Don’t dump your debt schemes

Confused about what should you do with your investments in debt schemes and liquid schemes after the change in tax norms in the Union Budget? According to a Moneylife survey, over 80% of mutual fund investors put money in debt schemes, fixed maturity plans (FMPs) or liquid schemes. As you know, FMPs have lost their double indexation benefit. Redeeming non-equity scheme units held for one year to less than three years will now attract short-term capital gains tax; gains will be taxed as per your tax slab. Debt schemes were never a ‘safe’ choice and their returns are unpredictable. In our Cover Story, we analyse various fixed-income options, their risk and tax-efficiency which will help you make a safe and smart investment choice.

What does one make of Narendra Modi’s financial inclusion plan which envisages a bank account for 150 million Indians by August 2018. In her Crosshairs section, Sucheta discusses the pitfalls of the plan. In her Different Strokes section, she discusses further Mr Modi’s initiatives to provide achche din. Many of Mr Modi’s supporters are impatient for action and a clear communication of the road map. Their restlessness is out of concern over issues like galloping inflation and the decision to carry forward several initiatives of the previous government without corrective actions. Will the government do things more efficiently, or differently?

On 22nd August, Moneylife Foundation will conduct an event on the effect of mass media and its role in today’s times. Can the media be relied upon to investigate and expose economic scams that decimate national assets? The discussion will be led by Chitra Subramaniam famous for her dispatches from Geneva way back in the mid-1980s which gave the lie to the government’s claims on the Bofors arms deals. This would be followed by a dialogue with R Narayan, famous for his blunt analysis of the media, who writes under the pen name of Mediacrooks. Log on to for more details.


Bengaluru: Garden City to Garbage City


Despite all the rhetoric about Bengaluru being the Silicon valley of India, the truth is that its growth has come at the expense of turning the garden city into a garbage city. It is also unfortunate that none of the IT (information technology) leaders has been able to do anything to bring about a transformation in the quality of life in the city. They have only added to the mayhem by ensuring that more and more people buy cars and run them on the road.

People dump garbage on any vacant space that they can see. The Bengaluru municipality recently faced unrest from the residents of neighbouring village Mandur where all the garbage was being dumped. This has been going on for more than a year now. When garbage trucks were turned back to the city, truck operators dumped the garbage on any vacant land that they could set their eyes on. At a place called Silk board junction, mounds and mounds of stinking garbage were seen piled up recently.

What is the state government doing about it? Nothing. A year ago, a bunch of politicians went to the US to study the garbage collection and disposal system. It was a fully paid vacation for the politicians at the cost of the exchequer. Nothing concrete came out of this visit. Despite the Congress Party taking over the reins in Karnataka, not a single problem has been addressed so far. It is no secret that politicians in Karnataka are highly corrupt. Even the BMTC (Bengaluru Metropolitan Transport Corporation) bus fares have hit the roof. It would be cheaper to travel by auto than by bus. Even the metro train system was implemented only in phases with no connectivity to the entire city. For instance, if one has to travel from Indira Nagar station to Ulsoor station, the ticket fare is around Rs12/-; while the bus fare is Rs15/-. Ulsoor is the station immediately next to Indira Nagar. Never-ending traffic jams have ruined the skyline of this city, once famously called the garden city or the pensioner’s paradise.

On the flip side, none can deny that Bengaluru’s prosperity as an IT hub has led to students flocking to the city to pursue higher education and new vocations have sprung up. So, you have a team calling themselves ‘nail cutters’ or ‘pedicure specialists’ who roam from one end to another on a two-wheeler. Recently, in some areas, a new service has been introduced called ‘barber services at your beck and call’. You have to give a missed call to a number and, within no time, a call-centre executive will text you the message confirming the time and the barber’s mobile number. With this newfound prosperity, cobblers are facing the risk of extinction as people prefer to discard chappals or shoes instead of getting them mended. In a city already facing problems of garbage disposal, discarded footwear is only adding to the problem of solid waste.
Cooks are in great demand in Bengaluru. Almost every second household now boasts a cook. Pre-schools have mushroomed in every nook and corner. Blame it on the El Nino effect; vegetable prices have sky-rocketed. Services in banks have reached an abysmal level. To cite an example, HDFC Bank proclaims that one can pay property tax online but the municipal authority claims otherwise. Many people have issued property tax cheques that have bounced. BBMP doesn’t have the wherewithal to handle cash and the online system doesn’t work. Not many have shown interest in issuing demand drafts for property tax payments.

