Foreign brokers fall for FM’s charm – again

The finance minister admits that an unstable government has hurt reforms and is hard-selling to foreign investors to pour money into India. But foreign investors have fallen for the FM’s charms and are chanting the bullish mantra

Palaniappan Chidambaram, India’s Finance Minister (FM), has managed it again. He went on a two-nation tour of Hong Kong and Singapore, to woo investors and bring much-needed capital into the country. And foreign brokerages are falling head over heels for his charms. This isn’t the first time an FM has gone to great lengths to appease and woo the international investment community. Foreign investors have fallen for this before and have made mistakes in 1994, 1998 and 2007. Will this time be different? At least the FM knows the main concerns of foreigners and has managed to address them.

The first is high fiscal deficit. The FM addressed several foreign institutional investors (FIIs), debt investors and corporates in Singapore and Hong Kong, where he promised a magical 0.6% reduction in the fiscal deficit each year to bring the deficit to 3% by 2016-2017 without raising tax rates. This would be achieved by a combination of cost cuts and austerity measures. Is this even plausible as we approach the elections and the Congress, a believer in welfare state, is continuing to drain the coffers to win voters? Foreigners seem to have bought his logic, though. Citi Research’s report said, “The FM was both clear and confident—of what needs to be done, how and when it will be done, and timelines. This is across a spectrum of issues (fiscal, growth, investments, current account deficit, FII taxation/regulations and general sales tax [GST]), and in meeting near-term targets (5.3% fiscal deficit, GDP growth of 5.7% in FY13). Importantly, there was also a lot of openness and willingness to take in audience feedback and suggestions. So he was not just talking, but also listening.”

Indeed, the stiff targets set by the FM is a tall order to achieve but it would seem that so called “smart” and “intelligent” analysts have fallen for his spiel. Apart from Citi Research, brokerages like Credit Suisse (CS), JP Morgan and Nomura, to name a few, have all sung FM’s praises. Cynics who know the FM well may argue that foreign brokerages may have been persuaded to take a pro-FM line but who can prove that?

We had written about the CS report in detail here. CS cites FM’s track record and the possibility that he could pull it off again. We feel that foreign brokers gives too much credit to P Chidambaram for turning around India’s economy in the past, when actually it was the endless quantitative easing by the United States Federal Reserve that found its way into Indian markets exactly at a time when Indian economy faced high demand, low capacities and low interest rates. A combination of these four factors worked like a magic for India in 2004-07. The FM had no major role in any of these factors. Indeed, he was the author of some irritating taxes like Fringe Benefits Tax and Banking Cash Transaction Tax and presided over massive loan waivers.

With the budget coming up, it is unlikely that Chidambaram will take any hard decisions, keeping in mind that it will be United Progressive Alliance’s last full-year budget with the general elections coming up next year. Of course, Chidambaram has sung the right tune. He assured that the GST Bill will be passed by December this year and he will be able to get backing from political parties. Despite admitting that an unstable government was to blame for lack of reforms, he seemed supremely confident of getting lot of things done, mostly through, in Citigroup’s words, “invisible politics”, whatever that means.

According to Citi Research’s report, “India’s politics has been a key swing element in some recent challenges - as also in the turn-around since July 2012. The FM was quite confident of the policy turnaround, going forward. He suggests most political parties are on board; there is the support of ‘invisible politics’ to implement reforms”.

Given the current economic scenario, which isn’t reassuring, only hard decisions would need to be taken and it is unlikely that this will happen. Most analysts and experts are expecting a populist budget. Even the FM admitted that the budget will be geared towards the poor.

The Citi Research report said, “The market has been cautious leading into what is seen as an ‘election/populist’ budget in February 2013; the FM was decidedly more positive. He suggests the fiscal deficit target will be met, taxes will not be raised – the tax regime will be stable, and while policy will and should be biased towards the poor, the budget will offer a lot.”  He, of course, did not mention where a cash-strapped government would get the money to pull off this balancing act.

