April 2013 Issue Final

InFINeet | April 2013
InFINeet | THE FINANCE MAGAZINE OF IIFT APRIL 2013 ISSUE

Inside InFINeet
Budget Special: Informaton | Analysis | Insights
Infrastructure sector: Will Budget 2013 be able to revive the ailing sector?
War in the air: What lies in the bag for the Indian Airline Industry?
Women Bank: Do we really need one?
APRIL 2013 ISSUE INFINEETI@IIFT.AC.IN
What
needs &
from the

deserves
Budget
InFINee | April 2013


W
elcome to the April edition of InFINeeti. As always, financial
markets have been turbulent, though there have been some
glimpses of recovery. With the Government committed to roll out the cash transfer
scheme, parliament paving the way to issue new banking licenses, RBI going for rate
cuts and stock markets bound to see the pre-January 2008 levels, India economy is
seen to be coming back on track.
The major highlight of the last quarter has been the Union Budget 2013. There has been a lot of speculations
on whether it will be a growth-oriented budget or a populist one. While chasing the elusive high growth targets
in the face of populist pressures, Mr. P. Chidambaram did a fine balancing act and made sincere efforts to
please both the clusters. With his Responsible and Bold budget, he has deftly mooted good economics as a
tool of good politics. In this Budget special edition, we have a bunch of excellent articles with in-depth analysis
of some of the major provisions of Finance Bill 2013.

The Highlight of the issue is the Dream Budget, where the IIFTians have stepped into the shoes of the Finance
minister and came out with an alternate budget. In their Dream budget, the authors have made an in-depth
analysis and came out with some concrete suggestions that will provide a boost to the Indian economy.

Whether the new bank for women will serve the intended purpose? Is it right to impose additional Taxes on
the super-rich? These are some questions posed by Budget 2013. All the answers lie at a distance of few pages.

UPA governments last-hour effort to reduce the Current Account Deficit and revive the Infrastructure and
Power sector have also been analyzed and debated. A detailed account of the measures taken in the budget
should make a good read.

This issue also throws some light on the aggressive strategies adopted by the cash-strapped airline companies
in the recent past. A fact based analysis of long-run sustainability of such strategies and the future prospects of
the sector.

The issue features FIN Trivia column containing some mind-boggling facts & figures. We also take extreme
pride and pleasure in announcing that IIFT has completed its 50 years of excellence in leadership in Internation-
al Business and this year marks a special mention.

Happy Reading!!
FROM THE EDITORS DESK 1
CONTENTS 2
>>> Page 3 >>> Page 5 >>> Page 19
WHERE THINGS
BREWED
A pre- budget analysis
event in co-ordinaon
with NDTV
3
BUDGET PLUS 2.0
A post-budget analysis
event @IIFT Kolkata
5
THE CAD PARADOX
Will curbing gold
import work for India?
7
TAXING THE SUPER
RICH
Will it help the UPA
government achieve
the scal targets?
13
LETS BANK ON
WOMEN
India's rst women-
only bank proposed:
Do we really need
one?
15
FINANCIAL INCLU-
SION
An Indian perspecve
17
COVER
STORY
DREAM
BUDGET

W hat I ndia needs
& deservesfromthe
budget!!
1 9
WAR IN THE SKIES
What lies in the bag
for the Indian Airline
Industry!
34
INFRASTRUCTURE
SECTOR
Will budget 2013 be
able to revive the ail-
ing sector?
36
UNDERSTANDING
THE FINANCIAL CRISIS
A simplied version of
reasons that caused
one of the biggest
nancial crisis of the
century
38
MARKET PULSE 41
FIN-TRIVIA 43
NEWS CHRONICLE 44
REGULARS
O
n the 15
th
of February, The Finance and Investments Club
of IIFT, Delhi hosted a pre-budget ses-
sion at the Delhi campus to allow stu-
dents to understand beer the intrica-
cies and implicaons of the upcoming
budget as well as interact with an ex-
tremely esteemed and disnguished
panel.

The panel consisted of Gurcharan Das,
author of the bestseller India Unbound
and former CEO of Proctor and Gamble,
India, Arvind Virman , Former Chief Economic Adviser to the Govt.of
India and Non-resident Fellow, Brooking Instute, Washington DC and

Vikram Singh Mehta , Ex- Chairman of the Shell Group of Compa-
nies ,currently on the Board of direc-
tors at Mahindra & Mahindra.

Conducted by NDTV, the session pro-
vided an opportunity to the manage-
ment students of IIFT, Delhi to pose
quesons to the panelists as well as air
their views and opinions on the up-
coming budget. The session provided a
unique plaorm for the students to ask
quesons ranging from oil subsidies to
FDI in retail to the measures that should be taken to control the scal
decit.
WHERE THI NGS BREWED
A pr e- bu d get a n a l ysi s even t i n co-
or d i n a t i on wi t h NDTV
PRE-BUDGET ANALYSIS 3

The students were teeming with quesons and the discussion went
live with the rst queson asked on reforms in the energy sector tak-
ing into consideraon the fact that 70 % of Indias imports consist of
oil imports. The queson was addressed to Mr. Vikram Singh Mehta
who was the former Chairman of Shell, India. Mr. Mehta explained
that exploraon of oil and gas has three uncertaines associated with
it.

Firstly the geological structure has to be conducive to the formaon
of hydrocarbons. Secondly these hydrocarbons should be accurately
located and thirdly the deposit should allow for a commercially viable
way to produce oil. All these three steps involve huge expenditure
and hence subsidies should be such that they do not aect the oil
companies ability to invest in research and exploraon. Also he was
of the view that liberalizaon of diesel prices should connue and oil
subsidies should be reduced as they account for nearly 75,000 Crore
Rupees and are thus crical to the scal decit.

Being students of internaonal business the students were keen to
know the steps that would be taken in the budget to increase GDP,
rein in the scal decit and improve investor condence. Mr Gur-
charan Das who has a nger on the pulse of the naon was of the
opinion that domesc growth has to be spurred, along with that
transparency in procedures should be brought about and steps
should be taken to move away from seconal growth to public
growth. Mr Das felt that the government should invest in improving
the infrastructure of India rather than providing subsidies and loan
waivers.

Moreover, ideas were exchanged on the incenves of the gold linked
nancial instruments whether it would reduce gold imports. With a
healthy discussion ensuing between the panelists and the bright
minds of IIFT, Delhi the session concluded on a very high note with all
the parcipants having taken away some important insights from the
session.

The students were also inquisive to know if the current tax structure
would be changed so as to impose higher tax rates on the super rich.
The students were parcularly interested in this since most of the
developed countries as well as the BRICS had a higher tax to GDP
rao than India. This queson was taken by Mr Virmani who ex-
plained that the priority of the government should not be tax reforms
in terms of revenue but more in terms of rules and procedures, so as
to make India more investor friendly. He also pointed out that most
of the countries with higher tax to GDP rao than India had a higher
per capita income and India when compared to countries with similar
levels of per capita income had a higher tax to GDP rao.

The session moved towards conclusion as the students discussed with
the panelists the eecveness of the Aadhar Scheme and the Na-
onal populaon register

PRE-BUDGET ANALYSIS 4

He pointed out that a major part of the budgets every year focus is
on meeng the 5 year plan targets.
Then, Mr. Nandwani asked the esteemed panel members to oer
their opening remarks. Prof. Ranajoy analyzed the budget froman
economic perspecve. He observed that contrary to the belief that
there would be a growth oriented approach by inclusion of econo-
mists such as Dr. RaghuramRajan and the Finance Minister Mr.
Chidambramwould bring to the table has not occurred and the
budget is oxymoronic to the approach paper of the 5 year plan. He
deemed the budget to be neither pro-growth nor pro-social reform.
Dr. Ajitava, in his analysis, divided the budget into 4 segments. The
rst, he said, was that the budget has been a connuaon of old
stories, but cited that there has been a 46 percent increase in the
budgetary allocaon to the Ministry of Rural Development. Another
important point he touched upon was regarding the women banks.
T
he Indian Instute of Foreign Trade, Kolkata orga-
nized the second edion of Post-Budget Analysis -
Budget Plus 2.0. The panelists of the discussion were Mr. Rajib
Basu, Associate Director- PricewaterhouseCoopers, Prof. Ranajoy
Bhaacharya, Professor of economics at IIFT, Dr. Ajitava Ray
Chaudhuri, Professor of Economics at Jadavpur University, Mr. An-
jan Kumar Roy, Member ICSI, Anjan Kumar Roy & Co. Company
Secretaries, Mr. Basant Kumar Maheshwari, Founder-
TheEquityDesk Dot com. The discussion was presided over by Mr.
Sanjeev Nandwani, Development Commissioner, FALTA SEZ.
Mr. Nandwani threw the discussion open emphasizing that budgets
are a connuous process and who the Finance Minister is, plays a
very lile role on what the governments policies are going to be.
POST-BUDGET ANALYSIS 5

In his opinion, empowering the women by leveraging on the exisng sys-
tems would have been beer rather than the new provision for women
banks. In his words, the govt. is for the people, by the people and whoev-
er for and this budget has proved to be a signaling mechanism to the
masses. Mr. Rajib Basu took a dierent stance from the two economists
and praised the Finance Minister for the work he has done given the con-
straints of the upcoming elecons. In his words, the budget is a statement
and the money is being put into the right sectors but raised quesons on
the amount of money allocated to these sectors. He also quesoned the
implementaon of the policies which are announced in the budget and
called for seng up of instuons for ecient implementaon. Mr. Anjan
Kumar Roy said that the budget has something for everyone and was a
balance of reform and social sector measures. He said that the problemlay
in implementaon of such policies and has been so for the past 30 years.
Mr. Maheshwari argued that budgets have a shelf life of 72 hours. He
said that the investors in the stock market pay very lile heed to the provi-
sions in the Budget and exclaimed good companies get around bad budg-
ets and make money for their shareholders, while bad companies do not
make money even in good budgets poinng out that the stock market
runs its course irrespecve of the budget.
Aer the opening remarks, the oor was thrown open for discussion and
Mr. Nandwani asked the panelists for their remarks on whether the budget
was a populist measure or a policy measure and enquired their views re-
garding parcular sectors. The issue of the declining savings rate in India
from36 percent to 30 percent was discussed at length and Mr. Ajitava
remarked that the rent-seekers needed to have a leash and India cannot
depend on foreign investors all the me. Various other issues such as the
Domesc Instuonal Investors (DIIs) following the FIIs in the primary mar-
kets and the buoyancy of the capital markets were pondered upon. When
it came to the issue of disinvestment, Mr. Basant proposed the idea of
giving away 200 stocks to every PAN card holder at a discount rather than
to LIC as a measure of keeping the investors money with themonly.
The audience constung the students of IIFT, Kolkata campus asked per-
nent quesons regarding liquidity issues arising out of disinvestment, the
overshoong of the target of 10000 crores due to the Food Subsidy Bill and
the introducon of CTT to discourage people for invesng in gold and sil-
ver.
The Panel concluded the discussion cing that although the budget
touched everybody, it did not focus on any parcular sector.
POST-BUDGET ANALYSIS 6
Mr. Rajib Basu, Associate Director- PricewaterhouseCoopers
speaking out his views
Mr. Basant Kumar Maheshwari, (Founder-TheEquityDesk Dot
com) analyzing the budget fromthe Equity Markets viewpoint
A student pung across his queson in Q&A session
THECADPARADOX
WillcurbingGoldImportworkforIndia?
A
persistently negave current account decit is a
cause of concern for any economy. When a country
runs CAD, it builds up liabilies to the rest of the world that are -
nanced by ows in the nancial account. Large decits and rising
indebtedness could also leave countries more vulnerable to adverse
external shocks.

Since India has a long history of sizeable current account decits, it
makes for an interesng case study. A closer look at gure one clear

ly reveals Indias inability to maintain a posive current account
balance. We can see that in only four years fromthe past two dec-
ades India has been able to claima current account surplus.

In his latest Budget Speech , Finance Minister P Chidambaram ex-
pressed concern over Indias Current Account Decit (CAD) and ris-
ing Indian gold Import .To curb imports of the Gold with a view to
check the widening CAD, the government recently took a step of
hiking the import duty on gold and planum from 4% to 6% . Lets
try to analyze the CAD of India and eecveness of the hike on gold.

Rising Current Account Decit
Current Account Balance can be dened as the net of export and
import and if the import is in excess to the export it is called a de-
cit. Although CAD constute of other factors like factor income and
transfer payment but major constuent of Current account balance
is the trade balance (i.e. Export- Import). High current account de-
cit is major concern because it cannot be sustained for long as the
countries that lend money (through the capital account surplus)
will expect to get back their money with interest at some point.

As can be seen from the below data, Indias current Account Decit
has been widening along with the increase in gold import as per-
centage of GDP.
Current Account Decit of India
VikasGoyal-IIFT
DeependraKumar&AshishKhare-MDI
UNION BUDGET 2013 7

Comparing India with other BRICS naons, its evident that India is
showing worst CAD trend.

Major Implicaons of High Current Account Decit
High current account decit is major concern because it cannot be
sustained for long as the countries that 'lend' money (through the
capital account surplus) will expect to get back their money with
interest at some point. If the money is not seemed to be present
in future, the lending country may demand higher returns or may
take back their money. With no one to lend, the country cant
import capital goods to make own good or even import consumer
goods .

