Economic Times Editorial

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Challenges to GST rollout

Legal & Administrative Changes Needed


INDICATIONS are that the Centre and states may settle for more a moderate rate for the Goods and Services Tax (GST) when it is implemented, rather the originally proposed 20%. That yet-to-be-finalised rate may be between 16% and 18%, and all forms of taxes currently levied on goods and services would be collapsed into the proposed one. It is envisaged that the new rate would be revenue neutral for the Centre and the states. The proposed tax at a lower rate can be revenue neutral only if the tax base is widened and evasion contained. Both are key challenges that the tax authorities will have to contend with. All services, except the essential ones, will need to be brought into the tax net. Vijay Kelkar, the author of a government report on GST, and currently chairman of the Thirteenth Finance Commission, has suggested sectors such as real estate and construction, as well as railways, be brought under the ambit of GST. That is indeed a suggestion that should be considered, not just to collect more revenues but also to bring greater transparency in the real estate sector transactions.
But should GST be implemented from April 1, 2010? Anecdotal evidence suggests neither the Centre nor the states are ready with legal changes or administrative infrastructure to make the transition. There are many motions to go through before GST can be a reality. To begin with, the Constitution needs to be amended to give both the Centre and states concurrent powers to tax goods and services. A GST Act replacing the Central Excise Act, the service tax law and State VAT Act needs to be put in place. The IT infrastructure required to track inter-state transaction needs to be upgraded, state tax administration familiarised with GST, and new challans formatted. Kelkars assurance that the finance commission would compensate states for losses arising from new regime may help lower political resistance to the new tax regime. Given that much needs to be done in less than nine months, it makes sense to postpone GST rollout. The budget must, however, provide a clear road map with appropriate timelines for a comprehensive GST.

The author of this editorial appreciates the govt in bringing out the idea of GST. At the same time he also points out two keychallenges that is waiting the implementation of GST: tax evation and revenue neutrality. HE goes onto say that to attain revenue neutrality many other ssectors like railways and real estate needs to be brought into the purview of GST. Also greater transpernecy is need in its implementation. Compensating the states for the revenue losses that they might incur will avoid unnecessaty headaches for the Center. WE might well recall the expereiences faced during implementation of VAT and the resistance from certain states during the implementation.
The author also points out that the current time frame of 9 months is too short for attainign an complaint free implemenation. The 9 months timeline is described as audacious and the author wants it to be postponed to a more pragmatic time line while wanting the budget to provide a clearer path for its implementation.
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End licence raj in education30/06/09


Basus Dissent Note Shows The Way



FAR more pertinent than the Yashpal Committee report on education is the note of dissent appended by economist Kaushik Basu. He urges an end to the licence-permit raj in education, as has been done successfully in industry. Glorious socialist tirades against commerce in education cannot obscure the fact that government-provided education, in schools and colleges, is often so pathetic that to call it education is preposterous. Yet the same educational establishment that refuses to close down dysfunctional government institutions pretends that it cannot allow private ones, because this may lower standards! The market has weeded out substandard industrialists, and will weed out substandard private schools and colleges too. The government should create an independent rating agency that makes educational quality transparent, and ratings must apply as much to government institutions as private ones. Foreign universities should be welcomed, including forprofit ones. India has a comparative advantage in the lowcost skills needed for education, and can become a global educational hub attracting global students provided controls are lifted on fees and private institutions. The creation of human capital is a commercial enterprise no less than the creation of industrial capital.
Basu makes the point that the government lacks the money for creating hundreds of universities, and so should focus on creating a score world-class ones. These should pay top academics several times as much as run-of-the-mill academics. The Yashpal Committee is too socialist to stomach this: it prefers the existing, rotten system that pays everybody the same low level, and so induces every decent academic (Basu himself is an example) to seek greener pastures abroad. Privatisation of education is a fact of life, and needs to be encouraged rather than viewed as a scandal. But for private engineering colleges, India could not have become a world power in auto components or software: the IITs produce the generals but the private colleges provide the troops. Basu adds rightly that replacing existing regulatory bodies by a super-regulator means very little if the latter has the old licence-permit mind-set. Such bureaucratic fiddling must not be confused with genuine reform.