While our FM is exuding optimism, ratings agencies have expressed concerns. Even though Moody’s has retained its ratings (which is probably a relief to the FM), they cited government’s finances as biggest hurdles to India’s economic well being. Their report said, "Large government deficits and debt ratios as well as supply constraints in the form of infrastructure, policy and administrative inefficiencies constrain the sovereign credit profile.” Moody's expect Indian economy to grow by 5.4% in the current fiscal and 6% in 2013-14, less than the FM’s estimates. Fitch, a ratings agency, has already sounded warning bells and a possible ratings downgrade for India.

The Reserve Bank of India (RBI) top brass will be meeting on 29 January to decide on interest rates. The FM is expected to meet the RBI governor before this and then is due to visit United Kingdom and Germany later on to continue to the campaign of selling India long.



Vinay Joshi

4 years ago

Hello Mr.Debashis,

You must be having Central Statistics Office [CSO] figures now released about sharper GDP slump as revised for11-12, to 6.2%, whereas for 10-11 revised upward to 9.3%.

I’m keeping out on commenting on policy measures as you had posted this on 24th.

However tho’ fuel subsidy measures initiated, its expected road projects, welfare & defense spending will automatically reduce.

Chidambaran has staked his reputation to limit deficit to 5.3%. Short term economic risk are obvious. The cuts may reduce spending by more than a trillion rupees, 8% of budgeted outlay amounting to 1% of est.GDP.
Every ministry is affected by the budget cuts. But ‘non plan expenditure’ is grey area.

All said, FM wooing FI, FII’s [Jan’13 saw max FII inflows in the capital mkt], FinMin’s IT Dept is again up with it’s transfer pricing assessment.

The dept has accused Shell India of under pricing intragroup share transfer by 15KCR.
ET Now had reported.

The issue of ‘arms length pricing’ has to be addressed – to woo FI & MNC/TNS expansion.

Why APA [advanced pricing agreement with tax dept] fails or its methodology.

Vodafone is still going on [on diff. issue] now Shell will line-up!?

So, we want FI,FII’s!


Dayananda Kamath k

4 years ago

any foreigner willbe happy to come to india. becasue they have a foriegner as ring master.and all the reform programmes are selling the country to foriengn investments and taxing indian people.the newly constituted cabinet commitee on investments is nothing but election fund raising machinery for 2014 elections and authorising flaunting of rules. they have totally mismanaged the economy my be as planned and conspired by the people who matter.


4 years ago


Vinay Joshi

4 years ago

He has successfully sold 'cash subsidy transfer scheme' to get FI,earlier raising bond limits by $10bn et al. But the bearish trend in Q4+Q1 to follow can only wake him up.


Bhat Praneeth

4 years ago

I would like to express my own experience here:
1. As a small business owner, i do turn over of 80 lakhs per annum, being proprietor of the company my house rent allowance (HRA) as per the IT rule is 2000 INR per month!
I employ 20 members and lowest paid member get minimum 5500 INR as HRA.

2. My business is self founded & funded, no investor, no bank loan, no support from govt. If needed, i need to sustain it for minimum 3 yrs (only profitable) to obtain even a bank loan. However I must not avoid paying tax / VAT / service tax / TDS, govt wont wait for 3 yrs to collect tax, as it makes you wait for other betterment to given you.

3. I purchased the car, by loan, paid 1.70+ road tax while registration, each road i go, i will have to pay toll. and those roads are either under maintenance / not managed well.

4. I get rented office from a private land owner, ISP (internet connection) from another private vendor, computer are purchased from another private company, employees are individuals and for them govt does nothing even collecting each month professional tax from each employees salary, sales & marketing channels are from private, all other facilities are from private, i earn hard to make sure my team members & business are taken care, at the end, i need to make profit since no one speak to you if your business is at slow, and before i even take my annual salary, i need to pay tax, tis, vat / services tax. (when nothing is provided / supported / by govt, why on earth i do my business to get money to govt?)

5. Last: business went very slow, no option than selling it off, it was hard to market / sell in India. Salaries are delayed, banks never talked about even loans, none of the paid taxes / money helped us to establish as we are trustworthy. I decided to sell it to someone who can take care of my 3 yrs of handwork and 5 yrs of dream, so sold it for XX,XX,XX,XXX INR (of-course white), immediately my accountant told me to pay 33.33% as capital gain! and submit to IT department???

