Govt will stick to fiscal deficit target: FM

Since the duty cuts on petroleum products take effect for the remaining three quarters only, the total loss will be around Rs35,000-Rs36,000 crore, including share of states and not Rs49,000 crore as earlier projected

New Delhi: Finance minister Pranab Mukherjee today said government will stick to the fiscal deficit target of 4.6% of the gross domestic product (GDP) for 2011-12 despite huge revenue sacrifice due to duty cut on petroleum products, reports PTI.

"I don't think so because we are still trying to keep the target," Mr Mukherjee told reporters here to a query on whether revenue forgone due to slashing excise and customs duties on petroleum products would impact fiscal deficit target.

However, the finance minister said, the fiscal deficit would ultimately depend on final analysis based on revenue receipt and expenditure.

"But just now we need not rush to any conclusion," he said.

In June while raising the price of diesel, kerosene and cooking gas, the government had also slashed the duties. The cuts would have meant a sacrifice of an annual Rs49,000 crore by the central exchequer.

However, since the rate cuts take effect for the remaining three quarters only, the total loss will be around Rs35,000-Rs36,000 crore, including share of states.

The government had earlier expressed concern over the dip in revenue collection, both direct and indirect taxes, due to volatility in global commodity prices and persistently high inflation.

The central government's fiscal deficit surged by about 30% in the first two months of the current fiscal to Rs1.30 lakh crore on account of lower revenue collection, compared to Rs1 lakh crore in April-May last year.

The sharp rise in deficit is on account of 28% decline in tax revenues. Also, non-tax receipts more than halved in the first two months to Rs5,613 crore, from Rs12,761 crore in the corresponding period of the previous year.

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Heat on tax havens: FDI from Mauritius, Cyprus drops

While the FDI inflows from all the sources declined by 25% in 2010-11, the drop was steeper at about 33% to $6.98 billion from Mauritius and inflows from Cyprus were down by 44% to $913 million

New Delhi: Amidst pressure on the government to tighten the screws on inflow of funds from tax havens, India's foreign direct investment (FDI) from Mauritius and Cyprus, dropped significantly in 2010-11.

While the FDI inflows from all the sources declined by 25% in 2010-11, the drop was steeper at about 33% to $6.98 billion from Mauritius. Likewise, the inflows from Cyprus were down by 44% to $913 million, according to the official figures.

In 2009-10, FDI from Mauritius stood at $10.37 billion again a decline from $11.22 billion in 2008-09. FDI inflows from Cyprus stood at $1.62 billion.

Mauritius has been a preferred route for both FDI and foreign institutional investors (FIIs). However, despite the fall, Mauritius still accounted for 42% of the country's total FDI of $19.42 billion in the previous fiscal. In 2009-10, the country attracted FDI worth $25.83 billion.

India has a 30-year old Direct Tax Avoidance Agreement (DTAA) with Mauritius which has been used by the third country investors to avoid taxes. Under the DTAA, the capital gains tax can be subjected only in one of two countries. As it is nil in the island nation, investors manage to avoid it altogether.

"The reasons for decline in FDI from Mauritius include review of DTAA and proposed introduction of General Anti Avoidance Rules (GAAR)," KPMG executive director Krishan Malhotra said.

The government has begun reviewing the DTAA with several countries as it faces the heat on the issue of black-money from the Supreme Court.

To strengthen the DTAA, the government is considering incorporating GAAR clauses in DTAA to prevent unaccounted black-money.

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June services PMI up to 56.1 on new orders

Commenting on the India Services PMI, Leif Eskesen, chief economist for India & ASEAN at HSBC said, "Services are showing signs of resilience, with business activity and new business improving over the previous month, despite policy tightening and high inflation"

The seasonally adjusted HSBC Business Activity Index—which measures service sector activity—posted 56.1, from 55 in May. Indian service providers reported a sharp increase in new business received last month, attributing this to continuing improvements in general market conditions and a strengthening of demand.

The HSBC India Services PMI is based on data compiled from a survey of purchasing executives in around 350 private service sector companies.

Growth of new work intakes regained momentum from May's seven-month low and was in line with the long-run trend for the series. The increase in new orders received by manufacturers was substantial, but slowed to the weakest in six months.

While companies in both the manufacturing and service sectors indicated increased requirements for staff, only the service sector translated this in to a rise in staffing levels. Shortages of available labour to fill vacant positions led to an overall reduction in employment at manufacturers.

June data implied that Indian service companies remained optimistic that activity levels would rise in the next twelve months. Furthermore, the degree of positive sentiment strengthened to a four-month high. Analysts commented that they expect ongoing improvements in general economic conditions and increased marketing initiatives to support a rise in new business and, therefore, activity.

Commenting on the India Services PMI survey, Leif Eskesen, chief economist for India & ASEAN at HSBC said: "Services are showing signs of resilience, with business activity and new business improving over the previous month, despite policy tightening and high inflation. While input costs and prices charged grew at a slightly slower pace, inflation pressures remain significant and persistent. The Reserve Bank of India (RBI), therefore, has little choice but to continue its tightening cycle."

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