A very nice and prolifically constructed article. the author thorws light into the Indian Education system which is in shambles when compared to other nations. The system is clamoring desperately for reforms . The author touches various shades of reasons that have been obstructing these reforms right from the communists to the capitalists. The author goes onto point out that though the govt lacks the economics vigor to create world class universities it can alternatively create a handful of world class univ or colleges. By privatisation the author implies allowing private investors/parties to start new educational institutons esp in the field of higher education but under the purview or controll of Govt or other deemed univ. Author really rings a bell when he says "India could not have become a world power in auto components or software: the IITs produce the generals but the private colleges provide the troops" After all its the troops who fight the battle!

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Rescuing textiles29/06/09
NREGA Extension Better Than Protectionism



THE global meltdown has hit the textile industry hard. Global demand for garments and cloth has dried up, so over a lakh workers are unemployed. Competition between developing countries for the reduced global market has shrunk profits and led to dumping below cost in some cases. A lazy response to the crisis will be protectionism, whereas an activist response will convert the crisis into an opportunity for radical reform. Textiles minister Dayanidhi Maran seems inclined toward a lazy protectionist response. Faced with cheap Chinese textile imports, he wants to channel all such imports through just two ports to check their volume. If imports are allowed at all the entry points it becomes extremely difficult for the customs department to police them, he told ET. Maran seems to equate imports with criminal activity, which should be policed. In fact only smuggling should be policed, not imports. Far from being a crime, imports are blessings that keep domestic prices low, induce Indian producers to raise their productivity, and so benefit Indian consumers. Ministers want the flexibility whereby the industry competes globally, and simultaneously provides work to a lakh unemployed workers. They instinctively want to subsidise exports and ban imports, part of the old licence-permit mentality that ruined India for so many decades. In fact, we need entry of imports at all possible points precisely because that serves consumers best.
Economic theory says if a government insists on promoting a specific industry, this should be through a specific subsidy or benefit, not protectionism. Going by this logic, the right way to help Indian textiles will be to extend the National Rural Employment Guarantee Act to textile production. Textile producers should be allowed to hire workers at up to 100 days a year, who will be paid the minimum wage by state governments. This will provide textile producers with free labour, so they should be asked to supplement the minimum wage by 50%. This will make the Indian textile industry highly competitive, give it labour flexibility, and employ idle workers. The scheme should automatically lapse after 12 months by which time the recession should be over. This is the way to help the industry, not protectionism.

The author of this passage is trying to justify this thoughts about why NREGA scheme should be extended to include textile industry also. He begins by arguing about the if govt wants to support any industry it should be through subsidy or benefit and not through protectionism(by tightening the lid on imports). He goes onto extend this by saying that NREGA scheme should be used to supplement the textile indusrty to boost their productivity.
But personally i feel that the opinion of the autor is a bit jaundiced. Why because in a country like India where lives of millions of people depend on textile industry which is largley unorganised one it is not pragmatic to provide any financial assistance, only assistance in the form of tax subsidies etc maybe thought upon. Secondly his/her deduction of logic to extened the NREGA scheme is flawed to a certain extend because(1) many areas of textile industry requires semi skilled labourers which cannot be replaced with somebody else as a part of NREGA. (2) The textile industry is concentrated mainly in pockets in TN and Maharastra where there is a glut of these unskilled/semi skilled labourers already and people who have lost jobs form textile indutry. So it will be difficult to include new peoplw through this scheme and also to implement the scheme at a lower daily wage than what they were earning before(when they were working in the industry)
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The Obama administration has offered major incentives to private investors who may want to buy toxic derivative assets from big American banks.

The idea probably is to create some liquidity for toxic assets worth about $1 trillion the banks are saddled with, causing unprecedented crises of confidence in the global financial system.

The announcement was instantly welcomed by the markets as stock indices went up quite sharply, led particularly by bank shares. A closer examination of the US treasury plan would suggest that the scheme might need a lot more fine-tuning before it is able to provide some succour to the ailing American banking system. What exactly is the central idea behind the treasury rescue plan which has been proposed in the public-private partnership format?

