The taxes you pay will fund for the ruling alliance's election campaign.
The UPA Government has insured its political future with a Rs 60,000-crore cheque.
The UPA will not pay for it but you, me and every taxpayer of the country will. If not today, tomorrow or three years down the line we have to pay this. The country's taxpayers will pay to ensure the existing political combine returns to power. In short, the UPA is shamelessly trying to loot the country's precious resources to further its own political ambitions.
Are we going to be mute spectators to this? But for some noises here and there in the media, there may be little opposition to this. That's because there is no political opposition in this country. Anyone raising a voice against this misappropriation of the nation's resources will be branded as 'anti-farmer'.
To quote Mr P Chidambaram from his press conference soon after the budget: "Stand up and be counted whether you are for the farmer or against the farmer. I am for the farmer, my PM is for the farmer and our government is for the farmer."
Will the Opposition stand up and question the government? I don't think any political party will do so and commit a political harakiri.
The poll campaign has already been kicked off. See the full-page ads in Sunday's newspapers issued by the NCP, a key member of the UPA government. NCP leader Sharad Pawar, the chief architect of the Rs 60,000-crore package takes credit for fulfilling his promise to the farmer.
The immediate questioning has centered around the source of funding for this largesse. But this is a secondary question. The primary one being: who has given political parties the right to appropriate funds? Will Parliament approve this mega 'loan' mela? Most likely it will pass the test of the floor for reasons stated above.
Half of I-T collections will fund UPA's poll campaign
Now comes the question of funding. The size of the package is shocking. Rs 60,000 crore is equal to 50 per cent of the Income Tax revenue of Rs 1,18,000 crores (revised estimates for 2007-08). So half of the Income Tax paid goes to fund the election campaign of the UPA government.
The Finance Minister is yet to disclose the funding. It could be in the form of bonds, which is seen as a cashless transaction for now-i.e., instead of giving cash to compensate banks' losses, they will be issued bonds guaranteed by the government. It's a paper transaction, but it will bind future governments. Read: Taxpayers have to pay this amount in future not now. This is an accounting fudge and demolishes the claim of bringing down fiscal deficit.
RBI silent spectator
The next question, is an oft repeated one. A debt relief always leads to a culture of defaults, a loan culture not tolerated by banks in urban areas. Recovery agents (read thugs) are set off against the defaulter in urban area, no excuses, no escape. What is more shocking is that the Reserve Bank of India (RBI) is a silent spectator. That's because it feels that the banks' interests are taken care off and there will be no losses in their books. Clearly, the central bank is not autonomous enough to challenge the political authority.
So if some of us in the media question this are we anti-farmers? No. In fact, the media first brought to light the plight of the farmers - be it in Vidharba or any other part of the country years ago. This Rs 60,000-crore cheque could have come at that time, but did not! Deserving farmers need relief and support, but this can't be used as a ticket to political fortunes
Tuesday, March 4, 2008
Murthy to join HSBC board; Rs 52 lakh salary
Global banking giant HSBC on Monday said Infosys [Get Quote] chief mentor N R Narayana Murthy will join its board in May with an annual renumeration of 65,000 pounds (about Rs 52 lakh).
"Nagavara Ramarao Narayana Murthy (61) has been appointed a director of HSBC Holdings plc with effect from May 1, 2008. He will be an independent non-executive director, HSBC said in a regulatory filing.
The appointment shall be for an initial three-year term, which will expire at the conclusion of the 2011 Annual General Meeting, it said.
As a non-executive director, Murthy will not have a service contract with HSBC Holdings plc and would be paid a director's fee of 65,000 pounds per annum as authorised by shareholders at the 2006 Annual General Meeting, it said.
Murthy currently holds the position of chief mentor of Infosys Technologies, which he co-founded in 1981, and was its CEO for 21 years.
A leading international financial conglomerate, HSBC Holdings plc serves over 125 million customers worldwide. According to the company statement, the directors have determined that Murthy is independent and he has no interests in the shares of HSBC.
In making that determination, the directors concluded there are no relationships which are likely to affect Murthy's judgment, and any relationships or circumstances that could appear to do so were considered not to be material.
Murthy is also an independent non-executive director of global FMCG giant Unilever plc and Indian media firm New Delhi Television Ltd [Get Quote] (NDTV), and a director of the United Nations Foundation.
Besides, he is presently rendering his service as a non-executive director to Singapore-based DBS Bank Ltd and the term will come to an end on April 2 this year.
Murthy, known as a corporate philanthropist, is also a member of several educational institutions including Cornell, INSEAD, Stanford and Yale.
He has also spearheaded a number of corporate governance initiatives in India, and is serving as chairman of a committee on Corporate Governance appointed by the Securities and Exchange Board of India in 2003
"Nagavara Ramarao Narayana Murthy (61) has been appointed a director of HSBC Holdings plc with effect from May 1, 2008. He will be an independent non-executive director, HSBC said in a regulatory filing.
