmati with the cheaper ‘parmal’ variety. The Russians, unfamiliar with the various grades of Indian rice, assumed that he was cheating them since their long-standing rice supplier, Tulsi Tanna, had only been supplying parmal and they thought parmal was the better quality rice. Chandra did not argue with the Russians, but made even bigger profits by exporting only parmal henceforth. – from Indian Express 

One very important contributor to macroeconomic stability is healthy banks. Banks in India have a number of stressed loans on their balance sheet. In some cases, the reality is that existing loans will have to be written down significantly because of the changed circumstances since they were sanctioned (which includes extensive project delays, cost overruns, global overcapacity, and overoptimistic demand projections). If loans are written down, the promoter brings in more equity, and other stakeholders like the tariff authorities or the local government chip in, the project may have a strong chance of revival, and the promoter will be incentivized to try his utmost to put it back on track. But to do all this deep surgery, the bank has to classify the asset as a Non Performing Asset (NPA), a label banks are eager to avoid. Alternatively, instead of deep surgery, the banks could apply band aids, they could “extend and pretend”, lending the promoter the money he needs to make loan payments. The project’s debt obligations grow, the promoter loses further interest, and the project goes into further losses.

A number of good banks in our system have taken the necessary action to recognize and resolve stressed loans in a timely fashion. But some others need to take more proactive action. Over the last few quarters, the Reserve Bank has expanded the tools banks have to recognize and deal with stressed loans. It is now working with the Government and banks to ensure that the stressed assets are dealt with on a proactive basis, and that bank balance sheets both reflect a true and fair picture, and are adequately provisioned. The Finance Minister has indicated he will support the public sector banks with capital infusions as needed. Our estimate is that the support that has been indicated will suffice, especially when coupled with other capital sources that are usually available to banks. Our various scenarios also show private sector banks will not want for regulatory capital as a result of this exercise. Finally, the RBI is also working on identifying currently non-recognizable capital that is already on bank balance sheets, such as undervalued assets. The RBI could allow some of these to count as capital as per Basel norms, provided a bank meets minimum common equity standards.

In sum, we believe enough capital is available. While the profitability of some banks may be impaired in the short run, the system, once cleaned, will be able to support economic growth in a sustainable and profitable way. To be less proactive, as our past and the history of banking across the world suggests, will only see the problem get bigger and less manageable.-from RBI Governor Raghuram Rajan’s speech

I have been referring to cooking gas, fertilizer and kerosene subsidies. I must confess that I am surprised by the way words are used by experts on this matter. When a benefit is given to farmers or to the poor, experts and government officers normally call it a subsidy. However, I find that if a benefit is given to industry or commerce, it is usually called an “incentive” or a “subvention”.

We must ask ourselves whether this difference in language also reflects a difference in our attitude? Why is it that subsidies going to the well-off are portrayed in a positive manner?

Let me give you an example. The total revenue loss from incentives to corporate tax payers was over Rs 62,000 crore. Dividends and long term capital gains on shares traded in stock exchanges are totally exempt from income tax even though it is not the poor who earn them. Since it is exempt, it is not even counted in the Rs62,000 crore. Double taxation avoidance treaties have in some cases resulted in double non-taxation. This also is not counted in the Rs62,000 crore.

Yet these are rarely referred to by those who seek reduction of subsidies. Perhaps these are seen as incentives for investment. I wonder whether, if the fertiliser subsidy is re-named as “incentive for agricultural production”, some experts will view it differently.

–from Narendra Modi’s Speech at ET Global Business Summit