The less said about drainagethe better. With the slightest trace of monsoon shower, gutters get clogged. What exacerbates the problem is the narrow roads in Bengaluru. On both sides of the road, are garbage heaps thrown by property–owners; additionally, one side of the road is blocked due to free parking of vehicles of residents of the area. Ironically, real estate developers keep enticing customers—never mind the severe scarcity of water in the city. Giant-sized transformers stare at you from every nook and corner. Frequent power cuts are now the order of the day.

Multiplexes have taken inspiration from Chambal valley dacoits in that the price of a cinema ticket is far less than the price of popcorn tub. Citizens belonging to the middle class have to fill their stomach before venturing into the movie hall; otherwise the price of eatables will end up giving them indigestion. Even as the population of human beings has swelled, the population of dogs has swelled too. Despite such phenomenal growth, 99.5% of the city population still relies on road transport. Cities like Chennai, Delhi and Mumbai have progressed far, far beyond Bengaluru.

One does not know where the scourge lies. But blatant mismanagement of public funds, unplanned growth of the city, mounting traffic congestion woes and a cavalier approach by politicians have led to the degeneration of this city. Even business barons, like Kiran Shaw or Narayana Murthy or Mohan Pai or Nandan Nilekani, have been able to do little to stem the rot in the civic system. As someone rightly put it, the growth of IT has resulted in two Bengalurus—one is the upmarket Bengaluru with swanky flats and posh recreation clubs. The other Bengaluru is the one which remains as it was years ago, if not worse.  
V Ganapathy, by email

Corporate bond market
The National Stock Exchange (NSE) has put in some explanatory notes in the segment ‘LIVE MARKET Bonds in CM Segment’ (cross margin segment) on its website. This includes the explanatory statement that the traded price is inclusive of accrued interest from the last interest payment date till the date of trade and subsequent YTM (yield to maturity) calculation on the price net of the accrued interest.

But if you consider the G-Sec (government securities) market, the YTM is calculated on the traded price (which would also be inclusive of accrued interest). After all, cash that the investor is putting out is the traded price, whatever it may include. So YTM should be calculated on that price—similar to stock price being cum-dividend and ex-dividend. P/E (price to earnings ratio) or P/BV (price to book value) is calculated on the traded price. Pure and simple.

I do hope that the government reverses the recent Budget announcements on the holding period and taxation. In a manner of speaking, it leads to arbitrarily boosting the stock market indices as people with money will have no other option that gives returns higher than savings account/ fixed deposits. An investor should have equal freedom in his/ her decision to invest in equities or debt in the securities market as an asset class and, within that asset class, taxation norms should be the same. There are now only options that are at the extreme ends of the returns scale. FDs (fixed deposits) or equities. Nothing in the middle which was earlier populated by FMPs (fixed maturity plans)/ debentures. This may also drive up corporates’ cost of debt as investors would now like higher coupon to partially offset the higher capital gains tax.

Further, FMPs are products that invest in debt securities but still get indexation and LTCG (long term capital gains) benefit whereas regular debentures do not. If the objective was to remove this anomaly, the government should have specifically targeted FMPs and not the entire asset class.

The reason for doing away with arbitrage between deposits and bonds is like treating apples and oranges alike, even though both are liabilities on the balance sheet. Is the government going to stop banks from floating one-year deposits as those are also short-term in nature? A re-think on the entire taxation structure is urgently required.
Sameer Ranade, by email

Unfair Tax Regime
This is with regard to “Seven reasons why TDS provisions are draconian & flawed” by Ananthram Rao. Any purchaser of a home has been made responsible for TDS (tax deducted at source) of 1% (20% for a non-resident Indian seller) to be deposited online and issue certificate to seller or builder for each instalment paid to a builder/ seller. Also, there are penalties involved if TDS is not deposited.