The appointment shall be for an initial three-year term, which will expire at the conclusion of the 2011 Annual General Meeting, it said.
As a non-executive director, Murthy will not have a service contract with HSBC Holdings plc and would be paid a director's fee of 65,000 pounds per annum as authorised by shareholders at the 2006 Annual General Meeting, it said.
Murthy currently holds the position of chief mentor of Infosys Technologies, which he co-founded in 1981, and was its CEO for 21 years.
A leading international financial conglomerate, HSBC Holdings plc serves over 125 million customers worldwide. According to the company statement, the directors have determined that Murthy is independent and he has no interests in the shares of HSBC.
In making that determination, the directors concluded there are no relationships which are likely to affect Murthy's judgment, and any relationships or circumstances that could appear to do so were considered not to be material.
Murthy is also an independent non-executive director of global FMCG giant Unilever plc and Indian media firm New Delhi Television Ltd [Get Quote] (NDTV), and a director of the United Nations Foundation.
Besides, he is presently rendering his service as a non-executive director to Singapore-based DBS Bank Ltd and the term will come to an end on April 2 this year.
Murthy, known as a corporate philanthropist, is also a member of several educational institutions including Cornell, INSEAD, Stanford and Yale.
He has also spearheaded a number of corporate governance initiatives in India, and is serving as chairman of a committee on Corporate Governance appointed by the Securities and Exchange Board of India in 2003
Why you must invest in global property
The first question which one asks today, when they see a global realty fund is...what about the subprime crisis? Well, the ING Global Real Estate fund does not invest in the US housing sector. Now that the basic fear has been put to rest, let's look at the other qualities of this fund.
Launched in December 2007, ING Global Real Estate fund is an open-ended fund of funds that proposes to invest in global properties in 21 countries. This fund is benchmarked against the Citigroup World Property Index.
It mopped up around Rs 218 crore (Rs 2.18 billion) in the new fund offering (NFO). Its net asset value (NAV), as on February 28, stands at 10.06. Globally the ING group is the world's largest real estate investment manager with assets under management (AUM) being close to US$145 billion.
Real estate, as an asset class, has already provided phenomenal returns in the last few years, but now the going looks tough. The logic of investing in global real estate is to have an investment avenue that is insulated from the Indian equities or bonds market.
Being a fund of funds, ING Global Real Estate does not invest directly in properties. This investment model allows it to put money in real estate investment trusts (REITs) and real estate operating companies (ROCEs).
These are entities which build, own and operate real estate properties such as apartments, shopping centres, hotels, malls, health care facilities and others.
The primary incomes of REITs come from rentals and deposits from the owned properties. To qualify as a REIT, a company has to compulsorily distribute 90 per cent of the income as dividends and they enjoy tax benefits against that.
REOCs, on the other hand, earn their incomes from rentals and deposits, as well as from sale of properties. The option to distribute dividends is voluntary.
Another question which dogs an investor while investing in a fund of this type, is the risk of exposure to currency fluctuations. The fund counters this by claiming that it invests in different securities in local currencies.
Therefore, when the US dollar weakens, some other currency like the Japanese yen or the Australian dollar may appreciate against it. This evens out the fluctuations to a great extent.
The outlook on property in the US and Continental Europe is grim for the next couple of years. However, property markets in the Asia Pacific region, Hong Kong, China, Australia and Singapore are supposed to fare better.
If the international real estate market slumps further it might be an opportune time to get into this fund. Rental incomes will also provide stable cash flows for the fund to earn a reasonable return.
If a retail investor wants to get into the international property bandwagon and wants liquidity too this fund is a good option. However, look at it as a pure diversification play, with returns expected to beat fixed income and lower volatility than equities.
As far as tax component goes, this fund of funds is treated like a debt fund and taxed accordingly. As per current tax laws, long-term capital gains will have the benefit of indexation and taxed at 20 per cent plus surcharge. The short-term capital gains will be added to the total income of the investor and taxed according to the income bracket.
Launched in December 2007, ING Global Real Estate fund is an open-ended fund of funds that proposes to invest in global properties in 21 countries. This fund is benchmarked against the Citigroup World Property Index.
It mopped up around Rs 218 crore (Rs 2.18 billion) in the new fund offering (NFO). Its net asset value (NAV), as on February 28, stands at 10.06. Globally the ING group is the world's largest real estate investment manager with assets under management (AUM) being close to US$145 billion.
Real estate, as an asset class, has already provided phenomenal returns in the last few years, but now the going looks tough. The logic of investing in global real estate is to have an investment avenue that is insulated from the Indian equities or bonds market.
Being a fund of funds, ING Global Real Estate does not invest directly in properties. This investment model allows it to put money in real estate investment trusts (REITs) and real estate operating companies (ROCEs).
