OPINION, P8 COMPANIES, P7 SIMPLIFYING STRUCTURE Base effect over, GDP growth won’t be as high for rest of year With big reservation benefits, over half of India's population could be OBC in 2021 Census FINANCING Chairman Agarwal to take Vedanta private on October 1 EDITORIAL INTERNATIONAL, P14 China's Xi offers $60 bn more to Africa, says no to 'vanity' projects MUMBAI, TUESDAY, SEPTEMBER 4, 2018 FOLLOW US ON TWITTER & FACEBOOK. APP AVAILABLE ON APP STORE & PLAYSTORE WWW.FINANCIALEXPRESS.COM READ TO LEAD VOL. 58 NO. 210, 24 PAGES, `7.00 P U B L I S H E D F R O M : A H M E D A B A D , B E N G A L U R U , C H A N D I G A R H , C H E N N A I , H Y D E R A B A D , K O C H I , K O L K ATA , L U C K N O W, M U M B A I , N E W D E L H I , P U N E SENSEX: 38,312.52 ▼ 332.55 NIFTY: 11,582.35 ▼ 98.15 NIKKEI 225: 22,707.38 ▼ 157.77 HANG SENG: 27,712.54 ▼ 176.01 `/$: 71.21 ▼ 0.21 `/€: 82.68 ▲ 0.01 BRENT: $78.18 ▲ $0.76 GOLD: `30,226 < > `00 — TWIN SHOCKS IN THE NEWS Govt allows state refiners to use Iran tankers, insurance Bonds at new high, rupee at new low ICICI BANK raised its marginal cost of funds-based lending rates (MCLRs) by 15-25 basis points (bps) across tenures, following a similar move by larger rival SBI, reports fe Bureau in Mumbai. The onemonth MCLR at ICICI Bank now stands at 8.55%, 15 bps higher than earlier, and 10 bps more than the corresponding rate at SBI. ICICI Bank, the country's third-largest lender by assets, has raised its one-year MCLR by 35 bps since the beginning of 2018, while for SBI the rise has been 50 bps. PAGE 10 Auto sales in August a mixed bag; car sales dull but CVs shine SALES OF passenger vehicles and two-wheelers were by and large subdued in August but manufacturers of commercial vehicles (CVs) have reported robust growth, reports Kritika Agrawal in New Delhi. While the heavy floods in Kerala and some other parts of the country disrupted sales, dealers pointed out volumes were muted since the festive season this year sets in later than it did last year. Moreover, sales were elevated in August 2017 post the July rollout of the GST. PAGE 6 Dec 1, ‘14 Sep 3, ‘18 Bank now stands at 8.55%, which is 10 bps higher than the corresponding rate at SBI. The rise in rates is partly explained by some shortage in liquidity since the Reserve Bank of India (RBI) has curbed lending activity at nearly a dozen state-owned banks. In the three months to June, the value of issuances in the corporate bond market was a negative `16,920 crore; in the March quarter, the issuances were `1.03 Jun Aug YTD -278 Jul Source: Bloomberg lakh crore. Several banks have raised deposit rates over the past few months since the pace of deposit growth has been modest. Market watchers say yields could stay at elevated levels. Vijay Sharma, EVP, PNB Gilts, said the markets were expecting another rate by the RBI as early as October, given the strong GDP growth number for Q1FY19. Continued on Page 2 STEAL DEAL GAIL hit by import sops for steel firms SURYA SARATHI RAY New Delhi, September 3 THEGOVERNMENT’SPOLICY to protect steel firms from cheaper imports is hitting user industries like GAIL by jacking upinputcostsby27-46%.GAIL has said that if things do not change,itneedstobeallowedto import cheapersteel. Following complaints by GAIL, the government has warned local steel pipemakers like Welspun to refrain from ‘profiteering’— if theydon’t,it will allow GAIL and others to import cheaper steel pipes. Inanattempttoprotectsteel firmsfromimports,thegovernmenthad,lastyearinMay,come up with the DomesticallyManufactured Iron & Steel Products (DMI&SP) policy which mandatedlocalsteelbeusedinpreference to imports. Following this policy, and higher import duties,localsteelproducersalso sawtheirmargins rising. A grievance committee headed by the additional steel secretary was set up as part of theDMI&SP,andGAILhassaid that local pipe manufacturers are charging it `1.2 lakh per tonne,which is 27-46% more than the last price it paidwhen it bought such pipes; during thisperiod,itsayspricesforHR coils rose just 7%. GAIL made this point while telling the committee that, of the 4.6 lakh tonnes of pipes it Profit pipeline (in %, as 27-46 compared to last GAIL tender) 7 Rise in Rise in HR Coil prices of price steel pipes has procured, 1.7 lakh tonnes arebeingmadeoutoflocalsteel. GAILhassaid“thiswillhaveserious implications on the entire economics oftheproject”andit has already decided to refloat one of the tenders. GAIL is procuringpipesforthe300-km Durgapur-Haldia section and 