Citizens' Issues
CID probe against GP Goenka over closed Bengal tea estates
The West Bengal Criminal Investigation Department (CID) has initiated investigation against Duncan Group of Industries chairman G.P. Goenka and his son over non-payment of wages to workers of their tea estate in north Bengal, an officer said on Monday.
 
The moves come in the wake of nearly a dozen alleged malnutrition deaths at the company's Bagrakote Tea Estate in Jalpaiguri estate.
 
The family members of the victims and trade unions have claimed the deaths were due to starvation and malnutrition, but the state administration has rejected the assertions attributing illness as the reason of death.
 
"The dues to the workers including certain allowances and wages have not been paid for past few months. A police case was initiated earlier on the matter and now CID has taken up the investigation of the case," said Inspector General (II) CID Vineet Kumar Goyal. 
 
"We have registered a case against G.P. Goenka and his son under sections 406 (criminal breach of trust) and 420 (cheating) of the Indian Penal Code," he added.
 
In pursuance of the investigation, the CID had summoned Goenka and his son for questioning.
 
The duo though could not appear and had sent a representative to the CID headquarters in the city.
 
"There were some outstanding payments. We showed to them (CID) what was outstanding," said company whole-time director M.H. Chinoy after meeting the CID officers.
 
In September, Right to Food and Work Campaign (RFWC)- a network of organisations and activists - had submitted a report to Chief Minister Mamata Banerjee claiming that the closed and abandoned tea estates of the company could trigger a major humanitarian crisis with a population of over 75,000 dependent of the tea gardens "forced to live in near starvation".
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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Nifty, Sensex may put in a small bounce – Monday closing report
If today’s lows hold, Nifty may be headed for 8,150
 
We had mentioned in Friday’s closing report that Nifty, Sensex are weak and that while Nifty may bounce back during the week, the rallies will be met by selling until Nifty reclaims 8,200. The major indices in the Indian stock markets closed lower than Friday’s close. The trends in the major indices are given in the table below:
 
A slowdown in manufacturing activity, uncertainty over Bihar election results and heightened chances of a US rate hike depressed the Indian stock markets and the major indices closed lower than last week. Furthermore, falling Asian markets on the back of weak Chinese factory data caused the Indian indices to a downward trend. 
 
The latest Nikkei India Manufacturing PMI (Purchasing Manufacturers Index) for the last month showed a contraction due to a slower increase in new orders. The PMI was at a 22-month low of 50.7 in October 2015. China's PMI came in at 49.8 in October, unchanged from September, signalling stagnation in manufacturing.
 
Reliance Capital Ltd on Monday reported a rise of 15% in its consolidated net profit for the second quarter of the current fiscal. It had posted a consolidated net profit of Rs250 crore for the quarter ended 30 September 2015, up from Rs217 crore posted during the corresponding quarter of last year. The company's consolidated total income went up by 13% at Rs2,361 crore for the period under review as against Rs2,084 crore in the corresponding previous period. The earnings per share logged an 11% increase at Rs9.9During the quarter under review, Reliance Capital's subsidiaries Reliance Life Insurance and Reliance General Insurance posted a net profit of Rs15 crore and Rs30 crore respectively. 
 
Indian Bank reported that it has earned Rs1,207.56 crore from treasury operations the last quarter and posted a net profit of Rs369.31 crore. The bank's profit for the second quarter rose to Rs359.31 crore this fiscal - up from Rs314.33 crore posted during the corresponding period the previous year. According to him, the bank made a conscious decision of not growing its loan book size while the focus was on quality advances and lowering high-cost deposits. The Indian rupee weakened in the day's trade. It ended lower by 32 paise at 65.59 to a US dollar from its previous close of 65.27 to a greenback.
 
The foreign institutional investors (FIIs) were net sellers in the day's trade, whereas the domestic institutional investors (DIIs) were net buyers. According to data with stock exchanges, the FIIs sold stocks worth Rs272.67 crore, while the DIIs picked up stocks worth Rs145.38 crore.
 
