UN Chief Ban Ki-moon Seeking Deal at Doha UN Climate Talks

IndusView Chairman Bundeep Singh Rangar comments on possibility of Western armed intervention in Syria, UN chief Ban Ki-moon seeking deal at Doha UN climate talks, India mulling sending naval ships to Vietnam to defend oil interests, UK chancellor George Osborne's extension of austerity measures into 2018, Irish budget's targeting of top pensioners and French scientists warning of sharp decline in reproductive health of the average male.

Bank of England Refraining From More Quantitative Easing

IndusView Chairman Bundeep Singh Rangar comments on the new Archbishop of Canterbury Justin Welby known for his criticism of banking practices, outgoing Chinese President Hu Jintao's goal to double per capita income by 2020, the Bank of England refraining from more quantitative easing, investigation of offshore accounts held by HSBC customers, Taiwan's Foxconn plans to manufacture on US soil and McDonald's first sales drop in nearly a decade.

Reserve Bank of India Maintains Status Quo on Interest Rates

The Reserve Bank of India (RBI) today kept its interest rates unchanged while cutting its growth forecast but increasing its inflation outlook as the nation’s economic conditions remain sluggish.

While the decision to leave the policy repo rate unchanged at 8% was in line with forecasts in a recent Reuter’s poll, the RBI decided to cut the cash reserve ratio for banks by 0.25% to 4.25% in its credit policy review and indicated it may ease monetary policy further in the January-March quarter.

India’s central bank said the Survey of Professional Forecasters has lowered the country’s Gross Domestic Product (GDP) growth projection to 5.7% from 6.5% for the current fiscal year. The average wholesale price based inflation forecast is revised upwards to 7.7% from 7.3%.

“Spurring growth is back on the central bank’s agenda that had been obsessed with fighting inflation for the past two years,” said Bundeep Singh Rangar, Chairman of London-based advisory firm IndusView. “Increasing rates would have helped curb inflation but further slowed growth.”

India’s growth has been slowing, and hit a nine-year low of 5.3% in the March quarter, partly because of a global slowdown as well as weaker demand and investment activity at home. During April-May 2012 too, FDI in India declined by 59% year-on-year to $3.18 billion, reflecting the impact of slowing global economy.

“India’s strength lies in the fact that 70% of its economic activity is domestic oriented. Strengthening the domestic economy via cheaper credit will help offset the slowdown in global growth epitomized by continued troubles in the euro zone,” said Rangar.

The government has in the recent past undertaken a host of reform initiatives including the long awaited reforms allowing foreign direct investments (FDI) in multi-branded retail and aviation sectors but also financial reforms that will change the face of the insurance industry.

Last month, the RBI had kept the repo rate unchanged at 8% while industry leaders have been asking for a rate cut. It’s still well above the 6% set two years ago in Sept. 2010.

Finance Minister P Chidambaram unveiled a five-year roadmap for fiscal consolidation on Monday, emphasizing the need to control expenses and generate more revenue as the government targeted budget deficits of 5.3% of the Gross Domestic Product (GDP) this fiscal and 4.8% in the next.

Indian Government Plans FDI Increase in Insurance Industry

After introducing the long awaited reforms allowing foreign direct investments (FDI) in multi-branded retail and aviation sectors, the Indian government is now looking at financial reforms that will change the face of the insurance industry.

The government is believed to be considering a complete makeover of the country's insurance laws that would end the monopoly enjoyed by state-owned Life Insurance Corp of India, shift control of the industry to the insurance regulator, and create a legal system to deal with any failure of insurers.

Prime Minister Manmohan Singh’s government is willing to walk the talk to help foreign investors in insurance by raising the FDI stake ceiling in insurance companies to 49% from the current 26%.

“FDI is needed to stoke the simmering fire of Indian GDP growth,” said Bundeep Singh Rangar. “Reforms that were held up under the previous Finance Minister now seem to be pushed through. The insurance industry alone needs a $10 billion infusion over the next five years to make it a healthy growth sector.”

India’s growth has been slowing, and hit a nine-year low of 5.3% in the March quarter, partly because of a global slowdown as well as weaker demand and investment activity at home. During April-May 2012 too, FDI in India declined by 59% year-on-year to $3.18 billion, reflecting the impact of slowing global economy.

The Insurance (Amendment) Bill that proposes to raise the FDI limit to 49% has been pending in Parliament after it was introduced in the Rajya Sabha (Upper House) in 2008 for lack of political consensus.

The probability of Parliament voting the Bill into law, however, remains uncertain given the strong opposition from both former ally Trinamool Congreess and the Left parties.

