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Reserve Bank of India has been a Banking
Ombudsman programme for a long time, today I was glad to see prominent advertisements
about it in major newspapers with an aim to popularize it. For me, whenever I
had grievances and send them a fax threatening them to take it to RBI Ombudsman,
they seem to act with more care. In general, I feel RBI is doing a fabuluous job in
protecting Indian consumers rights, whether it is on Don’t
Call Registry or Credit
Card online additional protection and on many of the other items.
So for what items you can approach RBI Ombudsman (more
details in RBI website here), here is a short list:
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Your bank fail to adhere to the written promises it made
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Your bank fail to disclose up-front the important terms and conditions while selling
a product/financial service
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Your bank didn’t communicate clearly about rates and charges
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Your bank not adhering to RBI guidelines or Banking Codes and Standards Board of India
So what you have to do if any of the above happens to you. First write to your bank,
if they don’t respond or fix the issue by one month, you can approach RBI
ombudsman through letter, fax or email.
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You can’t stop marvelling at the lack of speed in which the Indian Finance Ministry
operates. It has taken 5 Years, change of a finance minister, a global recession for
the finance ministry in India to start to “look” into this issue. About 5 years back
Mr.P.Chidambaram as then Finance Minister cancelled the exemption given to Exporters
from paying “Service Tax” on input services (which amounts at current rate @12.36%)
that were rendered towards manufacturing/rendering an item/service that will get exported
out of the country. The idea being you can only export a service/item not the tax
of the originating country with it and to prevent India from becoming non-competitive
compared to its neighbours. Instead of the exemption the Hon’ble minister announced
Exporters can claim a refund (which in India means pleasing the bureaucracy &
adding infinite delays) for the service tax they will pay, this the minister said
was to prevent leakages and misuse of the benefit. In India “Refunds” or for that
matter any policy announcements (other than the written law) are mere intentions and
are like “Poll” promises – they will always be kept as a promise by then finance
minister and his successors. Keeping up this tradition, there has been no
clear announcement
or notification on the procedure and the forms to be used for this refund claim.
For last several years at my company, we have asked every Service Tax & Excise
Tax official we have met for the procedure we need to follow to get the refund, every
one has said anything but a consistent answer.
Hence, I was surprised Today to see some movement on this with this article in Economic
Times Newspaper - “Faster
Service Tax refunds on cards”. With today’s budget turning out to be a disappointment
(it read more like UPA government poll propaganda) for Indian Inc. and Exporters in
particular at least if the FinMin can do this refund notification quickly, it will
give us some relief in these testing times.
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Like everyone else I get unsolicited unsolicited calls on my mobile phone. What is
more irritating is when you are already a customer with the bank that is calling -
they don't even check whether someone is their customer or not, instead they randomly
call numbers. To communicate our displeasure with this, if we decide to switch banks,
it is not so easy to do. And almost all private banks and insurance companies in India
seems to be doing this, so you will not be able to find a company that doesn't. I
bank mostly with Public Sector banks but for some convenience like Web Banking,
Credit Cards and ATM I bank with a private bank. As consumers we need a remedy to
this problem.
About a year or so back, TRAI introduced the National
Do Not Call Registry (NDNC Registry). Telemarketers are needed by law to check
with the NDNC database before making a call or face a penalty. You can register in
NDNC by sending a SMS with text "START DND" to 1909 or
register in your Mobile Service Provider's website (for me it will be Vodafone).
Apart from TRAI's NDNC Registry, RBI recommended about 3 years for all Banks
under it to have an individual DNC registry with them, you can register in each
of them by going to their respective websites. I have registered
myself in all of these sites, after registering the number of calls I get have
certainly come down. If you still get calls you can complain to the callers that they
are violating law by calling a DNC number.
Last week on a single day I got two marketing calls from ICICI Bank and one call from
ABN Amro. Irritated I was looking for a remedy, I found
a page in ICICI website to complain if you keep getting calls even after registering.
I emailed to the id donotcall at icicibank.com that was in the page
quoting the time, my mobile number and the phone numbers from which I got the call.
I added in the email that if I continued to get calls I will seek remedy by lodging
a complaint to RBI Ombudsman and TRAI consumer cell. I was not hopeful of any reply,
but I was pleasantly surprised to get a reply within 2 days from ICICI stating that
they have taken note of my complaint, apologized and assured that I will not get any
further calls. I was certainly impressed by this service from ICICI and I hope other
banks will follow this good practice.