Sector-wise, S&P BSE capital goods index plunged by 157.34 points, healthcare index receded by 130.52 points and metal index plummeted by 93.15 points.
 
On the other hand, the S&P BSE consumer goods index surged by 62.75 points, oil and gas index gained by 27.37 points and information technology (IT) index rose by 26.57 points.
The top gainers and top losers of the major indices are given in the table below:
 
 
The closing values of the major Asian indices are given in the table below:
 
 

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Sovereign gold bond scheme may move investors from the yellow metals to bond
Sovereign gold bond could be more popular than gold ETFs and physical gold, says ratings agency 
 
Gold sovereign bonds being issued by the Reserve Bank of India (RBI) may triumph over other comparable products in the market such as gold exchange traded funds (ETF) and physical bars, and can lead to a reduction in India's current account deficit (CAD), says India Ratings and Research (Ind-Ra).  
 
"The sovereign gold bond scheme is an attractive product and may address the pure investment demand for gold. Also, gold sovereign bonds are easy to implement relative to the gold monetisation scheme," the ratings agency said in a research report.
 
 
Indian households’ fascination for gold is as old as India’s history and has only grown over the years. As a result, gold jewellery has been used both as an asset and as a hedge against adverse circumstances. The household investment in physical asset had risen to 66.4% in FY12 from 49.6% in FY06, before declining to 58.7% in FY14. The households’ fascination for gold however did not diminish much. Their savings in the form of gold & silver ornaments had reached Rs37,267 crore in FY13 before declining somewhat to Rs33,427 crore in FY14. This rising demand in gold was met by a huge increase in gold import to $56.5 billion in FY12. The surge in gold import was quite destabilising for India’s current account deficit (CAD) which increased to $88.1 billion in FY13, an unprecedented and unsustainable level of 4.8% of GDP. As a result, the government resorted to a higher import duty/restriction on gold import and gold import fell to $28.7 billion in FY14. 
 
 
The RBI will issue sovereign gold bonds between 5th and 20th November 2015, which would be linked to the price of gold. The objectives of sovereign gold bonds are (i) to reduce the demand for physical gold and (ii) shift part of the estimated 300 tonnes of physical bars and coins purchased every year for investment into ‘demat’ gold bonds. These bonds can be purchased only by resident individuals or entities and the upper limit could be 500gm per person per year. The bonds will be issued in denominations of 2g, 5g, 10g of gold or other denominations and the tenor of bonds could be for a minimum of five to seven years. The price of gold will be taken from the reference rate as decided. It will then be converted into Indian rupee using the RBI reference rate for issue and redemption. On maturity, the investor will receive the equivalent of the face value of gold in rupee. The scheme will carry an interest of 2.75% payable semi-annually.
 
According to a statement from the Finance Ministry, price of bond will be fixed in Indian rupees on the basis of the previous week’s (Monday–Friday) simple average of closing price of gold of 999 purity published by the India Bullion and Jewellers Association Ltd.
 
Talking about some of the pros of the sovereign gold bond scheme, Ind-Ra said that a successful launch of this product may ensure that physical gold is used mostly for manufacturing jewellery and sovereign gold bond for investments. It said, "Investors of gold bars or coins may find gold sovereign bonds a better investment than holding a physical stock because it will offer the benefit of gold without any handling and storage costs. It will relieve investors of the need to check the quality of gold and with valuation, no longer an issue, these bonds will be easier to use as collateral. In case of a gold bond, the counterparty is the government of India. If the price of gold increases, the government takes the risk of higher prices, if they fall, the investor would be given an option to roll over their holdings for an additional period."
 
The pros of the gold monetisation scheme include, the scheme offers all the benefits of physical gold minus the risk. It will convert the unproductive asset (lying idle) into a productive asset (used by the gems and jewellery sector). It will help in reducing the black economy, as gold along with real estate is often used as safe haven to park black money. The reduction in intermediary including speculators may be positive for stabilising gold prices. If the gold monetisation scheme turns out to be successful, then it will lead to a spurt in the supply of gold leading to a decline in gold prices, as the recycling of domestic gold will be without any import duty. Banks have some incentives in this scheme, like the freedom to decide interest rates on gold deposit and the ability to sell gold to raise foreign currency, it can also be part of statutory ratios. It will thus have a positive impact on the current account deficit, the ratings agency said. 
 