These are entities which build, own and operate real estate properties such as apartments, shopping centres, hotels, malls, health care facilities and others.
The primary incomes of REITs come from rentals and deposits from the owned properties. To qualify as a REIT, a company has to compulsorily distribute 90 per cent of the income as dividends and they enjoy tax benefits against that.
REOCs, on the other hand, earn their incomes from rentals and deposits, as well as from sale of properties. The option to distribute dividends is voluntary.
Another question which dogs an investor while investing in a fund of this type, is the risk of exposure to currency fluctuations. The fund counters this by claiming that it invests in different securities in local currencies.
Therefore, when the US dollar weakens, some other currency like the Japanese yen or the Australian dollar may appreciate against it. This evens out the fluctuations to a great extent.
The outlook on property in the US and Continental Europe is grim for the next couple of years. However, property markets in the Asia Pacific region, Hong Kong, China, Australia and Singapore are supposed to fare better.
If the international real estate market slumps further it might be an opportune time to get into this fund. Rental incomes will also provide stable cash flows for the fund to earn a reasonable return.
If a retail investor wants to get into the international property bandwagon and wants liquidity too this fund is a good option. However, look at it as a pure diversification play, with returns expected to beat fixed income and lower volatility than equities.
As far as tax component goes, this fund of funds is treated like a debt fund and taxed accordingly. As per current tax laws, long-term capital gains will have the benefit of indexation and taxed at 20 per cent plus surcharge. The short-term capital gains will be added to the total income of the investor and taxed according to the income bracket.
Reverse Mortgage: A failure in India?
The finance minister's budget proposals last year included the introduction of the reverse mortgage facility for senior citizens in India.
Recent reports seem to indicate that less than 150 people have taken advantage of the facility since its inception, and it is, therefore, likely to be considered a failure. This is unfortunate because the facility simply has not been adequately explained. It was also unattractively packaged.
The reverse mortgage facility allows senior citizens to unlock the value of their most valuable asset, their home, by mortgaging it and enjoying the use of the money in their lifetime while continuing to live in it until their deaths.
It is a well-entrenched idea in many developed countries in the West where its terms are such that only home-owners above a given age (typically 60-65 years) may apply.
The bank makes an evaluation of the current value of the home, decides the likely lifespan of the applicant home-owner (and his/her spouse), and, decides what percentage of the current value they are willing to loan them. The bank also fixes the interest rate it wishes to apply.
Typically, the loan amount seldom is lower than 60-70 per cent of the market value of the property. The applicants have the option of taking the loan principal in a single lump-sum amount or by a fixed monthly amount instead.
From time to time, the value of the property is re-visited by both parties. If the valuation has increased, the applicants are given the option of increasing the quantum of the loan, and should they do so, are given the incremental amount in lump-sum.
If they have opted for the monthly payment scheme, this amount is appropriately increased. The principal plus interest charges accrue at the bank while the applicants live on in the home for the lengths of their lives - or until they decide to sell the home, whichever comes earlier.
If they choose to sell it, they have to pay the bank all the accrued amounts. On the death of the second of the two spouses, the heirs to the property decide either to redeem the loan and keep the property, or sell the property and take the residual amount that may accrue from the sale after settling with the bank.
Should the sale proceeds be lower than the accrued principal plus interest amount, the bank takes the loss. (This could happen if the real estate market has not moved up in the manner the bank had estimated originally. However experience of the past indicates that the banks seldom lose, as they factor this likelihood in setting the percentage of the current value they loan the applicants.)
The Indian banking industry must not complicate the scheme as it has done. The industry's offer caps the available loan amount at Rs 50 lakh, instead of providing for an equitable percentage of the property's value, and limits the loan period to tenure of 15 years.
Which 60-year-old couple would wish to put themselves in a position to have to redeem the principal plus interest amount when they are 75 or more, at which age they are unlikely to have the stamina to sell out and move to a new home, which would inevitably be their only option? Inadequate clarity and inappropriate terms have led the reverse mortgage loan facility in India to have limited takers.
It is possible that most Indians will not sell the family home, and would prefer passing it on to the next generation, even if they have to live in relative penury during their waning years because of the small income. However, many Indian traditions and values have changed in the last 15 years. This is like many other things.
For example, we hated debt and dreaded living on borrowed funds. The Diners Club credit card was introduced in India in the 1960s. It never ever took off. But today's new generation has upturned that.
More credit cards are issued in India per month than in most countries in the world, and cards have changed the way life is lived. The increasing GNP and the surge of the manufacturing and service sectors owe much to the great surge in consumer purchasing, including of expensive aspirational goods and real estate.
The urge for a better life NOW is almost fundamental to the way the younger generation perceives its goals.
Another example has to do with the tradition that parents moved in with one or the other of their children when they grew old. That too is changing.