700-kmBarauni-Guwahatisectionofvariouspipelineprojects. While pipe producers like Welspunhavejustifiedtheprice hike, the grievance committee has said these firms “should makeeffortstoreducetheprice torealisticlevelsandnottryand match the global rates”.These firmshavebeentoldtostopthis practicewhichdilutes“thevery spirit of the DMI&SP policy”; if they don’t fall in line, the committee will have no option but “to grant waivers” to GAIL and otherusers. The human pyramid People form a human pyramid to break 'dahi handi', an earthen pot filled with curd hanging above them, to mark the Janmashtami festival at Dadar in Mumbai on Monday REUTERS TAXING TIMES Bombay HC says taxman losing cases deliberately SUMIT JHA New Delhi, September 3 ● APAs Govt gets `3,000 cr, but pacts slowing FE BUREAU New Delhi, September 3 THE BOMBAY HIGH COURT has pulled up the income tax department (ITD) saying that its approach to litigation in the higher courts was responsible for consistently losing cases, and that this “could be then termedasadeliberateorintentional act”. It has asked the departmentofrevenuetobring the guilty officers to book. The taxman has a very poor track record in adjudication and, in FY16, it won just 15% and 26% of the cases in the high courts and the Supreme Court, according to a recent report by the CAG.The taxman did slightlybetter at the appellatetribunalandgot18%decisions in its favour and 17% partially in its favour; the assessee,however,won 65% of the cases outright. The observation came during a hearing on an appeal by the department where it wanted the court to hear a Result of appeals in direct tax cases in FY16 35 (in %) In favour of income tax department In favour of assessee In favour of both 6 15 17 18 32 3 26 33 65 79 71 CIT* Appellate tribunal High courts Supreme Court *Total cases in CIT = 92,692; Tribunal = 19,801; HCs = 5,652; SC = 358 Source: CAG report on direct taxes in March 2017 after the department failed to correct them despite repeated reminders by the court. rejected appeal against the tribunal's order. In 2015, the court had rejected the appeal on the grounds of procedural errors Continued on Page 2 Purchasing Managers’ Index FE BUREAU Slowest growth since May Manufacturing output rose for the 13th straight month. Projections for the next 12 months are optimistic, but sentiment is below the historical trend Nikkei India Manufacturing PMI 50 = no change on previous month, S.Adj. 65 Increasing rate of growth 60 55 50 45 40 Increasing rate of contraction 2018 May 2017 Apr 2016 Mar Equity -692 2015 Feb ($ mn) Bond -5,649 2014 Jan 105 208 2,018 3,000 2,000 1,000 0 -1,000 -2,000 -3,000 355 FPIs continue to be bearish 2013 ICICI Bank hikes one-year MCLR by 15 bps; now higher than SBI’s 6.000 2012 JINDAL STEEL & Power is considering a breakup plan as part of a restructuring to help trim its `42,000-crore ($6-billion) debt pile and boost investor confidence in the company, reports Bloomberg. The company is looking at splitting its steel, power and international businesses into three separate entities, chairman Naveen Jindal said in an interview. Any such plan would need the approval of lenders, regulators and the board, he said. PAGE 6 Sep 3, ‘18 2011 Jindal Steel studies break-up plan as `42k-cr debt weighs Jan 1, ‘18 2010 QuickPicks 72.00 6.555 2009 LIC Housing Finance’s spreads should improve q-o-q, but sharp increase seems unlikely; FY19-20e EPS cut 1-2%; TP revised to `590 from `600; valuations are reasonable ■ Investor, P13 69.50 7.110 2008 Asset quality, core home loans came as a let-down 71.21 2007 By virtue of the tax efficiency over debt funds, even relatively lower returns (pre-tax) makes arbitrage funds a viable proposition for fixed income investors ■ Personal Finance, P13 67.00 2006 Are arbitrage funds a substitute for debt funds? 7.665 2005 Special Features 64.50 -1,621 -377 VODAFONE IDEA ON Monday raised `1,500 crore fund through non-convertible debentures on a private placement basis — first debt after its incorporation, reports PTI. The NCDs have a maturity period of 5 years and have been offered at an interest rate of 10.9% per annum. Idea Cellular and Vodafone on last Friday announced the completion of the $23.2-billion merger of their India operations to create the country's largest telecom operator to take on competition from Reliance Jio. Inverted scale -2,105 -943 -2,629 -1,427 Vodafone Idea raises `1,500 cr through debt 63.68 -803 IN A SIGN that money is becoming more expensive, the yield on the benchmark bond on