June 17 (Bloomberg) -- India will buy back 100 billion rupees ($2.1 billion) of government securities through an auction tomorrow to boost cash in the financial system.
The government will buy the bonds through a multiple price-based “multi-security” auction, The Reserve Bank of India said in an e-mailed statement yesterday. The auction tomorrow is part of the government’s plan to buy as much as 200 billion rupees of debt in one or more tranches, it said.
Overnight interbank rates climbed to as much as 5.4 percent yesterday from 4.9 percent at the end of May. Banks borrowed an average 375 billion rupees a day from the central bank through its repurchase-auction window this month, indicating a shortage of cash after license-fee payments by phone companies. Last month, they lent a daily average of 328 billion rupees of surplus to the central bank.
“It’s a short-term measure to address a temporary tightening in liquidity and will help infusing confidence among investors,” said Srinivasa Raghavan, head of fixed-income trading in Mumbai at IDBI Gilts. The yield on the benchmark 10- year bond may drop as much as 10 basis points today, he said.
The yield on the 7.80 percent note due May 2020 dropped seven basis points yesterday to 7.59 percent as of the 5:30 p.m. close in Mumbai, according to the central bank’s trading system.
The finance ministry will tomorrow repurchase the 12.25 percent notes maturing in 2010, 11.3 percent securities due 2010 and 6.57 percent debt maturing 2011, it said in the statement.
Cash availability has dropped after the government raised 677.2 billion rupees from last month’s auction of mobile-phone permits prompting the central bank to ease bond reserve requirement rules until July 2.
Wireless License
The central bank said lenders can raise more cash by cutting their debt holdings by as much as 0.5 percentage point below the minimum regulatory requirement of 25 percent of deposits. The Reserve Bank is also holding additional daily money-market auctions to increase the availability of funds.
The government is also raising a combined 385.4 billion rupees from winners of wireless broadband licenses by June 22. Companies may pay up to 350 billion rupees in quarterly tax this week, said Pradeep Madhav, managing director of Mumbai- based Securities Trading Corp. of India last week.
The Reserve Bank, whose next policy meeting is scheduled on July 27, has raised interest rates twice since mid-March, by a quarter-percentage point each time. The reverse-repurchase rate, or the rate at which the central bank absorbs surplus cash, is 3.75 percent, while the repurchase auction rate is 5.25 percent.
Wednesday, June 16, 2010
Housing Market Slows as Buyers Get More Demanding
Before the recession, people simply looked for a house to buy. Later they got squeamish just thinking about buying. Now they are on a quest for perfection at the perfect price.
Exacting buyers are upending the battered real estate market, agents and other experts say, leading to last-minute demands for multiple concessions, bruised feelings on all sides and many more collapsed deals than usual.
It is a reversal of roles from the boom, when competing buyers were sometimes reduced to writing heartfelt letters saying how much they loved the house and how they promised to eternally worship the memory of the previous owners. These days, it is the buyers who are coldly seeking the absolute best deal while the sellers are left in emotional turmoil.
“We see buyers who must have learned their moves from the World Wrestling Federation,” said Glenn Kelman, chief executive of the online broker Redfin. “They think the final smack-down occurs at the inspection, where the seller will be reluctant to refuse any demand because the alternative is putting the house back on the market as damaged goods.”
Everyone expected the housing market to suffer at least a temporary hangover after the government’s $8,000 tax credit expired, but not necessarily this much. Preliminary data from around the country indicates that the housing market began swooning last month immediately after the credit was no longer available. In some places, sales dropped more than 20 percent from May 2009, when the worst of the financial crisis had subsided.
Builders have been affected too. Construction of new homes in May dropped 17.2 percent from April, the Commerce Department said Wednesday, significantly lower than forecast. Permits for future construction dropped 10 percent, suggesting a cruel summer.
Even the lowest home mortgage rates in decades are not doing much to invite deals. The Mortgage Bankers Association said Wednesday that applications for loans to buy houses were down by a third compared with last year. Applications are back to the level of the mid-1990s, when the country’s housing market was smaller.
Against such a backdrop of misery, buyers are empowered — and are taking full advantage.
John Porter Simons, a Seattle software engineer, thought he had a couple willing to pay $340,000 for his house. But they asked for $24,000 worth of work, most of which involved waterproofing the basement. “It was totally irrational,” said Mr. Simons. “My basement has never flooded. I live on a hill.”
He made a counteroffer to their offer, and the buyers walked. The house is now under contract to a new set of buyers, who got a cut in price and $2,500 in electrical work thrown in.
Buyers, of course, say they are merely being smart.
Chris Dunn, an economic consultant in Chicago, saw a house he liked last month for $539,000. He offered $500,000, but then his inspector told him that he would eventually have to replace the windows. The sellers were persuaded to kick in another $10,000 to pay for the work.
“We didn’t feel we were being that aggressive,” said Mr. Dunn. “We had the position, ‘If the seller is willing to come down enough, we will buy this home.’ If they weren’t willing, we would have just moved on. In this market, you have a lot of options.”
In some cases, agents say, sellers literally cannot afford to make concessions. Another $10,000 will push them underwater, which means they will have to arrange the sale through the bank.
“People cashed in on their houses to get money to go on vacation, for a new roof, to send the kids to college,” said Roberta Baldwin, an agent in Montclair, N.J. “They thought it was always going to be worth more.”
Even when a sale can be worked out, it is not uncommon for everyone to walk away feeling more aggrieved than celebratory.
“Buyers feel they’re not appreciated for simply making an offer,” Ms. Baldwin said. “And sellers feel humiliated and even angry. They expected to do better.”
Exacting buyers are upending the battered real estate market, agents and other experts say, leading to last-minute demands for multiple concessions, bruised feelings on all sides and many more collapsed deals than usual.
