Food Security Bill, Slightly Stabilized Indian Economy and Yawns

Sadanand Dhume writes about all that is wrong with the Food Security Bill. I think it’s worrisome that this was pushed through, and it looks like some form of it will become law and there will be a very heavy price to pay for it.

A rare positive article about the Indian economy, with all that is wrong, it becomes easy to lose sight of what’s improving. The Economist on the stabilizing Indian economy. 

Another positive article about Odisha government acquiring land for Posco’s steel mining project.

I was quite surprised to hear that a Bitcoin based ETF might be launched in the US – Felix Salmon has a great article on the Bitcoin ETF and why it will never become an actual product.

This is related to a post I did earlier this week, and Sethu posted the link to this article: Moneylife helps a reader get back Rs. 60,000 in what seems very similar to what Mihir was describing.

Very interesting article on why we yawn and why it is contagious.

Finally, some light humor – financial planner advises shorter life span to make the best use of client’s portfolio.

Impact of Gold Price Crash on Gitanjali Gems, Its Share Price & Company’s Fixed Deposit Offer

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at skukreja@investitude.co.in

Will you deposit your hard-earned money with a company for which even the existing lenders have closed their doors? Is 11.5% rate of interest for 1-year deposit or 12.5% rate of interest for 3-year deposit attractive enough for you to risk your principal investment itself?

Shilpa raised a query regarding Gitanjali Gems’ Fixed Deposit scheme under Suggest A Topic.

Shilpa Ganeriwal  July 4, 2013 at 9:16 am

The recent full page advertisement in ET about the fixed deposit scheme launch by geetanjali jewellers looked interesting. THe interest rate offered was 11.5 %. I was looking for CRISIL rating or any such type but could not get.

My question is what could be the reason for such a way of raising money, is it something like an NBFC and how reliable could this be.

Details of Gitanjali Gems Fixed Deposit Scheme:

The company does not allow premature withdrawal during first 6 months from the date of deposit. The terms of the deposit also states “Request for premature withdrawal may be permitted after 6 months with specific reason at the sole discretion of the Company only and cannot be claimed as a matter of right by the Depositor”.

Also, even if you are permitted to withdraw your investment anytime after 6 months, the company will pay 1% lower rate of interest than the applicable rate.

As I started writing this post, the share price of Gitanjali Gems Ltd. was at Rs. 181.10 on the National Stock Exchange (NSE) and Rs. 183.15 on the Bombay Stock Exchange (BSE), locked down at the lower circuit of 5%. Let me tell you that there were 404 sell orders pending on the NSE alone, with the sellers desperate to find an exit door by selling 1,32,37,259 shares of the company. But they are not able to do so as the buyers are just not interested in paying even Rs. 181.10 for a stock which touched an intraday high of Rs. 534.05 on June 20th this year and has fallen 66.08% since then, hitting new 52-week lows.

In fact, Gitanjali Gems is not the only stock in the Gems & Jewellery sector which has seen a sharp fall in its share prices. Titan, Shree Ganesh Jewellery House, Tribhovandas Bhimji Zaveri (TBZ) etc. are some of the companies which have suffered huge market cap erosion due to a sharp fall in their share prices in the last one month or so.

Gitanjali Gems 1-Year Price Chart

Titan Industries 1-Year Price Chart

Shree Ganesh Jewellery House Limited (SGJHL) 1-Year Price Chart

Tribhovandas Bhimji Zaveri (TBZ) 1-Year Price Chart

Images Source: Bloomberg.com

 

The primary reason behind this huge fall in the share prices of all these companies which belong to the Gems & Jewellery sector is very well known – a steep fall in gold prices in the international markets, which was triggered by fears of the US Federal Reserve tapering quantitative easing (QE). Gold prices have fallen around 35% from a 52-week high of $1804/oz on October 4th last year to touch a 52-week low of $1179/oz on June 28th last week.

Also, the government and the Reserve Bank of India (RBI) have taken several measures in the past few months to slow down gold imports, which have been blamed for the widening of our current account deficit (CAD). Last month, the government raised the import duty on gold from 6% to 8%, after which the RBI issued a notification, restricting gold imports only with 100% cash margin. Due to all these factors, gold demand has slowed down considerably here in India.