Reasons for high current account decit (CAD)
To put some numbers into perspecve, current account decit
widened to 5.4 %of GDP in the Q2 2013. The current account
decit was $22.3 billion in the three months through September,
or 5.4 percent of GDP, compared with $16.6 billion in the June
quarter and $18.9 billion in the September quarter of 2011. The
widening gap has been caused mainly by the increasing trade de-
cit. The trade decit widened to 12.2% of GDP in Q3 from 9.7% in
Q2. While oil prices have risen, most of this worsening is in the
non-oil segment (Nomura Report). Gold imports were the major
cause of the widening current account decit. India saw $60 billion
worth of gold imports in scal 2011-12 which contributed to high
CAD levels. Gold imports in the 2010-11 were $40 billion. The in-
crease of $20 billion can be aributed to high level of inaon.

Though Nomura said the recent fall in gold and oil pric-
es can help improve India's elevated current account
deci t (CAD) by one percentage point to 4. 3 per cent
during 2013.
While the imports were dominated by higher demand for gold, the
exports contracted. In the April-November period, India's total
exports contracted by nearly 6 percent from a year earlier, leaving
a trade decit of nearly $130 billion.
Another possible cause has been the higher demand or a supply
shocks in the Indian Economy. In 2011-12 the growth in aggregate
demand categories like consumpon and xed investment fell
from about 8%to 5%. It has been observed that the Indian CAD is
countercyclical, rising when output falls and not when demand is
rising. This suggests the dominance of external supply shocks ra-
ther than the demand factor. Current account decit is going to be
as strained in Q3 2012-13 as it was in the second quarter because
of the lower GDP growth.
The depreciang INR also contributed to for the past one year and
was the third worst performer in Asia in 2012. The rupee closed
2012 at 55.00 inang the import bill and the current account
decit

Implicaons of the High Current Account Decit for the Indian
Economy
The recent level of the Current account decit at 5.4 % of the
GDP is above the sustainable level. According to research report
from RBI, India can sustain a current account decit of 2.5 % of
GDP with a lower GDP growth. This clearly is an alarming situaon
for the Indian economy and has the capacity to impair Indias -
nancial stability.

This decit will also cause the foreign exchange reserves to dry up
if the inows to make the decit do not materialize. It will have
direct bearing on the strength of INR. The depreciang INR has
come under a lot of pressure with the increasing current account
decit. The Indian rupee has dropped more than 20% from its
August 2011 peak against the dollar. This sharp depreciaon is
mainly due to Indias large current account decit .
UNION BUDGET 2013 8
Acon Taken by Indian Government and RBI
Government of India is considering steps to make gold imports costlier
in order to reduce the huge foreign exchange outgo on the yellow met-
al, which has pushed the current account decit to a record high. (India
Today)
Government is also trying to create an investor friendly environment to
increase investment from foreign investment in the formof FDI and FII,
the income from these foreign investments posively contributes to
current account.
Indian Gold Imports
India is known to be among the largest importers of gold in the world. A
look at the Indian import gures for gold over the period 2001-02 to
2010-11 suggests that golds share in total import bill of the country has
gone up from 8.1 per cent in 2001-02 to 9.6 percent in 2010-11 even
when gold prices have increased markedly over the period April 2008 to
March 2012.

India's love aair with Gold
Indian demand for gold is inuenced by many socio, economic and cul-
tural factors. Some major driving factors for gold demand in India are
following.
The rst category of the demand for gold consists of the consumpon
demand for making jewellery, medals, electrical components, etc. There
is the tradional obsession with the yellow metal as an adornment and
an itemof personal display.
The second category is the asset demand for gold as an investment.
Gold is perceived as safe haven asset, especially, during periods of nan-
cial and economic stress. More recently, aer the 2008-09 nancial
crisis, the demand for gold as collateral has also increased as it does not
involve credit risk and its price generally exhibits counter-cyclical behav-
ior.
Gold is viewed as a liquid asset and one of the most ecient store of
value and hence widely recognized in India as a tool for inter-
generaonal wealth transfer. Investors have reaped the benet of
aracve returns as the gold prices were increasing, that led to further
investment in gold, giving impetus to further rise in gold prices.
According to a recent Morgan Stanley report, over the past ve years,
gold has outperformed all other asset classes
UNION BUDGET 2013 9

Gold hurng Indian Economy
India does not produce much of the gold consumed. That
means, we need to buy gold fromother countries and pay in
foreign currency. This directly aects the value of rupee nega-
vely and thus creang further prices raises especially petrol
and diesel.
Gold may not be great to the economy due to its unproduc-
ve nature. The private purchase and hoarding of gold results
in the diversion of surplus away from producve investment
like xed deposits, investment policies, shares, bonds etc.
Bulk of the gold transacons is generally on cash basis and
without much of documentaon. There are no tax hassles on
gold transacons in the informal market. This feature too
might be incenvising diversion of domesc savings towards
non-nancial products like gold. Such de-nancialisaon is
undesirable to the nancial system.
Import duty hike wont work
Encourage smuggling
The higher the dierence between internaonal prices and ocial
prices, higher the prot margin for illegal imports. As the dierence
increased in Indian and internaonal gold prices, smuggling of gold
too is making a comeback. A similar hike last year had failed to curb
the demand for the yellow metal.

No reducon in trade Decit
Is this increase in Customs likely to reduce Indias trade decit? Un-
likely! It will increase capital-ight to oshore nancial centers from
where foreign-exchange earnings will get higher returns than in India.
Higher customs or other barriers will mean more (and more) policy
intervenons that will increase compliance overload and reduce poli-
cy-impact.
Retail Investors interests
Gold is a protector of assets an important reserve in mes of eco-
nomic uncertainty and plays a crucial role in hedging currency and
inaon risks. The demand for gold in India is price inelasc, i.e. Indi-
an customers are not 'duty-conscious' when they buy gold
Alternave ways to reduce dependence on Gold

Increase the reach of Banks Indias saving rate is esmated at
around 30 percent of total income, of which 10 percent is invested in
gold. Therefore it is important that the nancial sector taps into this
huge saving reserve.

Liquidity quoent-The real aracons for gold are high returns, high
liquidity and no tax and documentaons. If interest earned on various
nancial savings instruments is aracve, a part of the demand for
gold will be automacally diverted to the nancial instruments.
UNION BUDGET 2013 10
Massive educaon campaign
Create awareness amongst the public at large as to how unnecessary
piling of gold stocks with households is not only adversely impacng the
current account posion of the economy but also increasing the level of
black money circulaon in the economy.

Current Account Decit: Story of other Developing Naons
While focusing on the current account decit problem of Indian econo-
my it makes sense to have a look at similar developing naons to under-
stand current account situaon in these countries.

Brazil
Brazil is currently facing a big current account decit which is 2.11% of
GDP at the end of nancial year 2011-12. Brazil has a current account
decit despite
having a posive
trade balance on
account of large
service decit.
The reason be-
hind the posive
trade balance is
the export-
oriented Brazil
economy heavily dependent upon soybean, orange juice and iron.

Russia
Russias current account surplus is fuelled primarily by high oil exports.
Oil prices have risen steadily over the past few years which have in-
creased their export prices. From 2000 onward, the country started to
record posive trade surplus, taking advantage of the devalued curren-
cy. Russias current surplus decreased sharply in 08-09 due to the glob-
al recession and decrease in demand for commodies. Increase in Rus-
sians income is set to fuel demand for imports; this would lead to nar-
rowing of the current surplus.

China
China has had a consistent Current Account Surplus which today is ap-
proximately $ 300 billion. The major reason for this surplus is the com-
peveness of Chinese products which have gained a reputaon in
manufacturing sector and thus China has become the supplier of goods
for the whole world.

South Africa
The current account of South Africa's has been in the red lately. The
weaker outlook for the global economy in response to the internaonal
nancial crisis has already resulted in a large-scale withdrawal of capital
fromSouth Africa. The Rand has depreciated by approximately 30%
against the American dollar during this period. Trade balance is only
quarter of the current account decit which makes it dicult to reduce
the laer simply by reducing imports.

Current Account Decit of developed naons: a case study on USA
1991-2006: The phase of ri si ng Current Account Deci t
The U.S. current account decit grew steadily aer 1991, hing levels of
4.4%in 2000 and steadily rose to a record high of 6.1%in 2005 and
2006. Much of the
rise in the current
account decit over
the period can be
aributed to two
factors: accelerang
U.S. producvity and
a surge in household
wealth driven by the
stock market.

Due to the consumpon boom, U.S. consumers sased part of the
increased demand for goods and services with imports, purchasing more
and more goods fromforeign sources and increased current account
decit.

2007- Present: The decl ine of current account deci t ( CAD)
CAD began falling in 2007, and reached 3%of GDP in 2012. The decline
may be aributed to cyclical causes. As a result of the recession and
nancial crisis, domesc savings became higher, domesc private in-
vestment became lower and so the need to borrow fromabroad dimin-
ished .

Conclusion
The need to contain current account decit as evident above is extreme-
ly urgent. Unfortunately there is no magic wand that can bring down
Current Account (CAD) decit in a go. It needs to be achieved through
the synergy of a number of measures each aiming to strike at the very
root of reigning current account decit. The widening decit is aributa-
ble to expensive oil, high gold imports and a sharp drop in exports.
There is thus a need to reduce imports and boost merchandise exports
to bring the CAD to sustainable levels. On the exports front a lot de-
pends on the global economic situaon. Our major markets are the US,
Euro zone and China. If these markets recover and do well we can im-
prove on the exports front, provided we maintain our compeveness.
With the worst of recession already behind us and United States
averng the scal cli, the prospects do look beer.

The more dominant cause of worry is the import bill. Internaonal com-
modity prices and rupee exchange rate should be the focus areas as the
country imports many commodies it needs. An important step would
be to make the gold imports expensive. The Indian government has
taken right steps in this direcon by imposing tax on gold jewellery and
increasing the import duty for gold.

However, it will not be easy for Indian economy to correct current ac-
count in 2013, precisely because of strong domesc demand and a weak
external demand. Already environment sensive policies, land acquisi-
on issues and availability of quality infrastructure have contributed to
moderaon in FDI inows which are extremely important to nance the
current account decit. While the subdued growth of receipts is cyclical
in nature and can be expected to improve with the recovery in world
economy, the rise in crude oil.
prices and reasons for moderaon in FDI are more structural in nature.
It is thus important for the policymakers to make Indian economy more
investor friendly in 2013 and eliminate bolenecks arising due to policy
paralysis at the centre.

What is the ideal way out for Indian government then? Since Indias
linkage with the world economy, in terms of trade and nance, is likely
to grow, it is important that resilience in its trade account is built up
mainly by promong producvity-based export compeveness and
improving the domesc fundamentals. The persistent global uncertainty
and capital ow volality demands increase in FDI to make the capital
account more resilient. India should learn from other countries around
the world. The compeveness of products of China is something to
look upon as India doesnt have resources like Russia or Brazil. India
should try to bring quality to its products similar to its services.

One key thing to learn from USA is that India cannot sustain its current
account decit as can US because capital account in India is highly de-
pendent upon the condions of rest of the world. Adjusng government
spending to favor domesc suppliers is another important step that
needs consideraon. Another important measure would be increasing
the remiances through lucrave savings oer for Indian Diasporas all
around the world by oering higher interest rates and lesser transacon
charges. It is with the cumulave eects of the above outlined measures
and a strong resolve to bring down the current account decit that we
can expect India to tame this monster and safeguard the countrys -
nancial health.
TAXING THE SUPER RIC TAXING THE SUPER RIC TAXING THE SUPER RICHH H
Wi l l i t hel p the UPA gover nmen t Wi l l i t hel p the UPA gover nmen t Wi l l i t hel p the UPA gover nmen t
achi eve the fi scal achi eve the fi scal achi eve the fi scal ta r gets? ta r gets? ta r gets?
Yogendra Chaudhary & Vivek Patel
K J Somaiya Instute of Management Studies & Research
V
ery recently, aer long hours of debate US has imple-
mented the proposals to tax rich at the higher rate. The
new provisions puts addional tax burden on people
with income over $4, 00,000.
Meanwhile in India, Mr. K. Rangarajan, the chairman of the prime
ministers economic advisory council, has also suggested that there
is a need to increase the tax on HNIs. However, his suggesons have
met protests from the super-
rich in the pre-budget meeng.
The so called super-rich people
have been nally imposed with
addional tax of 3% on their
income. But here we need to
analyse, whether it is an eco-
nomic decision or a polical
one?
Whether it will really aect these HNIs? Whether the decision taken
by the government is raonal? Having known that the market sen-
ments are very low, whether it will help reduce the scal decit?
These are some of the quesons that need to be answered.

Now let us take these issues one by one:
Polical movaon or Economic prudence
As agreed by many, this years budget is more of a populist budget,
this being an elecon year. So, it is argued to be the reason why the
government has spared the low to medium income groups and tar-
geted the HNIs.

Will it accomplish the intended objecve
The biggest concern of UPA government is to reduce the scal decit
to an acceptable level. The number of HNIs in India is a very minus-
cule poron of the total populaon. How much revenue can the
government generate by taxing these few HNIs, is something which
is very dicult to assess accurately.

Consideraon for the market senment
We also have to consider that the market senment is not quite
good and in such a situaon, if HNIs are heavily
taxed, they are less likely to invest in the market
which again hampers the growth prospects. Mr.
P.Chidambaram, The present FM, had taken a
decision of lowering the tax rates in 1997-98 so as
to induce more and more people to pay taxes and
comply with the regulaons. So, the present day
decision of taxing the super-rich is somewhat in
contradicon with his own decision in the past.

Possible Consequences
The high tax on the super-rich will not only adversely hit the market
senment but this will also force the high tax payers to nd new
ways to evade the tax. Currently, around 42800 people are catego-
rized as HNIs (Disclosing taxable income exceeding Rupees 1Crore
per year), although the actual number is bigger than this, which is
evident from the sales gure of high end luxury cars in India.