(a) The income-tax (I-T) rules assume that every buyer of property has Internet, computer and full knowledge about the procedure for TDS payment. (b) How is any buyer to know whether a seller is a resident or non-resident? (c) The TDS of 1% (20% for NRIs) is on the sale consideration of property and not on income or capital gains arising out of a transaction. For example, let us consider the case of a person A who sells a property, which he had purchased for Rs1.8 crore, to person B for Rs2.1 crore, after three years of purchase. After indexation for inflation is taken into account at, say, 30% for three years on the purchase value, there is a capital loss equal to Rs54 lakh. The extra amount received by the seller over his purchase price is Rs30 lakh. The transaction has resulted in a net capital loss equal to Rs24 lakh. According to I-T rules, TDS of Rs2.1 lakh (1% of sale price) must be deposited if the seller is a resident and Rs42 lakh if the seller is an NRI even when there is no tax liability resulting from the transaction. This is the most ridiculous I-T rule and it also violates the fundamental rights, assuming that everyone is capable of paying taxes online.
Dr HS Chhabra, online comment


Economy & Nation Exclusive
Subsidies kill, but are less murderous than political intentions

The government's idea to get people to voluntarily forgo their LPG subsidy as an exercise in "nation building" has raised peoples' hackles.  The SMS from oil companies says, "Want to join Nation Building? It's simple - just give up LPG subsidy." Now if only the minister or the prime minister had said, "I am giving up my LPG subsidy. Join me in nation building"


The Union Government wants me to forgo my subsidy of around Rs500 per LPG cylinder. And it thinks that if I ignore the SMS, it will ‘expose’ the ‘rich’ who want to hang on to benefits meant for the poor.  If all of us filthy rich people who save fortunes due to this subsidy on cooking gas decide to give it up, it will add up to a princely sum of Rs3,500 crore. Mr Narendra Modi, thank you. I have no guilt in enjoying this subsidy. In fact, I get a small vicarious pleasure in getting something back from a system that has only taken from me all my life. Why is it that the system favours those who are parasitical to the extreme?

Given the noise about the Gujarat model, I thought that the age of meritocracy had to come. Alas, the Modi government seems to be bent on pushing honest citizens against the wall. Encouraging parasites to thrive through subsidies is surely not the way Gujarat has reached where it has, but the message this time is all wrong. If the Modi government is serious about the “Gujarat model”, we should actually see all subsidies being banished and that there are rewards for honesty and merit.

The government’s estimate of ‘under recoveries' on LPG is around Rs450 per cylinder and a direct contribution by the government of around Rs23 per cylinder. So at worst, the ‘subsidy’ on LPG is around Rs500 per cylinder. (Source of above nos). The government could easily remove the subsidy on LPG cylinders and provide cash subsidy to the poor. In fact, the whole business of ‘under recoveries’ on petroleum products is a sleight of hand, if one takes in to account the taxes on petroleum products imposed by the central and the state governments.
We have read about Members of Parliament (MPs) ordering hundreds of cylinders. Why not have the MPs come forward and forgo a few of their perks first in the interest of 'nation building'? Instead, even while the government wants us to forgo the LPG subsidy, we have television channels reporting how MPs are demanding special perks for themselves at airports.
The fiscal deficit of the government for the current year is Rs5.31 lakh crore. If all the subsidy on LPG to the ‘rich’ were removed, it would perhaps reduce the deficit by Rs3,500 crore. So the government is attempting an emotional blackmail whose impact will be more negative than positive.  Unless of course, the wise Finance Minister, Arun Jaitley, can cook up 35 more social impact schemes of Rs100 crore each.

The other thing I fail to understand is, why successive governments only keep milking honest taxpayers? If someone who pays no taxes, gets free electricity, free food and a subsidised gas cylinder, he is doing it at my expense. I am being penalised not because of my circumstances but because of my efficiency. And I spend more- so I also contribute more by way of indirect taxes. There is no stream of income or expenditure of a salaried tax payer, that escapes taxation.

The exhortation to give up the LPG subsidy is coming from a government in which the parliamentarians earn tax-free salaries and perquisites which are likely to shame a corporate CEO. Further, MPs get a pension for just being voted in once. It is neither fair nor equitable. I am sure that the freebies given to parliamentarians, including spends on their security, families, housing and what not, easily exceed Rs3,500 crore.  During election time, the filing of returns showed eye-popping numbers as income and wealth for so many politicians! When the government does not do anything to limit its own executives, it has no right to tell me to tighten my belt.
As a tax payer, I contribute to the nation building. It is the tax payer who helps build the infrastructure that the subsidy eating citizen enjoys. Yes, I am being bloody minded, but it is the politicians who are coaxing this reaction from me. We all know that the problem of this beloved country is the burden of too many people. Why does the government not link subsidies to the smallness of a family and help solve a problem at its root rather than do something impulsive that only irks the taxpayer?
And there are so many who get away: Agricultural income is tax free. No issues with that, but when politicians and businessmen start claiming crores of rupees under this head, the objective has been lost. Fix these leakages first, before attacking the belaboured and salaried tax payer. As a consumer, I am paying high prices for agriculture produce. Fix the profiteer first, instead of parroting that the farmer does not benefit. When there are so many fires to be doused, why is the government creating a new one?