But, what is wrong with Gitanjali Gems? Analysing its financial statements, it seems the company has been doing quite well in the past and stands on a very strong footing. So, do the measures taken by the government and the RBI make business so difficult for the company that it is likely to see a sharp fall in its profitability or make the company default on its loans and other credit facilities? Are all these the only factors behind this kind of a steep fall in the share prices of Gitanjali Gems? I do not think so. I think there is something else also and SEBI is likely probing that.

SEBI’s surveillance department has taken up the matter and sought reports from exchanges on the stock’s sharp price movement. Market rumors also suggest that SEBI is also examining a suspicious trading link between Gitanjali and Prime Securities, a well known broker firm. It suspects that Prime Securities had a role to play in the internal funding of as much as Rs. 75-100 crore during Gitanjali’s IPO period.

At the end of March 31, 2013, Gitanjali Gems carries a gross debt of Rs. 5,000 crore in its balance sheet, at an average rate of interest of approximately 8%. As on this date, the promoters of Gitanjali have around 34.96% of their shareholding being pledged with their lenders.

Since June 18th, Gitanjali Gems has made several filings to the BSE, in which it has disclosed that Mehul Choksi, Chairman and Managing Director of Gitanjali Gems, has purchased a large quantity of Gitanjali shares from the open market and have pledged them further to the company’s lenders. In the past few days, some of the lenders have even invoked these pledges, including Macquarie Finance (India) Private Limited (MFIPL) which has invoked 5 million pledged shares in just two days, June 28th and July 1st, acquiring 5.43% stake in the company. Lenders generally invoke pledged shares when a borrower, faced with a steep fall in its share price, is not able to deposit additional margin with the lenders.

So, amid all this high-tension drama playing out within the company and the gold market, is it advisable to lock your money for 3 years in Gitanjali Gems’ Fixed Deposit scheme for 12.5% annual return?

Personally, I am not going to do that as the safety of my principal is more important for me rather than a promise of higher returns and I am sure the investors also know the answer and need no further advice regarding the same.

Some financial advisors have different views regarding the same and their views are also welcome.

Myinvestmentideas.com

Saving-Ideas.com

ProfitKrishna.com

Interest Payment Dates of Tax-Free Bonds issued during FY 2011-12 & 2012-13

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at skukreja@investitude.co.in

Investors who invest in fixed income instruments, like fixed deposits, company deposits, NCDs, infrastructure bonds, tax-free bonds etc., eagerly wait for the day on which the interest payment gets credited into their bank accounts. For some of the investors, this interest income is a substantial portion of their annual income. So, they need to know the exact date of their interest payments, especially with those investments with which they are not much familiar. Tax-Free bonds also fall into that category of investments for which investors keep asking for more information.

Ramesh wanted to know the date on which HUDCO would be paying its first annual interest.

Ramesh  July 3, 2013 at 12:12 am

When will Hudco pay the annual interest on their1 2013 tax free bonds.

Karthik also wanted to know if there is any website which carries such information at a single place.

Karthik Reddy Chintaparthi  July 3, 2013 at 8:39 am

How can we keep track of the interest these companies pay ? Any online website ?? Please confirm.

National Stock Exchange (NSE) website has a list of all the bonds and NCDs which are listed on its exchange and get traded on a regular basis. Here is the link to the list of bonds which get traded on the Capital Market (CM) segment of NSE.

But this link also does not have all the interest payment dates on a single page. If any of you want to check the next interest payment date of any of your tax-free bonds, then you are required to click on the name of the company from this list, select the ‘Series’ of the bond and click on the Securities Information tab. Next IP Date is the information that you were seeking.

I am not aware of any such link of BSE which lists all the BSE-listed bonds/NCDs on a single page. So, you are required to check your bond holding with its BSE Code and you need to repeat the process if you are holding multiple bonds.

When I could not thought of any such source which has all the dates for all such issues, I decided to write this post having all the interest payment dates for all the tax-free bonds which got issued during FY 2011-12 and 2012-13.

During FY 2011-12, five public sector undertakings (PSUs) issued tax-free bonds – National Highway Authority of India (NHAI), Power Finance Corporation (PFC), Indian Railways Finance Corporation (IRFC), Housing and Urban Development Corporation (HUDCO) and Rural Electrification Corporation (REC).

