There is absolute lack of coordination between departments whose goal should be to ensure no impediments in much needed power project executions. Do we want power or let the country suffer silently?
Power generating plants based on coal as the primary fuel source have a great number of obstacles to overcome if they have to run smoothly. First is the adequacy of quantity; second is the calorific value and its cost; third is the continuity of supply and fourth is the transport logistics. Hopefully, of course, a linked coal supplier does not have labour problems or heavy disruptive rains!
A brief study on the coal mining process shows that even after overcoming and meeting all requirements of the state government and the ministry of environment and forests (MOEF), and clean chit obtained for mining, it would still take at least six to seven years to achieve peak production. Labour trouble or heavy rains or transport logistics would still have to be overcome as these are variable factors from time to time.
Take for instance, the Essar Power plant at Singrauli in Madhya Pradesh, set up at an investment of Rs7,200 crore. The project is idling for want of coal.
It appears that the MOEF clearance has been given to mine coal at Mahan, as the power ministry has not sent its ‘proposal’ for tapering linkage, and that the matter cannot be put up to the “Standing Linkage Committee-long term” for approval. All this because everyone is standing on ‘formalities’ to be completed!
In other words, there is absolute lack of coordination between departments whose goal should be to ensure no impediments in much needed power project executions. Do we want power or let the country suffer silently? To read about how the government needs to reduce controls to induce imports, click here.
The coal ministry is involved in clearing the issue of tapering linkage for coal supplies from identified mines. It appears that the Mahan block is also assigned to Hindalco Industries and the coal ministry is not sure that adequate supplies will be available from this source. The major stumbling block is the MOEF clearance and only when this is obtained and mining starts, one should be able to assess if enough supplies will be forthcoming to meet both Hindalco and Essar’s demands. It looks like that work has not even started!
This is one of the many instances where the dog is chasing its tail in a never-ending circle. It is a pity.
It appears that the Essar Power project was to be included as a priority in The Twelfth Plan. But the progress, as we see it now, has been far from satisfactory.
We therefore, have to return back to our own pet theory. For those already approved projects, where fuel supply is the main obstacle, the government must move in with waivers to expedite commencement of work with a stipulated time frame given to the power generators to comply, without holding up the work. They may be given extended time to complete, if they face any new obstacles, but comply they must, all the requirements. Such interim relief is only saving much-needed time to expedite the issue, and not as an ‘exemption’ completely.
The second is more radical and out the box. The government must identify coal supply sources—dedicated mines of approved quality—and THEN invite tenders for power generators to put up their plants in such locations. Such a proposal must have clearances from all concerned departments and ministries and no foul play will be permitted at any stage.
Time is the essence of the contract; the successful bidder will have to undertake setting up the power plant, with the agreed time frame, and make available power at the pre-determined price per unit. If necessary, foreign direct investment (FDI) in this regard may be permitted from multinational companies which have proven experience and are operating successfully elsewhere.
We have had enough of this merry-go-round with various departments, ministries and a whole lot of others simply passing the buck. The buck stops here. Yes, right here, and let's get on to work. To read other articles by the same writer, please click here.
(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce and was associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US. He can be contacted at [email protected].)
The purpose of QE3 was to stimulate economic growth and corporate earnings, which is what the markets expect. Sadly both will be disappointed
Edmund Burke, the eighteenth century politician and philosopher, wisely pointed out, “You can never plan the future by the past.” Sadly that is just what markets often do. In the United States the past has taught money managers “not fight the Fed’’. In other words, when the Federal Reserve acts, either through raising or lowering interest rates, you should invest accordingly. So it is not surprising that the US and other markets around the world have rallied over the summer in expectation of additional monetary easing. The idea is that earnings and profits of listed companies everywhere will rise as more money flows into the world’s economies. These expectations are based on a historical precedent, but there are six reasons why this time it may be a poor guide to the future.
The first reason has to do with the policy of quantitative easing. The chairman of the US Federal Reserve (Fed) insists that the so-called QE is just the same as past policies in that it lowers interest rates. But the policy is in fact quite novel in its form and much different in its extent. Interest rates have never been suppressed for this amount of time. There are many different opinions as to the consequences, but one thing is sure. They will not be what people expect. All policies are based on what turn out to be false assumptions. In something as complex as the global economy, there is a massive amount of misinformation. The combination inevitably will lead to unintended consequences.
The second reason why the present QE won’t work concerns the means used to do it. In the past, the US central bank bought government bonds, US Treasuries, and mortgage-backed bonds. This time it limited itself to the purchase of only mortgage-backed securities (MBS). While the politicians in Washington are happy to borrow an unlimited amount of money, people buying homes in America are more circumspect. Since the crash of the housing market, the banks have been much more careful who they lent money to. With fewer loans, the banks could get by less staff. So the number of MBS being created is limited to just $1.5 billion per week or $6 billion per month. The Fed wants to buy six times that amount and has to buy in the secondary market. This has raised the value of the bonds and increased profits for the banks and the holders, but it does not necessarily create more money.
