RBI’s rate hike will help contain inflation: Pranab

New Delhi: Finance minister Pranab Mukherjee today said the Reserve Bank of India's (RBI) decision to hike short-term borrowing and lending rates will help contain inflation and was in line with the government's policy, reports PTI.

Welcoming the RBI decision to increase the repo and reverse repo rates (short-term borrowing and lending rates) by 25 basis points each, Mr Mukherjee said it was aimed at giving "a strong signal to tackle inflationary pressures".

"RBI has taken a decision very correctly to increase the repo rate and reverse repo rate," he added.

The RBI also revised inflation target to 7% by March-end, from 5.5% projected previously.

The central bank retained the economic growth forecast at 8.5% for the current fiscal with potential for an upward bias.

The RBI measures also include extending additional liquidity support facility till 8 April 2011.

"Therefore the RBI policy announcement is in conformity with the thinking and policy of the government," the finance minister said.

Mr Mukherjee said the government has formulated a five pronged strategy comprising joining the global crusade against 'black money'; creating an appropriate legislative framework; setting up institutions for dealing with illicit funds; developing systems for implementation; and imparting skills to the manpower for effective action.

The finance minister said there were no reliable estimates of black money both inside and outside the country.

The interim recommendations of BJP Task Force 2009 have estimated the amount of black money to be between $500 billion to $1,400 billion, he said.

A recent study by Global Financial Integrity has estimated the present value of illicit money outflow to be $462 billion, he said.

"All these estimates are based on various unverifiable assumptions and approximations. Government has been seized of the matter and has constituted a multidisciplinary committee to get studies conducted to estimate the quantum of illicit fund generated by Indian citizens," Mr Mukherjee said.

On whether the government would come out with an amnesty scheme to bring back unaccounted money abroad, he said a group has been constituted to look into such possibility.

He said India has also initiated process of negotiation with 65 countries to broaden the scope of article concerning Exchange of Information to specifically allow for exchange of banking information and information regarding taxpayers not covered by the Double Taxation Avoidance Agreement (DTAA).

"Thirteen new DTAAs have also been finalised where the Exchange of Information Article is in line with the international standards," the minister said.

He said the government was strengthening the administrative machinery by setting up eight more income tax overseas units.

Two such units are operational in Singapore and Mauritius, Mr Mukherjee said.

Government is also setting up an Exchange of Information (EoI) cell, which will help in effective exchange of information to curb tax evasion, he said.

"We have detected undisclosed income of about Rs15,000 crore in last 18 months, due to focused search operations by the Income Tax department," he said adding that during the same period, Directorate of International Taxation has collected taxes of Rs34,601 crore.

"The Directorate of Transfer Pricing has detected mispricing of Rs33,784 crore, which has prevented shifting of an equivalent amount of money outside India," he said.

Information regarding details of payments received by Indian citizens in several countries has started also coming from treaty partners. This information is in different stages of processing and investigation, Mr Mukherjee said.

The finance minister said necessary provisions have been made in the proposed Direct Tax Code (DTC) to create legislative framework to check illicit outflows of funds.

India's membership in Financial Action Task Force in June last year was in recognition of the strength of the country's anti-money laundering and anti-tax evasion measures.

India has also joined the Task Force on Financial Integrity and Economic Development in order to bring greater transparency and accountability in the financial system.

In June 2009, the Prevention of Money Laundering Act (PMLA) has been amended whereby the predicate offences listed in the Schedule to the Act were substantially increased in terms of the Acts covered and sections covered under such Acts, Mr Mukherjee said.

He said this amendment has tremendously widened the scope of money laundering investigations by the directorate.

Mr Mukherjee said the early results of the government's initiatives were encouraging.

"These proactive steps led to additional collection of taxes of Rs34,601 crore and detection of additional income of Rs48,784 crore on which taxes are being collected. I am confident that the results will be quite satisfactory in the days to come," Mr Mukherjee said.