The US treasury has invited private entities and individuals to buy some of the toxic assets in the bank books at rock-bottom prices. The banks have partially marked these assets to the market and booked huge losses in recent quarters. There are additional incentives for investors to buy these assets at heavily marked-down prices.

The private investor is being asked to bring in less than 10% of the acquisition cost and the treasury is willing to fund the remaining 90% or more. Also, the government is ensuring private investors could walk away if the value of these assets fall further. So there is no further downside for the private investor.

There are many problems with such a scheme. It has been debunked by a Nobel prize winning economist as "cash for trash". The main flaw in the scheme is that there is no knowing whether banks such as AIG, City and Goldman have fully marked these assets down to their real value. Over 60% of the housing derivatives were traded and acquired outside the exchange in over-the-counter deals. Since there is no liquidity, one cannot ascribe any value to them.

The treasury plan seeks to discover a price with private partnership. But nobody is sure whether any reasonable price will be discovered for these toxic assets. The biggest irony is that the treasury is trying to discover a price by allowing the private investor a nine-fold leverage! Is this sustainable for US citizens, already over-leveraged?

Analysis: In the first two para author introdue the new obama plan to resue toxic assests and show the welcoming of the plan by market through rise in the stock of banks and others.

IN the next two para he explain what is the policy and how govt will be going with it. It explain private investor while have to invest 10% of acquired assests while govt will give 90% of value. To boost the market confidence in the assests.

In the last two para he explain what the problem with the scheme and how this scheme is being criticised by noble author paul as "cash for trash". He say there is no reference for the true value of this assests. Author say does investing such a big amount is justified?


Author tones seems to be critical to the scheme launched by obama.

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SEBIS decision to further ease the process for rights issue through a consultation process is very timely. ....
.............

It would make sense, instead, to offer limited but quality information that would enable more informed decision-making. How is the rights money going to be utilised? For instance, what would be the impact of dilution on earnings? Sebi is rightly proposing to limit the shortened disclosure to companies that have a good compliance record, making timely disclosure and addressing investor grievance. However, the proposed documentation still looks bulky. Hopefully, the regulator would be able to make it leaner.


The author starts by welcoming the move by SEBI to ease the process for rights issue.He explains why rights issue have been successful in the west and why it is better option for companies having debt to raise money.He criticizes the process for disclosure of information and towards the end appreciates the steps taken by SEBI in this direction.
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Agenda for G20

How much worse can it get is the question uppermost on most minds. ......
.....

For now, given how protracted serious reform of the international financial architecture will be, the G20 should use the opportunity of its forthcoming April 2 meeting to get the world economy out of its present comatose state and then address long-term imbalances.


The author sounds optimistic. He compares the present economic state with that of the 1930 and is quick to point out that even though the world economy is in bad shape but the situation this time around is different.The people now are more proactive than they were before and this would lead the reforms and corrections which was overdue since long time.
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Agenda for G20

How much worse can it get is the question uppermost on most minds. Well, if punditry from multilaterals like the International Monetary Fund is any guide, there is no immediate solace at hand. After holding out the prospect of the global economy scraping through with 0.5% growth this calendar year, the Fund now expects growth to dip below zero.

An absolute decline in global GDP, for the first time since World War II, is bad news. For emerging markets like India, whose fortunes are inextricably linked to global growth, with a large number of poor and no safety net, the Funds prognosis is doubly disquieting. Except to the extent the Funds managing director, Dominique Strauss-Kahn terms the present slowdown the Great Recession not the Great Depression, there is reason to hope we might still escape a repeat of the 1930s experience.

There are a number of reasons for this. One, world leaders and central banks have been far more proactive than during the Great Depression. Weve seen country after country announce huge stimulus packages. Two, there is growing realisation that co-ordinated policy action, at least by the bigger powers, can alone save the day.

So despite all the posturing about raising protective barriers and rise of economic nationalism, chances are we will not see a return to protectionist trade practices on a large scale. Three, the Fund itself is likely to see a sharp increase in its resources. The US administration has called for a tripling of IMF firepower. So, with a little luck, the immediate global resource crunch might be resolved.