NOW CAN YOU TELL ME India's FM / PM ever worked hard like we did in 3 yrs leaving every weekend, holidays, travel and even family? have they experienced third day's hunger? that of an entrepreneur? / a capable individual? I couldn't able to pursue my dream, i failed because of over all infrastructure and opportunity given to new innovations and inventions, no PR / press / media talked to us until we sold it to someone. Since they were busy framing paid news, scandals & scams? you expect people to entrepreneur and earn and give money to govt. for nothing?

I have seen so far 18 countries, in no country i visited govt. make people live for them, rather they live for govt. Whats up going here? you born to give vote, you live to pay tax and in return ....??

Govt think billions of indians are fools? give vote, pay tax and get lost?


Vinay Joshi

In Reply to Bhat Praneeth 4 years ago

Dear Mr.Bhat Praneeth,

Are your comments relevant to FI?

1] As a proprietor are you salaried to claim HRA? Pl fwd me IT secs.

2] Before commenting on banking system, are you aware of it? What is the basis of your comments?

3] In what way are you relating it to the crux of the subject?

4] Employees will always be individuals, your employees, tax deductions mandatory to be, "Deposited accordingly". You take your ‘so called salary’ at the end of the year, during the year you do not withdraw anything!? How do you suffice thro’ the year?

5] If at all you’re doing INR8mn turnover, have an accountant, presumably an ICAI member, possibly you have not heeded to his advice.

Do you know how the PM has worked? Or for that matter FM?

I suggest you forward your details, complete with portfolio details to MONEYLIFE, be assured of the confidentiality to resolve & or have suggestions to be an entrepreneur.

Visiting 18 countries, only INR 8mn turnover, [if], should have had a different view point.


Bhat Praneeth

In Reply to Vinay Joshi 4 years ago

Dude, I put those comments under the story of "Taxing Super Rich extra" however your It team / approval team must have put this comment under different subject.

Debashis Basu

In Reply to Bhat Praneeth 4 years ago

Fantastic post. As a small business, we really appreciate this kind of blunt talk and honest feedback from the ground. Sadly, there is no one to listen. Proud to have you as one of our readers

Vinay Joshi

In Reply to Debashis Basu 4 years ago

Dear Mr.Debashis,

I hope you read with due diligence my post to Mr.Bhat Praneeth as above.

You & Ms.Sucheta,require such ambiguous post to exemplify non reality? It saddens me. Put up the facts, i'll initiate action.

The said persons biz model feasibility / viability may be in question? How do you come to a conclusion?

So it's your post on FI, FM wooing investments, 1st time. Check up my other post on the crux of FI.

In the first place, ML should conduct 'entrepreneurial finance'workshops to guide the hopefuls 'on sustain biz model & finance'.

DIC's as per C.Govt. are required
to propagate the policies.

Have you ever questioned any of the state's Industry Minister?

How many know what is micro, tiny, smal-UNITS? What mandatory facilities by PSU banks & PSU mfgrs are for SSI?

What is the share of SSI units in exports? Propagate this & state major exports are attributed to SSI, even if exporters are Star & or Export trading co's.

In our endeavor [ i say 'our']we should get banks & industry experts for the workshops.

Do you have priority sector lending [apart from food] figures at your fingertip? Weaker class, women, micro lending by banks.

SKS micro finance is a scam,i think Sucheta had already talked about it some time back - it was pertaining to scrip & changeover. But w/o scam it was a B'desh model with proven results.

Debashis you know my aspects for promoting financial literacy in 'all aspects'which you undertake but now consider SSI 'finance'.


BSE Sensex, Nifty headed lower: Thursday Closing Report

A higher high in Nifty will now be the first sign of reversal

The Sensex opened at 20,017 while Nifty opened at 6,046 today. Yesterday we mentioned that the trend is still down. The indices hit the day’s high in the morning session itself but soon plunged into the negative zone. Sensex hit a high of 20,072 while the Nifty hit a high of 6,065. The benchmarks tried recovering in the noon session when the Reserve Bank of India (RBI) announced the raising of ceiling of FII investments in government securities and corporate debt.  Both the Sensex and the Nifty hit a five day low (including today) at 19,884 and 6,008 respectively. The Sensex closed at 19,924 (fell 103 points, 0.51%) while the Nifty closed at 6,019 (fell 35 points, 0.58%).