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More than 70% of Indian IT Exports are to United States and exports outside of United
States as well are mostly priced in US Dollars (USD). So the movement of USD with
respect to Indian Rupee (INR) is of paramount importance to the industry. The
economical concept at play here is very simple, gains made by USD are better for us
- we get to make more Rupees per Dollar of revenue. In other words we favour INR to
depreciate. This is directly opposite to what the Indian Government and other
importers will desire - as for every dollar they import they have
to pay more Rupee. Government is the largest importer especially of Oil which is mostly
priced in Dollars.
Unlike the bigger players in the Industry, SME companies like Vishwak have little
room to maneuver to get end customer prices (marked in USD) increased, most of the
time our contract prices are negotiated a year in advance. We can improve productivity
and reduce operational costs, but their impact is limited to few percentage points,
nowhere near the 10% swing that has happened in the last one year in Dollar value.
Till about few months we were worried due to strengthening
of Rupee, but in the last two quarters the trend reversed. Today the Dollar hit
a high note of Rs. 44.89, compared to Rs.40.63 exactly a year before - exactly a 10%
swing the other way. One of the financial instruments available for exporters is Forward
contract (Hedging).
Forward Contract: It is a contract between the bank and its customers
in which the exchange/conversion of currencies would take place at a future date at
a rate of exchange agreed in advance under a contract. The essential idea of entering
into a forward contract is to peg the price and thereby avoid the price risk.
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RBI allows you to take these forward contracts for next 12 months (sliding window).
Like many other SMEs at Vishwak we normally cover say 60-70% of our receivables for
next 12 months. This has been helping us when the Dollar kept depreciating like it
did for the first half of this year and whole of last year. But since the trend reversed
in the last two quarters we have started losing nearly Rs.4 per dollar (10%) - of
course this risk was always there just like in any other financial instruments. Our
Hedging taken last year (in July/August '07 for July '08 and so on) for this financial
year (Apr '08 to Mar '09) has been at various levels around Rs.39 to Rs.41, but the
current rate is Rs.44.89.
This made me interested to dig into this a little deeper, so I headed to RBI's
archive site and pulled out last 13 months data and plotted it into a chart in
Excel (you can download the excel sheet I prepared from here). Below is the
chart - you can see clearly the wild swings of Dollar.
I noticed the following few points of interest from the above chart:
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Dollar made a decline from Rs.41.24 to Rs.39.91 between 29/Aug/07 to 20/Sep/07. Nearly
Rs.1.33 change.
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Continued to stay in the band of Rs.39 for next 7 months till 23/Apr/08
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Dollar made a rise from Rs.39.95 to Rs.42.56 between 23/Apr/08 to 26/May/08. Nearly
Rs.2.61 change.
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Dollar made a rapid rise from Rs.42.82 to Rs.44.21 in just 15 days between 14/Aug/08
to 01/Sep/08. Nearly Rs.1.39 change.
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Dollar continues to rise with hitting a high note at Rs.44.89 today
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If you are following US Business news you would have read about Starbucks
closing over 600 of their stores around USA. I am wondering on what took them
so long to do it.
For instance every time I visit Seattle (their headquarters) I am puzzled on how come
Starbucks have nearly half-a-dozen stores in the downtown area around WA State convention
Center. Aand all of them in walking distance to one another. In one of the streets
for every block they have a Starbucks store. Naturally each of their store will eat
into their other stores - if it is carpet bombing strategy against competition, I
don't find it impressive.
Here is the full
list of stores that they are closing.
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Recently I received a report on the vision of Tamilnadu Government for how the business
climate should be in year 2025 in the state. The report was a joint work by CII (Confederation
of Indian Industries) and Tamilnadu Government (TN Gov).
I saw one interesting statistics that stood out among the report's many pages. It
was the number of days it takes to start a business in Tamilnadu (to a large extend
it is same across India) - it is currently a whooping "41" days. I was not
surprised, since I run my own business for last 10 years and have been through these
hurdles of bureaucracy many times.
Most recently I had to do this (starting a business) once more, this time for my family
business and it took me nearly 5 to 6 weeks. At this time we still we have VAT registration
pending. To be fair, few days out of this was due to my end delays as well.
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We started with registering the new "Private Limited" (Limited Liability
Company) with Registrar of
Companies (RoC). For this the first step is to get name clearance (name of the
company shouldn't be conflicting with the said/unsaid guidelines or with other existing
businesses). This took some time.
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Then comes the actual registration which involved multiple iterations of submission
of our MoA and AoA (Memorandum of Articles and Article of Association). Each time
we had to take a print, sign the paper, scan it, then digitally sign it and
then upload it as a PDF file to the site. Once approved, you need to follow this by
a hard-copy submission(sometimes they may ask for the hard-copy for each iteration
as well) of the documents. Once this is done.