A commission headed by former Supreme Court judge B N Srikrishna studied possible reforms in the financial sector has suggested on Monday a merger of multiple financial regulatory agencies into one overarching authority that would have oversight of the capital market, insurance sector, pension funds and commodities futures trading—a proposal that, if accepted, would help consolidate the scattered regulation of financial products.

“A Super Financial Regulator could help end some confusion over policies and streamline conflicting agendas, “ said Bundeep Singh Rangar, Chairman of London-based advisory firm IndusView. “A bigger bureaucratic beast, however, would be a bad outcome. The government has been assailed by two years of corruption allegations; less bureaucracy is needed to bring more transparency”.

The commission was set up in March 2011 with the mandate of rewriting and harmonizing decades-old financial sector legislation, rules and regulations. The Financial Sector Legislative Reforms Commission (FSLRC) was required to submit its findings within two years. The commission has invited feedback on the approach paper, after which it will release its full report in March 2013.

Japan-China Dispute Over Senkaku Islands

IndusView Chairman Bundeep Singh Rangar comments on the Japan-China dispute over Senkaku Islands, French PM Jean-Marc Ayrault's leeway to Greece for austerity targets, Gazprom Neft's Arctic drilling delay over safety concerns, burgeoning electricity costs of Internet servers and negative feedback on author JK Rowling's foray into non-children fiction.

The Reserve Bank of India Maintains Key Interest Rate; Drops CRR

   IndusView, Monday September 17 (London): The Reserve Bank of India (RBI) today kept interest rates unchanged, despite last-minute hopes for a reduction in the wake of policy changes announced by India’s government last Friday. It did, however, reduce the core reserve ratio requirement of Indian banks by 0.25% that’s expected to increase lending as new liquidity is ushered into the banking system.

           The RBI left its benchmark repo rate at 8% even as it cut the cash reserve ratio for banks to 4.50% from 4.75% that's could see as much as $3 billion available in new credit by banks. Wholesale price inflation rose to 7.55% in August and consumer price inflation was about 10%.

         "India’s central bank continues to use monetary policy to fight inflation even at the cost of growth,” said Bundeep Singh Rangar, Chairman of London based advisory firm IndusView. “While the diesel price increase announced by the government was a step in the right direction to cut the budget deficit, a key requirement by the RBI for it to cut rates, ironically, it also could have an inflationary effect that is the RBI’s key enemy.”

          “Inflation may rise due to the first increase in diesel prices in 14 months and a rise in the price of commodities as the U.S. steps up monetary easing,” added Rangar.

In the biggest economic policy push, more than halfway through Prime Minister Manmohan Singh’s second term, The Indian Prime Minister introduced the long awaited reforms allowing foreign direct investments (FDI) in multi-branded retail and aviation sectors on Friday. Proposals to allow overseas retailers like Wal-Mart Stores Inc. and Carrefour SA to own 51% of supermarket chains, shelved last year after alliance partners threatened to revolt, have been reinforced now.

India has also announced a 14% rise in the price of diesel, the first increase in more than one year, in an attempt to cut the country's budget deficit.

“The RBI has been reluctant to ease rates without the government doing its part to fix its budget deficit,” said Rangar. “The diesel rate hike was the minimum needed to get the RBI to act.”

  The RBI increased interest rates a staggering 13 times since March 2010 in one of the most aggressive monetary tightening by any major central bank around the world. It succeeded in bringing down inflation to about 7% from a high of 10% in Sept. 2011. Still, inflation based on the Wholesale Price Index (WPI) increased to 7.55% in August from 6.87% in July. That’s above the RBI's 5%-6% target.

  The RBI’s focus on inflation is despite slowing GDP growth that slipped to 5.3% in the fourth quarter of 2011-12, the lowest in nearly nine years, following poor performance of the manufacturing and farm sectors. As a result, GDP growth for the full year 2011-12 was down to 6.5% from 8.4% in 2010-11 with dismal predictions for 2012-13 at annual GDP growth below 6%.

The government also allowed foreign airlines to buy stakes of up to 49% in local carriers, a much-awaited policy move that provides a potential lifeline to the country's debt-laden airlines such as Kingfisher and open fresh sources of funding for the likes of SpiceJet Ltd, Go Airlines Ltd and Jet Airways Ltd.

The move had been strongly opposed by tens of thousands of small businesses and corner-shops, which fear they will be put out of business. But this latest move has already been welcomed by economists and industry, who say it will transform the way Indians shop and boost the country's flagging economy.

 According to the RBI, maintaining interest rates alone won’t suffice to reignite the investment cycle. With limited fiscal and monetary space available for direct stimulus to domestic growth, the government also needs to reduce spending by cutting subsidies and allocate resources instead to boost public capital expenditure.