During FY 2012-13, nine PSUs issued such tax-free bonds – PFC, IRFC, HUDCO, REC, India Infrastructure Finance Company Limited (IIFCL), Ennore Port, Dredging Corporation, National Housing Bank (NHB) and Jawaharlal Nehru Port Trust (JNPT). NHAI decided to give it a miss last year as it did not require any additional funding.

Here is the table carrying the interest payment dates for all of the tax-free bonds issued by these companies.

Tax-Free Bonds Issued During Financial Year 2012-13

Tax-Free Bonds Issued During Financial Year 2011-2012

If any of you want to know the interest payment dates of infrastructure bonds issued during 2011-12, please check this link.

Tax-Free Bonds in Physical Form – If you had taken these tax-free bonds in the physical form, then you must have given a cancelled cheque of your bank account along with your PAN card copy and the address proof. Your interest payment gets credited directly into the same bank account, of which you gave the cancelled cheque.

Tax-Free Bonds in Demat Form – If you had taken these bonds in your demat account, then the company will credit the interest payment directly into your bank account which is currently linked to your demat account.

If you have any query regarding any of your interest payment related issues, you should contact the respective Registrar at the contact numbers mentioned in the table above.

Features and Highlights of the National Food Security Bill

The UPA government has said today that it is going to try and pass an Ordinance to implement the National Food Security Bill. They are going the Ordinance route without the full support of their allies and there are some news reports that talk about early elections due to this.

So far I’ve not seen a single group that supports the Food Security Bill and everyone has their own reasons for not supporting this. I’m going to talk about my impressions later on in this post, as I want to start by listing out features and highlights of this bill.

Features of the National Food Security Bill

The idea behind the National Food Security Bill is to provide really cheap food to people who may not able to afford it otherwise, and the Centre and State governments are both responsible to enable and implement this.

I think there are several things to understand here.

Why type of food does the National Food Security Bill provide?

This bill talks about providing rice, wheat or coarse-grains to people through PDS shops.  That’s also one criticism of the bill since people are now demanding protein rich food in India, and this bill doesn’t do anything to address that need.

Who does the National Food Security Bill aim to assist?  

The bill covers up to 75% of rural population, and 50% of urban population, and following categories are created in the bill.

Priority Households: People in the Priority Households are entitled to get 5 kgs of subsidized food grain per person per household.

Antodya or Eligible Households: An Eligible Household can get up to 35 kgs of subsidized food grain.

From reading the bill, it is my understanding that they haven’t yet defined these two type of households, just that these two categories together should cover 75% of the rural population, and 50% of the urban population.

In addition to the above two categories, the following will also be covered by the bill.

Children in the age group of 6 months to 6 years: The bill guarantees what is called an “age appropriate meal” for children falling under this age group.

Children in the age group of 6 years to 14 years:  Bill guarantees a free mid day meal in school for all children in this age group who go to schools run by the government or government bodies.

Pregnant or Lactating Mothers: These women will get a free meal during pregnancy and six months after child birth, and they will also get maternity benefit of not less than Rs. 6,000 in installments. The Bill doesn’t detail out how will these installments be paid.

What subsidy does the National Food Security Bill provide?

The bill states that rice will be sold at no more than Rs. 3 per kg, wheat for no more than Rs. 2 per kg and coarse grain for no more than Rs. 1 per kg.

What is the responsibility of the Central and the State Government?

The responsibility for procuring the food grain lies with the Central Government and the responsibility of distributing the food grain lies with the State governments. The bill also talks about women empowerment and to do that they are going to issue ration cards to women over 18 in every family as head of that family.

The States have the responsibility to build storage, ensure delivery and smooth functioning the scheme. They have the current Public Distribution System to work with, and clearly there is a lot of work to be done in that area.

How much does the Food Security Bill Cost?

The government has estimated Rs. 1.23 lakh crore as the subsidy cost for this bill. However, this is an incomplete estimate since it only includes the cost of food grain and doesn’t address the infrastructure or day to day running of the scheme.

Here is the government statement about this.

“As per the provision of the Bill, estimated annual requirement of food-grains at 2011 population is 60.74 million tonnes and the corresponding estimated food subsidy at 2013-14 costs is about Rs 1,23,084 crore,” Food Minister K V Thomas said in a written reply to Rajya Sabha.

