Weekend Links: March 29 2013

Let’s start this week with a Business Standard editorial that examines the causes that have led to our big current account deficit, and also why it is a cause of  worry for us.

BusinessWeek has a great article on how Samsung became the world’s number 1 smart phone manufacturer.

The situation in Cyprus is not as bad as expected and they are already relaxing some of the capital control measures they put in place.

The NYT has an interview with a North Korean expert who explains how the current situation should be viewed, and thankfully this is one interview that didn’t have any hype and seemed to be grounded on facts.

Hemant has a great post on how you can save money on your holidays.

Did you hear about the 17 year old who sold his startup to Yahoo! for $30 million?

Finally, do you know why lb is the symbol for pound?

Enjoy your weekend!

Bad News All Around: All time high Current Account Deficit

RBI released numbers on India’s Balance of Payments for Oct – Dec 2012 today (Read: What is Balance of Payments?) and I think the release is  full of bad news.

The headline grabbing number was the record high CAD (Current Account Deficit) which was 6.7% of GDP for the quarter, and a detailed look at the number shows why this is all bad news.

The CAD is simply the difference between exports and imports, and for India this number was a record high $32.6 billion in the quarter. It rose by 61% when compared with the same quarter a year ago.

The thing that caught my eye the most was that Services Exports declined by 2%, and this is the category that contains Software Services Exports which is an important sector for India. This sector is important not only because of the direct export revenue but also because it sends a large number of Indians abroad who then send money back to India in the form of remittances and that will also get impacted, albeit with a time lag. It is also responsible for creating jobs and absorbs a large number of college graduates.

Merchandise exports didn’t do well either, as there was no growth this quarter where there was a growth of 7.6% in the last quarter. If you consider the April – December 2012 9 month time period, then Merchandise Exports actually declined by 5%.

The CAD was financed by the Capital Account, but the break up of that is not looking too bright either.

FDI declined from $5 billion to$2.5 billion. FII investments increased to $8.6 billion from $1.8 billion, but you can’t take too much solace in that because when FIIs pull their money from the market, it crashes violently leaving everyone invested with a lot of pain.

Additionally, banks availed external loans and borrowed $2.7 billion where they had repaid $8.7 billion in the previous time period. Even Net External commercial borrowings (ECBs) rose to $ 3.1 billion against a net repayment of $0.8 billion in Q3 of 2011-12.

Imports surged on account of oil and gold payments, and that’s not likely to come down in the future any time soon either.

I feel quite pessimistic reading these numbers, and I feel that India is headed towards tough times ahead because of bad economic policy where the rest of the world is showing steady recovery and doing much better than us.

A brief summary of the events in Cyprus

I’ve been fascinated by the events in Cyprus during the last 10 days or so and since I’ve been busier than usual during that time, they are also the only events I’m following.

When I first read about Cyprus’ 6.75% tax on all bank deposits, and 9.75% tax on deposits of more than 100,000 Euros, I was amazed by how they could come up with such a dangerous and stupid idea.

It is very easy to see why this is a dangerous idea by putting yourself in the shoes of a Cypriot and think of what you would do if you woke up one morning and found out that the government has decided to take 6.75% of your money from your bank account!

When you know that your country is a big offshore haven for Russian money, you’re surely going to be doubly angry with this tax because you’re getting screwed at the expense of rich Russians!

You would much rather withdraw your money from the banks and hide it under your mattresses instead of leaving it in the bank, and that would lead to a bank run and be disastrous to the economy. There is simply no escape from that. This is even more so considering the fact that the ECB guarantees deposits of less than 100,000 Euros and such a step shows that this guarantee is meaningless.

Why then would the Cyprus government take such a step?

The Cypriots had only two viable choices to come up with the money – either tax everyone and spread the pain around, or tax only the people who have more than 100,000 Euros in their bank accounts (a lot of them Russians) and protect the small investors.

At first I thought that they chose the first option because of a corrupt government, but that’s not the answer.

The answer is that by imposing huge cuts on big depositors, Cyprus will kill its banking sector. No foreign investor will be interested in depositing their money in Cypriot banks, and since banking is such a big part of the economy, this will be disastrous to the economy and they will see a prolonged recession and unemployment if they took such a step.