It is a reversal of roles from the boom, when competing buyers were sometimes reduced to writing heartfelt letters saying how much they loved the house and how they promised to eternally worship the memory of the previous owners. These days, it is the buyers who are coldly seeking the absolute best deal while the sellers are left in emotional turmoil.
“We see buyers who must have learned their moves from the World Wrestling Federation,” said Glenn Kelman, chief executive of the online broker Redfin. “They think the final smack-down occurs at the inspection, where the seller will be reluctant to refuse any demand because the alternative is putting the house back on the market as damaged goods.”
Everyone expected the housing market to suffer at least a temporary hangover after the government’s $8,000 tax credit expired, but not necessarily this much. Preliminary data from around the country indicates that the housing market began swooning last month immediately after the credit was no longer available. In some places, sales dropped more than 20 percent from May 2009, when the worst of the financial crisis had subsided.
Builders have been affected too. Construction of new homes in May dropped 17.2 percent from April, the Commerce Department said Wednesday, significantly lower than forecast. Permits for future construction dropped 10 percent, suggesting a cruel summer.
Even the lowest home mortgage rates in decades are not doing much to invite deals. The Mortgage Bankers Association said Wednesday that applications for loans to buy houses were down by a third compared with last year. Applications are back to the level of the mid-1990s, when the country’s housing market was smaller.
Against such a backdrop of misery, buyers are empowered — and are taking full advantage.
John Porter Simons, a Seattle software engineer, thought he had a couple willing to pay $340,000 for his house. But they asked for $24,000 worth of work, most of which involved waterproofing the basement. “It was totally irrational,” said Mr. Simons. “My basement has never flooded. I live on a hill.”
He made a counteroffer to their offer, and the buyers walked. The house is now under contract to a new set of buyers, who got a cut in price and $2,500 in electrical work thrown in.
Buyers, of course, say they are merely being smart.
Chris Dunn, an economic consultant in Chicago, saw a house he liked last month for $539,000. He offered $500,000, but then his inspector told him that he would eventually have to replace the windows. The sellers were persuaded to kick in another $10,000 to pay for the work.
“We didn’t feel we were being that aggressive,” said Mr. Dunn. “We had the position, ‘If the seller is willing to come down enough, we will buy this home.’ If they weren’t willing, we would have just moved on. In this market, you have a lot of options.”
In some cases, agents say, sellers literally cannot afford to make concessions. Another $10,000 will push them underwater, which means they will have to arrange the sale through the bank.
“People cashed in on their houses to get money to go on vacation, for a new roof, to send the kids to college,” said Roberta Baldwin, an agent in Montclair, N.J. “They thought it was always going to be worth more.”
Even when a sale can be worked out, it is not uncommon for everyone to walk away feeling more aggrieved than celebratory.
“Buyers feel they’re not appreciated for simply making an offer,” Ms. Baldwin said. “And sellers feel humiliated and even angry. They expected to do better.”
Asian Nations Impose Curbs to Slow Expanding Property Bubbles
June 17 (Bloomberg) -- From Shanghai to Singapore, policy makers are struggling in their efforts to curb property bubbles that threaten to derail the world’s fastest-growing region.
In China, home prices are surging at a record pace even after authorities set price ceilings, demanded higher deposits, and limited second-home purchases. In Hong Kong, where the government has pledged to release more land to cool prices, a site auctioned on June 8 fetched the most since the market peak of 1997. It’s a similar story in Singapore and Taiwan as prices defy cooling measures.
“Governments allow the property bubble to get so big and then try to use administrative measures to keep out speculators,” said Andy Xie, former Morgan Stanley chief economist for Asia-Pacific and now a private economist based in Shanghai. “It creates the risk of a very hard landing. The right thing to do is raise interest rates.”
The International Monetary Fund has cautioned that Asia’s booming home prices “pose risks to financial stability.” Governments in the region are turning to market curbs rather than raising interest rates -- at 20-year lows in some places -- in an effort to avert a U.S.-style property crash. While real estate prices have yet to respond, equity investors have: a Bloomberg index of 192 Asia-Pacific real estate stocks has lost 15 percent in 2010 versus a 1.5 percent gain for its U.S. peer.
“The property bubbles in Asia right now are reminiscent of the U.S. before the subprime crisis because they are both fuelled by debt when interest rates are too low,” Xie said.
Hong Kong had its first signal this week of a possible turn in the market, when billionaire Lee Shau-kee’s Henderson Land Development Co. announced that sales of 20 luxury apartments had been canceled, including a unit that would have set a world record price of HK$88,000 ($11,300) per square foot.
Lending Binge
China, while keeping interest rates steady, has restricted pre-sales by developers, curbed loans for third-home purchases, raised minimum mortgage rates, and tightened down-payment requirements for second-home purchases. The government is trying to peel back the effects of a $586 billion stimulus plan and $1.4 trillion lending binge that revived economic growth and sparked record property price increases.
China’s banking regulator this week said it sees growing credit risks in the nation’s real-estate industry and warned of increasing pressure from non-performing loans.
Risks associated with home mortgages are growing and a “chain effect” may reappear in real-estate development loans, the China Banking Regulatory Commission said in its annual report published on its website June 15.
While prices have yet to drop, sales volumes have. Property sales in Beijing, Shanghai and Shenzhen fell as much as 70 percent in May. China Vanke Co., the nation’s biggest publicly traded property developer, said its sales fell 20 percent in May from a year earlier. Guangzhou R&F Properties Co.’s contracted sales last month shrank 48 percent.
Cut Estimates
Property prices rose 12.4 percent in May, compared with a record 12.8 percent increase in April, from a year earlier, indicating price declines are not keeping pace with the drop in transactions. The value of sales last month slid 25 percent from April. The data series, covering 70 cities, began in 2005.
JPMorgan Chase & Co. analysts on June 8 cut their profit estimates for China’s developers by an average 9 percent in 2010 and 11 percent in 2011 on a “substantial slowdown” in sales.
