RBI may hike interest rates again

The Reserve Bank of India (RBI) will review the monetary and credit policy for the current fiscal Tuesday with chief executives of all commercial banks amid expectations of a hike in short-term interest rates.


"In the light of repeated warning by the central bank on rising prices, we are expecting the reverse repo rate to be revised upward by 25 basis points in the least," said the head of research with a leading securities firm.


The reverse repo rate is the interest charged by the Reserve Bank for the money borrowed by commercial banks and is among the instruments used by the monetary authority to check commercial lending and the supply of money to the system.


The outstanding three-day reverse repo with the central bank stood at Rs.46,070 crore (Rs 460.7 billion or around $10 billion) on July 21.



RBI governor Y V Reddy had surprised the financial markets June 8 by hiking the interest rate on short-term deposits by 25 basis points to 5.75 percent - which was the fourth such increase since October 2004.


Analysts at leading securities research firms such as JP Morgan feel the factors such as high inflation, fast expansion of bank loans, the unprecedented rise in real estate prices and high commercial activity should trigger a rate hike.


"An inflation of 4.68 percent is tolerable. There is no reason for inflationary expectations. If inflation remains moderate, interest rates will be moderate," Finance Minister P Chidambaram said, ahead of the credit policy.


But analysts said Reddy is unlikely to take a soft stand given the fact that successive interest rate hikes have not affected the robust industrial growth in the country nor have they dampened the appetite for credit.


"The headline inflation in our country in a way understates the problem," Redy had told a seminar on monetary policy at the Bureau of International Settlements in Switzerland last month.


"So, in our monetary policy communications we emphasised there is clear evidence of a permanent component in the oil price increase, and hence headline inflation may be understated till that component is fully passed through," he said.


According to analysts, the statements by senior reserve bank officials in recent months indicate that a road map may also be drawn to phase out the cash reserve ratio regime - another instrument of checking money supply.


The cash reserve ratio was hiked to 4.75 percent in September 2004 and to five percent in October 2004 and its phase-out is among the policy changes that are needed before India starts moving towards rupee convertibility, analysts said.


In the past, the central bank was presenting a monetary and credit policy for a given fiscal in April followed by a half-year review in October. But since last year, two quarterly reviews have been added to make it more contemporary.

Can India be next global metal hub?

India has the potential and capacity to become a global metal hub not only to serve the industry domestically but also make a significant pitch in the international arena, according to an expert.


Several firms, including Mittal Steel, have announced plans to set up new steel plants in the country but most are yet to firm up the projects.





"We believe that India can become a global metal hub, meeting all domestic requirements. Countries such as China and Vietnam can also be best served by India," said V Krishnamurthy, Chairman of the Prime Minister's National Manufacturing Competitiveness Council.


Krishnamurthy stressed that besides being endowed with natural resources such as iron ore, coal and other minerals, India also has the necessary engineering and metallurgical talent for manufacturing value added products and the capacity to design steel plants and equipment that goes into the plants.





"The government needs to recognise that the metal industry can be a big engine for growth. We wish to create a vibrant 400 million tonne industry," he told a committee meeting organised by the Confederation of Indian Industry (CII).


Highlighting a need for government intervention, Tata Steel managing director B Muthuraman said specific tracts of land near the coast or near the source of the raw material should be earmarked for projects, particularly steel units, as they require a large area.


"Many states don't have rehabilitation policies - a hindrance while acquiring land for the project. The Indian steel industry will become uncompetitive unless captive raw material is provided. Our natural resources must be used for the development of our country first," Muthuraman said.


Other factors for building an enabling environment include better connectivity to the mines and steel plants as also plentiful water as steel production is a water guzzler, he said.


"These are the major and fundamental problems. None of the (new steel plant projects) capacities announced will take off due to the lack of availability of land," Muthuraman cautioned.

Tips to handle your tax returns efficiently !

31st July seems to be the day, which all individual taxpayers dread because it is the last day to deal with all those complicated forms and file your tax returns. The first thing, one needs to have to file income tax returns is a Permanent Account Number (PAN). If you don’t have one, click here apply for one. It takes about 10-15 days to get a PAN.

Who must file tax returns?

Now the eligibility to pay tax and file returns is different for men, women and senior citizens. If a man's annual income is more than a lakh, he needs to pay tax on the exceeding income, depending on his level of income. Women are eligible to pay tax, only if their yearly income exceeds Rs.1,35,000 and the tax-exemption for senior citizens is Rs, 1,85,000. According to the latest amendments in the income tax law, you need to file your return only if you have a taxable income. This is an amendment compared to the earlier requirement of fulfilling a one-by-six criteria to file tax returns.

Which form to fill?

In case of senior citizens
Rs.1,85,000

In case of young ladies (all ladies below the age of 65)
Rs.1, 35,000

In case of others
Rs.1, 00,000



People who don't have business income can fill up form 2D, 2F or 2E. Of these, 2D is the simplest form that everyone, except companies, can use for filing tax returns. The Central Board of Direct Taxes (CBDT) has set up help centres in over 300 cities to assist in filing of returns.

Expert tips on filling up a tax return form



What documents to attach?
A. Statement of Income (not mandatory)
The next thing to do is to prepare a statement of income for the previous year and show how you computed tax on it. This document helps to prevent deletions or overwriting, while filing your returns. A copy of this statement should also be preferably enclosed with the returns you file. However, if you can fill in all the details in your form itself, then this statement is not required. But as Partner, Kanu Doshi Associates, Ameet Patel says, it is always advisable to attach this copy.


B. Form 16

As a salaried individual, at the end of the month, you would want the amount, which you were promised at the time of appointment. But if you look closely at your pay slip, the taxman has already taken his share. The employer, on behalf of the taxman, deducts as certain amount as Tax Deducted Source (TDS).