However, the sovereign gold bonds are beneficial only if it is bought for investment purposes, the ratings agency said. "As the bonds will be issued in denominations of 2g, 5g, 10g of gold, a minimum investment required would in the range of Rs5,000 and above. This means small investors will not be able to take advantage of this scheme unlike the case with gold ETFs or gold mutual funds (MFs). In case of sovereign gold bonds, both upside gains and downside risks will be with the investor. However, in case gold prices fall, losses from a systematic investment plan (SIP) in gold ETFs or gold MFs will be lower than for lump sum investments in sovereign gold bonds," Ind-Ra added. 
 
The cons of the gold monetisation scheme include, the scheme envisages holding gold only in its pure form, resulting in the melting of the deposited jewellery and ascertaining its pure gold value. This will be a disincentive for a large number of households who generally want to keep gold in the form of jewellery and may not want to see their long-preserved, family-inherited, emotionally attached, piece of gold lose its identity and feel, for meagre returns. Also, the jewellery making charges paid at the time of buying it will be lost in the process. Moreover, ascertaining of pure gold out of the jewellery will often result in lower valuation of the gold held by households. First, the loss of jewellery making charges and secondly lower valuation together will be a double whammy for households. There is also lack of clarity on the tax treatment, on the conversion of physical gold into the gold deposit scheme, the ratings agency said.
 
In addition, interest on the gold bonds will be taxable as per the Income Tax Act.
 
The gold monetisation scheme is also a welcome step taken by the government to unlock the value of gold held by households or institutions and to reduce the dependence of Indian investors and gems and jewellery sector on imported gold. Also, it is an improvement over the existing gold deposit scheme 1999.

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COMMENTS

Aqeel Qureshi

1 year ago

This scheme is quite dangerous to the Indian Government. To make the scheme viable, the Government is speculating on the price of Gold which is very dangerous and unscientific.

Like the last time when these bonds were issued, this time as well, the Government might make losses in the price of Gold and burn its hands.

REPLY

Anand Vaidya

In Reply to Aqeel Qureshi 1 year ago

I think the gov has done its calculations:

1)Gold prices may not rise, in fact may fall as US raises interest rates.

2) The gold consumption in China and India (too) are actually down

3) The relief gov gets in CAD+import bill may be sufficient to offset any losses in future on a/c of gold bond.

4) The gov gets cash now to spend (hopefully wisely)

Aqeel Qureshi

In Reply to Anand Vaidya 1 year ago

well, what you say calculations is actually called speculation.

Francis Xavier

In Reply to Aqeel Qureshi 1 year ago

Exactly Sir. Me too think on the same line. What will happen if the gold price doubles at the time of maturity? Expecting an article fm moneylife in this line.

MG Warrier

In Reply to Francis Xavier 1 year ago

The simple answer is, at the time of redemption, the investor will be paid on the basis of gold price prevailing at that time. The 'problem'for the government from this angle may arise only in respect of SGBS and the sale of bonds is part of GOI borrowings. Government shouldsupport RBI to increase the gold component in country's forexreserves to the extent of such borrowings(SGBS route) which will help set off losses of the type you are envisaging.

Aqeel Qureshi

In Reply to MG Warrier 1 year ago

Would that not be a silly and counterproductive thing to do? The government is doing this so that India does not spend forex to buy gold. And you are suggesting exactly that but this time the RBI does the same.

Its like the government does not want citizens to buy gold by spending dollars but the RBI does exactly that.

Does it make any sense at all?

MG Warrier

1 year ago

Perhaps RBI and GOI could jointly attempt an "Awareness Drive" to educate institutions and organisations which accumulate gold in various forms to divert a portion of their future investments to Sovereign Gold Bonds(SGBs). Even converting a portion of existing gold stock by selling it in the market and buying SGBs will be advantageous both to the country (as import will come down to that extent) and the investors(as the investment in SGBs will earn interest).

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