China Se Shang’s Property Index has tumbled 28 percent this year, with 32 of 34 members declining, led by Shanghai New Huangpu Real Estate Co. and Poly Real Estate Group Co.
Hong Kong may increase sales taxes on some properties, is accelerating land auctions, and is scrutinizing developers’ sales techniques. Singapore plans to increase the supply of land for housing, has barred interest-only mortgages for uncompleted homes, and levied a seller’s stamp duty on some properties.
‘Regulatory Measures’
Taiwan’s financial regulator asked the bankers’ association to tighten lending procedures, while two state-owned lenders have raised mortgage rates and cut the amount of loans for buyers of luxury homes and property investors. Interest rates on the island have been at a record low since February 2009.
“The regulatory measures are not aiming to crash the whole property market, they are aiming to cool the speculative end,” said Khiem Do, Hong Kong-based head of multi-asset strategy at Baring Asset Management (Asia) Ltd., which oversees $11 billion. Do is underweight Asian property in his funds and is looking to buy back into the worst hit Chinese property stocks.
Home prices in Hong Kong have risen almost 40 percent from the beginning of 2009, driven by interest rates at 20-year lows, lagging supply growth and buying from rich mainland Chinese. The risk of a property bubble remained in the city amid liquidity and low interest rates, Norman Chan, chief executive of the Hong Kong Monetary Authority, said May 20.
Ability to Pay
Potential home purchasers should consider their ability to pay before taking out mortgages, Financial Secretary John Tsang said June 9, a day after a residential site sold at a public auction for HK$10.9 billion ($1.4 billion), beating estimates.
In Taipei, home prices climbed 3.4 percent in May from April, Sinyi Realty Co., the biggest housing broker in Taiwan, said May 31. They have risen 29 percent to a record since September 2008 when the collapse of Lehman Brothers Holdings Inc. deepened the global credit crisis.
Singapore Sales
Private residential sales in Singapore rose to a nine-month high of 2,208 in April, the Urban Redevelopment Authority said, the highest since July 2009, showing the “resilience” of demand for new homes even after the government curbs, Li Hiaw Ho, executive director of CB Richard Ellis Research, said then. Sales dropped to 1,078 units in May.
There continues to be concerns over “excessive” asset- price inflation in emerging Asia, the Singapore government said May 20. If asset prices correct too sharply in China, it could have “negative spillover” effects on regional economies, Ravi Menon, permanent secretary at the Singapore trade ministry, told reporters the same day.
The failure to raise rates may allow the bubble to keep swelling, said Stephen Halmarick, Sydney-based head of investment-markets research at Colonial First State Global Asset Management, which manages about $135 billion.
“The lesson of subprime is that, if you let asset prices go too far for too long, the correction can be very damaging,” he said.
In China, home prices are surging at a record pace even after authorities set price ceilings, demanded higher deposits, and limited second-home purchases. In Hong Kong, where the government has pledged to release more land to cool prices, a site auctioned on June 8 fetched the most since the market peak of 1997. It’s a similar story in Singapore and Taiwan as prices defy cooling measures.
“Governments allow the property bubble to get so big and then try to use administrative measures to keep out speculators,” said Andy Xie, former Morgan Stanley chief economist for Asia-Pacific and now a private economist based in Shanghai. “It creates the risk of a very hard landing. The right thing to do is raise interest rates.”
The International Monetary Fund has cautioned that Asia’s booming home prices “pose risks to financial stability.” Governments in the region are turning to market curbs rather than raising interest rates -- at 20-year lows in some places -- in an effort to avert a U.S.-style property crash. While real estate prices have yet to respond, equity investors have: a Bloomberg index of 192 Asia-Pacific real estate stocks has lost 15 percent in 2010 versus a 1.5 percent gain for its U.S. peer.
“The property bubbles in Asia right now are reminiscent of the U.S. before the subprime crisis because they are both fuelled by debt when interest rates are too low,” Xie said.
Hong Kong had its first signal this week of a possible turn in the market, when billionaire Lee Shau-kee’s Henderson Land Development Co. announced that sales of 20 luxury apartments had been canceled, including a unit that would have set a world record price of HK$88,000 ($11,300) per square foot.
Lending Binge
China, while keeping interest rates steady, has restricted pre-sales by developers, curbed loans for third-home purchases, raised minimum mortgage rates, and tightened down-payment requirements for second-home purchases. The government is trying to peel back the effects of a $586 billion stimulus plan and $1.4 trillion lending binge that revived economic growth and sparked record property price increases.
China’s banking regulator this week said it sees growing credit risks in the nation’s real-estate industry and warned of increasing pressure from non-performing loans.
Risks associated with home mortgages are growing and a “chain effect” may reappear in real-estate development loans, the China Banking Regulatory Commission said in its annual report published on its website June 15.
While prices have yet to drop, sales volumes have. Property sales in Beijing, Shanghai and Shenzhen fell as much as 70 percent in May. China Vanke Co., the nation’s biggest publicly traded property developer, said its sales fell 20 percent in May from a year earlier. Guangzhou R&F Properties Co.’s contracted sales last month shrank 48 percent.
Cut Estimates
Property prices rose 12.4 percent in May, compared with a record 12.8 percent increase in April, from a year earlier, indicating price declines are not keeping pace with the drop in transactions. The value of sales last month slid 25 percent from April. The data series, covering 70 cities, began in 2005.
JPMorgan Chase & Co. analysts on June 8 cut their profit estimates for China’s developers by an average 9 percent in 2010 and 11 percent in 2011 on a “substantial slowdown” in sales.
China Se Shang’s Property Index has tumbled 28 percent this year, with 32 of 34 members declining, led by Shanghai New Huangpu Real Estate Co. and Poly Real Estate Group Co.