True, we might not see the root-and-branch reform of the global financial architecture wed hoped for. But US treasury secretary Tim Geithner has already admitted, lots of things that did not seem realistic in the past are not just realistic but compelling, so hopefully we will see a less imbalanced global economic order in the not-too-distant future.

For now, given how protracted serious reform of the international financial architecture will be, the G20 should use the opportunity of its forthcoming April 2 meeting to get the world economy out of its present comatose state and then address long-term imbalances.

My Analysis: Author tone seems to be optimistic here. He is not denying the fact that thing are bad but he is optimistic that we will over come it in much better way than 1939 "The Great Depression". He is last paragraph he is saying world should use G20 meet to solve this issue.


While I would say there are "optimistic" elements here, it is not your traditional feel-good optimism op-ed.
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opaque regime of administered prices for the main petro-products and the consequent distortions in the market, RILs strategy seems to be to de-risk the fuel retail segment.

It makes sense for RIL to give away 51% of its stake in fuel retail to IOC and hope to get all the benefits a mega PSU marketing company might receive from the government. Yet in oil policy terms, whats required is competitive, market-determined prices, independent retailers and an end to the extant system of monopoly prices.

The fact is that in a scenario of government-controlled retail oil prices, and gross subsidies on petrol, diesel etc, the business plans of private oil marketers have been thoroughly compromised. They are not entitled to oil bonds unlike the trio of public sector oil retailers. Notwithstanding the warped policy, the scope for value addition in petro-products marketing is relatively large.

Especially when compared with the quite minimal value addition in crude-oil refining. Also, the prospect of huge, concentrated refining capacity sans downstream marketing presence can be a risky proposition too. Which is why RIL is exploring options to unlock asset value and reportedly has no plans to exit fuel retailing. Such a course of action makes ample sense what with RILs oil outlets mostly along high-density traffic routes, and so with built-in locational advantages.

IOC and the Indian arm of Shell are reportedly the front-runners to pick up stake in the hived off RIL venture. The latter would seem to be a better fit, with the real prospect of competitive, independent price setting. RIL joining hands with IOC would merely mean a continuing, perverse regime of monopoly prices for the most used petro-goods.

Also, given that RIL is heavily into exports of petro-products, tying up with a global major like Shell would pay rich dividends abroad as well. The RIL move is bound to create pressure for prompt reform of domestic oil pricing. Instead of open-en ded consumption subsidies on oil products used by the non-poor, whats needed is decontrolled prices and better allocation of resources. About time, surely.

My Summary: Author welcome the RIL decision to hive off the fule retail segment due to wrapped government policy.

Author says in business term it make sense to sale off his business to IOL while in long term, it should not do that.

Because of policy and centralised subside in retail fuel price, it left little scope for private player while they have large prospect in petro product marketing.

Exiting completely from the retail business can bad impact on petro chemical marketing business which has large prospect so unlocking the high value assest and not exiting from the retail make sense.

In the last two para author cites reason why he should choose Shell not IOL t o hive off its retail outlets. Author conclude with saying that this move will put pressure on govt to de centerlized the fuel pricing.

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SEBIS decision to further ease the process for rights issue through a consultation process is very timely. Globally, deep discounted rights issues have had more success in raising capital for cash-strapped/debt-laden companies than any other instrument.

An impetus to rights issues could open one more avenue for Indian companies, as of now totally dependent on bank funds. In fact, rights issue is the only option for companies that are debt-heavy, as banks would not provide funds to companies light on equity. Existing stakeholders are more likely to appreciate the challenges and support the company in the interest of their existing investments.

This explains why rights issues have been more successful in the crisis-hit west a pipeline of over $50 billion in Europe alone. True, in India some recent big rights issues have failed but that was because the market price dropped to near the rights offer price. This happens due to the long drawn out process in which the share price inches closer to the issue price in a bear market. Recent changes have already crunched the time taken to complete a rights issue, helping reduce the price risk. What remains on the agenda is electronic trading of rights entitlement and rationalisation of disclosures in rights offer documents.