Why should HNIs be taxed at higher rate?
It is the me when the nance minister acknowledges the need of
reducing the scal decit which is currently record high at 5.4 per-
cent. Now the queson is how much each secon of the society will
contribute to achieve the scal decit at the desired level.
When the scal policy adopted by government is such that there is

queson is how much each secon of the society will contribute to
achieve the scal decit at the desired level.
When the scal policy adopted by government is such that there is
an increase in tax rates, there is a decrease in the disposable income
of people which leads to lower demand and thus lower growth
rates. But when it comes to HNIs, increasing the tax rates will hardly
impact their consumpon habits and thus this seems to be a good
move by the government wherein it can generate revenues through
tax without hampering the consumpon behaviour and growth pro-
spects.
The eorts by the government in targeng the subsidies make it
very clear that it is serious on
the issue of reducing the scal
decit. And when the poorest
of the middle-class are con-
tribung then, it is dicult to
not to ask fromthe super rich.
When some of them will not
even noce the burden of the
increase in the tax rate then
there is no reason for not
imposing the addional tax on
the super rich. But the prac-
cal concern is that the super rich people will actually evade the tax
totally so there can be some adverse eects of taxing the super rich.
The higher rates could then be more than oset by the increased
evasion, leading to lower collecons. While there may be an ele-
ment of truth to this, it is important not to overstate this factor.
Here we also need to note that modest tax rate in the last decade
did not aract people much, to pay the taxes. And if lower income
tax does not work to increase the tax payers then why should we
assume that higher tax rates would drive the exisng revenues
away? It may well be argued that those who pay taxes today have
no way of evading it, and a surcharge on the super-rich is not going
to change that.

Why shouldnt they be taxed?
The Chairman of the Prime Ministers Economic Advisory Council, C.
Rangarajans suggeson of imposing a surcharge on the super rich
seems to have been intended to test the waters more than anything
else.
But the present Finance minister himself has the target to achieve
the stable and moderate income tax rates. And it is also successful
to some extent. In 1997-98, Mr. Chidambaramhimself reduced the
tax rates from40 percent to 30 percent and gave what we all know
as Dream Budget.
Here we need to increase the revenues and that could be achieved
by making and implemenng certain policies like the goods and
services tax which would directly contribute 2 percent to the GDP.

Alternaves:
The problem with the nance minister is high scal decit and weak
market senments. So the nance minister
instead of increasing the tax on the super rich
(which constutes only a small proporon of
the tax payer community), should target the
mass populaon which is not giving any taxes at
all. So, here there is a need is to increase the
number of tax-payers so that government could
get the substanal revenue which will nally
reduce the current account decit. Other im-
portant factor is to make an ecient tax collec-
on system which is not at place right now.
The aim of reducing the scal decit can be achieved through reduc-
on in planned and non planned expenditure. A 5% stake in Coal
India will fetch the government above Rs. 10000 crores or a one
rupee increase in heavily subsidised urea and kerosene can help the
government save above Rs. 3000 crores. Furthermore all ministries
can be asked to implement some austerity measures. A 2%reduc-
on in this will save Rs. 10000 crores.
The government can also adopt disinvestment policy by selling o
stakes in PSUs which are running in losses.
In short, reducing the expenditure and cung down on subsidies
can serve as a feasible alternave to higher taxes. However, as long
as the government is not able to achieve this, it has to devise some
ways to increase the revenues which again paves the way for higher
taxes and need for bringing more people under the tax net.
LETS BANK ON WOMEN LETS BANK ON WOMEN LETS BANK ON WOMEN
I ndi a's fi r st women I ndi a's fi r st women I ndi a's fi r st women-- -onl y bank pr oposed onl y bank pr oposed onl y bank pr oposed
Do we r eal l y need one? Do we r eal l y need one? Do we r eal l y need one?
Rohit Ranjan
SIIB, Pune
I
was eagerly waing for this years union budget aer
dismal performance of UPA 2, all encapsulated with
scams and scandals. But a women centric budget is really an Out of
the box idea and it completely took me with surprise. Will it just be a
dice thrown by FM before the upcoming general elecons or will it
the long-way to generate more women entrepreneurs in future? Let
us analyze in detail.
There are posives as well as
negaves of opening a women-
oriented public sector bank (PSB)
with an inial capital infusion of
Rs 1,000 crores. How much such a
move will create an impact is sll
to be seen, but one thing that is
clear is that it is surely going to
add the oomph to the otherwise
staid terms like women empow-
erment and nancial inclusion.
Women customers will certainly
feel comfortable on being ser-
viced by women bankers. Pene-
traon of such banks in rural
areas will encourage more of
women parcipaon and Self
Help Groups (SHGs) in availing
micronance. There will be a
sense of freedom among the
women in starng their own ventures. But the queson arises here
are hard to deal with like Will this bank for women serve the enre
country? If yes, how long will it take to roll out across the length and
breadth of India? Will it go to the hinterlands, where bulk of our dis-
empowered and un-creditworthy women live? What is that extra
which will make it work even when naonalized banks and micro-
credit instuons are struggling to include people at scale in rural
areas?
In the era of online and mobile banking, people hardly bother to visit
banks in metro cies. Such banks will be more protable and will be
able to generate more business in rural areas. Many micronance
instuons have opposed this move but I think its a posive move
for poor women secons of society which borrow money from pri-
vate money lenders at exorbitant rates to run their business. Compe-
on will denitely get ser but opportunies will emerge too.
Addressing the gender related
aspects of empowerment; it will
certainly fulll a social goal. A
women run banks are likely to
aract women clients, promong
inclusive nancing and other
women livelihood schemes.
But did we need to start some-
thing new like this in a country
where there are 26 naonalized
banks, 21 private sector banks, 34
foreign banks and numerous co-
operave and local banks. Such
moves create a serious doubt on
our own available resources.
A similar banking model was start-
ed in Pakistan 14 years back in the
name of First Women Bank but
hasnt been able to make a signi-
cant mark yet. It has currently only 38 branches all over and the work
culture is Corporash.
Let us witness the success story of India Post which, through its infra-
structure and network, has implemented the plan into acon. It has
more than 1.54 lakhs post oce branches out of which around 90%
are in rural areas. Each post oce has been providing banking ser-

vices, like Post Oce Savings Bank, to people for decades.
People who grew up in rural areas without banks, or in places where
pey bankers were too domineering to entertain the illiterate villag-
ers, know where to go for the safe-keep of their precious money:
that lile window at their neighborhood post oce.
Its not a
long trek to
the post
oce.
There is a
post oce
for every
7176 peo-
ple in the
country. In
rural areas,
the coverage is even beer one for every 5682 people. When the
UPA government was struggling to nd a way to transfer the wages
for NREGA beneciaries, it was this network that came to its rescue.
About 2.2 crores people get their NREGA payments through the post
oces.
People in rural and semi-
urban areas who are famil-
iar with the post oce
savings banks also know
that it is the most women-
friendly and inclusive bank-
ing system where agents
even come home to take
your money, update your
passbooks and even return
the money on maturaon.
In rural areas, there are about 2.69 lakh agents who come home to
help people, mostly women, with banking. Almost all these agents
are also people fromthe neighborhood and are familiar with the
beneciaries. It is a unique banking eco-system that only Indian Post
can claim credit for. It is a model that has evolved over me and is
very hard to replicate because it is driven by the sheer needs of peo-
ple, and nourished by trust and relaonships.
It will be dicult to establish another system like India Post with
such network and coverage anywhere in the world. Currently post
oces provide only savings facilies. It has decided to set up Post
Bank of India and is all ready to apply for banking license by July
under new RBI guidelines to operate as complete banking system.
P. Chidambaram would have been more prudent in ulizing this
network to provide nancial services to women at minimal cost. It
will take around decades to establish numerous women banks all
over India. Will it
employ women
agents to provide
door to door
service to wom-
en? What kind of
banking guide-
lines will it fol-
low?
There are many
quesons which
have been le unanswered. Last me they lured farmers by an-
nouncing a relief package for farmers which included the complete
waiver of loans given to small and marginal farmers. Called the Agri-
cultural Debt Waiver and Debt Relief Scheme, the 600 billion rupee
package included the total value of the loans to be waived for 30
million small and marginal farmers
(esmated at 500 billion rupees) and a One
Time Selement scheme (OTS) for another
10 million farmers (esmated at 100 billion
rupees). This me, the UPA government
has tried to woo the Indian women and
capitalize on the inability of the current
banking systemto cater to the so called
Disempowered secon of the society.
With a deep regard for poor women and a
belief that they are Bankable, I would be curiously looking ahead for
the implementaon of the noble move.

FINANCIAL INCLUSION FINANCIAL INCLUSION FINANCIAL INCLUSION
-- - An I ndi an Per specti ve An I ndi an Per specti ve An I ndi an Per specti ve
Sinjana Ghosh
VGSOM, IIT Kharagpur
What is Financial Inclusion?
A report of the World Bank states nancial inclusion, or broad access
to nancial services, is dened as an absence of price or non-price barri-
ers in the use of nancial services. While in developed countries, nan-
cial inclusion is more about the knowledge of fair and transparent -
nancial products and nancial literacy, in emerging economies like In-
dia it is a queson of both access
to nancial services as well as
nancial literacy.
Why is it a naonal concern?
In a naon where almost half of
the populaon does not have a
bank account, a major part of
money in the system is com-
pletely unaccounted for. This is
a major contributor to the major
problems like corrupon, ine-
quality, poverty, illiteracy and all
other issues that India is
plagued with. Empirical evi-
dence shows that economic
growth follows nancial inclu-
sion. Thus, boosng business
opportunies will denitely
increase the GDP, which will be
reected in our naonal income
growth.
Serving the disadvantaged sec-
on is not very dicult as these
people just expect security and
safety of deposits, low transac-
on costs, minimum paper work
and easy access to low value credit which should not be a dicult task.
Low-income Indian households oen have to borrow from friends,
family or moneylenders who lend at excessive rates. They have neither
the necessary awareness nor easy access to insurance products that
could protect their nancial resources in unexpected circumstances
such as illness, damage of property or death of the bread-earner of the
family.
Policy makers in most countries of the world have now recognized -
nancial inclusion as the way to achieve comprehensive growth, such
that every cizen of the country is able to use earnings as a resource
that can be invested for future returns, thus contribung to the na-
ons progress.
Implementaon of Financial Inclusion in India
From seng up of the State Bank of India, naonalizaon of banks, the
great Indian Cooperave movement and the lead bank scheme nan-
cial inclusion has always been at the core of the decisions of policy
makers. Despite these prolonged eorts it was esmated that about
40% of Indians lacked access to simplest forms of nancial services. The
reasons include factors like
absence of banking technol-
ogy, dearth of viable deliv-
ery mechanism, and, most
importantly, absence of a
sustainable business model.
The issue was ocially ad-
dressed in the monetary
policy in 2005, when RBI
directed the banks to make
available no-frills accounts
to certain growth sectors
idened by the govern-
ment and issue general
credit cards (GCC) to the
agricultural workers. Other
recommendaons of RBI
included, making available
overdra accounts, small
scale loans (micro nancial
acvies) and relaxaon of
KYC norms for opening of
accounts.
In January 2006, a new
model was proposed by
RBI, the very promising
Business Correspondent or
BC model. Research and improvement upon this model connues ll
today to facilitate nancial inclusion.
In 2010, the Reserve Bank advised all scheduled commercial banks to
submit their nancial inclusion plans (FIPs) supposedly containing self-
set targets pertaining to opening of new branches in unbanked areas,
employment of business correspondents (BCs), provision of nancial
services like no-frills accounts, issue of Kisan Credit Cards (KCCs) and
General Credit Cards (GCCs) etc. Figure 1 provides details the several
other measures taken by the government and RBI.
Business Correspondent Model- the future of Indian Banking
Though banks are meant for public welfare, there is no argument on
the fact that they are business organizaons which work for prot.
Figure1: Several measures taken since 2010 to ensure nancial inclusion
Source: RBI and news reports

