Taxation
Income Tax search in Apollo Hospitals group
Chennai/Hyderabad : The Income Tax department on Tuesday searched offices of the Apollo Hospitals group in Chennai and other places for possible tax evasion.
 
Department officials declined to comment on the issue further.
 
"The IT department visited our hospitals today (Tuesday) and we extended our complete cooperation to them. We have always conducted ourselves with the highest degree of diligence and would like to reassure our patients, shareholders and stakeholders that we shall uphold their trust and faith in us," the group said in a statement.
 
Meanwhile, when reports of the search operation first came in, shares of Apollo Hospitals, which had scaled a high of Rs.1,497, fell to Rs.1,431.55 on the Bombay Stock Exchange.
 
The shares, however, staged a recovery when unattributed statements from the department said the operations were a routine affair. The scrip finally ended at Rs.1,466.75, with a gain of Rs.19.60, or 1.35 percent, over the previous close.
 
As part of its searches, the Income Tax department on Tuesday stalled financial transactions of the group at Hyderabad.
 
Department officials closed two blocks at the group's main facility in Jubliee Hills.
 
Sources in the hospital told IANS that the administration and management blocks were closed as part of the searches in Chennai and New Delhi.
 
This was apparently being done to prevent manipulation of records. Sources, however, said the day-to-day operations of the hospital were not affected.
 
This was the first time in 33 years that the department conducted searches at Apollo Hospitals.
 
Apollo, which has its corporate headquarters in Chennai, also has significant presence in Delhi. In Hyderabad, its hospitals at three locations have a total bed strength of 1,200.
 
In Andhra Pradesh, Apollo has a 150-bed hospital in the coastal city of Visakhapatnam and a small rural facility in Chittoor, the district its founder Prathap C. Reddy comes from.
 
The Apollo Hospitals Group, started by cardiologist Prathap C. Reddy as a 150-bed hospital in 1983, now operates 9,200 beds across 64 hospitals, as per information available with the company. Its founder is a recipient of the Padma Vibhushan.
 
The group is now run by his four daughters -- Preetha Reddy, Shobana Kamineni, Suneeta Reddy and Sangita Reddy.
 
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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NIA questions Punjab police officer 'abducted' by terrorists
Gurdaspur : The role of the Punjab Police officer, who claimed he was abducted by the terrorists who attacked the Pathankot air base, was put under the scanner on Tuesday, as a team of NIA officials questioned him at his residence here.
 
Sources said Superintendent of Police Salwinder Singh, his cook Madan Gopal and businessman friend Rajesh Verma, who were allegedly abducted by the terrorists in his vehicle, were being questioned by National Investigation Agency (NIA) officials at his official residence here on Tuesday evening.
 
The police superintendent, who was transferred from here last week only, had earlier claimed that he, along with Verma and the cook, were stopped and abducted by 4-5 heavily armed terrorists near Kolia village, 25 km from Pathankot, on the night of December 31.
 
Under fire and suspicion about the entire incident, Salwinder Singh told the media on Tuesday: "My information was 100 percent true. There is no doubt about it.
 
"After untying myself, I went to a nearby village Golpur Simbli and told them who I was. I called up my officers and gave them the information. My information prevented a major incident. They (terrorists) could have done big damage to the public if I had not informed."
 
The police superintendent's seniors did not take his version seriously for many hours.
 
"I informed senior officers immediately. I don't know why the delay took place," Salwinder Singh said.
 
The police officer has said his car was stopped around 11.30 p.m. on Thursday (December 31), while the attack began early on Saturday (January 2).
 
Punjab Police and security agencies did nothing till the terrorists entered the Pathankot Air Force Station (AFS).
 
"Only I know what happened with me. I have got a new life. The truth has come out. Only I and god know how I returned," Salwinder Singh said.
 
He claimed that the terrorists came back in his car, which had a blue beacon on top, to find him, where he and his cook had been dumped near a drain in a forest area on Thursday night.
 
The counter offensive against the terrorists by security forces inside the Pathankot base saw six terrorists being killed. Security forces lost seven personnel.
 
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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Can European economies achieve sustained growth in a negative rate regime?
Sustained low interest rates were the prime originators of the financial crisis in 2008. With the ECB changing its interest rates, there is a fear that seeds of another financial crisis may be sown with widespread negative interest rates
 
The return on investment in any instrument is determined by three factors, time, inflation and risk. Economic theory assumes that people prefer current consumption to future consumption. Therefore, to induce them to part with money for a certain period, investors need to be given a positive return. Prices of goods and services, however, do not remain constant and are usually inclined to go up. Investors need to be, therefore, compensated for inflation. Some investments may be risky and there is a chance that the original investments and the interest payments may be delayed or may not be returned by the borrower at all. Returns for time and inflation are same for all investments. Risk for each security is different, leading to differences in returns on different securities.
 