Disclosure requirement in the case of rights issue is as exhaustive as that for an initial public offer. While this increases issuance costs and makes the process more cumbersome, any benefit from such disclosures is doubtful. Existing shareholders would presumably know about the company and are unlikely to look at the disclosures made in offer documents. Besides, much of the information is likely to be a compilation of that already disclosed.

It would make sense, instead, to offer limited but quality information that would enable more informed decision-making. How is the rights money going to be utilised? For instance, what would be the impact of dilution on earnings? Sebi is rightly proposing to limit the shortened disclosure to companies that have a good compliance record, making timely disclosure and addressing investor grievance. However, the proposed documentation still looks bulky. Hopefully, the regulator would be able to make it leaner.

PARA 1 SUMMARY: Author welcome the ease in the process of right issue.

PARA 2 SUMMARY: Author explain why this is the right initiative at right time. this will help economic hit countries to raise fund.

PARA 3 SUMMARY: Author explain why it didn't work in the past and highlight the current problem in the disclouser right issue.

PARA 4 SUMMARY: Explian why disclousure will not help much as stake holder already know most of the info and also its exhaustive.

PARA 5 SUMMARY: Author gives a better alternative. how new disclousre structure could be. sebi is in right direction but need to leaner the doc more.

Overall Summary: explain ease in right issue is done at right time at right place. it will help to raise fund. but there are few problem with existing structure too. then suggest how can it be solved.

Tone of the author: appreciating, analysing and suggesting.


I love your way to explain each paragraph of the author's it helps us to critical analysizing of article.keep posting regularly and anlyzing of the editorial
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SEBIS decision to further ease the process for rights issue through a consultation process is very timely. Globally, deep discounted rights issues have had more success in raising capital for cash-strapped/debt-laden companies than any other instrument.

An impetus to rights issues could open one more avenue for Indian companies, as of now totally dependent on bank funds. In fact, rights issue is the only option for companies that are debt-heavy, as banks would not provide funds to companies light on equity. Existing stakeholders are more likely to appreciate the challenges and support the company in the interest of their existing investments.

This explains why rights issues have been more successful in the crisis-hit west a pipeline of over $50 billion in Europe alone. True, in India some recent big rights issues have failed but that was because the market price dropped to near the rights offer price. This happens due to the long drawn out process in which the share price inches closer to the issue price in a bear market. Recent changes have already crunched the time taken to complete a rights issue, helping reduce the price risk. What remains on the agenda is electronic trading of rights entitlement and rationalisation of disclosures in rights offer documents.

Disclosure requirement in the case of rights issue is as exhaustive as that for an initial public offer. While this increases issuance costs and makes the process more cumbersome, any benefit from such disclosures is doubtful. Existing shareholders would presumably know about the company and are unlikely to look at the disclosures made in offer documents. Besides, much of the information is likely to be a compilation of that already disclosed.

It would make sense, instead, to offer limited but quality information that would enable more informed decision-making. How is the rights money going to be utilised? For instance, what would be the impact of dilution on earnings? Sebi is rightly proposing to limit the shortened disclosure to companies that have a good compliance record, making timely disclosure and addressing investor grievance. However, the proposed documentation still looks bulky. Hopefully, the regulator would be able to make it leaner.

PARA 1 SUMMARY: Author welcome the ease in the process of right issue.

PARA 2 SUMMARY: Author explain why this is the right initiative at right time. this will help economic hit countries to raise fund.

PARA 3 SUMMARY: Author explain why it didn't work in the past and highlight the current problem in the disclouser right issue.

PARA 4 SUMMARY: Explian why disclousure will not help much as stake holder already know most of the info and also its exhaustive.

PARA 5 SUMMARY: Author gives a better alternative. how new disclousre structure could be. sebi is in right direction but need to leaner the doc more.

Overall Summary: explain ease in right issue is done at right time at right place. it will help to raise fund. but there are few problem with existing structure too. then suggest how can it be solved.

Tone of the author: appreciating, analysing and suggesting.

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