Therefore, a well-planned business model is essenal to convince the
banks that business with the poor is protable, provided there is acces-
sibility, so that the banks willingly parcipate in this endeavor and not
just do it as a legal obligaon but as an aracve business proposion.
Table 1: Progress of Scheduled Commercial Banks from2010
Source: RBI
Instuons or individuals, who interface between the excluded poor
and banks, are leveraged to provide support services under well-
dened terms and condions by way of contractual arrangements. In
BC model, these agencies provide basic support services such as cus-
tomer idencaon, collecon of informaon/applicaons, credit ap-
praisal, markeng etc. Under the BC model, specic agencies e.g. MFIs,
NBFCs etc. also provide disbursal of small value credit as pass through
agents for the parent bank. The BCs are allowed to conduct banking
business as agents of the banks at places other than the bank premises.
The idea that new banking licenses should be given out to increase
compeon, which will automacally create inclusion, may not be prac-
cal as new banks are less likely to make nancial inclusion their top
priority unless mandated to do so. Saurabh Tripathi, partner and direc-
tor of the Boston Consulng group suggested a new win-win model.
According to him the same corporate houses that are requesng for
banking licenses can be given BC licenses instead. That way, the clients
money will stay with the bank at the back-end thus ensuring safety
while the BCs will have the right to price the customers appropriately,
oer services without unnecessary interference, market themselves
and geographically expand freely while being able to e up with many
banks at the back end.
Budget 2013- a step forward
With focus on Financial inclusion in the budget 2013, the government
declared an investment of INR 49 billion, of which INR 5.3 billion has
been allocated in 2013-2014, to modernize the postal network, thus
making post oces a part of the core banking system and facilitate
their contribuon to nancial inclusion. In order to improve insurance
penetraon, banks have been allowed to sell mulple insurance prod-
ucts of dierent companies. In response to the persistent problems that
keep women, especially from the backward society, away from the
mainstream banking system, the minister proposed establishment of a
naonalized womens bank. This is not the rst me though, as a similar
bank, SEWA, was started by a womens self help group in Ahmedabad.
Apart from these iniaves, PSU banks have been instructed to have
ATMs at all branches by 31 March, 2013.
Challenges and the way ahead
One of the biggest controversies that plagued the nancial inclusion
services of India is the over-indebtedness of farmers due to aggressive
micro-credit policies by the then unregulated micronance instuons
(MFI). A rash of suicides by some micro-credit clients in Andhra Pra-
desh, one of the largest markets tapped by MFIs, took the naon by
stormand led some states to halt repayment of such loans.
One of the major reasons of this kind of incidents is the lack of aware-
ness on behalf of villagers which make themfall prey to the fake prom-
ises of corrupt agencies. Financial inclusion should be complemented
with nancial educaon. While inclusion acts from the supply side
providing nancial services that people demand, nancial literacy sm-
ulates the demand side- making people aware of what they demand.
Besides educaon, presence of proper infrastructure like connecvity,
access to internet, availability of cellular network etc. is needed in the
nooks and corners of India. Benets of mobile banking should be ex-
ploited to a large extent, as it is a powerful tool for nancial inclusion.
Though the cost of
performing low-value
personal transacons
is high, this can be
decreased by eecve
use of ICT soluons.
Banks can also form
systems of reward and
recognion for per-
sonnel iniang, idea-
ng, innovang and
successfully execung
new products and
services in the rural
areas.
All said and done, what needs to be reformed is the mindset, cultural
and atudinal changes at grass roots which will impart organizaonal
resilience and exibility. Indias dream of becoming a developed naon
cant be achieved with stellar growth of a microscopic minority secon
of the super-rich; it can only be achieved through an inclusive growth.
Financial inclusion is the path that India needs to tread toward for be-
coming a global player. It will help aract FIIs to the country which will
result in increased employment and business opportunies. Inclusive
growth will act as a source of empowerment and allow more people to
contribute to the economic and social progress of India.
Figure3: Twin pillars of inclusive growth

DREAM BUDGET
Don t be a fr a i d of t h e spa ce bet ween you r d r ea m a n d r ea l i t y..
I f you ca n d r ea m i t .. You ca n ma ke i t so..! !
Bhushan
Kanathe
(IIFT)
Avneet
Bhulania
(IIFT)
COVER STORY 19

During the past few years, Indias growth story has been sluggish owing to decreased industrial producon, poor investor sen-
ment, high inaon (dragging the interest rates upwards), and weak rupee elevang import costs adding to the burgeoning
trade decit. We need to consider these things in backdrop before designing the budget for FY13-14. Rather than looking this
budget as a single event, it should be looked forth as an aempt to achieve the targets set forward by The Twelh Five Year Plan
(2012-17) draed by Planning Commission of India (to be achieved over a set of 5 budgets). The Economic Survey also presents
insights on the important areas of the economy which needs aenon. Overall, a budget needs to have a focus and clear guide-
lines to catapult Indias growth story to the golden era that would enable us to achieve growth across all sectors uniformly and at
fast pace. The purpose of this budget is to create economic space and nd resources to achieve the objecve of inclusive
growth and development.
The Gross Domesc Product (GDP) expanded 4.5% in the fourth quarter of 2012 over the same quarter of the previous year. The
growth has decreased considerably from average of 6%over 2011-12, and 5.4%in 2012-13. The following areas need to be looked
at with high priority in this budget to be able to redene our growth story :
Source : www.tradingeconomics.com
SOCIAL PROGRAMMES
INDUSTRIAL PRODUCTION &
INFRASTRUCTURE
AGRICULTURE
EDUCATION
GOVERNANCE
ENERGY & POWER
OVERVIEW OF BUDGET

INDIA ECONOMY AND THE CHALLENGES
BUDGETARY ALLOCATION OVERVIEWTWELFTH FIVE YEAR PLAN
Source : www.voiceee.com

Fiscal Decit | Current Account Decit | Inaon
T he scal decit for FY 12-13 stands at 5.2%, within the expected levels. Considering the recommendaons given by Kelkar
Commiee, the decit can be contained well inside 5%, and the target for the next year is 4.8%. We are well aware of the conse-
quences of high scal decit - heightened inaon, reducing room for monetary policy smulus and dampening of private invest-
ment, growth and employment. The following steps would be taken to achieve scal consolidaon:
A) Direct Taxes
Comprehensively Reviewingof the DTC
Bill, 2010
Improving IT infrastructure with the
help of IT companies for Income Tax
Department to enhance their capability
of data mining to check for tax evasion
and black money
Charging 22-24% interest rate on tax
defaulters
B) Indirect Taxes
Pruning the negave list and taking
more services inside the service tax re-
gime. NGOs, railways no longer be ex-
empted frompaying service tax
Fast-trackingthe process to implement
the GST by passing the Constuonal
Amendment relang to introducon of
GST
Implemenng 6% Excise duty on merit
goods
Improving E-Governance in Central Board
of Excise and Customs (CBEC) to help
check tax evasion
C) Stake sell in PSUs
Divesng from PSUs by selling minority
stakesto the public (to amount of ~50%
ll 2018) and money collected be de-
ployed in infrastructure projects
D) Sale of unproducve land at market price
through fair aucon process
Implemenng progressive subsidies
(not for public BPL) rather than having
uniform subsidies across all the secons,
depending on the income level
Sellingof LPG, kerosene at market price,
and reimbursement of subsidy for the
respecve income groups aer they pay
Income Tax
Changingthe focus of schemes such as
MGNREGA towards employment gener-
aon rather than aiming for populist
schemes
1) Reducingthe Gold Rush
Tax incenves on gold linked nancial
instruments (ETF etc) . Introducing more
nancial instruments available to the
average cizen, and encouraging by tak-
ing iniave to increase nancial aware-
ness and nancial inclusion
Introducon of inaon indexed bonds,
and taking hard steps to curb the ina-
on, as inaon is posively correlated
with buying of gold
2) IncreasingCapital Account Surplus
FII, FDI and ECB three main source of CAD
Financing. FDI policy to be reviewed and
policy bolenecks will be removed . Re-
laxaon in ECB limit in some sectors, and
implementaon of GAAR and DAA in
phased manner
3) Export oriented schemes
Incenves for export-oriented SMEs, and
seng up of 6 new Export Oriented Units
to boost exports
Minimizingthe constraints on the supply
side would make monetary policy more
potent
Improving the infrastructure
(transportaon, cold storage systems)
and increase in the number of the ware-
houses in every region of the country
Strict acon against hoarding of food
grains by traders by the local govern-
ment
Current Account Decit
Inaon (Controlling food inaon)
IncreasingIncomingmoney
DecreasingOutgoingMoney
Fiscal Decit as percentage of GDP
Source :www.indiabudget.nic.in

Interest subvenon scheme for short-term crop loans to be
connued, scheme extended for crop loans borrowed frompri-
vate sector scheduled commercial banks
Ferlizer subsidy to be removed parally and diverted to pro-
mote use of organic ferlizer
Promong the Land reforms, land consolidaon, cooperave
farmingto reduce the small sized farms
Inclusion of Quality based dierenal pricing for agriculture
products to promote healthy nutrient
Seng up funds to promote KCC loans
Bringing green revoluon 2.0 to improve the crop yields
Starng a programme of crop diversicaon that would pro-
mote technological innovaon and encourage farmers to choose
crop alternaves
Credit Guarantee Fund to be createdin the Small Farmers Agri-
culture Business
Wideningthe MSP to other crops as well on cash crops

Implemenng the Family Drip System (FPS) for main-
stream farming in India which is being followed in Jhar-
khand
Connuing the AIBP scheme to implement the ongoing
irrigaon projects

T he Eleventh Five Year Plan (2007-12) witnessed an average annual growth of 3.6 per cent in the gross domesc product
(GDP) from agriculture and allied sector against a target of 4% .India is the rst in the world in the producon of milk, pulses,
jute and jute-like bers, second in rice, wheat, sugarcane, groundnut, vegetables, fruits and coon producon, and is a leading
producer of spices and plantaon crops as well as livestock, sheries and poultry.
AGRICULTURE
Green Revoluon
Source : www.forbesindia.com
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Matchingequity grants to registered Farmer Producer Organi-
zaon (FPO) upto a maximum of 10 lakhs per FPO to enable
them to leverage working capital from nancial instuons
Built to operate warehouses for 10 years to be developed under
PPP
Shiing current APMC model to prot sharing basis under mini-
mum MSP, so that farmers get a share of revenue
Sugar subsidy to be removed completely
Free to trade with any mill, jute packaging disconnued, no
minimum distance clause removed
Monthly quota export mechanismto be followed.
Promong the use of side products like molasses

Expanding denion of term "infrastructure" to include compa-
nies that develop aordable housing
Exempng SEZ and Infrastructure companies from payment of
Minimum Alternate Tax (MAT) as suggested by CII
(Confederaon of Indian Industry) and accordinginfrastructure
status to integrated township development
Hence infrastructure debt funds be encouraged. Increase in
limit infra tax-free bonds to Rs 50000 cr and IIFCL to provide a
credit enhancement to boost investment (35% contribuon is
likely to come through debt contribuon)
A centralized clearance and administrave system be made
ecientNaonal Investment Board (NIB) to fast-track the
execuon of mega-projects ( above 1000cr). This step will fur-
ther reduce the gestaon period in infrastructure projects
Perming insurance companies, pension and provident funds
to trade directly in infra and energy sector debt funds, to meet
these companies extensive capital requirements
These funds have less than 1%of exposure to infrastructure
Long term base rate to be introduced for infrastructure
projects which should be delinked from bank base rates
in order to provide stable interest charges for projects
Rural areas be given prime importance with increase in
corpus to RIDF (proposed Rs 20000cr) and tax sops being
given to private players for rural investment to boost in-
frastructure development in remote areas
Rs 5,000cr proposed to NABARD to nance construcon
for warehousing. Window to Panchayats to nance con-
strucon of godowns

As of now about 24 per cent of the total length of Naonal
Highways (NHs) is single lane/intermediate lane, about 51
per cent is two-lane standard, and the balance 25 per cent
Sugar Subsidy
Farmer Producer Organizaons
INFRASTRUCTURE
T he Twelh Five Year Plan (2012-2017) lays special emphasis on de-
velopment of the Infrastructure sector including energy which are the
primary sources of growth drivers of an economy. The total investment
in the infrastructure sector during the Twelh Five Year Plan, esmated
at 56.3 lakh crore , will be nearly double that made during the Eleventh
Five Year Plan. Sll, more than half of the resources required for infra-
structure would need to come from the public sector (~50%), from the
government, and the parastatals. Hence, scaling up private-sector parc-
ipaon on a sustainable basis will require redening PPP boundaries for
the development of infrastructure sector in a transparent and objecve
manner with a comprehensive regulatory mechanismin place. Delays in
land acquision, municipal permission, supply of materials, allocaon of
work, operaonal issues, etc. connued to drag down implementaon of
these projects.
Source : Economic Survey Report (2012-13) | Twelh Five Year Plan (2012-17)
Roads
General

is four-lane standard or more
A regulatory authority for road sector is proposed to ad-
dress the problems in the sector like delay in pre-
construcon acvies and law and order problems
Partly meeng funding requirements of NHDP via loans
from World Bank, Asian Development Bank etc which are
passed onto NHAI in form of grants and loans
In addion to 3000 kms of road projects in Gujarat, MP,
Maharashtra, Rajasthan and UP to be awarded in the rst
six months of 2013-14, emphasis must be given for devel-
opment of roads in North-Eastern and Maoist aected
areas
Major emphasis be given to increase the capacity of non-
major ports , as this would help in reducing the container
trac at major ports
Development of two major ports, one each at east and
west coast as suggested by Ministry of Shipping, in the
Marime Agenda 2010-20 to handle heavy cargo trac
Development of exisng ports by raising money via tax-
free bonds (as currently done by JNPT)

Granng infrastructure status to
aviaon sector and addional benets under secon
80IA, and seng up of a separate SPV for handlingavia-
on nance at lower interest and longer maturies and
also airport operators be allowed to raise funds through
tax-free infrastructure
Encouraging PPP in Airport Infrastructure projects, and
fast trackingthe clearance procedures