The third reason concerns the assumption that by lowering interest rates the Federal Reserve forces investors into riskier assets like equities or commodities. This is simply not true. For example in Europe riskier assets like Spanish or Italian bonds are paying interest rates over 5%, but money is flowing into safer German bonds, which have a negative real rate. The collapse of 2008 has not been forgotten. Companies, savers and retirees, would rather be sure to have their capital returned than increase the return on their capital. Besides, the choice to increase risk may be subject to legal limits for institutions like pension funds and insurance companies.
The fourth reason applies to a basic assumption of monetary policy. The assumption is that if you lower interest rates, consumers will borrow and spend more. Usually this has been true, but not now. US consumers have actually been deleveraging. Their credit card debt is 22% below its 2008 peak. Also mortgage debt is also falling. Net repayments have been increasing and the increase has been accelerating since 2009. Meanwhile pensioners without high yielding fixed income investments spend less.
The fifth reason pertains to Europe and China going into recession. To solve its debt problems Europe opted for austerity, which has resulted in a slowdown. China has been printing money for three years, but growth rate has been constantly slowing. While the US is not heavily dependent on exports, it is still part of the global market.
The sixth reason bears upon corporate earnings. Cheap money is supposed to translate into better corporate earnings. The question is whether there is any correlation? Actually there is very little. Corporate earnings had already hit bottom and had started to improve before QE1. They had the largest growth by the second quarter of 2009 and the rate of growth has declined ever since, despite QE2. Although QE2 probably didn’t do much for corporate earnings, at least it looked good. When the program was started in August 2010, the ratio of negative to positive earnings guidance was about 1 to 1. Now it is over 3 to 1.
The purpose of QE3 was to stimulate economic growth and corporate earnings, which is what the markets expect. Sadly both will be disappointed.
To read more articles by the same writer, please click here.
(William Gamble is president of Emerging Market Strategies. An international lawyer and economist, he developed his theories beginning with his first hand experience and business dealings in the Russia starting in 1993. Mr Gamble holds two graduate law degrees. He was educated at Institute D'Etudes Politique, Trinity College, University of Miami School of Law, and University of Virginia Darden Graduate School of Business Administration. He was a member of the bar in three states, over four different federal courts and has spoken four languages. Mr Gamble can be contacted at [email protected] or [email protected].)
Companies including Birla Sun Life Insurance, ICICI Prudential, HDFC Life Insurance, MetLife Insurance and Reliance Life among others have been issued summons by the Finance Ministry as part of its probe into alleged service tax evasion of over Rs300 crore
New Delhi: The Finance Ministry has issued summons to about a dozen insurance firms seeking documents pertaining to sale of insurance policies and commission paid to their field associates as part of its probe into alleged service tax evasion of over Rs300 crore by them, reports PTI.
Official sources said that companies including Birla Sun Life Insurance, ICICI Prudential, HDFC Life Insurance, MetLife Insurance and Reliance Life Insurance Company among others have been issued summons by Directorate General of Central Excise Intelligence (DGCEI), an intelligence arm under the Finance Ministry.
An email query seeking response from HDFC Life Insurance, MetLife Insurance, Birla Sun Life and ICICI Prudential was not answered. However, a Reliance Life Insurance Co (RLIC) spokesperson confirmed receiving a letter from the department seeking information.
"We have received a letter from the DGCEI seeking some information. We understand that this is part of a process wherein the department has sought similar information from several other insurance companies.
"RLIC is in full compliance with applicable laws and regulations and will be providing the required information as desired," the spokesperson said.
Preliminary probe so far has found alleged irregularities including evasion of service tax by misrepresenting the information on accounts book and fudging records related to commission paid to field associates, agents and brokers who were selling the insurance policies, the sources said.
The notices were sent under Section 14 of the Central Excise Act 1944 to the companies, they said.
The Act empowers a central excise officer to summon any person whose attendance he considers necessary either to give evidence or to produce a document or any other thing in any inquiry being undertaken by the officer.
"One of the companies was paying more commission to their brokers and field associates but avoiding payment of service tax on the amount. There were discrepancies in records of payment given to such brokers maintained by it," a source said.
The DGCEI started its discreet probe early this year and expanded it after more documentary evidences proved that the amount of evasion may be running into several hundred crores.
"As per the initial investigations, the amount of evasion is at least Rs 300 crore. The department is investigating the matter," a DGCEI official said.
All general policies including insurance against risk of loss to assets like motor vehicle is 12.36% on the annual premium paid. Whereas, the rate of service tax varies on the part of premium taken towards risk coverage for life insurance, according to a service tax expert.
Officials said that in some of the cases companies were deducting service tax from agents who were selling their products but did not show it on their accounts book.
Whereas, there have been instances where the companies were giving incorrect data of the total policies sold or renewed by them to evade tax, the source said.
The total annual premium income of the insurance industry comprising life, non-life and health, is around Rs3.5 lakh crore, as per the Insurance Regulatory and Development Authority (IRDA) data.
According to DGCEI officials, insurance firms representatives will also be called in to explain alleged discrepancy in payment of service tax to the government exchequer.
"We will call the Chief Financial Officer of the defaulter firms to explain alleged wrong doings. The notice seeking personal appearance may be sent by early next month," the official added.