 The RBI added that structural impediments impacting business confidence needed to be addressed immediately and has previously listed issues for the Manmohan Singh government to take care of such as mining and infrastructure to stimulate growth.

           Prime Minister Manmohan Singh is the only Prime Minister since India’s founding Prime Minister Jawahar Lal Nehru to return to power after a full five-year term in office. Singh’s liberal economic policies have rolled back much of Nehru’s socialist economic construct that saw dismal growth rates for nearly five decades of post-independent India.

FDI Liberalization to Boost Retail, Airlines, Banks and Property Sectors in India

       IndusView, Sunday September 16 (London): The Indian Prime Minister introduced the long awaited reforms allowing foreign direct investments (FDI) in multi-branded retail and aviation sectors on Friday.

In the biggest economic policy push, more than halfway through Prime Minister Manmohan Singh’s second term, proposals to allow overseas retailers like Wal-Mart Stores Inc. and Carrefour SA to own 51% of supermarket chains, shelved last year after alliance partners threatened to revolt, have been reinforced now.

The government will also allow foreign airlines to buy stakes of up to 49% in local carriers, a much-awaited policy move that provides a potential lifeline to the country's debt-laden airlines such as Kingfisher and open fresh sources of funding for the likes of SpiceJet Ltd, Go Airlines Ltd and Jet Airways Ltd.

          It’s a bold move after months of fighting high inflation, a sluggish economy and a threat of having its credit rating downgraded.,” said Bundeep Singh Rangar, Chairman of London-based IndusView. “It also put the ball back in the RBI’s court to do its part now to bolster India’s sputtering economic growth.”

“It could certainly help retail, airlines, bank and real estate industry sectors,” said Rangar. “More FDI will help big over-leveraged Indian retail companies like Pantaloon Retail and Future Group raise money and reduce debt. It will also help Indian banks, which are mostly public sector ones, with high exposures to Indian retailers, rescue their loans from turning into non-performing assets. And it will help commercial real estate prices stabilize and lift sentiment in the depressed realty markets of big Indian cities to which FDI in retail is currently restricted.”

India’s growth has been slowing and hit a nine-year low of 5.3% in the March quarter, partly because of a global slowdown as well as weaker demand and investment activity at home. During April-May 2012 too, FDI in India declined by 59% year-on-year to $3.18 billion, reflecting the impact of slowing global economy.

           India has announced a 14% rise in the price of diesel, the first increase in more than one year, in an attempt to cut the country's budget deficit.

          “The RBI has been reluctant to ease rates without the government doing its part to fix its budget deficit,” said Rangar. “The diesel rate hike was the minimum needed to get the RBI to act.”

On Monday, the Reserve Bank of India’s review of its monetary policy will be keenly watched for any changes to its key lending rates.

           Together with this increase in diesel prices, the decisions announced by Commerce Minister Sharma in New Delhi mark a sustained effort to ease criticism of Singh’s administration. The government has been assailed by two years of corruption allegations, while its agenda has been criticized by opposition parties and coalition allies alike.

Late last year, the cabinet had also allowed 51% Foreign Direct Investment or FDI in multi-brand retail, but suspended its plans after Ms Banerjee, whose Trinamool Congress is second largest constituent in the ruling United Progressive Alliance (UPA) and opposed to FDI, threatened to leave Singh’s Congress-led UPA.

          The move had been strongly opposed by tens of thousands of small businesses and corner-shops, which fear they will be put out of business. But this latest move has already been welcomed by economists and industry, who say it will transform the way Indians shop and boost the country's flagging economy.

            Prime Minister Manmohan Singh is the only Prime Minister since India’s founding Prime Minister Jawahar Lal Nehru to return to power after a full five-year term in office. Singh’s liberal economic policies have rolled back much of Nehru’s socialist economic construct that saw dismal growth rates for nearly five decades of post-independent India.

India GDP Data Better Than Expected for This Quarter

IndusView, Friday August 31 (London): New economic growth figures have been announced today in India showing the economy grew 5.5% in the quarter, driven by a rebound in construction and financial services, and slightly better than the 5.3% posted in the three-month period ending in March.

Other Asian economies, meanwhile, are posting lower growth rates this year. China, for instance, is projected to grow by slower 8.2% this year from 9.2% last year. Indonesia is expected to decelerate to 6.1% this year from 6.5% in 2011, while Malaysia is forecast to slow down to 4.2% from 5.1%. The forecast for South Korea is 3%, down from last year’s 3.6%.