But that’s exactly the step they took.

As bad as this option is, it is less worse than complete chaos and unfortunately for them, those are the only two options they were left with.

The one big lesson of this is that the only way to deal with such horrible situations is to never get into one of them. If you get into them, pain is guaranteed.

Cypriot banks will open today after remaining closed for several days and there will be some degree of chaos, but hopefully it won’t be irrecoverably bad, and their economy will be back on its feet in a few years.

Lok Sabha Party Seats in India

The market crashed 288 points today as the DMK withdrew their support for the current UPA government and reminded people how fragile a coalition government can be, and indicated that the government will probably need to spend the time till the next election in managing the coalition and not the economy.

I wanted to see what’s the possibility of the government falling down, and while there were a lot of opinions on what will happen now, I didn’t find an easy way to see which parties hold how many seats in the Lok Sabha, and were currently providing support to UPA.

The best page I saw about which parties held how many seats was the page of the Lok Sabha that has the break up of which party holds how many seats in the Lok Sabha.

Here is a chart that breaks down this data for the major parties and then I have pasted the full list under that.

Lok Sabha Seats

Full list:

Name of Party Member
1 Indian National Congress(INC) 203
2 Bharatiya Janata Party(BJP) 115
3 Samajwadi Party(SP) 22
4 Bahujan Samaj Party(BSP) 21
5 Janata Dal (United) (JD(U)) 20
6 All India Trinamool Congress(AITC) 19
7 Dravida Munnetra Kazhagam(DMK) 18
8 Communist Party of India (Marxist)(CPI(M)) 16
9 Biju Janata Dal(BJD) 14
10 Shiv Sena(SS) 11
11 All India Anna Dravida Munnetra Kazhagam(AIADMK) 9
12 Independent(Ind.) 9
13 Nationalist Congress Party(NCP) 9
14 Telugu Desam Party(TDP) 6
15 Rashtriya Lok Dal(RLD) 5
16 Communist Party of India(CPI) 4
17 Shiromani Akali Dal(SAD) 4
18 Jammu and Kashmir National Conference(J&KNC) 3
19 Janata Dal (Secular)(JD(S)) 3
20 Rashtriya Janata Dal(RJD) 3
21 All India Forward Bloc(AIFB) 2
22 Indian Union Muslim League (IUML) 2
23 Jharkhand Mukti Morcha(JMM) 2
24 Jharkhand Vikas Morcha (Prajatantrik)(JVM (P)) 2
25 Revolutionary Socialist Party(RSP) 2
26 Telangana Rashtra Samithi(TRS) 2
27 Yuvajana Sramika Rythu Congress Party(YSR Congress Party) 2
28 All India Majlis-E-Ittehadul Muslimeen(AIMIM) 1
29 All India United Democratic Front(AIUDF) 1
30 Asom Gana Parishad(AGP) 1
31 Bahujan Vikas Aaghadi(BVA) 1
32 Bodoland Peoples Front(BPF) 1
33 Haryana Janhit Congress (BL) (HJC) 1
34 Kerala Congress (M) (KC(M)) 1
35 Marumalarchi Dravida Munnetra Kazhagam(MDMK) 1
36 Nagaland Peoples Front(NPF) 1
37 Sikkim Democratic Front(SDF) 1
38 Swabhimani Paksha(SWP) 1
39 Viduthalai Chiruthaigal Katchi(VCK) 1

The DMK with its 18 members is one of the bigger partners of the UPA and it was useful for me to look at this data in this manner. I have long felt that the biggest threat to the Indian economy’s growth is the political uncertainty and inefficiencies that exist and events such as todays further reinforces that.

Weekend Links March 15 2013

I was really disappointed to read that Google will be shutting down its Google Reader service as it will affect me in a big way as a user and a blogger.

I use Google Reader multiple times a day, and over a thousand people use OneMint’s feed on their Google Reader. This also points in the direction that Feedburner will be Google’s next service that’s closed down, and that’s what’s used to deliver OneMint’s daily emails and that would affect OneMint quite negatively. I am hoping that all the backlash on the web makes Google reconsider their decision, but if they don’t, here are a few alternatives to Google Reader: Google Reader is shutting down, here are the alternatives. 