A very interesting development has taken place in financial markets where the European Central Bank (ECB) has kicked interest rates into negative territory. For money deposited by commercial banks with the ECB, the Bank actually charges interest to the commercial banks, instead of paying, as is the usual practice. In June 2014, interest rates became negative with the ECB rate of -0.1%. Subsequently, it was reduced to -0.2% three months later and the latest policy announcement on 3 December 2015 has reduced it further to -0.3%, with no assurance that there will be no further drop. 
 
Similarly, Denmark, Switzerland and Sweden have negative interest rates, which are in fact even lower than what the ECB offers. Surprisingly, total deposits in ECB have grown by €327 billion since June 2014, from the time interest rates turned negative.
 
Why would anyone invest to receive negative interest? Various reasons can be attributed to the phenomenon, none of them completely satisfactory. One reason, this happens is when banks are no longer considered safe as happened immediately after the financial crisis in 2008. Investing in government securities is, of course, considered safer and investors do not mind losing a little (interest) to avoid significant losses. The alternative is keeping money in cash, which of course is fraught with danger. Cash can be easily robbed and cannot be used to make payments or wired to someone easily. 
 
What is however surprising is the negative yield on even long term bonds, implying  quite poor long term growth prospects in those countries. This is quite a significant and risky bet. While poor prospects over the short term are almost a given, it takes a brave person to predict such low growth over a ten year period. Investors are also taking a very big risk of fall in bond prices in case there is even a small increase in interest rates. Bond prices and interest rates are, of course, inversely related and higher the bond duration, stronger is this relationship. Hence, even a small increase in interest rates can cause significant damage to long-term bond investors.
 
What the investors are, of course, concerned with is real returns or net of inflation. As we theorised above, increase in prices or inflation is one component of the returns on bonds. However, if prices are actually declining and the economy is experiencing deflation, negative nominal rates could actually mean positive real rates.
 
Another plausible reason could be the expected appreciation in the specific currency in which the bonds are denominated. While this could be true of Danish and Swiss bonds, it may not apply to Euro and other bonds. 
 
Some institutions are forced to hold bonds due to regulatory considerations, regardless of their yields. 
 
Another possibility is event related. Anticipating further quantitative easing by the ECB, which would lower interest rates further and increase the price of bonds, investors have sacrificed current yield hoping to make much larger capital gains. This would imply that negative interest rates are temporary.
 
None of the above explanations is however completely satisfactory. Looking at the broad perspective, the world is awash with liquidity and has been for some time. With the quantitative easing (QE) first by the US, followed by Japan and the ECB, a lot of money has been pumped into the economy. At the same time, there are hardly any productive investment opportunities available, leading to supply demand mismatch and driving down interest rates. The prospects of secular stagnation make low interest rates the new normal, for both the short term as well as long term bonds in Europe. Now, of course, the US Fed has reversed its policy of quantitative easing, raising interest rates for the first time in nearly a decade, with prospects of further increase in 2016. It is quite interesting that the US Fed and the ECB policies are now moving in the opposite directions, with significant implications for the value of the two currencies. How this dichotomy between two leading central banks plays out will be interesting to watch in the coming days.
 
One of the most significant impact of negative interest rates would be the hit on the banks’ profitability. Retail deposit rates are still not negative, which implies that banks actually lose money on deposits. In order to improve profitability, banks would need to invest in risky avenues that may hurt them in the long run if the risk does not pay off. Sustained low interest rates were the prime originators of the financial crisis in 2008. There is a fear that seeds of another financial crisis are being sown with widespread negative interest rates.
 
Secular stagnation can be avoided by the governments’ pump priming and providing impetus to the economy. Governments are currently holding back on fiscal stimulation, since their fiscal position is not very healthy, large fiscal deficits and high debt to gross domestic product (GDP) ratio being a prominent feature. Monetary stimulation has already been tried and does not seem to have worked, with even negative interest rates not inducing people to spend more. It would be interesting to see how the European economies come out of the woods and are able to achieve sustained growth.
 
(Sunil Mahajan, a financial consultant and teacher, has over three decades experience in the corporate sector, consultancy and academics.)

 

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