“The GDP numbers were better than expected, which does alleviate some pressure from the Reserve Bank of India to cut interest rates at its next month’s meeting,” said Bundeep Singh Rangar, Chairman of London-based advisory firm IndusView. “Still, reviving growth is a top priority as global economic conditions remain weak and multinationals are wary of India due to policy flip flops in recent months.”

There is still a strong need for a stable policy, taxation and investment regime to attract foreign capital. The 2012-13 Budget introduced a controversial retrospective tax provision in the wake of Supreme Court judgment quashing the tax demand on Essar-Vodafone deal.

On January 2012, India's Department of Industrial Policy and Promotion, Ministry of Commerce and Industry (DIPP) revised its position on single brand retail trading. Multi-brand retailers are still prohibited from foreign direct investment into the market, even in partnership.

Amid uncertainty over global economy, Foreign Direct Investment (FDI) in India registered a growth of 34 per cent to $46.8 billion in 2011-12 against $34.8 billion in the previous fiscal. Inflation based on Wholesale Price Index (WPI) declined to 6.87% in July from 7.25% in June. It is still, however, above the RBI's 5%-6% target.

The central Reserve Bank of India has also warned the country's economic prospects are unlikely to improve in the near-term, due to high inflation, the lack of reform and the impact of poor monsoon rains on farm output.

Standard Chartered Countering Iran Transaction Allegations

IndusView Chairman Bundeep Singh Rangar comments from the London Olympic Park on Standard Chartered countering Iran transaction allegations, Iran's support of Syria's regime, Italian PM Monti under pressure as economy contracts, Baker Greggs Olympic sales boost, Team GB's best gold medal haul since 1908 and Yorkshire's Brownlee brothers winning in men's triathlon.

Iran's Support of Syria's Regime

IndusView Chairman Bundeep Singh Rangar comments again from the London Olympic Park on Standard Chartered countering Iran transaction allegations, Iran's support of Syria's regime, Italian PM Monti under pressure as economy contracts, Team GB's best gold medal haul since 1908 and Yorkshire's Brownlee brothers winning in men's triathlon.

As Offshoring Grows, Banks Grapple With Oversight

What started a decade ago as call centres staffed by young Indians faking Western accents to sell credit cards and field routine queries has grown into a core function for banks, handling work from risk and fraud management to finance and accounting.

The New York state banking regulator's accusation this week that London-based Standard Chartered (STAN.L) hid $250 billion (160 billion pounds) in transactions with Iran and did not give proper oversight to its back office operation in Chennai, India, underscores the perils of shipping sensitive work to far-flung locations.

"When you offshore, the biggest challenge is not at the offshore end but it's on the onshore end and the management of the offshore operations. And these companies are underinvested in that," said Bundeep Singh Rangar, chairman of London-based IndusView Advisors.

"If they don't put (in) enough oversight, governance procedures and practices, then you will have a problem with the satellite centre, whether that is located onshore or offshore," said Rangar, whose firm advises foreign companies, including technology firms, on doing business in India.

Drawn by an English-speaking population and wages that can be one-fifth those in the West, more than three-quarters of global banks have a direct or third-party offshore presence in India.

Bank of America Merrill Lynch (BAC.N), Barclays (BARC.L), Goldman Sachs (GS.N), HSBC (HSBA.L), JPMorgan (JPM.N) and RBS (RBS.L) are among financial giants employing thousands in India. These wholly owned offshore operations, running around the clock, are known as "captive" centres.

Financial firms such as Citigroup (C.N), Credit Suisse (CSGN.VX) and Aviva (AV.L) are among the biggest clients of Indian IT giants such as Infosys (INFY.NS), Tata Consultancy Services (TCS.NS) and Wipro (WIPR.NS).

The New York regulator rapped Standard Chartered for "outsourcing of the entire OFAC compliance process for the New York branch to Chennai, India, with no evidence of any oversight or communication between the Chennai and the New York offices." OFAC is the U.S. Office of Foreign Assets Control.

COMPLIANCE PROCESSES SCRUTINISED

Scope International, Standard Chartered's back office outsourcing centre, employs more than 8,500 people in India.

"Over the course of the years, these captive centres have matured to an extent that they are doing a lot of high-value works as well," said Arup Roy, principal analyst in Mumbai at technology research firm Gartner.

The Standard Chartered issue, he said, would "lead to much greater level of scrutiny, and the governance processes and the risk and compliance processes would be under the lens".

Standard Chartered said it has been in talks with U.S. authorities over its Iran transactions since early 2010 and said the public accusations by New York came as a shock.

On Wednesday, it won some help from Britain's central bank governor, who said the various regulators should coordinate action and publish findings only when investigations are complete.

While shipping of jobs by global banks to low-cost locations will continue, analysts said banks would have to invest more to strengthen internal processes and controls.