You should have a certificate from your employer detailing that the tax has been deducted at source on your income for the year. Form 16, as it is called, is an important document; so if you haven’t got it, ask for it. While filing your tax returns, you must attach Form 16 (in original) as proof that your employer has deducted tax at source, to prevent any double payment of tax.



C. Proof of investments
To get the maximum tax benefit, many of you may have invested your money in various instruments like Public Provident Fund (PPF), NSC (National Security Certificate), Equity Linked Savings Scheme (ELSS), life insurance premium, pension funds offered by mutual funds and so on. If your company has not taken these investments into consideration, while deducting tax at source, you need to attach the documents proving your investments. You can then either claim a rebate or will have to pay tax on returns, depending on the scheme.



Tax and investment consultant, Subhash Lakhotia told Moneycontrol, “Please do remember that when you go now to file your income-tax return for the financial year 2005-2006, no standard deduction would be granted to salaried employees. Thus, this is an important point to be taken care of by all salaried employees, so that they do not claim standard deduction, while filing their income tax return for the year ending on March 31, 2006.”

Where to submit return?
Since there is no extension of date to file your returns, all salaried individuals must go to the nearest IT office, ask the public relations officer, PRO, about the jurisdiction and find out where to submit the documents. The income tax authorities have said that special counters would be opened from July 28 to meet the eleventh hour rush of tax filers.

India vs China

China is in a tearing hurry to tap the Indian market and the CCPIT’s assistant chairman Wang Jinzhen lost no time in putting his cards on the table.

China would like India to accord it market economy status as quickly as possible. It would like clarity on foreign direct investment in the retail sector, and it would be helpful if India’s infrastructure sector could be opened up to Chinese companies without further ado.

Additionally, it would also like the controversy surrounding its telecom giant Huawei Technologies resolved quickly, so that new investment in India could be speeded up, as the record on investments has been fairly dismal so far (see ‘Needles of Suspicion’).
But whatever the misgivings on either side, trade is booming —even if there is no agreement on who is gaining. According to the latest statistics released by China Customs, two-way trade grew 79 per cent to touch $13.5 billion in 2004, and reached $18.7 billion in 2005. This means the target, set three years ago, of reaching $20 billion by 2008 could be met two years before schedule. It also means that China will soon be overtaking the US as India’s main trading partner.

Why does Indian industry blanch at the idea of an FTA with China? The answer lies in the structure of their economies and their relative strengths. Slightly over 50 per cent of China’s GDP comes from manufacturing and construction, 34.5 per cent from services and just under 15 per cent from agriculture. The fear is that the world’s factory will be flooding India with its products.

Compare this with India’s profile. More than half of its GDP (52.2 per cent) comes from services, while industry contributes just 26 per cent. As one businessman points out, “What will we gain from an FTA with China? Not lower tariffs because their tariffs are already low. All it will do is open the floodgates. Just look at what it has done to the big economies. Both the US and Japan have a huge trade deficit with China and we are pygmies compared to them.”
Ready or not, Indian industry will have to learn to tango with the dragon. China is here and it means business.

7 Lessons from the Racetrack

1. "At the racetrack ... every bettor is playing only against the other bettors.... Your opportunity for profit at the racetrack consists entirely of mistakes that your competition makes in assessing each horse's probability in winning."It's both important and sobering to remember that on the other side of every transaction is another person,who holds an exactly opposite view. Achieving above-average returns (on a risk-adjusted basis) requires seeing value where others currently don't.

2. "This is the way we all have been conditioned to think: Find the winner, then bet. Know your horses, and the money will take care of itself. Stare at the past performances long enough, and the winner will jump off the page.... The issue is not which horse in the race is the most likely winner, but which horse or horses are offering odds that exceed their actual chances of victory."A good company is easy to spot, a good value is not. Many people spend all of their time searching for the next big stock idea, yet wouldn't have a clue about what's already priced into the stock of whatever company they find. Knowing how to value a business is key.

3. "...Handicap[ing] horses is work that you do before the betting opens. As soon as those first prices go up on the board, you are looking for discrepancies between your odds and those set by your opponents....You must have a clear sense of what price every horse should be, and be prepared to discard your plans and seize new opportunities depending solely on the tote board."The key is that good investors, like good horseplayers, do their homework ahead of time to become familiar with what they're looking at. Good investors put themselves in the position to act quickly when bargains emerge because, as every shopper knows, a good bargain doesn't last long.

4. "It might not be a great deal of fun, but you could sit around and wait for mismatches, races in which one horse is so clearly superior to the competition that anyone could fairly agree that he has a better than 50 percent chance of winning the race.... There is no shame in passing a race because you just don't see any value in it.""Sitting around and waiting for mismatches" is exactly what Warren Buffett has done for the past half-century. He is well aware that "shame" comes not from shrewdly "passing a race," but recklessly entering one. "You don't get paid for activity," Buffett instructed, "You get paid for being right."

5. "What defines sucker money is not the horse selected, but the acceptance of odds on that horse that are substantially out of line with its chances of winning." A bad (or good) investment has as much to do with what price was paid as it does with what business was bought. So it's entirely possible that the stock of a bad business can offer attractive returns. And just as a bad company can make for a good investment bet, a good company can be a bad investment bet.

6. "...The world's savviest bettor cannot win with bad opinions"There are plenty of people who come up with very precise valuations for companies (down to the penny in some cases), yet their knowledge of the companies is scant, and therefore, their valuations worthless. Truly understanding the business is a prerequisite for valuation.

7. Finally, as Crist says, "If all of this seems too calculating and joyless, by all means feel free to forget about it and enjoy yourself at the races betting horses you fancy regardless of their price. You'll have plenty of company, and the rest of us could use your money."