RBI hikes key rates by 0.25%, retains GDP forecast at 8.5%

New Delhi: Home, auto and loans to corporate may become costlier as the Reserve Bank of India (RBI) today hiked short-term lending and borrowing rates by 0.25% each, though bankers felt there may not be an immediate increase in interest rates, reports PTI.

These initiatives (hike in rates) are aimed at checking price rise while retaining the growth momentum, RBI said while raising the year-end inflation projection to 7% and retaining the economic growth forecast for the fiscal at 8.5%.

The short-term lending (repo) rate has been increased to 6.5% while the borrowing (reverse repo) rate has gone up to 5.5%. The RBI also extended the additional liquidity support facility to banks till 8 April 2011.
It has retained the cash reserve ratio (CRR)-a portion of deposits that banks are required to maintain in cash with the RBI-at 6% to ensure that the system had enough liquidity to meet loan requirements.

"The policy rate hikes will not result in immediate increase in lending and borrowing rates of banks as this has already been factored in by the market given high inflationary pressures," Oriental Bank of Commerce executive director SC Sinha told PTI.

He, however, added that banks may have to increase the rates in case the credit off-take goes up.

The RBI will constantly monitor the credit growth and, if necessary, will take necessary steps, according to third quarter monetary policy review announced today.

The central bank projected an economic growth of 8.5% with an upside bias. It also warned that inflation is a matter of concern and revised its projection for FY 2011 to 7% from 5.5% earlier.

The RBI in 2010 raised the key policy rates six times to contain inflation which shot up to 8.43% in December on high prices of food items, from 7.48% in November.

While the food inflation for the week ended 8th January stood at 15.52%, it had soared to 18.32% in the end of December on high prices of vegetables, including onion.

The policy measures, the RBI said, will "rein in rising inflationary expectations, which may be aggravated by the structural and transitory nature of food price increases."

It, however, asserted that the monetary action was aimed at taming rising inflationary expectations, while at the same time being moderate enough not to disrupt growth.

It also aims to contain the spill-over from rising food and fuel prices to generalised inflation and continue to provide comfort to banks' liquidity management operations, RBI said.


L&T kicks off mega restructuring process

Mumbai: In a move aimed at boosting growth, engineering and construction major Larsen & Toubro (L&T) today said it has initiated a restructuring process that will result in nine business verticals being empowered as independent companies, in addition to five existing subsidiaries, reports PTI.

"We have commenced the process of restructuring of these nine operating units which will act like independent companies going forward," L&T president and board member JP Nayak told reporters here.

The company took the help of an external agency for the restructuring process, he said without giving the name.

L&T has a sprawling and complex web of 64 businesses, ranging from power to roads and aerospace to switchgear.

L&T's power, hydrocarbon, machinery & product, switchgear, heavy engineering, infrastructure, building & factories, metals & minerals and electrical businesses will make up the nine independent companies (ICs).

"We see major growth opportunities in all the sectors we are present in. We are trying to be organised for this to maintain our growth in future," Mr Nayak said.

Each of these nine ICs will have a full-fledged chairman and CEO as head of the organisation and manage its own profit and loss account. Each will even have its own board of directors with at least three independent directors.

Mr Nayak said L&T has already appointed chief executives for its ICs and will induct new directors for the business units within two months.

The restructuring will help the businesses make faster decisions and make the process autonomous, Mr Nayak said. "The units will grow as fast as they are capable of with entrepreneurial skills."

The performance of these companies will also improve due to focus, empowerment, transparency, stronger leadership and improved competitiveness of each business and create a stronger leadership pipeline along with enhancing stakeholder value, Mr Nayak added.

He also said the group's subsidiary, L&T Finance, has received all required permissions and is awaiting the right opportunity to list its shares.

The company's other subsidiaries-L&T Infotech, L&T Infrastructure Development Projects Ltd (L&T IDPL) and L&T Hyderabad Metro Rail Pvt Ltd-will tap the capital market as and when they require funds, Mr Nayak said.


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