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First board meeting and resolutions to be passed
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Followed by getting an Income Tax PAN Number
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Then comes opening of a Bank Account
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Then comes applying for Service Tax Number or TIN (Tamilnadu VAT Number) and CST (Central
Sales Tax). The choice between Service Tax and Sales Tax registration is depending
on the nature of your business.
After all this only you can start your functioning. There will be more steps if you
are involved in manufacturing, which depending on the industry has various other registration
formalities. Compare all this is the time it took to open a business in USA - we opened
our 100% subsidiary sitting from India in less than few days through the help of a
CPA locally in India - everything happened through online. I remember reading
that New Zealand, Canada and Australia with USA tops for the shortest days required
to open a business. For information on doing businesses around the world, see
this world bank funded site.
With the above experience I should say it is definitely commendable of Tamilnadu Government
to even dream a "2" day timescale for this by 2025.
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According to Taxman in India, from 1st June 2008 (after this year Union Budget was
passed) a licensed software like Adobe Photoshop or Microsoft Office is both a Service
and a Product. While world over taxes are being simplified, streamlined and modernized
keeping pace to technology - in India our Finance Ministry has proven its fondness
for complicating existing laws and getting into legal word tangles. This is in spite
of record tax collections in the last few years, this year TDS (with holding tax)
collection were up by a whopping 60% from last year.
While change of classification of software may seem insignificant it has real impact
on the tax that a consumer/business is charged while buying a software package. Earlier
all Packaged Software/License were treated as a sale of product and charged VAT @
4% to 12% (varied by state). Now all software are treated as a services as well. It
is not reclassified from Product to Service but classified to be both - strange
is India's tax laws!. The industry
is suffering for the last few weeks with all major dealers and distributors waiting
for some clarity from government as this change will result in a tax of 24%
on licensed (legal) software, which is absurd. In India Service Tax is Central
(Federal) subject, VAT is State subject - so both don't want to clarify this situation.
This week I couldn't buy a software that I needed because of this issue. My regular
dealer refused to give me a quotation for few products that I wanted because of this
legal mess. He said in his 25 years of being in the business this is the first time
he has stopped billing for over 3 weeks. What is even more strange is that none of
the software industry bodies are vocally raising this issue to the government - may
be they feel the government has no ears to serious issues like these, they are busy
listening to the daily threats from the left parties :-)
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After much deliberation and delay, Govt. Of India has increased the retail fuel prices
- Rs.5 for Petrol, Rs.3 for Diesel and Rs.50 for Household LPG. Though delayed for
long we need to praise the Prime Minister for finally biting the bullet - especially
with all the political compulsions of coalition politics he has and for getting the
powerful finance ministry to agree for deep tax and duty cuts.
On the other side, I am wondering why Government has to be involved in fixing the
price of retail fuel. Other than Household LPG, the fuel price should be left to free
market. Just like anything else the fuel price has to be determined purely on demand
and supply economics. With Oil prices at record levels of $135 from levels of $30
before 4 years, retail price have to naturally increase. You cannot make Oil Marketing
companies loss over Rs.200,000 Crores and make the common shareholders in those companies
suffer (Disclaimer: As on date I have no investments in ONGC, IOC, BPCL or HPCL).
It doesn't make any sense to buy oil at ever increasing prices and keep selling it
at loss, eventually sinking the Oil companies. Leaving it without a price increase
the loss would have been ultimately burdened on the miniscule compliant Tax payers
in India. Somehow political parties in India are of opinion that increase in taxes
affects only the rich and any burden on them is allowed - if you keep doing that,
there will be no investments by companies and eventually no new jobs.
There is other side to the need to increase the prices and that is Environment. India
is consuming Oil at historic levels that definitely has significant green house effects.
The logical answer according to me is to increase the fuel price even more so that
people feel the pinch and start reducing their consumption; and government can use
the increased income to build on war footing world-class mass transport facilities
in all cities.
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Small and Medium Sized IT Companies (including Vishwak)
in India have been enjoying Government of India Tax break under 10A scheme (managed
by STPI) where by for their investments
on new plant and machineries they get a 10 year Income Tax holiday. Few years back
the government set the sunset for the tax break as 31st March 2009. The idea was to
encourage movement in to the new China like SEZ (Special Economic Zones) where by
more investments and job creations will be done. Unfortunately the SEZ Promoters are
only selling spaces in them to large IT companies - the minimum you can buy is 100,000
sq. feet which is way above for any SME to afford. So this was perceived by many industry
bodies as an anti-SME move. On top of this, in the last 12-18 months Rupee has been
appreciating against the US Dollars by over 10-12% literally wiping off the margins
for SMEs. Lastly the Finance Minister in his last budget imposed a 10% (approx) MAT
(Minimum Alternate Tax) as well. So the industry was looking
forward for the FM to extend some support in the budget but he didn't do it. But
on the request of the IT Ministry and PM Office, the FM
has yesterday announced for the extension of the STPI (Software Technology Parks
of India) scheme for another 1 year till 31st March 2009. This certainly is a welcome
move and I thank the Government for the same.