Hong Kong may increase sales taxes on some properties, is accelerating land auctions, and is scrutinizing developers’ sales techniques. Singapore plans to increase the supply of land for housing, has barred interest-only mortgages for uncompleted homes, and levied a seller’s stamp duty on some properties.
‘Regulatory Measures’
Taiwan’s financial regulator asked the bankers’ association to tighten lending procedures, while two state-owned lenders have raised mortgage rates and cut the amount of loans for buyers of luxury homes and property investors. Interest rates on the island have been at a record low since February 2009.
“The regulatory measures are not aiming to crash the whole property market, they are aiming to cool the speculative end,” said Khiem Do, Hong Kong-based head of multi-asset strategy at Baring Asset Management (Asia) Ltd., which oversees $11 billion. Do is underweight Asian property in his funds and is looking to buy back into the worst hit Chinese property stocks.
Home prices in Hong Kong have risen almost 40 percent from the beginning of 2009, driven by interest rates at 20-year lows, lagging supply growth and buying from rich mainland Chinese. The risk of a property bubble remained in the city amid liquidity and low interest rates, Norman Chan, chief executive of the Hong Kong Monetary Authority, said May 20.
Ability to Pay
Potential home purchasers should consider their ability to pay before taking out mortgages, Financial Secretary John Tsang said June 9, a day after a residential site sold at a public auction for HK$10.9 billion ($1.4 billion), beating estimates.
In Taipei, home prices climbed 3.4 percent in May from April, Sinyi Realty Co., the biggest housing broker in Taiwan, said May 31. They have risen 29 percent to a record since September 2008 when the collapse of Lehman Brothers Holdings Inc. deepened the global credit crisis.
Singapore Sales
Private residential sales in Singapore rose to a nine-month high of 2,208 in April, the Urban Redevelopment Authority said, the highest since July 2009, showing the “resilience” of demand for new homes even after the government curbs, Li Hiaw Ho, executive director of CB Richard Ellis Research, said then. Sales dropped to 1,078 units in May.
There continues to be concerns over “excessive” asset- price inflation in emerging Asia, the Singapore government said May 20. If asset prices correct too sharply in China, it could have “negative spillover” effects on regional economies, Ravi Menon, permanent secretary at the Singapore trade ministry, told reporters the same day.
The failure to raise rates may allow the bubble to keep swelling, said Stephen Halmarick, Sydney-based head of investment-markets research at Colonial First State Global Asset Management, which manages about $135 billion.
“The lesson of subprime is that, if you let asset prices go too far for too long, the correction can be very damaging,” he said.
India hopes monsoon will tame inflation
India’s Congress-led government is counting on bountiful monsoon rains to boost agricultural production and tame inflation that hit 10.16 per cent in May, driven partly by a 16.5 per cent rise in food prices.
Yet, in spite of the Indian Metrological Department’s optimistic April forecast for a normal monsoon, the departments’ charts and maps – published on a website updated four times daily – indicate that the progress of this year’s monsoon across the subcontinent has been sluggish.
Rains hit India’s southern coast on May 31, a day before schedule, and progressed well into the cane, oilseed and rice growing areas of the south-west. Heavy rains in Mumbai, the business capital, brought the city to a virtual halt yesterday, forcing the airport to close for two hours.
But the monsoon’s progress northwards has been slower than normal. Weather officials have warned that the rains might be late to reach the northwestern state of Punjab, India’s traditional granary. As of June 11, India’s cumulative rainfall was 7 per cent below the long-period average for the season.
Indian officials have played down the sluggish start to the rains, saying the delays could be made up in the rest of the season and would not affect agricultural production. Independent analysts said it was too soon to draw any conclusion about the quality of the monsoon season, which lasts until September, or its likely impact on food production.
“The south, which isn’t very well irrigated, has received rainfall quite early and adequate, so that’s the good side,” said Jahangir Aziz, chief economist in India for JPMorgan. “The north and east, which has more irrigation, still seems to be a problem.”
About 60 per cent of India’s cultivated areas depend entirely on rainfall to water crops. Farmers were hard hit last year by poor, erratic rainfall, which led to a fall in crop production, driving food price inflation to nearly 17 per cent, from previous levels of about 10-11 per cent.
Mr Aziz said easing the current high levels of food price inflation was crucial if the Congress-led coalition was to act on its politically sensitive aim of raising subsidised fuel prices, which was essential to reduce the government’s yawning fiscal deficit.
A government panel, led by Pranab Mukherjee, the finance minister, this week postponed a meeting scheduled to consider whether or not to reform the state-controlled fuel price system, to link prices more closely to the market, which would lead to a rise in fuel prices.
“If you don’t get at least a couple of months of a decline in headline inflation, it’s going to be very difficult for the government to come and change the petroleum policy,” said Mr Aziz.
Yet, in spite of the Indian Metrological Department’s optimistic April forecast for a normal monsoon, the departments’ charts and maps – published on a website updated four times daily – indicate that the progress of this year’s monsoon across the subcontinent has been sluggish.
Rains hit India’s southern coast on May 31, a day before schedule, and progressed well into the cane, oilseed and rice growing areas of the south-west. Heavy rains in Mumbai, the business capital, brought the city to a virtual halt yesterday, forcing the airport to close for two hours.
But the monsoon’s progress northwards has been slower than normal. Weather officials have warned that the rains might be late to reach the northwestern state of Punjab, India’s traditional granary. As of June 11, India’s cumulative rainfall was 7 per cent below the long-period average for the season.
Indian officials have played down the sluggish start to the rains, saying the delays could be made up in the rest of the season and would not affect agricultural production. Independent analysts said it was too soon to draw any conclusion about the quality of the monsoon season, which lasts until September, or its likely impact on food production.
“The south, which isn’t very well irrigated, has received rainfall quite early and adequate, so that’s the good side,” said Jahangir Aziz, chief economist in India for JPMorgan. “The north and east, which has more irrigation, still seems to be a problem.”