"What I have seen is that a lot of these discussions happen internally or in-house because security is obviously a dominant area of concern and by virtue of that a lot of them follow the book as they see," said Mayur Sahni, a Singapore-based senior market analyst for IDC Asia/Pacific. "But they don't revise the book when the newer version comes up," he said.

BRITISH BACKLASH

Most banks are reluctant to talk about their offshore operations in India. Standard Chartered, JPMorgan, HSBC and RBS declined to comment when contacted by Reuters, while Barclays, Bank of America Merrill Lynch, and Goldman Sachs did not immediately respond to emails.

Financial services firms can cut costs by one-third or more by shifting work to in-house operations in India.

The global market for back-office offshore services was $4 billion in 2010 and will grow to $9.4 billion by 2015, according to IDC. The financial sector accounts for the biggest share.

The New York regulator's accusations come close on the heels of a backlash in Britain after customers of RBS and its Natwest unit were left locked out of their accounts for a week due to an inexperienced IT operator in Hyderabad, media reports said.

A recent U.S. Senate probe criticising anti-money laundering controls at HSBC identified deficiencies in the work done by its "offshore reviewers" in India, according to media reports.

HSBC has one of the biggest captive operations in India, with about 20,000 people spread across seven locations.

In 2006, the security of Indian back office operations came under scrutiny after a British TV channel's investigation showed that criminal networks in India traded British consumers' account details and other commercial information for profit.

In the same year, a worker at HSBC's Bangalore centre was arrested after being caught by internal security for taking funds from British bank customers.

"When you offshore, you can't sort of offshore your problems. You have got to have a proper structure in place and you have to have more centralisation of processes," said IndusView's Rangar.

"And once you do that, it really shouldn't matter as to whether you are based in Houston or Edinburgh or Chennai."

Reserve Bank of India Keeps Interest Rates Steady

IndusView, Tuesday 31 July (London): The Reserve Bank of India (RBI) kept interest rates unchanged for the second time since June, in line with expectations, while cutting its growth forecast but increasing its inflation outlook as the nation’s economic conditions deteriorate.

The RBI left its policy repo rate at 8% and cash reserve ratio for banks at 4.75%. Wholesale price inflation remained above 7% in June and consumer price inflation was 10%.

"India’s central bank continues its balancing act of supporting growth while fighting inflation by keeping rates unchanged,” said Bundeep Singh Rangar, Chairman of London based advisory firm IndusView. “Increasing rates would have helped curb inflation but further slowed growth.”

India’s growth has been slowing, and hit a nine-year low of 5.3% in the March quarter, partly because of a global slowdown as well as weaker demand and investment activity at home. During April-May 2012 too, Foreign Direct Investments (FDI) in India declined by 59% year-on-year to $3.18 billion, reflecting the impact of slowing global economy.

Recently, Standard and Poor's and Fitch had lowered India's credit outlook to negative from stable citing reasons such as high inflation and inadequate reforms. “Attracting foreign investors, both institutional and individual, is critical to reversing the slowdown in growth and building a sound infrastructure,” said Bundeep Singh Rangar. “The consequence of having poor infrastructure was driven home yesterday when much of India was without electricity.”

After being hit by a massive power outage yesterday, the Confederation of India’s industry estimates the blackout to cost companies $107.5 million. The gap between demand and supply jumped to 10.2% in March from 7.7% the year earlier. Power cuts are common across swathes of India as the country battles an average 9% shortfall in meeting peak power demand that the government says shaves about 1.2% points off annual economic growth.

Prime Minister Manmohan Singh is seeking to secure $400 billion of investment in the power industry in the next five years as he targets an additional 76,000 megawatts in generation by 2017.

The stock market reacted to RBI's concerns over growth and inflation outlook. The 30-share BSE Sensex fell over 60 points or 0.6% after the policy announcement while Nifty also slipped into negative territory after staying relatively flat before the announcement. Bank stocks fell sharply. The BSE Bankex fell 1.1%. 

Impact of India Power Cuts on Country's Economy

IndusView Chairman Bundeep Singh Rangar comments on India Power Cuts and its impact on the country's economy on BBC World News.

Russia and China Vetoing the UN Resolution against Syria

IndusView Chairman Bundeep Singh Rangar comments on Russia and China vetoing the UN resolution against Syria, UK border guards threat to strike on Olympics eve, Germany's approval of Spanish bank rescue, IMF alert on UK housing market, Britain's Bradley Wiggins on the cusp of his Tour de France win.

