Deemed exports refer to those transactions in which goods are supplied for projects funded by multilateral or bilateral agencies and do not leave the country and payment for such supplies is received either in Indian currency or in foreign exchange
New Delhi: After detecting several cases of misuse of incentives, the commerce ministry has tightened the norms governing the Deemed Export benefit scheme, a move expected to save about Rs1,800 crore to the exchequer annually, reports PTI.
Deemed exports refer to those transactions in which goods supplied to the users do not leave the country and payment for such supplies is received either in Indian currency or in foreign exchange.
Generally supply of goods to projects financed by multilateral or bilateral agencies qualify for these benefits.
However, concerned over the cases of misuse, especially in the power sector, the Directorate General of Foreign Trade (DGFT) has decided to send recovery notices to those under its scanner, sources said.
The decision to make the rules tough follows a meeting of the Policy Interpretation Committee of the DGFT held in March.
“By taking these measures, the government would save around Rs1,800 crore annually,” a source said.
It has been decided that the deemed exports would not be available if the bill of entry is in the name of authority executing the project.
Besides it was also clarified that supplies made to the project authority by an entity other than the main contractor of the sub-contractor shall not be eligible for the incentives.
However, the decision has not gone down well with some independent power producers who said the government should not throw baby with the bath tub.
“If there are issues with the scheme, they can take corrective actions but do not discard the scheme,” an industry expert said.
The deemed export benefit include rebate on duty chargeable on imports or excisable material used in the manufacture of goods which are supplied to the projects eligible.
Traders said the demand among retailers for the festival had hardly any impact of the sliding precious metals prices despite the ongoing weakening trend in domestic as well as overseas markets
New Delhi: Even as buying activity remained high on the auspicious day of ‘Akshaya Tritiya’, both the precious metals tumbled today on weak global cues. Silver nose-dived by Rs6,000 to Rs53,200 per kg and gold plummeted by Rs225 to Rs22,120 per 10 grams, reports PTI.
Retail customers resorted to active gold buying to mark the day of Akshaya Triitya, considered to be an auspicious occasion in Hindu mythology to make token purchases.
Traders said the demand among retailers for the festival had hardly any impact of the sliding precious metals prices despite the ongoing weakening trend in domestic as well as overseas markets.
“The weakening trend has hardly impacted retailers activity as they are dedicatedly making token buying in gold on every fall in the market,” said Suresh Verma, a Delhi-based jeweller.
“At least the buying has capped any major fall in gold prices, while silver remained unattended, losing substantial ground,” he said.
Trading sentiments remained weak in silver as its prices recorded a steepest weekly fall since 1975 in global markets after impositions of higher margins. Gold also had its biggest weekly drop since 27 February 2009.
Silver in global markets, which normally sets a price trend on the domestic front, fell 12.01% to $34.66 an ounce, taking losses to 28% this week and gold fell by $43.40 to $1,473.10 an ounce in New York.
The Standard and Poor’s GSCI index of 24 commodities sank 6.5% on concern that slower global growth may crimp demand and investors sold to book-profits and shift their funds to surging equity markets.
On the domestic front, silver ready nose-dived by Rs6,000 to Rs53,200 per kg and weekly-based delivery by Rs5,900 to Rs53,100 per kg. Silver coins lost Rs4,000 to Rs59,500 for buying and Rs60,500 for selling of 100 pieces.
In line with a general weakening trend, gold of 99.9% and 99.5% purity plunged by Rs225 each to Rs22,120 and Rs22,000 per 10 grams, respectively.
However, sovereigns, found scattered buying support from retailers and gained Rs100 to Rs18,300 per piece of eight grams.
As we had expected, mutual funds have witnessed a massive outflow of Rs1,365 crore in April. But the problem is not just with the fund industry, or investor behaviour, but with the so-called equity cult itself
Just a week back, we had a CEO of a fund house who estimated that the outflow from equity mutual funds for April would be close to Rs1,500 crore. ‘Equity funds may have suffered large-scale erosion in April’. The official figure we now know is Rs1,365 crore. This huge exit from equity schemes is normally blamed by the regulators and the market players completely on investor behaviour. In fact, this is very likely an excuse they are using for not coming up with a well-thought policy to sustain fund inflows.