About 60 per cent of India’s cultivated areas depend entirely on rainfall to water crops. Farmers were hard hit last year by poor, erratic rainfall, which led to a fall in crop production, driving food price inflation to nearly 17 per cent, from previous levels of about 10-11 per cent.
Mr Aziz said easing the current high levels of food price inflation was crucial if the Congress-led coalition was to act on its politically sensitive aim of raising subsidised fuel prices, which was essential to reduce the government’s yawning fiscal deficit.
A government panel, led by Pranab Mukherjee, the finance minister, this week postponed a meeting scheduled to consider whether or not to reform the state-controlled fuel price system, to link prices more closely to the market, which would lead to a rise in fuel prices.
“If you don’t get at least a couple of months of a decline in headline inflation, it’s going to be very difficult for the government to come and change the petroleum policy,” said Mr Aziz.
Tuesday, June 15, 2010
India Proposes Tax on Gains From Stock Sales, Funds
June 16 (Bloomberg) -- India proposes to impose a capital gains tax on all stock transactions by Indians and overseas funds, aimed at boosting revenue and pare the budget shortfall from a 16-year high.
The new proposals include a move to tax investments in stocks and equity-linked mutual funds at the applicable tax rates for income, according to a document posted on the Finance Ministry’s website yesterday. The so-called direct tax code also proposes to allow a deduction at a specified percentage for investments held for more than a year.
India’s Finance Minister Pranab Mukherjee last year unveiled plans for the biggest change to the nation’s tax law in almost five decades, seeking to raise revenue in Asia’s third- largest economy where a majority of the nation’s 1.2 billion people don’t pay a rupee in income tax. Raising tax revenue would help Mukherjee narrow the budget deficit to 5.5 percent of gross domestic product in the year started April 1, from a 16- year high of 6.9 percent in the previous 12 months.
“It’s understandable why the government is targeting foreign institutional investors and domestic investors, they’re easy targets,” Vikas Pershad, Chicago-based chief executive officer of hedge fund Veda Investments LLC, said in e-mailed comments. Still “FIIs are the worst taxpayers to target, because they’re the people for whom it’s easiest to take their capital elsewhere,” he said.
Overseas investors, categorized as Foreign Institutional Investors, will be liable to pay tax as per the proposals. All investments by such investors will be considered as capital gains. Overseas funds that have been reporting income from stock investments as business income and claiming exemptions will not be allowed to claim such benefits, the tax code proposes.
Few Taxpayers
India relies on the 27 million people who pay taxes in the world’s second-most populous nation to help fund 10.2 trillion rupees ($219 billion) in spending that’s needed to spur economic growth.
Short-term capital gains arising from sale of stocks within a year are taxed at 15 percent at present and long-term capital gains for such investments held for more than a year are exempt from tax.
The draft on the new tax code and a paper for public discussion was released in August last year. The government yesterday released a revised document, seeking comments from investors.
India may present the draft direct tax code to lawmakers during the monsoon session of parliament next month, Revenue Secretary Sunil Mitra said in New Delhi yesterday.
Could Deter Investments
The proposals if passed as law could deter overseas investments into India, Pershad said.
Overseas investors sold $2.04 billion in Indian stocks last month, pulling out the most funds since October 2008 as the European debt crisis roiled global equity markets.
“India will become a less desirable market for foreign investors if the taxes are raised as meaningfully as the government is considering,” Pershad said. “Given the current volatility of markets, more trades and investments are being executed with a time horizon of less than 1 year -- why punish people for being prudent?”
The new law also proposes tripling the limit on tax-free investment in pension funds and life insurance to 300,000 rupees ($6,443) to boost savings and help the government raise finance for ports, roads and airports.
The new proposals include a move to tax investments in stocks and equity-linked mutual funds at the applicable tax rates for income, according to a document posted on the Finance Ministry’s website yesterday. The so-called direct tax code also proposes to allow a deduction at a specified percentage for investments held for more than a year.
India’s Finance Minister Pranab Mukherjee last year unveiled plans for the biggest change to the nation’s tax law in almost five decades, seeking to raise revenue in Asia’s third- largest economy where a majority of the nation’s 1.2 billion people don’t pay a rupee in income tax. Raising tax revenue would help Mukherjee narrow the budget deficit to 5.5 percent of gross domestic product in the year started April 1, from a 16- year high of 6.9 percent in the previous 12 months.
“It’s understandable why the government is targeting foreign institutional investors and domestic investors, they’re easy targets,” Vikas Pershad, Chicago-based chief executive officer of hedge fund Veda Investments LLC, said in e-mailed comments. Still “FIIs are the worst taxpayers to target, because they’re the people for whom it’s easiest to take their capital elsewhere,” he said.
Overseas investors, categorized as Foreign Institutional Investors, will be liable to pay tax as per the proposals. All investments by such investors will be considered as capital gains. Overseas funds that have been reporting income from stock investments as business income and claiming exemptions will not be allowed to claim such benefits, the tax code proposes.
Few Taxpayers
India relies on the 27 million people who pay taxes in the world’s second-most populous nation to help fund 10.2 trillion rupees ($219 billion) in spending that’s needed to spur economic growth.
Short-term capital gains arising from sale of stocks within a year are taxed at 15 percent at present and long-term capital gains for such investments held for more than a year are exempt from tax.
The draft on the new tax code and a paper for public discussion was released in August last year. The government yesterday released a revised document, seeking comments from investors.
India may present the draft direct tax code to lawmakers during the monsoon session of parliament next month, Revenue Secretary Sunil Mitra said in New Delhi yesterday.
Could Deter Investments
The proposals if passed as law could deter overseas investments into India, Pershad said.
Overseas investors sold $2.04 billion in Indian stocks last month, pulling out the most funds since October 2008 as the European debt crisis roiled global equity markets.