I really loved this Outlook interview with Mohnish Pobrai and thought it had some great insights for investors. For me, one of the more important things to learn from this interview was how you should learn to appreciate the difference between who your following, and your own situation. I’ve often seen people talk about Buffett one liners as rules themselves, and talking about things like his holding period of forever without considering how he has this regular stream of money coming in from his insurance business. It is great to follow Buffett, but you should understand what he is saying in the full context of its operations, and not just in terms of sound bites.

I had no idea that India tops beef exports in the world.

The Chinese saw a leadership change this week, and the WSJ has a good feature on the new leader of The Chinese Communist Party: Xi Jinping, the new Chinese Communist Party Chief has a ‘China Dream’

I loved the idea and design of these 3D Printed Shoes.

The market uptrend is not allowing any bad news to take center stage but that doesn’t mean it isn’t happening. Euro zone employment hits low of nearly 7 years

India isn’t doing too well when it comes to job growth either. Read India’s economy leaves job growth in the dust.

Enjoy your weekend!

Section 80EE: New section In budget to allow increased housing loan deduction

This article is written by Aashish Ramchand, a Chartered Accountant by profession. Aashish is the co-founder of makemyreturns.com. He also has completed his CFA Level I (American) and is very passionate about writing articles on taxes and tax advisory. He can be reached at connect@makemyreturns.com

A new section has been introduced in the income tax act i.e. Section 80 EE. This section has been introduced to cater to the need for affordable housing. This section allows for a deduction up to Rs. 100000/- for the AY 2014-15 (i.e. FY 2013-14) to individual assesses for interest payable on their housing loan. Few conditions are required to be satisfied for this section to be applicable.

1)  The loan is sanctioned between the FY 1/4/2013-31/3/2014.

2)  The loan sanctioned does not exceed Rs. 25 Lakh.

3)  The value of residential house does not exceed Rs. 40 Lakhs.

4)  The assessee does not own any other residential house as on the date of sanction of the loan. In other words, this house is supposed to be his self occupied property.

5)  The assessee is a first time home buyer

Where the interest payable is less than Rs. 100000/- for AY 2014 – 15, then the balance amount shall be allowed in AY 2015-16. If a deduction under this section is allowed for any interest, no deduction shall be allowed in respect of such interest under any other provisions of the Act. The benefit under this section is mainly for one time primarily for AY 2014-15 and to a certain extent for AY 2015-16 for balance interest as mentioned above.

Also it is important to note that this deduction is in addition to the deduction of Rs. 150000/- in respect of interest on loans for self occupied property U/s 24(b). This is the current scenario as per the tax laws i.e. there is a maximum deduction of Rs. 150000/- on interest on housing loan for one’s self occupied property.

In my opinion, this new section would benefit the low to medium income section of assesses. It will greatly benefit such people who are first time house buyers as not only do they get a deduction up to Rs. 150000 for interest paid on housing loan but also an additional deduction of Rs. 100000/- from their gross total income as a result of introduction of this section.

It can be said that since the maximum cap of housing loan amount is Rs. 25 lakhs, on an average the yearly interest obligation on such loans amounts to Rs. 2.5 – 2.75 lakh. Thus as a result of this section, an individual can now effectively claim this entire interest expense as a deduction (i.e. 150000/- as per Section 24 (b) + Rs. 100000/- as per Section 80EE) from his gross total income and reduce his tax obligation accordingly.

Details on the Rs. 2,000 Tax Credit

A tax credit was announced in the latest budget where anyone making less than Rs. 5 lakhs would get a tax credit of Rs. 2,000. It wasn’t very clear to me what this means as a credit can imply that the government credits Rs. 2,000 in the bank accounts of all the assesses who are eligible for the credit, but that doesn’t make much sense because you can just collect Rs. 2,000 less to begin with and not go through all that hassle.

Rutvik posted the following comment about this a few days:

Rutvik March 5, 2013 at 10:00 pm [edit]

Hi Manshu,

There is this point in the personal tax clause which states that there is a “tax credit” for people having income upto 5 lakhs. Could you elaborate on what this means?