Muslim Brotherhood's Mursi as Egypt New President

IndusView Chairman Bundeep Singh Rangar comments on Muslim Brotherhood's Mursi as Egypt new President, Customers' fury over RBS bank computer glitch, Bank chiefs enjoying double digit pay rises despite economic crisis, Eurozone austerity hurting aid to the world's poorest countries, Greece's breaching of bailout rules and England's exit from Euro 2012 Football Championship.

India Frustrations Send Some Foreign Firms Packing

Frustrated by a lack of opportunities in India, Germany's Fraport, the world's No. 2 airport operator, is shutting its development office in the country, the latest in a growing list of companies exiting Asia's third-largest economy.

Regulatory uncertainty and policy gridlock have battered foreign corporate sentiment towards India, adding to a dramatic slowdown in economic growth and exacerbating a widening current account deficit that has knocked the rupee to record lows.

"When we came to India in 2006, we were actually extremely bullish about the market. We felt India had a lot of potential at that time," Ansgar Sickert, who heads Fraport's India operations, told Reuters in a telephone interview on Friday.

Government plans then to privatise dozens of airports in smaller cities have not come to fruition.

"We were disappointed when none of these opportunities materialised," said Sickert.

Many foreign companies in other sectors have seen their India plans thwarted by sluggish or inconsistent policymaking under the embattled government of Prime Minister Manmohan Singh.

The list of companies to leave India includes telecoms carriers Etisalat of Abu Dhabi and Bahrain Telecommunications Co , whose licences were among those ordered cancelled by the Supreme Court amid a corruption probe.

Another firm, Norway's state-backed Telenor , which has invested roughly $2.5 billion in India and had its licences ordered cancelled, has threatened to pull out but is lobbying through diplomatic channels for favourable rules and to lower the price of airwaves to be auctioned.

"India definitely faces the threat of more foreign companies signalling an exit in the near future, as well as warding off new entrants unless it sends a very strong and immediate signal to boost foreign investor confidence, said Bundeep Singh Rangar, chairman of London-based IndusView Advisors.

According to a Nomura report last month, multinationals pulled $10.7 billion out of the country in 2011, up from $7.2 billion in 2010 and $3.1 billion in 2009.

To be sure, that's far less than inbound corporate investment, which surged 88 percent to a record $36.5 billion in the year that ended in March, according to official data, fuelled in part by two multi-billion-dollar energy deals.

TOUGH TIMES

India's economy grew just 5.3 percent in the March quarter, its worst in nine years and far below the 9 percent pace that drew a flood of investment before the global financial crisis.

Singh's government has been weakened by fractious coalition partners and a spate of scandals, undermining its reform agenda.

Ongoing battles over taxes on foreign companies, regulatory flip-flops and a lack of progress on key reforms have kept many foreign companies away and led others to scale back.

In a cautionary tale that has turned into a soap opera, UK mobile phone giant Vodafone , India's biggest foreign investor, is fighting a multi-billion-dollar tax demand and frequently spars with regulators over telecoms rules.

"Ever since then, India Inc's image abroad has taken a hit because it has basically made multinationals wary of India because of lack of predictability and certainty," said Rangar, referring to Vodafone's tax case.

Vodafone has vowed to stay in India, but other companies - including New York Life and U.S. mutual fund giant Fidelity Worldwide Investment recently sold their India units.

Augere, which owns 4G broadband airwaves in one of India's 22 telecoms zones, has stopped operational activities and is set to sell its airwaves due to regulatory uncertainties, the Economic Times reported last month.

More exits are expected in the crowded insurance industry, where a long-expected increase in foreign investor holdings has been stuck and where many joint ventures are losing money.

The mutual fund sector, where a regulatory change banning distribution fees as well as a sharp drop in markets have led to a drop in profits, is also seen to be poised for exits.

"Things are not happening at the required pace, so that has been the basic problem," said Soumya Kanti Ghosh, a director at the Federation of Indian Chambers of Commerce and Industry.

"We believe that if that is not taken care of, it will be very difficult to get the message to foreign investors that we, the government, are serious about carrying out the reforms agenda," he said.

Fraport, which owns 10 percent of the company that operates New Delhi Airport, is looking to sell that stake to a partner as its role as an operator will lapse in May 2013, meaning the company would not have a presence in India, one of the world's fastest-growing airline markets.

The government, scrambling to kick-start investment, this week announced a push in the infrastructure sector, including plans to develop three airports. Sickert said recent signs are encouraging, and Fraport still sees India as a potential market.

"To be honest, there is some scepticism at the moment, given the coalition constraints, that these projects will materialise within the timeframe the government has mentioned. We are still a little wary about that," he said.

http://in.reuters.com/article/2012/06/08/india-investment-exits-idINL4E8H87JN20120608

India to be $2-trillion economy by FY2013-end?