They have already budgeted Rs. 90,000 crore as food subsidy this year, and based on how much they are able to implement this scheme

Thoughts on this bill

These were some of the main points of the bill, and now I will get to my impressions on this which are all rather negative. I can’t seem to find anything positive about this bill except perhaps the good intention behind it.

The government simply doesn’t have enough money to give away food like this. The government should be looking at cutting subsidies to get its spending control, not increasing it specially when everyone knows the leakages that exist in the system, and the black markets that are created due to such schemes.

The government doesn’t even have enough food grains. The grain stock is about 70 million tons and if the estimated requirement is 60.74 million tons then how will this be feasible three or four years down the line, the food stock isn’t getting replenished at the rate of 60 tons ever year, and one bad monsoon will leave the scheme totally infeasible.

There is no infrastructure to deliver the scheme – they haven’t defined who gets the benefit, there is no clarity on where the grain will be stored, or how it will be delivered.

The scheme distorts markets and it is not clear to me how this will affect prices for people who won’t buy food from this scheme. How will this affect farmers who will be dependent on state machinery to sell their food grains.

Such a costly bill is not good for the deficit, and while some brokerages have expressed that the deficit won’t be worsened because of the bill this year, that’s only because they don’t expect the bill to be really implemented this year, otherwise when the bill is fully implemented that will add to the food subsidy which in turn will worsen the deficit and ultimately fuel inflation.

I’m not optimistic that this bill will do anything to improve the state of the Indian economy or the state of the Indian people.

If it is too good to be true…

A few days ago Mihir posted a comment on how someone claiming to be from Bajaj Finserv is offering him a loan at 5% if he takes one of their single premium insurance policies. Then another similar comment came in yesterday but this time about Reliance Capital.

I’ve not heard of what this is about but of course it smells of trouble. Can any reader or someone from Bajaj Finserv or Reliance Capital throw some light on what this is all about?

Here are the comments for reference and full details.

Mihir June 27, 2013 at 11:47 am [edit]

Enquiry about loans from bajaj capital at 5% rate of interest.

Hi all, I am posting a topics after long. My PC is down and hence typing through phone… plz forgive for any typos.

Since last 2 weeks I am getting phone calls from sales executive from bajaj capital. The agent claims to provide loans for an interest rate of 5%.

All tht one has to do is buy a bajaj alliance policy for a premium amount of 10% of the value of the loan required. For 10lacs of loan required one has to buy a single premium policy with premium of 1 lac.

5hen these guys would internally make themselves the policy nominee (both being bajaj entities)as a security and disburse the loan amount.

this offer seems very attractive, and there has to be a catch to it. which is not being revealed. however though at 5‰ interest rates it seems to be too good to be true.

I tried calling Baja capital Helpdesk no, they gave me their delhi HO no., which no one responds to.

I thought to bring it on this forum to know your views, opinions and advice on this.

this could be a boon to a needy, or it could be a con or a misinformed investment trap.

Please suggest.

REPLY

Umesh June 27, 2013 at 12:05 pm [edit]

An offer that seems too good or to attractive should be thoroughly checked/investigated.
There may be/should be some catch.
Otherwise in this time of high interest rates no one is going to give loan @ 5%

REPLY

sandeep June 27, 2013 at 12:17 pm [edit]

I have also heard about this type of product from birla finance and when i enquired about such type of product from internally from birla i got there are no such type of product released by the Company.

Can somebody more explain on this.

REPLY

 Manshu June 27, 2013 at 5:54 pm [edit]

I have not heard of anything like this and it doesn’t sound like a real offer to me. I can create a post out of this question, and see if anyone else has got such offers and what their experience has been. Like others, my first reaction is to stay away from any such plans.

REPLY

Mihir June 27, 2013 at 6:30 pm [edit]

Manshu, That is a great idea!

I believe more people would want to know about the truth of such schemes, may want to benefit from it or stay away as per their situation. This would be helpful to all of the audience. Please create a post for this.

I have also asked the person to call me on friday evening to discuss more. The person has tole me the process would be online(raises more suspiscion) and documents need to be sent to a Bajaj Capital office in Marol, Andheri, Mumbai. This gives some assurance that it may not be a con, but still need to discover the catch.

