Wednesday, March 17, 2010

US-Banks In Agony

US’s stance on its too-big-to-fail firms just got tougher. New measures, cutting heavily on the big banks’ portfolios and profits, have been proposed.

Barack Obama, moving a step closer to his previously manifested policy (of circumscribing the BIG BANKS), reined in Chris Dodd, chairman of the United States Senate’s Banking Committee, to propose a bill that could contain the hefty firms.

The proposed bill comprises two main aspects:
1.) Creation of the Financial Stability Oversight Council.
Such a council provides for authorities to the FED to take control of any firms it deems as a threat to financial stability. Although such mechanisms did exist for banks but they did not for bank-holding companies.

2.) Creation of Consumer Financial Protection Bureau.
This one will lay-out rules and regulations for a vast range of financial products, viz. Car loans, ATM fees, etc.

These come, obviously in addition to the Federal Deposit Insurance Corporation, which have been doing hopefully well (save for the pre-recession period though).

Though the aspects of the proposal look good, Obama will need to muster a filibuster proof 60 votes, that ain’t no easy. Obama is already facing stale-mate on numerous policies like health care reforms and carbon-emission-capture-plants.

He’ll have to keep his fingers crossed to ensure that this one works out.

Sunday, March 7, 2010

Things Ain’t Workin’ Out For Greece

Looks like there’s no near end to the miseries of Papandreou and Greece. New austerity courses, due to be implemented, and albeit to their pinnacle, are still low (or ‘NO’) measures in the rest of Euro-Zone’s opinion.

When Papandreou, The Greek Prime Minister, laid out strategies for cuttin’ tax evasions, increased VAT from 19 to 21 per-cent, upped excise duties in tobacco and alcohol, and to top’em all, imposed 30% cuts on the holiday bonuses of Civil-Servants, his plans fomented-up the general public.

On one hand he’s being criticised by his own men for implementing austerity measures and on the other, by the world for being too soft and tardy. There ain’t much left for him to do and his dreams to cut the budget deficits from 12.7 to 8.7% (of GDP), this year, seems like a real-far-cry.

Greece’s borrowing requirements (for the current year) is already touching 53 billion Euros and desperate as Greece is to fund it in, the bond yields are up at 6%, and it still can’t find buyers. (Who’d take the risk, right?)

Greece is silently yet keenly watchin’ out for bail-outs from Germany and France (‘for they are all, all honourable men’) but Germans argue (and plausibly enough too) that that’d help Greece to get-off-scott-free after its years of disingenuous behaviour.

So, has Greece caught-22? Let’s wait ‘n watch.

Wednesday, March 3, 2010

Indian Budget 2010-2011

Fiscal Consolidation Has Had Its Stake

So finally all that fuss about huge government borrowings and fiscal deficits seems to be subsiding as the new budget 2010-2011 slowly unravels its promising effects.

Amid growing concerns about a possible fiscal crisis (which definitely had Pranab Mukherjee tensed), what we saw was a perfect blend of partial stimulus rollbacks and increased allocations to what was really required.

What really chinned-up the investors and corporate was the revised fiscal deficit figure which has been pegged at 5.5% of the GDP for the fiscal year 2010-2011, 4.8% for 2011-2012 and 4.1% for 2012-2013.

Unlike the last year, where the figures hovered around 6.8% of the GDP and had pronounced huge government borrowings which had in-turn crowded out the corporate sector from borrowing spree, the scenario’s more hopeful this time.

And the firms hardly took any time in understandin’ it. The result: sensex upped 175 points only moments after the budget announcements.

What really were the steps taken for fiscal consolidation?

1.) New figures for fiscal deficit pegged at 5.5% of the GDP.

2.) Raising of around Rs. 40,000 crores through divestment.

3.) Another Rs. 35,000 crores through spectrum sales.

4.) Cenvat rose from 8% up to 10%. (Illustrating a partial stimulus rollback as the new figure is still 4% down of the 14%, its pre-stimulus state.)

5.) MAT has been raised to 18%. (Previous figure being 15 %.) Though this is what took companies by plight.

6.) Custom duties for petrol and diesel, which had been abolished previously, have been re-imposed.

7.) Crude petroleum will bear a 5% custom, petrol and diesel 7.5% and other refined ones a 10% custom duty.

8.) Excise duties on petrol and diesel, previously abolished, have been revived too.

9.) The non-plan spending has been upped only by 6% and the planned one by 15%.

10.) Surcharge has been lowered by a petty 2.5 %. (From 10 to 7.5.)

11.) Custom duty on gold levied at around Rs. 840 per ounce.

And just making sure that these measures don’t mar demand and consumption, the finance minister has given the tax slab a quantum shift.

As per the new norms, income up to Rs. 1,60,000 bears no tax. (Of course it’s 1,90,000 for women and 2,40,000 for senior citizens.)

1,60,000 to 5,00,000-------------10%
5,00,000 to 8,00,000-------------20%
Above 8,00,000---------------------30%

So, overall, well done Mr. Pranab, 9% growth rate ain’t no far-cry.