Work opportunities are moving young people away to new cities, even new countries, where their parents cannot or will not follow them. And even in the same cities, many "modern" parents prefer to live on their own.
Further, in many cases, the children do not want to inherit the parents' home. Should they do so, they sell it anyway because they have moved on to bigger and better things. There are also old folk without children, and old folk out of luck with their children. In both cases, they are short of the cash to even pay essential bills.
So while the reverse mortgage idea may not take off in India as it has in the West, where social and parent-child behaviour usually dictates that the old folk live off their very last penny before they die, there are sufficient demographic and psychographic data to indicate that in India there are takers in the millions who, for one reason or another, are likely candidates for the reverse mortgage idea.
In any event, the proposal should be given the opportunity to fail for the right reasons. And that means it should be packaged and marketed in a way that makes sense to the likely customer.
Recent reports seem to indicate that less than 150 people have taken advantage of the facility since its inception, and it is, therefore, likely to be considered a failure. This is unfortunate because the facility simply has not been adequately explained. It was also unattractively packaged.
The reverse mortgage facility allows senior citizens to unlock the value of their most valuable asset, their home, by mortgaging it and enjoying the use of the money in their lifetime while continuing to live in it until their deaths.
It is a well-entrenched idea in many developed countries in the West where its terms are such that only home-owners above a given age (typically 60-65 years) may apply.
The bank makes an evaluation of the current value of the home, decides the likely lifespan of the applicant home-owner (and his/her spouse), and, decides what percentage of the current value they are willing to loan them. The bank also fixes the interest rate it wishes to apply.
Typically, the loan amount seldom is lower than 60-70 per cent of the market value of the property. The applicants have the option of taking the loan principal in a single lump-sum amount or by a fixed monthly amount instead.
From time to time, the value of the property is re-visited by both parties. If the valuation has increased, the applicants are given the option of increasing the quantum of the loan, and should they do so, are given the incremental amount in lump-sum.
If they have opted for the monthly payment scheme, this amount is appropriately increased. The principal plus interest charges accrue at the bank while the applicants live on in the home for the lengths of their lives - or until they decide to sell the home, whichever comes earlier.
If they choose to sell it, they have to pay the bank all the accrued amounts. On the death of the second of the two spouses, the heirs to the property decide either to redeem the loan and keep the property, or sell the property and take the residual amount that may accrue from the sale after settling with the bank.
Should the sale proceeds be lower than the accrued principal plus interest amount, the bank takes the loss. (This could happen if the real estate market has not moved up in the manner the bank had estimated originally. However experience of the past indicates that the banks seldom lose, as they factor this likelihood in setting the percentage of the current value they loan the applicants.)
The Indian banking industry must not complicate the scheme as it has done. The industry's offer caps the available loan amount at Rs 50 lakh, instead of providing for an equitable percentage of the property's value, and limits the loan period to tenure of 15 years.
Which 60-year-old couple would wish to put themselves in a position to have to redeem the principal plus interest amount when they are 75 or more, at which age they are unlikely to have the stamina to sell out and move to a new home, which would inevitably be their only option? Inadequate clarity and inappropriate terms have led the reverse mortgage loan facility in India to have limited takers.
It is possible that most Indians will not sell the family home, and would prefer passing it on to the next generation, even if they have to live in relative penury during their waning years because of the small income. However, many Indian traditions and values have changed in the last 15 years. This is like many other things.
For example, we hated debt and dreaded living on borrowed funds. The Diners Club credit card was introduced in India in the 1960s. It never ever took off. But today's new generation has upturned that.
More credit cards are issued in India per month than in most countries in the world, and cards have changed the way life is lived. The increasing GNP and the surge of the manufacturing and service sectors owe much to the great surge in consumer purchasing, including of expensive aspirational goods and real estate.
The urge for a better life NOW is almost fundamental to the way the younger generation perceives its goals.
Another example has to do with the tradition that parents moved in with one or the other of their children when they grew old. That too is changing.
Work opportunities are moving young people away to new cities, even new countries, where their parents cannot or will not follow them. And even in the same cities, many "modern" parents prefer to live on their own.
Further, in many cases, the children do not want to inherit the parents' home. Should they do so, they sell it anyway because they have moved on to bigger and better things. There are also old folk without children, and old folk out of luck with their children. In both cases, they are short of the cash to even pay essential bills.
So while the reverse mortgage idea may not take off in India as it has in the West, where social and parent-child behaviour usually dictates that the old folk live off their very last penny before they die, there are sufficient demographic and psychographic data to indicate that in India there are takers in the millions who, for one reason or another, are likely candidates for the reverse mortgage idea.
In any event, the proposal should be given the opportunity to fail for the right reasons. And that means it should be packaged and marketed in a way that makes sense to the likely customer.
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