India may turn into a $2-trillion economy by the end of this financial year, provided the rupee remains below 50.79 against the dollar during this period. The government has projected India's gross domestic product (GDP) for 2012-13 at Rs 101 lakh crore, against Rs 88 lakh crore in 2011-12—a growth of 14.7 per cent.

In 2011-12, when the rupee stood at an average of 47.95 against the dollar, the size of the economy was $1.84 trillion at current prices (including indirect taxes). A growth of 14.7 per cent would mean the economy would expand to $2.11 trillion.

The catch, however, is the rupee stood at 47.95 against the dollar in 2011-12, while its average exchange rate against the dollar so far this financial year is 53.24. At this rate, by the end of 2012-13, India would be a $1.9-trillion economy. Any further depreciation in the rupee would further reduce the size of the economy in dollar terms.

On Thursday, the rupee fell to a record low of 56.52 against the dollar. It has depreciated 14 per cent from its high this year, exerting pressure on the trade and current accounts.

With limited foreign exchange reserves and reforms unlikely, analysts expect the rupee to depreciate further in the coming days, with a recovery unlikely anytime soon. "The high inflation, sluggish growth, poor flows and the strengthening dollar index would continue to drive the rupee to new lows. We expect the rupee to breach 57-levels soon,” said Abhishek Goenka, chief executive, India Forex Advisors.

In 2010-11, when the rupee stood at an average of 45.57 against the dollar, India’s GDP stood at $1.68 trillion, while it was $1.36 trillion in 2009-10, at an average exchange rate of Rs 47.42/dollar. GDP growth at constant prices (excluding indirect taxes) stood at 5.3 per cent in the quarter ended March 31, with growth in financial year 2011-12 at 6.5 per cent—the lowest in nine years.

"This persistent sluggishness in the economy puts the Reserve Bank of India in a conundrum. It has to cut interest rates to stimulate growth. However, it can’t cut much, as this would lead to more depreciation in the rupee,” said Bundeep Singh Rangar, chairman of London-based consulting firm IndusView.

Though the central bank had cut policy rates by 50 basis points in April, it had warned it saw limited scope for more any cuts, partly because inflation remained high.

Taliban Spring Offensive in Afghanistan

IndusView Chairman Bundeep Singh Rangar comments on the Taliban spring offensive in Afghanistan, Spanish King's accident in Africa, Google co-founder Sergey Brin's warning on threats to Internet freedom, Japan's Sony fighting to resurrect itself, Beijing's decision to widen the Yuan currency trading band and the musical Matilda's record winning of Olivier awards.

India's Tax Law Could Damage Overall Investment Climate

IndusView Chairman Bundeep Singh Rangar comments on the possible retrospective application of India's tax law that could damage the sentiment for investing in India.

Kofi Annan's Peace Plan for Syria

IndusView Chairman Bundeep Singh Rangar comments on Kofi Annan's peace plan for Syria, Spanish protests over austerity reforms, UK's double dip recession and Eurozone's big bazooka bail-out fund.

Indian Supreme Court's Rejection of Indian Tax Department's Appeal Against Vodafone Decision

IndusView Chairman Bundeep S Rangar Comments on Indian Supreme Court's Rejection of Indian Tax Department's Appeal Against Vodafone Decision on ETNow.

Press Release

Proposed Indian Tax Rule Could Impact Free Trade Talks with the EU and Canada

The latest Indian annual budget for 2012-2013, revealed by India’s Finance Minister Pranab Mukherjee last Friday, takes India a step backward toward its previous economic protectionist policies and could derail its discussions for free trade agreements with Canada and the European Union, its biggest trading partner.

The government proposed to levy a heavy retrospective tax on some international mergers that would allow it to tax any overseas merger dating back to 1962 when an underlying Indian asset was transferred, according to taxation experts such as KPMG. India’s Finance Secretary R.S. Gujral has since hurried to clarify that India will claim capital gains tax on cross-border acquisitions completed only in the past six years. An official statement of clarity is still awaited on ambiguously worded budget provisions.

“If passed, this tax legislation will be a shot in the foot of India’s economy,” said Bundeep Singh Rangar, Chairman of London-based advisory firm IndusView UK Ltd. “It sends a message of ever changing goalposts to foreign investors and fund managers and could make India’s risk profile unpalatable to them.”

The announcement in India’s budget comes at a time when India and Canada are in talks to finalize the Comprehensive Economic Partnership Agreement (CEPA) or Free Trade Agreement by 2013. Bilateral trade is expected to nearly quadruple to $15 billion by 2015 from $4 billion in 2010. Since 2007, India and the European Union (EU) have also been negotiating a free trade agreement, officially known as the Bilateral Trade and Investment Agreement (BTIA), that covers trade in goods and services aside from rules pertaining to cross-border investments, competition policy, government procurement and state aid.