“India will become a less desirable market for foreign investors if the taxes are raised as meaningfully as the government is considering,” Pershad said. “Given the current volatility of markets, more trades and investments are being executed with a time horizon of less than 1 year -- why punish people for being prudent?”
The new law also proposes tripling the limit on tax-free investment in pension funds and life insurance to 300,000 rupees ($6,443) to boost savings and help the government raise finance for ports, roads and airports.
India’s Clogged Rail Lines Stall Economic Progress
MUMBAI, India — S. K. Sahai’s firm ships containers 2,400 nautical miles from Singapore to a port here in four or five days. But it typically takes more than two weeks to make the next leg of the journey, 870 miles by rail to New Delhi.
For most of that time the containers idle at the Jawaharlal Nehru Port near Mumbai because railway terminals, trains and tracks are severely backlogged all along the route. Counting storage and rail freight fees, Mr. Sahai estimates the cost of moving goods from Mumbai to Delhi at up to $840 per container — or about three times as much as getting the containers to India from Singapore.
“They don’t have any physical space,” Mr. Sahai, who is chairman of SKS Logistics of Mumbai, said about the government-owned Indian Railways. “And all their trains are booked.”
As the world looks to India to compete with China as a major source of new global economic growth, this country’s weak transportation network is stalling progress.
Economists say India must invest heavily in transportation to achieve a long-term annual growth rate of 10 percent — the goal recently set by the prime minister, Manmohan Singh. But whether measured by highways, airways or — particularly — far-reaching railways, India’s transportation is falling short.
Critics say the growth and modernization of Indian Railways has been hampered by government leaders more interested in winning elections and appeasing select constituents, rather than investing in the country’s long-term needs. It is one of the many ways that the political realities of India’s clamorous democracy stand in contrast to the forced march that China’s authoritarian system can dictate for economic development.
A 40,000-mile, 150-year-old network, Indian Railways is often described as the backbone of this nation’s economy. And in fact it is moving more people and goods than ever: seven billion passengers and 830 million tons of cargo a year. But its expansion and modernization is not keeping pace with India’s needs.
“If it has to serve as the backbone of the Indian economy, the leaders of the Indian Railways have to think big, and they need to have a larger vision,” said S. Ramnarayan, a professor at the Indian School of Business and co-author of a book about the railways. “Thinking in terms of incrementalism — a little extra here, a little extra there — doesn’t solve anybody’s problem.”
The crash on an eastern rail link late last month that killed 151 people and injured hundreds of others underscored the vital nature of the railroads, as well as their vulnerability. The crash, which authorities have attributed to Maoist rebels, was particularly disruptive because it disabled a busy east-west line that, along with many others, was already stretched thin.
Traffic between big cities like Mumbai and Delhi, for instance, often runs at more than 120 percent of planned capacity, which means trains travel more slowly and tracks wear out faster than intended.
And because the railways’ tracks are too lightweight and the locomotives underpowered, Indian trains can haul no more than 5,000 tons of cargo, compared with 20,000-ton capacities in the United States, China and Russia.
India’s fastest passenger services, the Rajdhani and Shatabdi, have top speeds of only 160 kilometers (100 miles) an hour, while even the Amtrak Acela in the United States can hit 150 miles an hour in a few stretches. China’s bullet trains, meanwhile, zip along at an average speed of 215 miles an hour.
Political analysts say that the current railway minister, Mamata Banerjee, has been distracted by her party’s campaign to win elections in her home state of West Bengal. Those political ambitions, they say, have inspired populist policies by Indian Railways that are at financial odds with modernization and capital investments.
Even though Indian law allows the railways to acquire land quickly through hearings before magistrates, for example, Ms. Banerjee has promised farmers and other landowners that the ministry will negotiate with each landowner whose property must be acquired for two large freight projects. While popular with landowners, the process could add years to the projects.
An assistant to Ms. Banerjee said she was not available for an interview because she was busy with recently concluded municipal elections in West Bengal.
Ms. Banerjee is hardly the first railway minister with a political agenda, though. And most of the ministers who preceded her have funneled the railways’ limited resources into subsidies for passengers at the expense of freight service.
For most of that time the containers idle at the Jawaharlal Nehru Port near Mumbai because railway terminals, trains and tracks are severely backlogged all along the route. Counting storage and rail freight fees, Mr. Sahai estimates the cost of moving goods from Mumbai to Delhi at up to $840 per container — or about three times as much as getting the containers to India from Singapore.
“They don’t have any physical space,” Mr. Sahai, who is chairman of SKS Logistics of Mumbai, said about the government-owned Indian Railways. “And all their trains are booked.”
As the world looks to India to compete with China as a major source of new global economic growth, this country’s weak transportation network is stalling progress.
Economists say India must invest heavily in transportation to achieve a long-term annual growth rate of 10 percent — the goal recently set by the prime minister, Manmohan Singh. But whether measured by highways, airways or — particularly — far-reaching railways, India’s transportation is falling short.
Critics say the growth and modernization of Indian Railways has been hampered by government leaders more interested in winning elections and appeasing select constituents, rather than investing in the country’s long-term needs. It is one of the many ways that the political realities of India’s clamorous democracy stand in contrast to the forced march that China’s authoritarian system can dictate for economic development.
A 40,000-mile, 150-year-old network, Indian Railways is often described as the backbone of this nation’s economy. And in fact it is moving more people and goods than ever: seven billion passengers and 830 million tons of cargo a year. But its expansion and modernization is not keeping pace with India’s needs.
“If it has to serve as the backbone of the Indian economy, the leaders of the Indian Railways have to think big, and they need to have a larger vision,” said S. Ramnarayan, a professor at the Indian School of Business and co-author of a book about the railways. “Thinking in terms of incrementalism — a little extra here, a little extra there — doesn’t solve anybody’s problem.”
The crash on an eastern rail link late last month that killed 151 people and injured hundreds of others underscored the vital nature of the railroads, as well as their vulnerability. The crash, which authorities have attributed to Maoist rebels, was particularly disruptive because it disabled a busy east-west line that, along with many others, was already stretched thin.