Ashok Visvanathan

3 years ago

When Sugar was included in the Ration, every millionaire's housewife used to buy it. Which housewife is going to say OK to giving up the LPG subsidy ? Lastly, when the Kargil war broke out, people donated hundreds of crores voluntarily.... The Vajpayee govt a few months later imposed a Kargil Tax. Draw your own conclusions !


3 years ago

good one! this is one reason why i always prefer to travel by garib rath. that is the only way to get back your taxes :)

Mahesh S Bhatt

3 years ago

Crony Capitalism led to USA Financial disaster & total Socialism led to Soviet collapse.

Median is somewhere the truth lies.

India is heading American way of living by splurging on luxuries & cutting on necessities.

High land costs is leading to loads of unwanted Property advertisements expenditures which could have avoided if Politicians/Municipalities were non corrupt.

Now NPA's all are making money.

India cannot afford ads for necessities.

We had Amitabh Bachan advertising for Amby Valley ( Subrata Rai Sahara is in Jail)

Now Amitabh Bachan advertising in Lodha Builders in Palava, Daawat basmati chawaal are this bonafide expenses,where people are suffering from malnutritions.

Big IPL & than match fixing regularly?Smart Politics/ Business/Legal nexus covers the same smartly.CWG Games/Adarsh 2G/ 4G/Oil scams covered up already/vegetable prices terror political+business mix.

Every evening we have Political Attyachar for Arnab Goswami Times Now's national debates which makes our Country look like pack of crooks.

There are 84 types of taxes.

Railways have now started imitating Mumbai Municipality by flooring platforms/bridges poorly done so year on year re-flooring becomes the norm.

Mumbai Municipality had bad roads now we are gifted with regularly uneven footpaths with paver tiles.This is good usage of taxes/productivity.

Check Mahim (WR-Churchgate side)station tiles they are giving way & chances sooner another person might lose his life/body part in broken tile fall in rush/rainy hour.

While building toilets/water stations are not heeded.

Rich are turning a blind eye to reality in name of optimism which shall lead to anarchy.


Sankar Amburkar

3 years ago

An eye for an an eye will make the whole world go blind. Why wait for somebody else to change before you change let alone MPs and MLAs. If you think you can afford LPG at a market cost and don't need subsidy, then be the change you want to see and pay the full amount to get the LPG.

Who knows, people may start following you and eventually the MPs and MLA will give up their perks.

Mahesh Kumar Tennati

3 years ago

All that is said in this article is true, but how to make government aware of the public feeling? I am sure no one from Govt or oil companies would read this article to find out what public thinks.
Are these the "Acchhe Din" we voted for?


3 years ago

While I agree with the article on many things, I disagree with 'a system that has only taken from me all my life'.

Most of us come from families which were poor and undereducated only a generation or two ago. Education, highly subsidized by taxpayers and philanthropists, and our ability to postpone gratification helped 350 million to enter the middle class in just a few decades.

No country has managed this: even with all the west's colonizing, arms/drug trade, loot, slavery and profit generating wars it took centuries.

India's only internal problem is huge over population. Reduce that and the reasons for scarcity, corruption, an infuriated population, filthy cities, etc. are immediately removed. Corruption free, efficient countries always have small populations compared to their resources.


3 years ago

I could not agree more with the views expressed in the article.
While the politicians milk the govt. in various ways, the most irritable is the life pension and they gave themselves, if I remember right, also the right to have a pension even when the parliament does not last the full term of five years!

Davidson D

3 years ago

What about the junkets of the leaders abroad? Nobody is talking about the poll expenses that have been incurred in recent polls. There is no verification by any agency of this expenditure and the authenticity cannot therefore be verified when submitted to EC.

Rajesh Kumar Singh

3 years ago

Subsidies are a notional relief to people paid out of their own money. If this is true, why should there be any hue and cry over this? In fact it's the people who pay for all the follies and failures of the govt. as well as the unproductive loss making corporate sector. It's the people who pay for the follies of Malya and Biyani and Chidambaram and Jaitley. In fact there should be greater transparancy about how the subsidy bill figures are arrived at.