Ports
Airports
The Twelh Five Year Plan es-
mates 2012-17 at Indian airport
Target Investment
(Rs) :
65000 cr
Private contribuon
(Rs)
50,000 cr
Source : PlanningCommission Document
(2012-17)
ENERGY & POWER
A total domesc energy producon of 669.6 million tons of oil
equivalent (MTOE) in 2016-17 and 844 MTOE in 2021-2 has been
projected by the Twelh Five Year Plan This will meet around 71%
and 69% of expected energy consumpon. The balance would met
fromimports, projected to be about 267.8 MTOE in 2016-17 and
375.6 MTOE in 2021-2. Import dependence in case of crude oil and
coal is projected to be about 78% and 22.4% respecvely by 2016-17.
Energy exploraon and exploitaon, capacity addions, clean energy
alternaves, conservaon, and energy sector reforms will, therefore,
be crical for energy security.
Source : Economy Survey Report 2012-13
General
The capacity addion target for the year 2012-13 was set
at 17,956 MW. As against it, capacity of only 9,854 MW
has been added ll 31 December 2012
Eliminaon of the 1% import duty on thermal coal, which
will help reduce the cost of generaon for the power
plants based on imported coal, and seng up PPP frame-
work with CIL as partner to reduce dependence on im-
ported coal in medium-to-longterm
Extension of 80-IA benet. Under this secon, a 10-year
tax holiday is given to the power plants if they start power
generaon by March 31, 2017Creaon of Naonal Power
Grid by Jan, 2014 operang in synchronous mode as a

single system by connecng the only unconnected South
Grid to the system
Relaxaon of the lending limits to the power sector
which will help fund new projects.
Relaxaon of dividend distribuon tax if the same is in-
vested in the new capacies
Restructuring the debt of State Distribuon Companies
DISCOMs with support through a Transional Financial
Mechanismby the Central Government
Extension of service tax exempon to all power projects,
including power generaon, transmission and distribuon
projects, in line with other infrastructure projects as sug-
gested by IEEMA
Implemenng Perform, Achieve and Trade (PAT) mecha-
nism (a market-based mechanism) to incenvize improve-
ments in energy eciency in 8 energy-intensive industries
(including TPS) by seng up standards and cercaon of
energy saving achieved which can be traded
Fast-trackingthe project via single window clearance and
increase emphasis on hydroelectric sector (Installed ca-
pacity 25 MW vs Available capacity of 1,45,320 MW)
Reducon of high interest rates for nancing renewable
Sector
Growth in
2011-12(%)
Growth in
2012-13(Dec12
(%)
Electricity 8.2 5
Source : Economic Survey Report (2012-13) | Twelh Five Year Plan
energy projects by creang a low-cost fund and providing
interest subsidy through Naonal Clean Energy Fund
(NCEF) as suggested by FICCI
Creaon of hedging mechanism for ECBs and creang a
separate lendingcategory for renewable energy projects
to avoid these being crowded put by convenonal power
projects
Reintroducon of generaon-based incenve schemes
for wind and solar sectors with allocaon of about Rs 1500
cr for this purpose
A policy to encourage exploraon and producon of shale
gas to be announced soon
Provisioningthe petroleumsubsidy of Rs 65,000 cr for
2013-14,with the fuel price reforms being connued
Removal of subsidy on diesel on monthly basis, LPG &
Kerosene now stands deregulated.
Subsidy of 9 cylinder per year for BPL sector through di-
rect cash transfer scheme and subsidy of 6 cylinder per
year for people under 2 lakh income tax bracket through
income tax refund
Renewable Energy
Oil & Gas

Sector
Growth in
2011-12(%)
Growth in
2012-13 (ll Dec12) (%)
Manufacturing 2.7 1.9
Mining -0.63 0.4
Manufacturing and Associated
Industries (Mining & Construcon)
T he industrial sector comprising of manufacturing, mining,
electricity and construcon sectors has slowed down substan-
ally to record subdued performance of 3.5% in 2011-12 and
3.1%in 2012-13 from the high-growth of around 9%recorded
in 2009-10 and 2010-11. The moderaon in industrial growth,
parcularly in the manufacturing sector, is largely aributed to
sluggish growth of investment, squeezed margins of the corpo-
rate sector, deceleraon in the rate of growth of credit ows
and the fragile global economic recovery.
Source : Economic Survey Report(2012-13)
Manufacturing Sector to be turned into a priority sector as
a whole
Granng industry status to Retail and consumer goods
companies and an independent ministry set up for retail
Clustering and aggregaon of Naonal Investment and
Manufacturing Zones (NIMZ), and introducon of tax in-
cenves that support revival of the manufacturing and
capital goods sectors as per the Dra Manufacturing poli-
cy tabled last year
Allowance of FDI in engineering and hi-tech goods manu-
facturing as dependence on high-tech goods import is
much more as suggested by EXIM Bank
Import duty hike of 5-10%on power equipment and re-
moval of customs duty exempons on imported capital
goods required for certain industries will help protect the
domesc equipment manufacturers against cheap imports
Reducon in VAT on energy ecient products to make
them cheaper and encourage the manufacturers
Allocang adequate funds for the Technology Up grada-
on Fund Scheme (TUFS) and lowering of customs and
excise dues on all machinery for texle and clothing in-
Manufacturing
dustry
Export incenves like duty drawback, focus product and
focus markeng rates to be increased to boost exports
for texle industry
Reducon of export Duty on Iron Ore from the current
30%to 15-20% to make products more compeve and
eliminaon in import duty on iron ore to overcome the
shortage of iron ore supply
Removal of steel products from the ambit of Free Trade
Agreement (FTA)
Increase in Import duty on manganese ore from the cur-
rent 2%to 5%and sponge iron (to 5-10%) , and increase
in customs duty on copper and aluminumproducts (Coal
covered under Power Sector above)
Fast-tracking the clearance procedures by forming a cen-
tralized commiee to minimize the connued delays in
project approvals
Providing Real Estate with industry (infrastructure) status
to overcome lack of regulaons and eecve policies, as
the sector is experiencing many challenges on its growth
path
Enacng provisions for Special Residenal Zones (SRZs)
to incenvize the growth of housing stock at targeted lo-
caons
Enacng the Real Estate Regulatory Bill and creang a
regulatory authority for the realty sector and ensuring
sale of immovable properes in an ecient and transpar-
Mining
Source : Economic Survey Report(2012-13)
Aordable Housing and Urban Development

ent manner
Provisions for subsidized construcon materials for low-to
-mid-income housing, and raonalized license fees and
other government levies
First-me home loan takers to be given an addional de-
ducon of interest to the tune of Rs 1 lakh for loan for
amounts not exceedingRs 25 lakh, with spill over allowed
Fast-tracking the process of nalizing The Right to Fair
Compensaon, Reselement, Rehabilitaon and Transpar-
ency in Land Acquision Bill to remove the hurdles while
acquiring of land
SubsumingRoad Tax, R&D Cess & Octroi in the proposed
GST and construcng framework on applicability of GST
on used-vehicles market
Reducon in Excise Duty rate on chassis from 14% to 10%
and allowable Increase in depreciaon rate to 60% from
40%
Purchase of Ambulances through Naonal Rural Health
Mission and extending the credit scheme to larger NBFCs/
Co-Op Banks
Supporng the Naonal Electric Mobility Mission Plan
(NEMMP) to promote the range of Electric Vehicles which
will result in the savings of 2.2 2.5 million tones
(esmated) of liqueed fuel by 2020 and concessions to be
provided & extended to at least 5 yrs
Increase in Custom Duty on passenger cars/MUVs to
100% and on CV to 40%(from 10%) to benet domesc
manufacturers
Automobiles
SERVICES SECTOR
The growth story of services of world and India in the 2000s
began from almost the same level of around 4-5 per cent in
2000. But over the years, Indias overall and services growth
rates have outpaced those of the world. Thus, for more than a
decade, this sector has been pulling up the growth of the Indi-
an economy with a great amount of stability .With an 18.0 per
cent share, trade, hotels, and restaurants as a group is the larg-
est contributor to GDP among the various services sub-sectors,
followed by nancing, insurance, real estate, and business ser-
vices with a 16.6 per cent share. Indias services sector has
emerged as a prominent sector in terms of its contribuon to
naonal and states incomes, trade ows, FDI inows, and em-
ployment.
Indias share of services exports in the world exports of services,
which increased from 0.6 per cent in 1990 to 1.0 in 2000 and
further to 3.3 per cent in 2011.
The share of services in Indias GDP at factor cost (at current
prices) increased from 33.3 per cent in 1950-1 to 56.5 per cent
in 2012-13 as per Advance Esmates (AE).

Indias IT and ITeS services with exponenal growth are a unique ex-
port-led success story which has put India on the global map
TDS for technical services provided in domesc market reduced
from10%to 2%
Soware would now be treated as service (and not goods), to
avoid double taxaon
Seng up a commiee to clear backlog and provide certainty
for future 'Transfer pricing' issues

IT and ITeS

Seng up a commiee for implementaon of pooled
spectrumand tax breaks for 10 years towards 3G and 4G
services for long-term viability
Focusing on Naonal Telecom Policy (NTP) 2012 ,aimed
at maximizing public good by making aordable, reliable,
and secure telecommunicaon and broadband services
available across the country
Providing aordable and reliable broadband-on-demand
and to achieve 175 million broadband connecons by the
year 2017 and 600 million by the year 2020 at minimum 2
Mbps download speed
Approved a project at a cost of 20,000 crore for creang a
Naonal Opcal Fiber Network (NOFN) which will provide
broadband connecvity to 2.5 lakh gram panchayats for
various applicaons
Development of 35 selected non-metro airports has been
undertaken by the AAI which have been idened based
on regional connecvity.
Reducingduty on import of spares & test equipment for
MRO (Maintenance, Repair and Overhaul) to zero ( duty
free )
Aviaon Turbine Fuel (ATF) aracts sales tax across dier-
ent states raging from 4-25%. Including the ATF under the
declared category of goods under Central Sales Tax Act to
achieve uniform levy of 5 per cent.
Diluon of stake in Air India in this scal year, for healthy
compeon in the sector
Foreign tourist arrivals in India grew by 9.2%in 2011
Removal of levying service tax on air condioned restau-
rants
Seng up of investment funds in tourism infrastructure
through PPP mode, to change image of Indian tourism
Investment-linked deducon under Secon 35 AD of the
Income Tax Act extended to new hotels of 2 star category
and above anywhere in India
Inclusion of 3star or higher category classied hotels lo-
cated outside cies with populaon of more than 10 lakh
Banking
Compliance of public sector banks with Basel III regula-
ons to be ensured, 18,000 crore provided in BE 2013-14
for infusing capital.
Agricultural loan of Rs 5.75 lakh crore to be unchanged as
in previous budget
Private banks will now be able to meet their lendingtar-
get to the priority sector, by oering the concessional
rates of interest to agriculture as well
Insurance
Seng up a commiee to increase the penetraon of in-
surance, both life and general, in the country
Capital Market
Proposal to amend the current SEBI Act, to strengthen
the regulator.
FIIs to be permied to parcipate in the exchange traded
currency derivave segment, by the extent of their Indian
rupee exposure in India
Small and mediumenterprises (SMEs) are to be per-
mied to list on the SME exchange without ling for an
inial public oer (IPO)
Removal of STT completely and inclusion of CTT to 0.01
% on metal commodies is benecial against speculang
gold prices
Rajiv Gandhi Equity Savings Scheme (RGESS), exclusively
for rst-me retail investors in the securies market. This
scheme provides 50 per cent deducon of the amount
invested fromtaxable income for that year to new inves-
tors who invest up to 100,000 and whose annual income
is below 15 lakh with a lock in period of 1 year

Aviaon
Tourism ( 6.8 %of GDP )
FINANCIAL SECTOR Telecom

EDUCATION
T he 12th Five-Year Plan states that Educaon is the most important lever for social, economic and polical trans-
formaon. A well-educated populaon, equipped with relevant knowledge, atudes and skills, is essenal for eco-
nomic and social development in the 21st century. According to the survey conducted by One Globe 2013 report, by
2020, 220 million will nish school and around 150 million people will opt for a profession and not higher educaon.
There are 135 million students in primary schools, which makes India the largest primary school educaon system in
the world. Despite the signicant progress in the enrollment of students in the last decade, Indias educaon sector
sll faces a lot of challenges that are low Gross Enrollment Rao (GER), gender disparity and lack of quality educaon-
al instuons.
Encouraging allocaon for PPP model
Providing land at concessional rate to the schools, and
givingan accelerated tax break of 150%of their in-
vestment in educaon infrastructure leading to capac-
ity creaon for educaon. In return, some percent of
the seats would be lled by the government
Seng up a regulatory body for conformance to
quality and compliance
Fund Sharing paern of Sarva Shiksha Abhiyan
(SSA) to be revised to 50:50 (Centre:State Govts),
which is now xed at 65:35 for ecient funding
Partnering with (Encouraging) IT companies to
develop IT infrastructure at government schools
as a part of key CSR acvity to these companies
Eecve implementaon of Mid-day Meal
Schemes by encouraging parcipaon from pri-
vate players (oang tenders) and NGOs, and
repeatedly performing qualitave checks
Creaon of Finance Development Bank for the
purpose where loans given to the students will
be backed by the government and repayable by
the students when they get a job
Relaxaon of provisions in Foreign Contribuon
and Regulaon Act to allow NRIs to invest in not-
for-prot educaon
Allowing Foreign universies to start their full-
me program by reviewing Foreign Educaonal
Instuons Bill, 2010
Literacy Rate 74%
Male Literacy Rate 82.14%
Female Literacy Rate 65.46%
Department of School and Secondary Educaon Total = 343028
Sarva Shiksha Abhiyan 192726
Rashtriya Madhyamik Shiksha
Abhiyan
27466
MDMS (Mid-day meal scheme) 90155
Others 32681
Department of Higher Educaon Total =110700
Grand Total =453728
Gross Budgetary support for the Twelh Plan (In Rs crores)
Source : PlanningCommission
Source: Census 2011