Now it is the turn of the industry to use the extension time to become self sustained
by increasing productivity and introducing innovation, they should stop looking for
perennial tax breaks.
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One of the concerns for everyone in the Indian IT Industry - for both the insiders
and the (abroad) customers are the rising cost of man power. In the last 3 to 4 years
(Indian Financial Years Apr-Mar) the industry has grown tremendously. All the 3 Indian
IT majors have joined the billion dollar club, continued to double there revenue every
year and are now multi-billion corporations. All of them are close to having over
100,000 employees. They have been joined closely by Tier 2 IT companies as well in
the multi-billion dollar club and many of them have over 50,000 employees with them.
This is formidable human resource capital but they don't come cheap, this unprecedented
growth has been pushing the salary further to unsustainable levels.
Further more, for Indian IT services firms nearly 50% (it ranges from 40%-60% depending
on the size and offshore/onshore mix) of their revenue is spent in salary and related
expenses. Only in few other industries, a single raw material* costs nearly 50% of
the revenue. Certainly no other industry (may be Oil and Steel in recent years) have
seen its raw materials* cost increase over 30% year on
year. So far the Industry have been able to cope with this in several
ways - productivity gains, fresh resource augmentations, training, process/tool
improvements and more but this certainly gives sleepless nights to CEOs including
myself. I strongly believe whether it is stock
market, economy in general or salaries, all of them cannot defy gravity for long
and keep growing upwards. Indian
Stock market which sky rocketed with its BSE Sensex hitting 21,000+ few months
back is now trading at 15,000 levels. All goes through cycles of ups and downs; bearish
days are also good for the economy in the long run. In Australia conservationist welcome
forest fires because they burn the outer layers of the trees which fall down and add
nutrients to the soil. In the long run this helps the soil to remain fertile and nurture
new life. This is nothing new, it has been happening this way there for millions of
years.
Am I forecasting doom days here? - Certainly No. Tough days - Definitely Yes. There
are several indicators for this trend. First is the obvious US Slowdown (and a short
recession), second is the Indian Rupee to Dollar appreciation, Third is the increasing
cost of raw materials and the lower margins - gone are the days of hefty profit margins
in IT industry. All these have started to show their impact - news are trickling in
of delayed joining dates for campus hires by the IT Majors (at this time this sounds
more as rumours to me) and if slowing down in the rate of lateral hires/job market.
The best indication I follow for sensing Chennai's Job market is "The Hindu"
newspapers Wednesday Opportunities supplement - this week I hardly saw 1 or 2 IT related
openings. Normally you see here several full page and half-a-page advertisements by
all popular IT brands.
What are the consequences of this:
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First, it will separate boys from men (girls from ladies). The "me too"
players will get killed and consolidation will happen in the industry, which is good
for any industry to mature
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For the 3 Indian Majors this will mean little, it is likely to be business as usual.
The senior teams there would have easily seen this coming for several quarters and
they certainly had time to fine tune there strategies
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It will be difficult for Tier 2 companies who are aspiring to get into the elite league
as their growth rates will slow down
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For small and emerging companies tough days are certainly ahead. There will be churn
but the blood-bath may be limited and short
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Niche players depending on their offerings and geographies have better chances of
surviving this and also growing a little due to easier talent access and lesser competition.<Shameless
plug begin> This includes companies like mine "Vishwak".
We are focused on Media Industry and have been investing heavily on the Indian domestic
market for last few years. We are witnessing good growth on both these areas and our
investments in Indian market are starting to paying off . Here first mover advantage
give us significant head start along with our better understanding of the market<end>
I know this can start a lively debate here and I welcome it, please start posting
your comments, observations and thoughts.
*I prefer calling them as Human Assets but that
will give a different financial meaning in this context, so let us have them as raw
materials here
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There was a news item today that India has decided
to adopt a new accounting system (IRFS) by 2011. IRFS is presently adopted by
over 109 countries including China. I was curious on this move, found two references
on the Internet to understand this.