For India, free trade with the EU will help its rapidly growing companies expand into the EU, the country's biggest trade partner that purchased more than €40 billion (€53 billion) worth of Indian goods and services in 2010. While trade with India represented only 2.4 percent of the EU's total, that percentage has been steadily increasing. With many EU countries still stuck in recession, the EU wants access to India’s vast, young and vibrant market. The total value of EU-India goods and services exchanged was €86 billion ($113 billion) in 2010 and is expected to reach $200 billion by 2015.

“Free trade agreements are premised on economic openness,” said Mr. Rangar. “The new tax sends a dangerous signal to the contrary and brings back memories of India’s socialist past that made it one of the world’s slowest growing economies,” said Mr. Rangar. “It would not be a surprise if foreign multinationals pressed their governments to bring up this proposed tax in World Trade Organization (WTO) discussions. Or they will simply walk away from India. In either instance, India stands to damage its international standing.”

India is hoping to accelerate its GDP growth to 7.60 percent in the year to March 2013 from 6.90 percent in the year to March 2012. That was far less than the 8.50 percent achieved in year to March 2011.

The disturbing thing is that the tax is retrospective irrespective of whether it is applied for the past 50 years or six years. The Indian budget stated it would seek to change India’s laws to enable the Indian taxman to tax capital gains made by foreign companies after it lost a $2.2 billion court battle with Britain’s Vodafone Plc in January. Today, India’s Supreme Court dismissed the Indian tax department’s appeal to review that decision.

“Foreign investors will seriously and understandably question the stability of the regulatory environment in India,” said Mr. Rangar. “India is entitled to tax local companies for capital gains and corporate income tax. Taxing overseas entities for Indian assets purchased over the past 50 years, however, is a step too far, very impractical to implement and could lead to reciprocal tax treatment for Indian companies that purchased overseas assets. That would be a double blow to India Inc.”

Vodafone’s purchase of Hutchison Essar, since renamed Vodafone India, was intended to expand revenue in the face of saturated mobile telecoms markets in Western Europe. India presents itself as one of the world’s fastest growing economies, a position achieved via the opening of its economy and flood of Foreign Direct Investment (FDI). India’s latest budget, however, threatens to squeeze that tap of overseas funding. FDI in India is expected to cross $35 billion in financial year to March 2012 compared with $19.43 billion in the previous financial year.

The Indian government’s motivation seems to be to increase its tax collection and reduce its budget deficit to 5.1 percent of gross domestic product next fiscal year, from 5.9 percent this year by capping subsidy spending and raising taxes. India had targeted a budget deficit of 4.6 percent for the current fiscal year ending in March 2012 and will miss that by a wider margin than many economists had expected.

“Increasing tax revenue is a laudable goal for India,” said Mr. Rangar. “That should, however, come from encouraging the number of new financial transactions not squeezing those that do take place. Besides, India has a dismal income tax base of 2.77%. The government should focus on increasing that tax base rather than punishing corporate buyers of Indian assets.”

The Minister of State for Finance S.S. Palanimanickam said in a written reply to a question posed in India’s Parliament last August that the number of taxpayers was 33.57 million out of a 1.21 billion population.

Another clause in the Union Budget 2012, which proposes to tax angel investments, has been termed by more than a dozen industry watchers as “a death blow” which has the “potential to kill entrepreneurial-startup ecosystem” in India. The decision has already created negative feedback among entrepreneurs and might lead to depressed valuations for these companies. Under this proposal, the government will treat all individual investments in a company as “income from other sources” and they will be subject to a tax of 30% at the hands of the companies.

For capital markets, the government announced a number of measures, including tax incentives for small investors in equity savings schemes, reducing taxes on securities transactions, allowing qualified foreign investors in the domestic bond market and easier norms for listing of corporate bond offerings in exchanges.

The budget also sought to restrict subsidies and move to a direct cash transfer system, both seen as positive moves. The government proposes to limit subsidies to 2% of GDP over the next three years and 1.7% thereafter. It also encourages adoption of the Unique Identification (UID) system to provide for direct cash transfers to recipients.

The budget was also positive for investments in infrastructure. More infrastructure sectors were added as eligible for gap funding from the government. The amount of tax free bonds which state-owned infrastructure companies can issue was doubled from $6 billion to $12 billion (from Rs.300 billion to Rs.600 billion); spending on key infra sectors was increased significantly; foreign financing through the External Commercial Borrowing (ECB) guidelines was opened for capital spending on highways, working capital for airlines, low cost affordable housing, among others.