What is not reflected in the small decline is the massively negative advance- decline ratio. The NSE saw AD of 244:1227 and a volume of 98.59 crore shares.


Indeed, stocks were sharply lower across the board which is reflected in the broader indices. BSE Mid-cap index fell as much as 2.51% and the BSE Small-cap index fell 2.44%.


Tata Motors', a Sensex stock, fell the most among the 30 constituents, after Jaguar Land Rover (JLR) said on Wednesday that it is likely to report lower earnings before interest, taxation, depreciation and amortisation margin in the October-December quarter compared with the previous two quarters.


Among the sectoral indices, only three ended in the positive: BSE FMCG (up 1.03%); BSE IT (up 0.37%) and BSE Capital Goods (up 0.36%). The top losers were BSE Realty (4.19%); BSE Auto (2.51%); BSE Power (1.97%); BSE Metal (1.84%) and BSE PSU (1.52%).


Ten of the 30 stocks on the Sensex closed in the positive. The chief gainers were Hindustan Unilever (1.86%); ITC (1.64%); L&T (1.56%); TCS (1.06%) and ONGC (1.01%). The main losers were Tata Motors (5.91%); GAIL (4.66%); Cipla (3.67%); Hindalco Industries (3.39%) and Sterlite Industries (2.53%).


Out of the 50 stocks listed on the Nifty, 14 stocks settled in the positive. The major gainers were L & T (1.79%); Hindustan Unilever (1.78%); ITC (1.45%); TCS (1.38%) and Kotak Mahindra Bank (1.23%). The main losers were Tata Motors (6.12%); Jaiprakash Associates (5.64%); GAIL (4.63%); Cipla (3.98%) and Hindalco Industries (3.82%).


Most of the Asian indices opened in the negative on the back of news of International Monetary Fund (IMF) trimming its 2013 forecast for global growth to 3.5% from the 3.6% it projected in October. However, it forecast an expansion of 4.1% in 2014 if the euro zone recovery takes a firm hold. It said the world economy grew 3.2% last year.


The IMF today pegged India's economic growth rate in 2013 at 5.9% and projected a higher growth of 6.4% next year in line with the gradual strengthening of global expansion.


The Asian shares underwent volatile session with the positive news about Chinese manufacturing data on one hand while the on the other North Korea threatening a nuclear test and tepid results from Apple Inc.


China's manufacturing is expanding at the fastest rate in two years. The preliminary reading of a Purchasing Managers' Index was 51.9 in January, according to a statement from HSBC Holdings Plc and Market Economics today. That compares with the 51.5 final reading for December.


Spanish unemployment rose to a record in the final quarter of 2012 as Prime Minister Mariano Rajoy's government imposed the deepest budget cuts in the country's democratic history. The number of jobless approached 6 million people, or 26.02%, from 25.01% in the previous three months, the National Statistics Institute said in Madrid today.


The U.S. House of Representatives on Wednesday passed a bill that suspends the debt limit until May 19, a move that is likely to defuse immediate fears of a damaging U.S. debt default though not removing a longer-term threat.


Among the Asian indices Nikkei 225 was the top most gainer today, rising 1.28%, while the KOSPI Composite Index fared the worst losing 0.80%. European indices were mostly trading in the green while among US Futures indices, DJIA index was trading in the green while S & P 500 was trading in the red.


Jindal Steel and Power (JSPL) bagged an Rs 500 crore order from Power Grid Corporation for supply of 80,000 tonnes of steel, which will be used in setting up two transmission towers in Southern India. The order will be executed from February onwards. JSPL fell 1.64% to close at Rs419 on the BSE.