E conomic growth though important cannot be an end in itself. Higher standards of living as well as of development
opportunies for all, stemming from the greater resources generated by economic growth, are the ulmate aim of de-
velopment policy. This implies the need to bridge regional, social and economic disparies, as well as the empower-
ment of the poor and marginalized, to make the enre development process more inclusive. The dra Twelh Five Year
Plan's subtle 'Faster, More Inclusive and Sustainable Growth', puts the growth debate in the right perspecve.
Health and Educaon
Health for all and educaon to all remains priority
Allocang funds for medical educaon, training and re-
search
Allocang funds to six AIIMS and department of Ayush
Health Industry
Exempon from excise/custom dues on life saving medi-
cines as well as on their raw materials and exempon on
capital goods and consumables, CRO's, diagnosc kits
Review of providing tax holidays and so loans for health
care industry sector
ICDS
17,700 cr allocated for ICDS in 2013-14 represenng an
increase of 11.7 per cent over 2012-13
Allocaon of 300 cr in 2013-14 for a mul-sectoral pro-
gramme aimed at overcoming maternal and child malnu-
trion. Programme to be implemented in 100 districts
during 2013-14 to be scaled to cover 200 districts the year
aer
Drinking Water
15,260 crore allocated to Ministry of Drinking Water and
Sanitaon
Seng-up of water puricaon plants in 2000 arsenic and
12000 uoride-aected rural habitaons
Rural Development
Allocaon of more funds in 2013-14 for Ministry of Rural
Development
Proposal to carve out PMGSY-II and allocate a poron of
the funds to the new programme that will benet States
such as Andhra Pradesh, Haryana, Karnataka, Maharash-
tra, Punjab and Rajasthan
JNNURM
Starng fresh round of JNNURM scheme for buses & ex-
tending the same for Inter City Buses also and bringing
scheme for eet modernizaon
Implementaon of skill up gradaon in Naonal Rural
Livelihoods Mission (NRLM)
MGNREGA
Budgetary allocaon of Rs. 33,000 crore made in 2013-14
for the rural job scheme
Electronic fund management system (eFMS) in all states
has been iniated in a phased manner to reduce delay in
payment of wages
Provision has been made for seeding in Aadhaar into the
MGNREGA Workers records to prevent leakage
RSBY
The Rashtriya Swasthiya Bima Yojana covers 34 million
families below the poverty line
Extension of RSBY to other categories as rickshaw, auto-
rickshaw and taxi drivers, sanitaon workers, rag pickers
and mine workers
NSDC
Inclusion of SGSY and SJSRY with NSDC for implemenng
skill development
Food Security Bill
The Food Security Bill, envisages the distribuon of wheat, rice
and coarse grains at just Rs 2, Rs 3 and Re1 a kilo each to about
65 per cent of the populaon 75 per cent of them in rural
areas and the rest in cies and towns
Implemenng pilot project for cash coupons under Food
security bill to contain undue usage of cash and prevent
leakages
Implemenng direct cash transfer for cies and towns,
without burdening the current FCI model
Linking of cash coupons with Aadhar cards under UIDAI
scheme

SOCIAL PROGRAMMES AND INITIATIVES

GOVERNANCE
Fastening the process of Seng up all-India judicial ser-
vice and a Naonal Tax Tribunal , as taxaon is a highly
specialized subject
Reporng of transacons above a threshold limit to the
law enforcement agencies, and insisng enes oper-
ang in India to report all global nancial transacons
above a threshold limit
Creang eecve credible deterrence by informaon
technology (integraon of databases), integraon of sys-
tems and compliance departments of the Indian govern-
ment, direct tax administraon, and addingdata mining
capabilies
Reducing disincenves against the voluntary compliance
and introducing amnesty schemes, simpler compliance
processes
Expanding the DTAA with other countries, and also help-
ing other countries via enforcement
Use of Public money must be disclosed. Any leader or
government ocial who uses any public money must pub-
lish its full details on their ocial website
In addion to classicaon by scheme type, funcon
(economic services or social services), and economic seg-
ment (capital vs revenue), all budgeted items will also be
sloed under Leakages and Non-leakages
Performingmore frequent assessment of Public Distribu-
on System (PDS) to improve the delivery system
Withdrawing of retrospecve tax amendments, boosng
Black Money
G overnance in terms of both Private and Public plays an important role in dening the policy framework of an econo-
my. Our country has been marred by the series of scandals and acts of corrupon by people in private and public service alike. Be-
ing a responsible government, we would not pardon such acts commied against the very principles of our own ethics and democ-
racy. No one individual is above the democracy of this country, and the laws of the land are same for everyone. We as a govern-
ment, as a naon are commied to take every step to discourage such kind of acvies, and for that connuous improvement in
our governance and compliance procedures are must.
Corrupon
the government- corporate relaonship, and provisioning
of clear frameworks to make India more investor friendly
Encouraging science throughout society, not just in de-
partments of science by incenvizing Private Sector Re-
search, Research in Universies and Academic Instuons
Need of an Intelligent Industrial Policy - like developing
integrated industrial areas (IIA) to ensure all-round indus-
trial development
Focusing on Urbanizaon in small towns and in-situ ur-
banizaon and urban planning to focus on the needs of
the poor
Extending the reach of Naonal Skill Development Cor-
poraon (NSDC) to all states in the country, and encour-
aging more PPP in this area

Sustainable & Inclusive Growth
Withdrawing Retrospecve
Amendments

TAX PROPOSALS

Imposingprogressive surcharge from Rs 10 lakh onwards
to the tune of increase in 0.11% per lakh ll Rs 1 crore
(Cap LimitSurcharge =10%), and imposingsurcharge of
10%on the super-rich with annual incomes of Rs 1 crore
or more per annum
Lock-in period for tax saving xed deposits to be reduced
from the current 5 years to 3 years
Reintroducon of Tax Saving Infrastructure Bonds U/S
80CCF, which would be benecial for infrastructure
Making the ling of tax returns mandatory for all (even in
case of exempons) if income is above 2.2 lakhs. The
government will refund the amount aer the IT return is
led
Keeping the Corporate tax at 30%, and surcharges similar
to the previous year (Domesc 5%, Foreign 2%)
No Increase in Service Tax rate from12.36%as any in-
crease may fuel inaon further
Reverse Chain MechanismGiving opon of non-
payment of Service Tax to recipient if enre Service Tax is
deposited by service provider
Increase in Excise Duty by 1%to 13%, on goods manufac-
tured within the country
Fast-trackingthe process to implement the GST by passing the
Constuonal Amendment relang to introducon of GST
Proposed date of introducon and roadmap for introducon of
GST to be put in public domain soon, aer sorng out dier-
ences with the state government
Indirect Taxes
Tax Stascs (FY11-12)
Income Slab %of taxpayers Tax Money Collected
0 5 lakhs 89% 10.1%
5 -10 lakhs 5.5% 14.8%
10 -20 lakhs 4.3% 12.1%
>20 lakhs 1.3% 63%
Total 100% 100%
Income Slab Tax Rate
0 2.2 lakhs NIL
Above 2.2 lakhs 5 lakhs 10%of amount above Rs 2.2 lakhs
Above 5 lakhs 10 lakhs Rs 30000 +20%above Rs 5 lakhs
Above Rs 10 lakhs Rs 1,30,000 +30%above Rs 10 lakhs
Inducon of an independent member in GAAR approval panel
to ensure objecvity & transparency in the process
Deferring the GAAR date to April 2016, and providing clear
framework concerning its implementaon
No change in tax policy for P-Notes ll the implementaon date
of GAAR i.e ll 1 April,2016
Assessing of the impact on DTAA aer the implementaon of
GAAR and

GAAR | DTAA
Proposed DTC Slabs
Goods and Services Tax
Direct Taxes
Composion of Total Receipts (Esmated for 2013-14) by the
Government
Source : www.incometaxindia.gov.in |
INDIAN ECONOMY 34
WAR IN THE SKIES
Wha t l i es i n futur e of I ndi a n Ai r l i ne i ndustr y?
Ankit Yaduvanshi & Swa Pathak
School of Internaonal Business, IIFT Kolkata
L
et us take you back 20 years from today when ying was a
luxury, merely for the upper middle & rich class. How things
have changed!
When Captain Gopinath openly claimed to have broken down Ryan Airs
model & showed his willingness to implement this model in India, lile
did he know that he would alter the direcon of the Indian aviaon
industry. For those who remember the morning papers of 23
rd
April
2003, Times of India said, Delhi-Mumbai air travel to cost as low as Rs.
500 only! Of course there was a mar-
ket, it was the common mans dream
to y. Surely, people beneed for a
while but the repercussions were dras-
c!
As this industry ourished, aviators
joined in the race to serve the boom-
feeders of the air enthusiasts. From a disnct duopoly (aer the
shung down of ModiLu in 1996), in 2008, the market boasted of 8
strong players. But in the consequent three years, prot margins shrunk
& the industry reached a sort of a consolidaon phase. Sahara was sold
to Jet & became Jet Lite, Kingsher bought out Deccan & it became
Kingsher Red (eventually). Kingsher subsequently incurred huge loss-
es to keep its market share up & eventually was grounded by the DGCA
in November 2012.
From double digit growth in past to disappoinng 5-5.5% forecast, -
nancial year 2012-13 failed to bring much hopes & smiles to Indian con-
sumers. With inaon making a dig at their pockets accompanied by
weak economic growth, the purchasing power of average consumer
went down. The items that are rst wrien o the list are luxury ones
and by denion of Indian household consumpon, air travel does fall
in luxury category. The aviaon sector witnessed 3% decrease in air
trac from Jan-Dec2012 as compared to 2011, from 606 million passen-
gers to 588 million passengers. To secure the wallet share of the con-
sumer, airlines began the oensive of price wars, slashing 30-50%fares
along various routes.
Timeline of Events
Nov 18, 2012: Air India announces short me promoonal scheme
slashing for travel on specied domesc sectors, between January 16
and March 31
st
2013. The fares, inclusive of all taxes, under this scheme
were kept very low ranging fromRs 1799 to the highest being Rs 4199.
January12, 2013: Kalanidhi Maran led Spice Jet slashes fares for one-
way travel across the country to a consolidated Rs 2,013 ( up to 750 Km)
including all taxes. 1 million seats were put on oer for travel from Feb
1 ll 30th April 2013.
Indigo reacted by reducing its fares,
quietly, for select desnaons. On
those routes, which included key ones
like Mumbai-Delhi, Mumbai-
Bangalore, it oered fares at Rs 2,000
for February 2013.
Feb 20, 2013: Jet Airways slashed
fares across domesc routes pung 2
million seats on sale. One disncve feature was that the booking was
allowed only ll 24
th
Feb 2013 for travel ll 31
st
Dec 2013. Under the
oer, the fare up to 750 km was priced at Rs.2250 while for 750-1,000
km it is Rs.2850. Similarly, fare for desnaons between 1,000 and
1,400 kmwas pegged at Rs.3300. Tickets for desnaons beyond 1,400
km were priced at Rs.3800.
Feb 21, 2013: Air India that recently increased its domesc market
share from 14%to 21%could not let it go. It also joined the race by
slashing fares across its 6 major routes by nearly 40%
Mar 14, 2013: Air India oered reduced fares for 60 day advance book-
ings.
And the war is on, more to expect up in the sky.
Price war: A well thought strategy or a conngent approach
Opening up the skies for private players made the consumers spoilt for
choice. The India shining phase of 9-10%average GDP growth allowed
the disposable income at hand to swell. But the growth this sector was
witnessing could not be sustained. The aviaon fuel cost makes up

INDIAN ECONOMY 35
nearly 40% of operang cost of any airline. In India, the fuel costs
nearly 1.5 mes the global average cost of ATF. To add to it, the sales
tax on fuel is state governed and ranges from 4-30%. Delhi itself has
20% sales tax on aviaon fuel. To coincide with that many airports
including Delhi, Kolkata & Chennai had pending increment in airport
fee. In May 2012, as compared to year 2011-12, Delhi airport in-
creased the fee by 346%, Kolkata had eecve increase of 385% in
two phases during the year, Mumbai by 164%and Chennai by 269%.
These factors led to increase in the cost of air travel. The Indian con-
sumer is very price sensive and it im-
mediately reacted, which could be seen
as the reason for the falling passengers
count as compared to previous year.
The airlines in India have an average
passenger load factor of around 70%
with LCC (low cost carrier) Indigo having
best of 80.7%. With lesser number of passengers they cannot even
recover their operang cost. Also, it should be kept in mind even glob-
ally airlines run on operang margins as thin as 1-1.6%.Hence, it can
be a well-manoeuvred strategic decision on the part of airlines to
avoid losses if they cant make prots. The expected gains to Jet Air-
ways were of order of Rs.600 Crores and to Air India of Rs.300 Crores.
This price slashing also earned the airlines cash in advance for ights
that go as late as 31
st
Dec 2013. This cash may be ulised for working
capital, pending payments or investments.
The other school of thought may write o all of above explanaons
calling it mere reacon to turbulence in the skies. Talks were going
around that Singapore based LCC Air Asia is making its way to the
Indian market. The airline is infamous for its predatory pricing and it
was expected to clinch a sizeable market share. The already ailing
airlines which just managed a posive balance on P&L account in third
quarter ending Dec-12 (SpiceJet & Jet Airways) could not just let go of
their share. So was the case with naonal carrier Air India, the hard
earned 21% market share in domesc space. They individually wanted
their shares maintained, at least, if not increased. As per past data,
Feb-April remains a lean season and Air India triggered a war that
others just followed.
So, in our humble opinion, Air Asia will fail, miserably, in creang a
sizeable dent in the Indian airline market as the strategy that they
have used in countries like Indonesia & Malaysia, has already been
implemented by Indias biggest players. So, what is the way ahead, is
the future of Indian aerospace in jeopardy? NOT NECESSARILY, we say
& heres how
The Future of Indian Aerospace
We believe that in case the Indian aerospace industry has to survive,
they need to go back to the basics, literally! We need to look at why
and how people want to y in the rst place. It is a fast & reliable way
to get from Place A to B!
So, you need to keep that in mind, speed & reliability are the two
major reasons why most people prefer airlines over trains or buses.
The airlines operaons will become cheaper too as the airport fees
that has to be paid will also reduce as turna-
round mes fall & the cost of handling & pung
up passengers at expensive hotels will also see a
drasc drop.
Let us now come to the main issue: airfares. Do
airlines increase them? Do they decrease them?
Here is what we suggest:

Firstly: An airline must clearly dene (internally, if not publicly) wheth-
er they are a low cost carrier or a luxury carrier. Kingsher was a low
cost carrier that oered meals, wine & a selecon of in-ight enter-
tainment on board. This model is not sustainable. We are not sug-
gesng that there should be no such airlines. But, then again, this
business model is not sustainable because even though a market ex-
ists for every product at every price, it is our job to develop a product
that aims to sasfy the needs of that segment. There is a bole of
water cosng a whopping $900,000, made of solid Gold. If you are a
luxury carrier, then so be it! Cater to the high-iers but dont sell your
ckets at Rs 4,000. Price accordingly.