Monday touched the psychological 8% mark before closing at 7.999%, an increase of nearly five basis points (bps) over Friday’s close of 7.952%. Meanwhile, the rupee on Monday slipped to yet another record low of 71.2137 against the dollar in intra-currency trades and staged only a limited recovery to end the session at a fresh closing low of 71.2050. On Monday, ICICI Bank raised its marginal cost of funds-based lending rates (MCLRs) by 15-25 basis points (bps) across tenures, following a similar move by larger rival State Bank of India (SBI) late last week. The one-month MCLR at ICICI 62.00 -170 FE BUREAU Mumbai, September 3 10-year bond yield (%) 8.220 8.061 7.999 `/$ -1,837 Yield on benchmark bond touches the psychological 8%; domestic currency slips to 71.21 1,470 2,039 INDIAALLOWED STATE refiners to import Iranian oil with Tehran arranging tankers and insurance, reports Reuters. The move comes after firms, including the country's top shipper Shipping Corp of India, halted voyages to Iran due to US sanctions, sources said. New Delhi's attempt to keep Iranian oil flowing mirrors a step by China, where buyers are shifting nearly all their Iranian oil imports to vessels owned by National Iranian Tanker. Sources: Nikkei, IHS Markit THE GOVERNMENT HAS not only received `3,000 crore of additional tax from MNCs that haveenteredintoadvancepricing agreements (APAs) with it over the last five years, it has eliminated a big source of tax litigation. Between FY06 and FY15, around `2.6 lakh crore were added by the taxman to the income of MNCs through whatarecalled‘transferpricing adjustments’, and many of these have been settled by usingAPAs. The annual report on APAs for FY18, just released by the Central Board of Direct Taxes (CBDT) says the 219 APAs resulted in MNCs accepting an extra income of `10,000 crore, translating into a tax of `3,000 crore. APAs are primarily aimed at avoiding transfer pricing disputes arising from crossborder transactions undertaken by MNCs. Through these agreements, the tax department and the companies seek to resolve transfer pricing disputes in advance — before the cross-border related party transaction actually takes place. The rate of completing the pacts,however,sloweddownin FY18 compared to a year ago. While the CBDT signed 88 APAs in FY17, the number came down to 67 in FY18.The report said that one of the reasons for the dip was the increasingcomplexityofcases, which required more time for analysingtherelevantinternational transactions. Continued on Page 2 WORRYING TREND Export credit plunges 47% in July even as priority sector lending up 7.5% FE BUREAU New Delhi, September 3 EXPORT CREDIT PROVIDED by banks fell sharply by about 47% to `21,900 crore as of July 20 from a year earlier. This is despite the fact that total lending to the priority sector rose 7.5%, latest data from the Reserve Bank of India showed. The persistent decline in export credit, especially to small players in the current year so far has raised fresh concerns about ade- quate financial support to exporters. The growth in exports has slowed for a third straight month through July. Exports in 2017-18 came in at $303.5 billion, an increase of 10% over the previous year. Between April and July, exports have totalled $108.2 billion, up 14.2% from a year before. The growth in non-food credit — or loans to companies and individuals — touched 10.6% as of July 20, thanks partlyto an impressive Sea of trouble (% rise, y-o-y) 4.8 Export credit 8.4 5 Priority-sec credit 10.7 6.2 11.1 Non-food credit 7.5 10.6 -33.4 -52.2 Mar 30 Source: RBI Apr 27 -48.1 May 25 -46.8 Jul 20 23% jump in loans to the services sector. Export credit, however, was down 33.4% as of March 30 from a year before and the performance in this segment has worsened despite a steady rise in priority sector lending growth. The ministry of commerce could soon flag the lower disbursements for exports to the finance ministry,a seniorofficial said. “The collapse in export credit is a cause for concern and would hurt export prospects unless recti- fied,” the official explained. Banks, saddled with massive stressed assets, have cut down on exposure to risky players in sectors such as iron andsteelandjutetextiles.Even lending to the gems and jewellery sector saw a meagre 0.1% rise as of July 20 from a year earlier, as banks have turnedcautiousafterthe$2.2billionfraudatPunjabNational Bank involving jewellers Nirav Modi and Mehul Choksi. Continued on Page 2
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