Traffic between big cities like Mumbai and Delhi, for instance, often runs at more than 120 percent of planned capacity, which means trains travel more slowly and tracks wear out faster than intended.
And because the railways’ tracks are too lightweight and the locomotives underpowered, Indian trains can haul no more than 5,000 tons of cargo, compared with 20,000-ton capacities in the United States, China and Russia.
India’s fastest passenger services, the Rajdhani and Shatabdi, have top speeds of only 160 kilometers (100 miles) an hour, while even the Amtrak Acela in the United States can hit 150 miles an hour in a few stretches. China’s bullet trains, meanwhile, zip along at an average speed of 215 miles an hour.
Political analysts say that the current railway minister, Mamata Banerjee, has been distracted by her party’s campaign to win elections in her home state of West Bengal. Those political ambitions, they say, have inspired populist policies by Indian Railways that are at financial odds with modernization and capital investments.
Even though Indian law allows the railways to acquire land quickly through hearings before magistrates, for example, Ms. Banerjee has promised farmers and other landowners that the ministry will negotiate with each landowner whose property must be acquired for two large freight projects. While popular with landowners, the process could add years to the projects.
An assistant to Ms. Banerjee said she was not available for an interview because she was busy with recently concluded municipal elections in West Bengal.
Ms. Banerjee is hardly the first railway minister with a political agenda, though. And most of the ministers who preceded her have funneled the railways’ limited resources into subsidies for passengers at the expense of freight service.
Asian Stocks Rise to Four-Week High, Led by Commodity Companies
June 16 (Bloomberg) -- Asian stocks rose to a four-week high after a report showing growth in New York manufacturing boosted confidence that a recovery in world’s biggest economy will increase corporate earnings.
Toyota Motor Corp., a carmaker that gets about 28 percent of its sales from North America, gained 1.4 percent in Tokyo. BHP Billiton Ltd., the world’s biggest mining company, climbed 1.8 percent in Sydney after commodity prices advanced. Samsung Electronics Co., Asia’s largest chipmaker, rose 1.8 percent in Seoul. Nintendo Co. jumped 4.7 percent in Osaka, Japan, after the company introduced a new handheld video-game player.
“We are bullish on the U.S. economy,” said Naoki Fujiwara, a fund manager in Tokyo at Shinkin Asset Management Co., which oversees about $6 billion. “The continuing improvement in earnings will drive down valuations even further, so there is little concern that the market will decline.”
The MSCI Asia Pacific Index climbed 0.9 percent to 115.45 as of 11:03 a.m. in Tokyo, rising for a fifth day in its longest winning streak since April 7. The index has lost 4.1 percent this year on concern that Greece and other European countries will struggle to curb their budget deficits and repay debt.
Japan’s Nikkei 225 Stock Average rose 1.6 percent, the biggest increase among equity benchmarks in the Asia-Pacific region. South Korea’s Kospi Index advanced 0.4 percent. Markets in Hong Kong, China and Taiwan are closed today for a holiday.
New York Manufacturing
Australia’s S&P/ASX 200 gained 1.1 percent even as an index of leading economic indicators in the country slowed in April to the weakest pace in three months, according to Westpac Banking Corp. and the Melbourne Institute.
Futures on the Standard & Poor’s 500 Index fell 0.2 percent. The gauge climbed 2.4 percent in New York yesterday after the Federal Reserve Bank of New York said its general economic index of manufacturing rose in June for an 11th consecutive month.
Optimism the world’s largest economy is gathering momentum boosted the dollar to near a one-week high against the yen today, further buoying by Japanese exporters.
Toyota, the world’s largest automaker, rose 1.4 percent to 3,335 yen in Tokyo. Canon Inc., which is the world’s biggest maker of digital cameras and receives 78 percent of its revenue from outside Japan, increased 3.2 percent to 3,855 yen.
Nissan Motor Co., Japan’s third-biggest carmaker, increased 3.7 percent to 693 yen. Goldman Sachs Group Inc. raised its investment rating on the company to “buy” from “neutral,” while lowering its share-price estimate to 800 yen from 950 yen.
Yen Boosts Exporters
The yen fell to as low as 91.67 against the dollar today from 91.48 yen at yesterday’s close of stock trading in Tokyo. A weaker yen boosts the value of overseas income at Japanese companies when converted into their home currency.
The MSCI Asia Pacific Index has slumped 11 percent from its 52-week high on April 15 as swelling budget deficits prompted Standard & Poor’s to cut ratings of Greece, Spain and Portugal. The retreat has driven down the average price of shares in the gauge to 14.8 times estimated earnings. The ratio sank to 13.8 times on May 18, the lowest level since December 2008.
“Shares have been sold too much, considering the outlook for corporate earnings,” said Hiroichi Nishi, an equities manager in Tokyo at Nikko Cordial Securities Inc. “U.S. manufacturing, supported by low interest rates and the buoyant Chinese economy, is recovering steadily.”
About five shares advanced for each that declined today on the MSCI Asia Pacific Index. Material and computer-related companies led gains among the gauge’s 10 industry groups.
Commodities, Chipmakers Rise
BHP rose 1.8 percent to A$39.09 in Sydney and was the biggest contributor to the index’s increase. Rio Tinto Group, the world’s third-biggest mining company, climbed 1.9 percent to A$70.75. Mitsubishi Corp., which gets about 40 percent of sales from commodities, gained 2.1 percent to 1,928 yen in Tokyo.
The prospects for higher demand buoyed oil prices by 2.4 percent to $76.94 a barrel in New York yesterday, the highest settlement since May 6. The London Metal Exchange Index advanced 0.7 percent, its sixth straight day of gains. Copper futures in New York rose 1.2 percent, their seventh consecutive increase.