Will keep all posted

REPLY

Mihir July 3, 2013 at 1:07 pm [edit]

Spoke to the guy on Tuesday,

Just to make it easy for him. I told him I am interested. The agent kept on confirming that there are no hiddend charges!

One has to buy a bajaj Allianz policy and use it as a security to take up the loan, when I constantly asked him to share Terms and conditions (To make sure this is not a fraud) he asked me to goto:http://www.bajajfinservlending.in/salaried-personal-loan.aspx

However I had to pull away myself for a meeting. So I gave him my frnds no. as reference, that friend of mine works with acturial dept of an insurance company.

SO he may get more info. :)

REPLY

Kedar July 3, 2013 at 4:33 pm [edit]

Hey!

I too got a call from reliance capital today, the person said that they will give loan at 0%!!!!

REPLY

Tax benefits for people with disabilities in India

Sushila wrote the following last week:

Sushila June 27, 2013 at 4:33 pm [edit]

Request some write-ups for the people with disabilities; What special benefits are available to them and how should they go about it? for e.g Taxation (Professional/Income/Gift/Service) Medical (Free/subsidized/special cases) Travel (Concessions/special arrangements) Education (concessional loans/subsidy/courses/institutions) Housing….. Investments….. Banking……. There are many disables who do not know their rights and hence struggle in life, we hear and read a lot about senior citizens.

Since I know a little bit about taxation, I’m going to start with taxation in this post. Unfortunately, there aren’t as many tax benefits for people with disabilities as one would like, but there are still one or two. In a country where only 3% of the populace pays taxes, you wonder if it is really necessary to make people with disabilities pay taxes, but that’s a topic for another day. In this post I’m going to list out a few tax deductions for people with disabilities that I’m familiar with.

Section 80U – Deduction for Persons with Disabilities

Section 80U is only for persons with disabilities and not for parents or spouses whose dependents have disabilities. 80U allows a person to deduct either Rs. 50,000 or Rs. 100,000 from your taxable income. Persons with disabilities will get a deduction of Rs. 50,000 and persons with severe disabilities will get a deduction of Rs. 1,00,000. This link has a list of the description of each kind of disability. 

Section 80DD

(The following text is from an old post.)  This is a deduction in respect of maintenance including medical treatment of handicapped dependent that is a person with a disability. It is available to individuals and HUFs (Hindu Undivided Families). In the case of an individual the deduction is available to spouse, children, parents brothers or sisters of the individual. In the case of HUF the deduction is available to any member of the HUF. The second condition is that the disabled person should be wholly or mainly dependent on the person seeking the deduction for their support and maintenance. The dependent should have a disability of at least 40%, and for claiming the deduction the assessee has to furnish a copy of certificate issued by the medical authority There are two ways in which the expenses could have been incurred:

Option 1 Option 2
The taxpayer has incurred an expenditure for the medical treatment, training, nursing and rehabilitation of the dependent The taxpayer has paid/deposited under any scheme framed in this behalf by the LIC or any other insurer or the administrator or specified company and approved by the Board in this behalf, for the support/maintenance of the dependent

Amount of deduction eligible under Section 80DD: 1. Fixed deduction of Rs 50,000/- is allowed irrespective of amounts incurred in Option 1/2 2. Deduction of Rs. 1,00,000/- is allowed in case where the dependent has the disability of more than 80% If the dependent predeceases the Individual/HUF, an amount equal to the amount paid shall be deemed to be the income of the individual/HUF and will be chargeable to tax

Details on Section 80DDB

This deduction is in respect of medical treatment of a specified disease or ailment as prescribed by the Board. 80DDB deductions are also available to individuals or HUFs and are available for expenditure incurred in respect of assessee himself or his dependent spouse, children, parents, brothers/sisters. In order to get 80DDB deduction the assessee has to submit a certificate in the prescribed form from a neurologist, oncologist, urologist, haemotologist, immunologist or such other specialist as prescribed working in a government hospital. Amount of Deduction under 80DDB: Actual amount paid or Rs 40,000/-, whichever is lower In case the amount incurred is in respect of a person who is a Senior citizen then: Actual amount paid or Rs 60,000/-, whichever is lower I am not aware of any other tax deduction available to people with disabilities and if you know of any more then please leave a comment and I’ll include this in the post. Also, if you have any ideas for the other questions that Sushila has asked, please do leave a comment.