Equity mutual funds enjoyed rising inflows from December 2010 to February 2011, with collections peaking at Rs2,495 crore in February. It was after this that the decline started. In March, net inflows were just Rs454 crore, which was mainly due to ELSS schemes which collected Rs578 crore, whereas pure equity saw redemptions amounting to Rs124 crore. April has seen the highest outflow since October 2010. But, whether we can expect to see money return to equity schemes anytime soon is still in doubt.
The real problem is that fund mobilisation by mutual funds from the investing public is weak. Investors still prefer bank fixed deposits and categories other than the stock market in spite of the fact that the market has gone up by more than 20 times. Ever since the Securities and Exchange Board of India (SEBI) put a ban on entry load, equity funds have suffered redemptions.
Distributors have found fund-selling unviable and have been moving out of the business. The penetration of mutual funds is so poor that brokers have little incentive to sell mutual funds. The only option for them, to earn some income, has been to make investors churn their portfolios. This earns them a 1% exit load and while it has been an incentive for brokers to make investors churn more frequently, it is a loss for investors. Along with this, the low incentive to sell mutual funds has led many distributors to sell ULIPs, which is terrible for investors. As it turns out, the regulation by SEBI has done more harm than good.
The regulator needs to address the issue of distributor fees, to make AMCs adopt a better pricing system where the commissions are clear and no other payments to distributors allowed. For such a course correction, SEBI and the mutual fund industry, through the Association of Mutual Funds India (AMFI), have to sit together. So far, AMFI has done a lousy job of putting across the industry’s views, which is one of the main reasons that SEBI took the decision without consulting it.
Recently, SEBI created an alternative: fund sales through stockbrokers. But this hasn’t really got going. The cost of running a large countrywide brokerage business is exorbitant, and fixed. Broking companies have to bear the cost of a large back-office staff, compliance, technology and high capital cost of property (or rent). Then there are costs to acquire new clients. All this eats up into the profits they can muster. Research is another item for which they pay heavily. Unfortunately these reports are guided by companies and investment banks and are rarely based on fundamental calculations.
The other serious issue is that of poor retail participation. Volumes in the cash market have declined to historic lows. In April, the daily average cash market turnover dropped to 11% of the overall volume, compared to 18% in the month a year ago. Official studies have shown a decline in the investor population, during a decade which has been the best period for the markets. This is also because of the fundamental problem with the way the market functions.
So, investors are happy to put their money in bank fixed deposits. Data from the Reserve Bank of India (RBI) shows that 50% of the household savings goes into bank deposits. In 1990, the percentage of savings in shares, debentures and investment in UTI was 14%, and this went down to 13% in 2007-08, even while the market has climbed by 20 times in this period.
There has been no shortage of products and manpower to sell these products either. As we have mentioned in previous articles, there is a multitude of investment products to choose from—over 3,000 actively-traded stocks and 230 diversified equity mutual funds, apart from insurance products, pension schemes, PMS and other financial products. To take these to investors, there are over 20,000 independent financial advisors, not to forget the banks, financial planners and a sea of insurance agents.
The issue here is that financial products have been sold like consumer durables. But consumer products are standardised, while financial products are not. The way they are being sold is equally important. This is why financial products are tightly regulated the world over. Had financial institutions and intermediaries sold these products like they should have, and the regulators had done their duty, the last decade would have brought in larger investor participation. Due to the poor performance of financial products and the hidden costs, and scores of complaints regarding mis-selling, investors have developed an aversion to the stock market and any other equity-linked product or investment product. Even the minor rules and amendments introduced by the regulators from time to time have not benefited investors.
Financial products need to be closely regulated. When it comes to protecting investors and eradicating mis-selling, regulators have fallen short. There has, so far, not been any strict punishment for such serious offences. They’ve taken half-thought out steps, hoping these will work wonders, but have in fact ended up choking the business. They have not seriously pursued investor protection, promoting fair business practices and punishment that would force a fundamental change across the industry.
If the regulators don’t act quickly, it would be a long wait before mutual funds see a sustainable trend of inflows.