1) Accounting
in a global world
2) Debits
& Credits of IFRS
This is what I understood: Just like how Technology standards and Protocols are vital
for the Interconnected world of Internet to work together, it is equally important
in globalized world today to have a common way to report financial's of companies
around the world. Without such a standard it brings in huge disparity in disclosure
thus creating loopholes to hide facts. All of this affects investor confidence and
long term sustenance of the global economy. In short, it is a welcome move provided
our government enacts all necessary law framework without delay.
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In my earlier
post I have given my guess list. My list was correct by more than 3/4th.
What happened from my list:
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FM had done nothing for Dollar hit export industry including IT
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Increase in Defence spending
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Dividend tax was tweaked
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Income tax exemptions increased by good percentages
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6th Pay commission was accepted
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Farm credits /benefits were announced
What didn't happen from my list:
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Service tax rates were not changed (Good)
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A new committee for simplification didn't happen (Good, we have had enough committees)
The points I liked about the budget:
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Promised allocation for Minimum Work / Employment schemes
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Pushing the states for more accountability on central funded projects
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Drinking water availability in all villages and in all schools in India
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Allocation of over Rs.200 Crores for Chennai's Desalination plant
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Service tax for Customized Software (though I don't like the tax, it at least put
an end to all arbitration on whether it is applicable or not)
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No change in corporate tax rate (Good)
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Like his previous 4 budgets Mr.P.Chidambaram has taken this year too considerable
efforts in listening to the public & Industry on their wish list for India Budget
2008. Like previous years this year too he will stop with listening and the budget
will be a political compulsion/election oriented one. Following are my guesses on
what he will do tomorrow:
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Some marginal concessions for Rupee/Dollar Hit export industry will be announced,
only for the worst affected like Textile, Leather & accessories
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The biggest wish of the IT Industry, the extension of STPI scheme beyond 2009 will
not be done. If mentioned, it will just say the decision is being left to the next
government
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The duties and customs will be brought down and aligned with commitments given by
the government to ASEAN and other trade pacts
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Income Tax rates will be left untouched. The minimum income level will be increased,
some more exemptions for senior citizens & women will be given
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He will certainly promise setting up a new committee to simplify direct/indirect taxes
to take advantage of the buoyant collections this year
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Service Tax will be increased by 2% (or) Educational Surcharge will be increased by
additional 1% and it will be promised for further infrastructure/power developments/oil
under recovery
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Implementation of 6th Pay commission which might give over 25% hike to government
employees salaries and benefits. Possibly removal of new hiring restrictions in selective
departments
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Increase the budget allocation for Defence especially the Nuclear & Missile programmes
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New farm oriented credit announcements will be made
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Dividend tax will be tweaked a bit to appease the stock market
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I don't know whether any other country in the world (just kidding, it is not as if
I am an expert on Budgets around the world just felt good saying it) has its budget
strewn in such mystery and secrecy like the Indian Budget. In today's Globalized world
the role of a central budget has diminished over the years which certainly is good.
In my view a Central (a.k.a. Federal for those of you who are from USA) Budget should
be more of a report card recording the performance of the government spend in the
last 12 months and the outlook for next 12 months. The way Indian Budget has become
over the years and is expected to function by common people, as the platform for all
ministries and the entire governments policy announcements. This has made the Finance
Ministry the nodal point and hence the single biggest bottleneck of every government
departments functions. If you ask what is the alternative, it is to let each ministry
on a regular basis announce its plan for next 12 months after consultation with respective
industry bodies. This can be much like the way the commerce ministry does its EXIM
policy but with more teeth and power to each ministry to do its job better than what
it is today.
Anyway coming back to the topic, I read this good pictorial workflow of how the Indian
Budget process happens in LiveMint. It has some surprises like the key people
in budget preparation are locked in the basement of North Block for the last 7 days
and the only people allowed to see from outside world is the Finance Minister!. Good
Read.
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Every Indian Engineer was made to feel proud yesterday. The event was unveiling of
Tata Motors dream project the world's first Rs.1 Lakh (USD 2500) car - Tata
Nano. When first talked about 4 years by Mr.Ratan Tata noone believed it to be
possible that too by an Indian company. Thanks to the ingenuity and hard work of Indian
Engineers it was made possible and demonstrated yesterday. From being an under-dog
in the world's automobile scene, India overnight has graduated itself to the premium
club of the GMs & Toyotas. With this Tata's have made themselves more than qualified
to be the future owners of Jaquar & Land Rover.
I found it heartening to see the congratulatory
message from Anand Mahindra, managing director for Mahindra & Mahindra, Tata
Motors’ primary competitor “I think it’s a moment of history and I’m delighted an
Indian company is leading the way”
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