Sucheta Dalal

3 years ago

Consider my experience. Since I use a microwave regularly and we are a family of 2, we dont need a cylinder more than once in 3 months … sometimes, if we are travelling one cylinder last 4 months.
Isn't this a contribution to national interest?

Well, the oil company unilaterally decided that if you dont need a cylinder at least once in 3 months, your connection is frozen. yes frozen!!

I was sent into a complete panic, had to use my connections to call Bharat Petroleum. Then re-submit all my KYC documents to get the connection restored.
BPCL claims to use technology. A simple check would have shown the frequency of my use!
But no, India has such terrific IT prowess that we create checks and balances without providing for outliers or past record.
And if you harass ordinary people … well arent we used to it already??


R Balakrishnan

In Reply to Sucheta Dalal 3 years ago

In India, unless you know someone or have the spunk to fight, the system will destroy you. And the govt/PSUs get vicious only at those they think do not fight back. They say nothing when a MP will use 30 cylinders a year and on top of that eat subsidised meals at the canteen, which also gets subsidised LPG, for sure


In Reply to Sucheta Dalal 3 years ago

Very true. And that refers to the complete lack of public service orientation of these 'authorities'. Maybe if they promised a higher service level for customers renouncing subsidies, it would be a win-win.

However, I hold to my POV that a summary rejection of a voluntary renouncement of an untenable right is hardly a responsible response

Gopalakrishnan T V

3 years ago

Very well expressed. Let the politicians, bureaucrats, industrialists, highly placed professionals, top businessmen, big and bad borrowers of banks set an example that they do not loot the nation in any manner and they also set an example to honest tax payers that they are fair to the government and they are really contributing to the nation building. Let these set of people be a role model for the people to follow by surrendering the free gas / subsidised gas they enjoy either on Government account or at some other account. Let the PSUs run efficiently without allowing any wastage and leakage of income in any manner. Let the banks run their business efficiently,ethically and see that they do not generate Non Performing Assets and add burden to the tax payers and the Government.Let the tax evaders be made to account for their black money hoardings in different forms and come to the rescue of the Government in Nation Building.Middle class is always targetted either forcefully or emotionally and this doesn't seem to be fair. This approach gives only wrong signals that the government cannot be effective in improving governance standards and improve the economy's performance in minimising the subsidies and reducing the fiscal deficit.



In Reply to Gopalakrishnan T V 3 years ago

Are we saying that we want everyone else to be honest before we will contribute to nation building?

Come one. Leadership is not reserved for the top - it can start at any level. Lets be role models of doing what we believe.


3 years ago

I fully agree with the views of the writer.
Let giving up the subsidies on LPG cylinder and other Perks which the MPs MLAs and other Govt. Employees, including Railway, Airlines Retired Officers enjoy. The we can talk about hones Tax Paying Citizens.
P. Chandrasekaran.

MG Warrier

3 years ago

The message being sent out through the SMS via oil companies to LPG consumers is not very clear. The message reads: “Want to join nation building ? It is simple-just give up LPG subsidy. Visit or distributor for details” This is a very crude way of handling subsidy which is hard cash. Tomorrow you may get another SMS through some other agency asking you to give up something else.
Why not make similar ‘appeals’ to those who owe heavy arrears of taxes or those who have ran away with bank loans, and publish the results?


3 years ago

Why this hit job against a well intentioned move?
Yes,our Prime minister Modi had already shown that he leads from the front when it comes to being honest and not looting India.

Sure, we have lot of other bigger issues that need addressing; but that doesn't mean other smaller things can't be done.
A constructive criticism would have been suggesting a priority service for those not using subsidy. I am not filthy rich, but I am not using subsidy on LPG. I buy it from a private supplier. I am sure lot of people would be willing to pay full cost of LPG if they get good service.



In Reply to srinivas 3 years ago

I agree. Shocked at the hypocrisy of the self-righteous people. Quite disgusting, to read the remarks - let everyone do it before you ask us, is the general approach.

Anyway, I've not seen these SMS's yet, maybe its for people taking cylinders - I get piped gas which is anyway cheaper. But I'd give up any subsidies immediately, if I had a choice - subsidised electricity, water, gas are some of the things that I do get as I fall in the least consuming bracket.

Madhur Aggarwal

3 years ago

This article is well written and shows the reality of Govt. attitude towards people.
No govt. in past 20 years has shown sincerity towards General Public - which they are supposed to show.
We r Taxed !! Taxed and Taxed as years goes by and
MPs are getting higher payout every year .

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