Secondly: Every airline has to come up with either one of the two:
services that delight the customers (luxury carriers) or prices that
leave them open-mouthed (low cost carriers).

For luxury carriers, we would suggest a new class (on the lines of
Anubhu class in Railways) where (like Singapore Airlines or Qantas)
you oer services like Sauna and Masseurs (on prior booking). For low
cost carriers, they could go for alternate revenue sources like baggage
or adventure sports. Alternavely, they can reduce costs by imporng
ATF from Arab countries. Operaonal losses are not an opon! Opera-
onal cash ows must always be posive.
IF THEY DO THIS, THEY CAN SURVIVE BUT THE NEXT FEW STEPS ARE
IMMENSELY CRUCIAL..!!

INDIAN ECONOMY 36
I NFRASTRUCTURE SECTOR
Wi l l budget 2013 be abl e to r evi ve the
ai l i ng sector ?
Rahul Jain
School of Internaonal Business, IIFT Kolkata
I
NFRASTRUCTURE

Some of the key policies proposed were:
i. The road sector which under achieved with a project award of
just 879 km compared to a budget target of 8,800 km for 2012-
13 got a regulator to address contract management issues. It
will provide some relief related to dierent project clearances,
contractual obligaon etc
ii. Over 3000 km road projects across Maharashtra, Gujarat, MP to
be awarded in 6 months me in 2013-2014. It will be a major
boost to road sector development and government iniaves
will bring back the private sector
iii. Announcement of 2 new major ports in AP and WB gives llip to
Dredging work in ports. It is posive for ports sector from invest-
ment perspecve
iv. More instuons, strictly based on need and capacity to raise
money in the market, will be allowed to issue tax-free bonds in
2013-14 up to a total sum of Rs 50,000 crore
v. Infrastructure Debt Funds (IDF) will be encouraged. These funds
will raise resources and, through take-out nance, credit enhance-
ment and other innovave means, provide long-term low-cost
debt for infrastructure projects. Both IDFs and Infra bonds though
have the potenal to meet the huge long-term fund to the tune of
$ 1 trillion required by infrastructure sector in 12th plan period,
required by the sector, the ow of funds largely depends on con-
dence of the investor on the sector

Infrastructure, being a sector facing huge nancial crunch, the FM reit-
erated the governments commitment to press ahead with previously
announced measures such as credit enhancement from India Infrastruc-
ture Finance Company Limited and encouragement for seng up infra-
structure debt funds. Both of these had the potenal to galvanise the
bond markets to fund the massive infrastructural investments that India
urgently needs.
Having recognized the role that the infrastructure sector plays in terms
of overall growth, key changes have been introduced in respect of some
of the policy related issues. Eecve implementaon of the policy
measures holds the key for revival of this industry.
P
OWER

We will list down some of the important policies which have been
proposed in the recent budget:

I. Deducon under Secon 80 IA extended ll 31
st
March 2015
As per Secon 80 IA, power generaon companies are eligible for
100% deducon of the prots for 10 consecuve years during the rst
15 years of operaons. The benet under this secon was earlier availa-
ble only unl FY2013 which is extended ll FY2015. This will be a major
advantage to project developers, as it will substanally reduce their tax
burden. However, the industry was expecng the extension ll 2017
II. CCI (Cabinet Commiee on Investment)
The CCI has been set up for revival of investment especially in the pow-
er, oil & gas and coal projects. This aims to remove the clearance bole-
necks and will speed up the project commissioning. This is just an an-
nouncement and we dont see a major impact on the sector unl it
being implemented eecvely
III. Investment allowance of 15% for investment in plant &
machinery
A company invesng Rs. 100 crores or more in plant and machinery
between April 1, 2013 and March 31, 2015 will be entled to deduct an
investment allowance of 15 per cent of the investment in addion to
the current rates of depreciaon. It will have spillover benets to small
and medium enterprises. It may also give an impetus to have more in-

INDIAN ECONOMY 37
vestments in power equipment manufacturing market and OEMs
might increase the tune of investments
IV. Financial Restructuring Plan (FRP) for state distribuon compa-
nies
The government has asked the Discoms to sign a Memorandum of
Understanding (MoU) and avail the benets of the nancial restruc-
turing plan which was earlier approved by Cabinet Commiee on
Economic Aairs. The Scheme contains various measures which
needs to be taken by State DISCOMs and State Govt for achieving the
nancial turnaround of the DISCOMs by restructuring their debt with
support through a Transional Financial Mechanism by the Central
Government
V. Leh-Kargil transmission line
In order to improve power supply in the Leh-Kargil and Ladakh re-
gion, the government has proposed to develop the transmission
systems and connect these regions with the Northern Grid. For this
project, the government is proposing a budget of Rs. 1,840 Crores
out of which Rs 226 Crores would be allocated during FY 2013-14.
This will provide access of power to the people in remote areas of
the northern part of country and also bring the surplus power from
these regions to decit regions

C
OALRELATED POLICIES:

i. Removal of dierenaon of steam coal and bituminous
coal
As both type of coals are used in power plants, they both will aract
2%custom duty and 2%CVD (Counter veiling duty) on import. Cost
of imported thermal coal is expected to rise between Rs 45 per tonne
to Rs 75 per tonne at current internaonal prices. The cost of power
generaon will increase by 2 to 3 paise per unit. It will adversely
impact the price pooling of coal
ii. Proposal for Public-private partnership (PPP) policy frame-
work, with CILas one of the partners
It is done in order to increase the producon of coal for supply to
power producers and other consumers. PPP mode as proposed
would see an indirect way to open the coal market. It will see private
players in compeve bidding and will help ease the clearance pro-
cess
iii. Focus on coal import, coal blendingand price poolingof
coal in short to mediumterm
This clearly implies that Government is in favour of coal import
through price pooling. It has also indicated that it needs to devise a
policy for price pooling and blending

R
ENEWABLE ENERGY

i. Re-introducon of Generaon-based incenves (GBI)
The Budget proposed a generaon-based incenves to wind energy
projects and provided Rs 800 crore for the said purpose to the New
and Renewable Energy Ministry.
The re-introducon of it is a mely intervenon for the wind industry
which was suering for more than a year. GBI will allow the develop-
ers to have some addional gains. This would rejuvenate the sector
with more investments coming in
ii. Low interest bearing funds from the Naonal Clean Energy
Fund (NCEF)
Naonal clean energy fund was introduced by govt. in 2010 by levy-
ing INR 50/tonne cess on domesc and imported coal. The fund is
now esmated to be at INR. 5000 crore. The so loan @ 5-8%
through IREDA will augur well for the small and medium segment
investors to develop renewable energy projects. The scheme will
have a life span of 5 years.

Overall, Budget brought a mixed bag for the sector. In the long-term,
Extension of tax benets, availability of low cost nance for renewa-
ble sector and formaon of JVs with Coal India will certainly have a
posive impact on the power sector. However, the increase in steam
coal prices due to a hike in customs and countervailing duty may
have some negave impact in short term as it will immediately in-
crease the price of imported coal. Also, laxity on part of the state
power ulies (SPUs) and state governments in expeding the imple-
mentaon and taking advantage of the Financial Restructuring Plan
can result in connued stress on nancial health of SPUs and impact
the overall power sector value chain. Thus, outlook on power sector
connues to be stable.

A simplied version of reasons that caused one of the biggest nancial crisis of the century

Mr. Debarshi Das
market. On the other hand, huge amount of foreign currencies were
geng piled in US reserve due to beer credit worthiness of USA as
a country. Under these circumstances, US reserve bank had to re-
duce the rate of interest in order to discourage the investment of
public money into government securies. The money had to ow
into the system. To create a liquidity boost in the market the hous-
ing loan rate was reduced drascally almost near 0%. The US
banks started giving loans at a very low rate of interest. The de-
mand for houses started rising in USA. Money started owing in.

DEVELOPMENT OFTHE FINANCIAL MARKET
There are several root causes behind the nancial meltdown that
occurred in USA. The paragraphs given below tries to describe how
the nancial market developed before recession in chronological
order:
Banks started giving loans to the prospecve home buyers at a very
low rate of interest. Now, depending on the loan repayment capa-
bilies of borrowers, they can be divided in two categories: prime
borrowers - one who could repay the borrowed loan with interest in
due me and subprime borrowers - one who fails to repay the bor-
rowed money. To speed up the liquidity ow in market, the banks
praccally ignored the risk component of loan repayment and tar-
geted these subprime categories as the prospecve home loan cus-
tomers.
In this process of loan distribuon one situaon arised when the
banks needed huge money to give as fresh loans. To bridge the gap
A
bubble bursts when its size increases beyond its
limit. Financial bubbles also follow the same rule.
When a stock price breaks through the roof, it comes down eventu-
ally. The same goes with the house prices. House prices, like the
stock prices, increases indenitely following a massive demand for
houses and price speculaon. But when the price goes beyond a
range, it bursts like a bubble. Then the price of the houses get back
to their inial value. The original price of a house, which was not
known to anyone during the nancial boom and which is known to
almost everyone during the bust, basically does not change over a
long period of me.
The recent US recession that happened just within seven years of
dot comcrash, happened mainly due to the development of an
unregulated nancial mortgage market. When the house prices
crashed in the US market, all the derivaves that mushroomed
around the mortgage speculaon lost their values. But unlike other
recessions in the history of nance, this me it has created a world-
wide nancial devastaon like never before and its recovery does
not seem to happen in the near future.

THE BEGINNING
It is very dicult to say when it started and how it started, but it can
be speculated that the whole event started long back in the year
2000. The US economy was severely aected by the Y2K crisis and
9/11 terrorist aack. There was less than expected liquidity in the
WORLD ECONOMY 38

approached the insurance companies and paid premium to insure the
bonds. The insurance companies agreed to insure the money in case
of default of MBS. In this way the bond holders basically swapped the
risk of credit geng default with buying of insurance. This technique
of migang the risk of credit default is known as Credit Default Swap
(CDS). CDS was another type of derivave that got developed during
this period. This has been the enre cycle of how money started ow-
ing into the system. The gure below describes the development of
the nancial cycle.

THE REALPROBLEM:
As the subprime borrowers got huge money in hand, they started
spending it indiscriminately, as a result of which inaon crept into
the system. To control the inaon, Federal Reserve ordered the
banks to raise the rate of interest of loan. Now if a bank raises the
rate of interest by x%(x >0) for its prime borrowers, the rise of the
same rate of interest will be more than x%for its subprime borrowers
(due to poor credit worthiness). Due to this increase in interest, the
subprime people were unable to repay the loan and started de-
faulng. Inially this posed no threat to anyone as the banks seized
the control of houses mortgaged with them as collateral and sold
them in the open market. The nancial market that developed on
mortgages seemed to work properly. But as the number of default
between demand and supply of money in the market one group of
nancial instuons named as special purpose vehicle (SPV) sprang up.
SPVs were mainly composed of high net worth investors, investment
banks etc. who were looking for a nancial instrument which could
give thema good return of investment (investment in US T-bills at that
me was a poor opon as its rate of interest was almost nil).
The banks had mortgages with them. They bundled the mortgages to-
gether and sold themto SPVs to raise money. As house prices were
rising in USA, this nancial instrument appeared to be very aracve to
SPVs. They bought mortgages frombanks. This process of selling mort-
gages to raise money was called securisaon. In this way a new kind of
a derivave was born in the US market.
With having high valued mortgages in hand, SPVs started releasing
securies (mainly bonds) in market to raise money. The credit rang
agencies rated the bonds as very secure and stable (AAA rang) as the
SPVs were holding high priced mortgages.
SPVs started releasing bonds in market, corporates being their primary
customer. As these bonds were backed by mortgages so this type of
security was called Mortgage Backed Security (MBS). In this way a se-
cond level of derivave got developed.
Although the mortgage market was very lucrave in USA and there was
very lile chance that MBS will default, sll the bond holders wanted to
insure the money that they paid to buy the bonds. For this reason they
WORLD ECONOMY 39

In this way slowly the enre nancial system plunged into huge debt
crisis.