Rallis India is planning to raise its stake in Zero Waste Agro Organics to 51% by next financial year. During the quarter ended December 31, 2012, the Rallis acquired 22.81% stake in Zero Waste Agro Organics. Rallis fell 3.74% to close at Rs135.25 on the BSE.


Kejriwal targets Mukesh Ambani, again!

“Happiness does not increase by accumulating more and more wealth and if you stopped doing business dishonestly and contributed your wealth for the development of the nation, this country will remember you with pride forever,” comments Arvind Kejriwal on the legal notices sent to TV channels by RIL for showing 'live' telecast of his press conference

Arvind Kejriwal, the social activist-turned-politician, has again targeted Mukesh Ambani, the chairman and managing director of Reliance Industries Ltd (RIL) and the richest Indian across the globe. Kejriwal in a letter has also taunted the RIL CMD about sending notices to TV channels, which telecast the 'live' press conference of Kejriwal and Prashant Bhushan on 31 October 2012.


"I find it quite perplexing. If you felt that you have been defamed by what Prashant Bhushan and I had said, then we are the real culprits and, if you have to send a defamation notice, it should have been to us. The TV channels merely broadcast what we said. Despite this, instead of sending us the defamation notice, you have sent it to the TV channels. It is evident that your sole purpose of sending this notice was to steamroll the TV channels into subservience," Kejriwal said in the letter.


According to media reports, Mumbai-based AS Dayal & Associates has sent notices to TV channels on behalf of RIL. "Live telecast of these Press conferences amounts to permanent publication of defamatory material relating to our client by you…Each of the two Press conferences were telecast live without making any attempt to verify the truth or veracity of the statements and allegations being made during the Press conference,” the seven page notice reads.


Kejriwal, in his fresh salvo asked Ambani to give some straight answers. He asked...


1. Is it not true that the list of those who have accounts in Swiss Banks, as received by the Government of India, includes your name and the names of your relatives, your  friends and your companies?

2. Is it not true that a balance of Rs100 crore is shown against your name in this list?

3. Is it not true that you have paid the tax on this amount after this list was received by the  Government?


The founder of the Aam Aadmi Party (AAP) said, "If the above is true, as we suspect it is, it proves that you have admitted your guilt. As per the law of the land, you should be tried and, if the charge of tax evasion is proved, you should be sent to jail."


"However, this would never happen. Why? Because the Government of India is intimidated by you. You have been reported as saying that the Congress Party has been bought by you – it is your dukaan, to be precise. You are right. According to some media reports, Mrs Sonia Gandhi sometimes travels by your personal aircraft. People believe that Mr Jaipal Reddy’s ministry was also changed because of your influence.


Why only the Congress? Even BJP and many other parties are in your pocket. Earlier, Mr Advani used to make a lot of noise about Swiss Bank accounts, but since your accounts have been exposed, BJP has suddenly gone quiet. BJP has not mentioned a single word in the Parliament about your accounts," Kejriwal said in the letter sent to the RIL chairman.


Here is the letter sent by Kejriwal...






4 years ago

AAP's Arvind Kejrival must Purue the Issue of VODRA,as it looks a definite case of Quid PRO Suo .As Mr.Jagan mohanreddy is prosecuted in AP for similiar deals,Mr.VODRA issue also requires Follw up ,till Full Deatails are Explained.

BJP's Silence on Swiis Bank Accounts is not good for BJP.

Hats OFF to Guts of Mr. Kejrival.

s kumar

4 years ago

How many political parties have this gutts to take the bull by the horns. Keep it up Kejriwal.

nagesh kini

4 years ago

Will this be a sustained campaign followed up by constant prodding for responses or an one-off attempt soon to be forgotten?

nagesh kini

4 years ago

Will this be a sustained campaign followed up by constant prodding for responses or an one-off attempt soon to be forgotten?


4 years ago

Mulesh will not sue Kejriwal. As every one knows almost all TV News channels are in red . RIL holds substantial shares in CNN IBN channel. RIL deep pockets ensure many in top enjoy hostings by RIL.

Convey kudos to Kejriwal for ambushing the 2nd term of Gadkari. No TV New Channel attributed Gadkari's demolition to the efforts of Kejriwal.

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