What this means is that of your income is less than Rs. 5 lakhs, you will have to pay Rs. 2,000 less than your tax liability, but the question is how is this less tax charged, and what’s the point of doing it this way instead of the direct rebate.

I came across an article in Business Line about the Rs. 2,000 tax credit today which explained this and I thought that was interesting enough to share here.

First, about how this will be implemented. According to the article, Section 87A has been added in the Income Tax Act 1961, and you will not get this credit as a refund and won’t have to wait for it but you will pay reduced tax at the time of filing itself which is a good thing.

The article goes on to list reasons as to why this has been implemented in a certain manner and I felt those are worth a read as well, specially for senior citizens.

Read the full article here: Dissecting the Rs 2,000 tax rebate

Weekend links March 8 2013

In a little bit of hurry, so will keep this short.

Regulator gives NPS funds managers quiet nod to invest directly in stocks: LiveMint has an important story on how changes are being made to the NPS structure correctly. I’ll have a full post on this sometime in the coming week.

China’s growth: a bountiful half decade: We all know how much China has grown in the past few decades, but even then, reading it in bullet points really wowed me.

Is India experiencing incipient capital flight?: Prof. Jayanth Varma writes about how India could face a big capital flight if the next election brings in political uncertainty.

Bihar tops in per capita income growth; Gujarat at 11: LiveMint reports on state’s progress in the last year.

The Pros Who Called the ’09 Bottom: WSJ has a brief article on who got the 2009 bottom call correct.

Shyamendra Solanki (whose translation of ‘If’ I had shared earlier) has written a poem in Hindi about corruption, and I enjoyed reading it. You can see it here.

Finally, did you know that Mars had the same 4 seasons as Earth? 

Enjoy your weekend!

FundsIndia to give a 1 gm gold coin to 5 lucky women

From looking at comments and email exchanges of regular readers, I’ve always had a feeling that the ratio of women to men reading OneMint is higher when compared to other blogs. I don’t have any stats to prove this, and I don’t know if this is just perception or reality, but it certainly did surprise me when I read an older Jago Investor survey that said only 10% of their readers were women.

I bring this up because when I saw a post at FundsIndia which said that they will select 5 lucky women and give them a 1 gram gold coin if they open their Funds India account today, I felt that this will be useful information for readers here.

So, if you are interested in opening an account there, today is a good day. You can click here to find out more about this.

I want to add that if you didn’t want to open an account anyway then just this incentive is not big enough to do so as this will add complexity to your financial life even if it doesn’t cost you anything in terms of money.

Disclosure: FundsIndia is an advertiser here, but they didn’t ask me to write about this thing. 

Budgetonomics Review

Deepak Shenoy and Dheeraj Singh have teamed up to write a short ebook on the recent budget called Budgetonomics: Demystifying Budget 2013, and the result is great!

It is short at 40 pages, and it took me less than ten minutes to breeze through the ebook yesterday.

It costs Rs. 99 or $2 and was well worth it as far as I am concerned. At this point, I should note that I’m not a typical reader, and while I appreciate having a PDF in my Google Drive that I can use to look up how the composition of government revenues changed in the last few years, I’m not sure how many others are interested in this information. (Here is a chart from the book)

Composition of Government Revenues

I bring up this point because the macro level statistics and graphs were the most valuable part of this book as far as I’m concerned, and not all regular readers will be interested in that kind of detail.

All the charts in the ebook:

  • Government revenue composition
  • Tax collection under major heads
  • Expenditure growth and their composition
  • Fiscal deficit over the years
  • Effective tax rate and share in total taxes
  • Number of companies by effective tax rate

After dealing with numbers and charts, the book takes a look at the highlights of the budget and then deals with the more specific matters that affects individuals.

I would say that the utility of this book is to have a small PDF that has most key features and statistics from the budget in one place that’s easily accessible and not looking to learn new things about the budget itself.

There has been such wide media coverage of the budget that I would argue that everything pertinent about it has been written already, and you will be disappointed if you are looking for something new.

However, if you look at stats about deficits, spending etc. from time to time and would like to have them all at one place, then this little book is very handy.

You can purchase it here. Budgetonomics: Demystifying Budget 2013

Disclosure: I am in no way related to this book, and don’t stand to gain financially or otherwise from its sales.