CONCLUSION
This is seen in the history of economics that it is very dicult to pre-
dict the negave outcome of a nancial event in a system unl it real-
ly happens. No deviaon took place here as well. While discussing this
enre event, one can easily realise that it was Wall Street which took
uncontrolled risk which led to this nancial meltdown. The lack of
regulaon by the Fed Reserve just worsened the situaon. Unregulat-
ed ow of money in the market, providing loans to subprime people
without doing any risk assessment, improper credit rang, develop-
ment of mul layered derivaves these were few of the basic rea-
sons behind this nancial catastrophe. Now, as the part of the aer-
math acvity, the US government came up with huge bailout packag-
es and regulaon of the nancial system to stop any further damages.
But this me the nancial tsunami crossed the US border and aected
the enre Europe and a few Asian countries as well. A sooner recov-
ery seems to be a distant aair. As today we are more global than
local, we need to be more careful and more responsible while taking
any nancial risk. Otherwise the term globalisaon will become a
misnomer. Then countries will create virtual boundaries to protect
themselves from any such nancial failure.
started rising, banks got a large number of houses in their custody.
The supply started surpassing the demand. The gap between the
number of sellers and number of buyers of houses started widening.
The house prices started falling drascally. This fall in price led to
under performance of all the related derivaves that were available in
the mortgages market. Unfortunately this event started to replicate
itself thus developing a big hole in the system. I have discussed it be-
low in sequenal manner with the help of a diagram (gure 2):
As mortgage prices fell drascally, banks started losing their money.
The debt amount was so high that banks started to fail.
The fall in house prices aected the enre securisaon process. As
the house prices started falling, SPVs could not sell the mortgages
(due to lack of buyer) to get back their invested money. In this way,
SPV, e.g. Lehman Brothers failed.
As the situaons worsened, the bond (MBS) holders approached SPV
to redeemthe bonds. But SPV was unable to return the money, thus
MBS failed.
As MBS failed, the bondholders approached the insurance agency.
Now as the number of claims for credit default rose to such an extent
that the insurance agency was unable to pay the money insured. Thus
CDS also failed with the fall of insurance agency, e.g. AIG.
WORLD ECONOMY 40
T he Indian markets have oscillated quite a bit during the past few months, with re-
gards to the skepcism surrounding Indias growth story. The volale FII inows post
Union Budget 2013, high current account decit at 4.9%, speculaon about Indian
companies recording weak growth in Q4,2013 and lack of parcipaon from the domes-
c investors are some of the factors the accounted for the See-saw we witnessed in the
Sensex. The 25 basis rate cut in the Repo announced by RBI recently surely did its part
to cheer the market ; also most of the companies did their part in boosng the sen-
ment by recording good boom line growth leading to the improvement in their oper-
ang margins, even though the top line growth was very much subdued . The defensive
sectors like pharmaceucals, healthcare and consumer goods lead the rally along with
the telecom and entertainment (media) sectors, while the power, energy, infrastructure
and real estate group connue to face pressure due to their high debt burden though
their valuaons are quite cheap at the current level. The NIFTY ended up above 6100
aer 2 years, while the Sensex looks comfortably poised above 20k level (as on 11-May)
As per the latest ve year plan, $1 trillion is to be spent on infrastructure in the upcoming ve years. This may sound very aracve,
however ground reality is dierent. Navi Mumbai Airport, Golden Quadrilateral (linking all four original metros by road), Dedicated
Freight Corridor between Delhi & Kolkata are only few of the projects that are either scrapped or delayed. Corrupon & red tapism
were sucient enough for the delay, which was compounded by environmental clearance & land acquision impediments. These
factors made sure that all deadlines & goals are well extended, to site one: Building 20kms road has only remained a far dream
while the actual work done was nowhere around it. However in the recent mes few posives have been emerged for this sector
like Public Private Partnerships or PPP, Japan has also shown interest in various infra projects like Delhi-Mumbai Industrial Corridor-
mega infra-structure project of USD 10 billion covering an overall length of 1483 kms between Delhi & Mumbai, which has already
I n fr a st r uct ur e
REGULARS 41

REGULARS 42
got conrmaon, Mumbai-Bangalore Corridor is also proposed
on the similar lines. Land acquision bill is also passed that has
given much needed certainty, although it proposes high com-
pensaon. Lately, CCI (Cabinet Commiee on Investments) has
approved infrastructure projects with a combined investment
of around Rs 70,000 crore. It has given nod to 25 oil and gas
blocks with investment commitments of $ 7 billion (approx. Rs
38,039.89 crore).Out of 25 blocks as many as nine blocks have
been fully cleared and 16 blocks have been cleared with spe-
cic condions. As a part of infrastructure projects clearance,
CCI has cleared 13 power projects worth Rs 33,000 crore.

FDI up to 49% in aviaon, Jet-Ehad deal, entering of Air Asia in
a joint venture with Tata; seems good mes have again come
for the sector although King of Good Times no more exists in
Indian skies. Posive results (presumably) are sll to be seen
for Jet-Ehad deal meanwhile Spice Jet may be the next bene-
ciary of increasing FDI caps. As per media reports, it is also in
talks with airlines of gulf. Payload factor has also been im-
proved for all the airlines that is in the range of 75%-83%for all
major airlines that have pan India presence. However, every-
thing is not so hunky-dory for the sector which is sll mired by
high ATF (aviaon fuel), which is responsible for 42% of an air-
lines cost & high taxaon. The Ailing Maharaja is sll on ven-
lator aer government announced last year to infuse Rs. 300
billion in various phases ll 2020 & importantly this infusion
will be on the basis the airlines performance.

In last few years, a couple of major changes have taken place
when talking about interest paid by banks on savings account.
First change is that deregulaon of interest to be paid to de-
positors on savings account with bank. Another major change is
the interest rate calculaon method. Earlier, the interest used
to get calculated on the minimum amount in an account be-
tween 10
th
& 30
th
of the month, however now its on daily ba-
sis. Banking Amendment Bill that was in lurch since so long, has
nally got the approval from Lok Sabha. This may entail greater
powers in the hands of the central bank. Now RBI can call for
informaon and returns from the associate and group compa-
nies of the banking companies and to even inspect them. Earli-
er it can remove only a director now it can supersede the
whole board, the public sector banks can also issue bonus
shares, rights issue or preference shares. The private share-
Avi a t i on
Ba n ki n g
holders of public sector will have 10% vong rights while in
private sector banks it 26% vong rights are proposed. This
bill also paved the way for issuing new banking licenses.
Hence, in the following years more players would be in the
market leading to high compeve pracces to capture
more market share & in the whole act consumers would be
beneed the most.

One of the most booming sectors of last decade was bruised
in last couple of years thanks to the 2G scam. This was en-
sued by exit of few foreign players like Sistema & Batelco
and Telenor exited from its JV with Unitech. Following the
supreme courts order of auconing the waves, government
that proposed to garner Rs. 40,000 crore in last Finance
Budget could manage to just rake in around Rs. 9400 crores.
Airtel- Big Daddy of this sector in its quest of inorganic
growth has seen its prot growth shrinking since last 13
quarters. Although, customer base has almost stagnated at a
base around 944 million, Idea has started making signicant
prots & Vodafone has emerged as the second largest play-
er in the market chipping away Airtels & RComs market
shares. BSNL has been progressively heading towards south,
as in 2007-08 it made a prot of Rs. 3009 crores while in
FY12 it was laden by a loss of Rs 8851 crores. Its employee
strength of 1 lakh that is almost equivalent to 50%of its rev-
enues of Rs. 27,933 crores. However, in last few years aer a
humble response in 3G connecons, the sector is poised to
see some acon by the entrance of Reliance Jio Infocomm
with deep pockets that acquired a 95% stake in Infotel
Broadband Services for Rs 4,800 crore for a pan-India BWA
licence. It has also joined hands with Rcomm to share fibre-
optic services for Rs. 1200 crores & Bharti Airtel to use its
submarine cable network to provide data connectivity across
Asia Pacific.

Tel ecom
Anuj Narula is a rst year
student pursuing full-
me MBA at NMIMS,
Mumbai
REGULARS
43
With only a 1 in 100 chance of having a nonfatal injury or illness, the nancial sector is the saf-
est job area out there

Where does the term "check" or "cheque" come from? It's derived from the game of chess. Pung the king in check
means his choices are limited, just like a modern day cheque that limits opportunies for forgery and alteraon

Legendary investor Warren Bue bought a 40-acre farm at age 14 with $1,200 in savings from de-
livering newspapers

Where does the $ symbol come from? It's derived from the Spanish dollar sign. In 1782, the US consid-
ered choosing the Spanish peso as the countrys currency. The abbreviaon for the Spanish peso (PS) later trans-
formed into a $

What's with the word "Greenback? The rst bills were called greenbacks aer the green ink
used on the backs of the bills

Three of the world's 50 largest economies dont have a dedicated exchange-traded fund (ETF)
listed on a U.S. exchange: Iran, Saudi Arabia and Pakistan

More than one million shares changed hands on the NYSE for the rst me on December 15, 1886. The
NYSE had its rst billion share day on October 28, 1997

The largest cash robbery of a bank was the Loomis Fargo bank robbery in 1997. $17.3 million, in cash, was
stolen from a regional oce vault in Charloe, NC. An FBI criminal invesgaon turned up evidence that the heist
was an "inside job," and less than six months later, the thieves were caught. In the end, 95%of the cash was re-
covered

The biggest loery jackpot of all me was $390 million in the Mega Millions Loery in the US in March, 2007

The oldest component company of the Dow Jones Industrial Average is General Electric, which was added on Novem-
ber 7, 1907

REGULARS 44

Chit Fund Scam: Government announces mul-agency probe into Ponzi schemes
In a mul-agency crackdown against alleged duping of public investors through Ponzi
schemes, the government today said the enes suspected to be engaged in such acvies
are being probed by SEBI, RBI and the Corporate Aairs Ministry, among others. Besides, the
Income Tax Department has also iniated an invesgaon of Saradha group and the En-
forcement Directorate has also registered a case of suspected money laundering acvies
against this Kolkata-based group and others including its chief Sudipta Sen, the Finance Min-
istry said.

Government pitches for rang upgrade with S&P
India on Thursday exuded condence that global agencies will upgrade the country's sover-
eign rang in the backdrop of bold and tough decisions taken by government to contain
scal decit and promote growth. Talking to reporters aer meeng a with representaves
of rang agency Standard and Poor's, Economic Aairs Secretary Arvind Mayaram said
there was no case of rang downgrading as the government has taken bold and tough deci-
sions, like reducing subsidies on petroleum products.

Forex reserves fall by $485 mn to $294.76 bn
The country's foreign exchange reserves were down by $485.9 million to $294.76 billion for
the week ending April 19, in the wake of fall in core currency assets, the Reserve Bank said
on Friday. The forex reserves had gone up by $1.4 billion to $295.25 billion in the previous
reporng week. Foreign currency assets, a major component of the forex reserves, were
down by $489.2 million to $262.41 billion, according to Reserve Bank's weekly stascal
supplement.

Fiscal decit will be below 4.8 pc in FY14 - Chidambaram
Finance Minister P Chidambaramon Wednesday assured the investors that he has
drawn red lines and the scal decit will be below the 4.8 per cent mark in 2013-14.
"A number of measures have been taken...We are determined to go back to the path
of scal consolidaon...We have laid out a new path and I have said these are red
lines. This will be never, never breached," he said while addressing India Summit or-
ganised by UK-based magazine The Economist."Going forward in 2013-14, scal de-
cit will be contained below 4.8 per cent of the GDP", he said.

Jet Airways brings on board Ehad
Aer long weeks of negoaons, Jet Airways (India), India's second largest domesc
carrier by passengers carried, announced on Wednesday that Ehad Airways had
come on board as a partner. The Jet Airways board, on Wednesday, agreed to issue
fresh shares in favour of the UAE-government owned carrier at Rs 754.74 per share
for a total deal value of about $379 million or about Rs 2,050 crore. Ehad will have
24 per cent stake in the Indian carrier, promoted by Naresh Goyal, aer the issue of
fresh shares

GDP to grow by lile over 6% in 2013-14 - FM
Finance Minister P Chidambaram today said the scal decit for 2012-13 will be beer than
5.2 per cent as tax collecon target of over Rs 10.38 lakh crore has been achieved."As always
there will be some savings (on expenditure). So what does it mean ... if we reach the revenue
target and if there are some savings, the scal decit will be beer than 5.2 per cent that I
have projected," Chidambaram told reporters here. He, however, did not "hazard a guess" on
the actual scal decit number for 2012-13.

India received $70 bn in remiances in 2012
India received $70 billion in remiances in the year 2012 , Government told Rajya Sabha on
Thursday. Overseas Indian Aairs Minister Vayalar Ravi gave the gure quong a World Bank
report. He was replying to a queson on the issue. India had received over $66.13 billion in
remiances in the year 2011-12 while in 2010-11, the amount was $55.62 billion. The re-
miances to the country through private transfer of funds have been on the rise in the last few
years. India received $53.63 billion in 2009-10 while in 2008-09, the amount was $46.9 billion.
REGULARS 45

REGULARS 46

Government clears 9 FDI proposals worth Rs 1,140 crore
The government on Wednesday said it has cleared nine FDI proposals, including that of
Mul Screen Media and Wire and Wireless, totaling over Rs 1,140 crore. Besides, the
Foreign Investment Promoon Board (FIPB) deferred decision on 11 FDI applicaons
including that of Norway-based Telenor Mobile Communicaons AS and Coca-Cola's
boling arm.. Based on the recommendaons of FIPB in its meeng held on January
21, 2013, government has approved 9 proposals of foreign direct investment (FDI)
amounng to Rs 1140.14 crore approximately," Finance Ministry said in a statement.

Apple to dole out $100 billion to shareholders
Apple is opening the doors to its bank vault, saying it will distribute $100 billion in cash to
its shareholders by the end of 2015. At the same me, the company said revenue for the
current quarter could fall fromthe year before, which would be the rst decline in many
years.Apple CEO Tim Cook also suggested that the company won't release any new prod-
ucts unl the fall, contrary to expectaons that there would be a new iPhone and iPads
out this summer.

China's economic growth slows in rst quarter
China's economic growth slowed unexpectedly in the rst three months of the
year, fueling concern about the strength of its shaky recovery. The world's se-
cond-largest economy grew by 7.7 per cent over a year earlier, down fromthe
previous quarter's 7.9 per cent, the government reported Monday. That fell short
of many private sector forecasts that growth would accelerate slightly to 8 per
cent.
InFINeeti|April2013

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ALLRIGHTSRESERVED
AAKANKSHA HAJELA is an Electronics Engineer with a keen interest in
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sultancy. She has authored arcles in business blogs

BHUSHAN KANATHE is an Engineer with a movaon to specialize
in Finance. He has cleared CFA Level 1 . He regularly tracks the
stock market and wants to pursue a career in investment banking
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aims to make a career in the eld of nancial consultancy
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hobbies include reading newspapers and following current
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InFINeet | THE FINANCE MAGAZINE OF IIFT APRIL 2013 ISSUE

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