Nintendo climbed 4.7 percent to 26,400 yen and was the most active stock by value in Japan. The stock rose the most in more than two months after the company unveiled a handheld machine that shows 3-D images without special glasses.
Asian chip-related shares followed a rally yesterday by their U.S. counterparts after Taiwan Semiconductor Manufacturing Co. said global sales in the chip industry will increase almost 30 percent this year, compared with an April forecast of 22 percent. Morris Chang, chairman and chief executive officer of the world’s largest contract manufacturer of chips, announced the projection yesterday morning in Taiwan.
Samsung Electronics, the world’s largest maker of memory chips and liquid-crystal displays, rose 1.8 percent to 812,000 won in Seoul. Advantest Corp., the world’s biggest maker of memory-chip testers, gained 2 percent to 2,017 yen in Tokyo. Tokyo Electron Ltd., the world’s second-largest maker of semiconductor equipment, increased 2.5 percent to 5,780 yen.
Toyota Motor Corp., a carmaker that gets about 28 percent of its sales from North America, gained 1.4 percent in Tokyo. BHP Billiton Ltd., the world’s biggest mining company, climbed 1.8 percent in Sydney after commodity prices advanced. Samsung Electronics Co., Asia’s largest chipmaker, rose 1.8 percent in Seoul. Nintendo Co. jumped 4.7 percent in Osaka, Japan, after the company introduced a new handheld video-game player.
“We are bullish on the U.S. economy,” said Naoki Fujiwara, a fund manager in Tokyo at Shinkin Asset Management Co., which oversees about $6 billion. “The continuing improvement in earnings will drive down valuations even further, so there is little concern that the market will decline.”
The MSCI Asia Pacific Index climbed 0.9 percent to 115.45 as of 11:03 a.m. in Tokyo, rising for a fifth day in its longest winning streak since April 7. The index has lost 4.1 percent this year on concern that Greece and other European countries will struggle to curb their budget deficits and repay debt.
Japan’s Nikkei 225 Stock Average rose 1.6 percent, the biggest increase among equity benchmarks in the Asia-Pacific region. South Korea’s Kospi Index advanced 0.4 percent. Markets in Hong Kong, China and Taiwan are closed today for a holiday.
New York Manufacturing
Australia’s S&P/ASX 200 gained 1.1 percent even as an index of leading economic indicators in the country slowed in April to the weakest pace in three months, according to Westpac Banking Corp. and the Melbourne Institute.
Futures on the Standard & Poor’s 500 Index fell 0.2 percent. The gauge climbed 2.4 percent in New York yesterday after the Federal Reserve Bank of New York said its general economic index of manufacturing rose in June for an 11th consecutive month.
Optimism the world’s largest economy is gathering momentum boosted the dollar to near a one-week high against the yen today, further buoying by Japanese exporters.
Toyota, the world’s largest automaker, rose 1.4 percent to 3,335 yen in Tokyo. Canon Inc., which is the world’s biggest maker of digital cameras and receives 78 percent of its revenue from outside Japan, increased 3.2 percent to 3,855 yen.
Nissan Motor Co., Japan’s third-biggest carmaker, increased 3.7 percent to 693 yen. Goldman Sachs Group Inc. raised its investment rating on the company to “buy” from “neutral,” while lowering its share-price estimate to 800 yen from 950 yen.
Yen Boosts Exporters
The yen fell to as low as 91.67 against the dollar today from 91.48 yen at yesterday’s close of stock trading in Tokyo. A weaker yen boosts the value of overseas income at Japanese companies when converted into their home currency.
The MSCI Asia Pacific Index has slumped 11 percent from its 52-week high on April 15 as swelling budget deficits prompted Standard & Poor’s to cut ratings of Greece, Spain and Portugal. The retreat has driven down the average price of shares in the gauge to 14.8 times estimated earnings. The ratio sank to 13.8 times on May 18, the lowest level since December 2008.
“Shares have been sold too much, considering the outlook for corporate earnings,” said Hiroichi Nishi, an equities manager in Tokyo at Nikko Cordial Securities Inc. “U.S. manufacturing, supported by low interest rates and the buoyant Chinese economy, is recovering steadily.”
About five shares advanced for each that declined today on the MSCI Asia Pacific Index. Material and computer-related companies led gains among the gauge’s 10 industry groups.
Commodities, Chipmakers Rise
BHP rose 1.8 percent to A$39.09 in Sydney and was the biggest contributor to the index’s increase. Rio Tinto Group, the world’s third-biggest mining company, climbed 1.9 percent to A$70.75. Mitsubishi Corp., which gets about 40 percent of sales from commodities, gained 2.1 percent to 1,928 yen in Tokyo.
The prospects for higher demand buoyed oil prices by 2.4 percent to $76.94 a barrel in New York yesterday, the highest settlement since May 6. The London Metal Exchange Index advanced 0.7 percent, its sixth straight day of gains. Copper futures in New York rose 1.2 percent, their seventh consecutive increase.
Nintendo climbed 4.7 percent to 26,400 yen and was the most active stock by value in Japan. The stock rose the most in more than two months after the company unveiled a handheld machine that shows 3-D images without special glasses.
Asian chip-related shares followed a rally yesterday by their U.S. counterparts after Taiwan Semiconductor Manufacturing Co. said global sales in the chip industry will increase almost 30 percent this year, compared with an April forecast of 22 percent. Morris Chang, chairman and chief executive officer of the world’s largest contract manufacturer of chips, announced the projection yesterday morning in Taiwan.
Samsung Electronics, the world’s largest maker of memory chips and liquid-crystal displays, rose 1.8 percent to 812,000 won in Seoul. Advantest Corp., the world’s biggest maker of memory-chip testers, gained 2 percent to 2,017 yen in Tokyo. Tokyo Electron Ltd., the world’s second-largest maker of semiconductor equipment, increased 2.5 percent to 5,780 yen.
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