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DTAAs : to curb black money

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Basically DTAAs are those pacts that seek to eliminate double taxation of income or gains arising in one country and paid to residents or companies of another. In other words, the treaty is devised to ensure that the same income is not taxed twice. In a bid to curb the growing menace of black money, the Government of India has written, under revised tax treaties, some countries to freeze the assets of Indians that have not been declared in India and repatriate the money. It is important to note that India has renegotiated Double Taxation Avoidance Agreements (DTAAs) with 29 out of the 79 countries with which it has such agreements, including the US, Mozambique, Tanzania, Ethiopia, Colombia and Norway. Further, India has also involved into the process of revising DTAAs with Switzerland and Mauritius as well.

Depreciation of rupee : Discouraging and unwarranted

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Off late there has been a remarkable rise in rupee value against dollar currency. In the month of August, 2011, rupee value against dollar was 44.5-45.0 range but in the month of September, 2011 the rupee value has hovered around the range of 49.0-50.0 range.  It is expected to rise further which would result in weakening the rupee value against the dollar currency. This kind of increase would have the drastic impact on the macro economy of the country like heavy raise in the import cost where countries like India heavily depends on the importing on Oil and other crucial raw materials needs for the industries. Rupee depreciation means that rupee has become less valuable with respect to dollar. If the rupee moves upward from 30 per dollar to 40 per dollar then rupee is said to depreciate. It means that rupee is now cheaper than what it used to be earlier, so if the dollar was Rs 30 and now it reached 40.
'J' curve is used to represents the theory stating that a country's trade deficit will worsen initially after the depreciation of its currency because higher prices on foreign imports will be greater than the reduced volume of imports. The effects of the change in the price of exports compared to imports will eventually induce an expansion of exports and a cut in imports-which, in turn, will improve the balance of payments.

Implications of Rupee Depreciation: The depreciation of a currency has several repercussions, which could have mixed effects on the economy. The popular 'J' curve leads us to believe that although initially the costs of such depreciation may outweigh the benefits, in the long run the country tends to be much better off. Let us consider the sectors of the economy which will be affected by the depreciation of rupee:

  • (a) A depreciation of the Indian rupee will give competitive advantage to the Indian export firms, thus boosting Indian exports. The rise in exports will give a boost to the recovery of economic growth.
  • (b) A weak domestic currency will make the imports dearer. This will act as a barrier against imports; it will thus improve the trade balance of the country. However, imports of commodities, like oil, whose demand is relatively inelastic, could dilute, fully or partially, the likely improvement in the trade scenario. Although capital imports are needed for economic growth, the need to curb the deficits is more pressing because deficits have an inflationary impact and they can also lead to financial vulnerability. In case there is exchange depreciation, Indian importers would prefer to purchase locally manufactured goods. This would add to the growth in demand for goods and services, thus helping in the economic recovery.
  • (c) A weaker domestic currency would help attract more foreign domestic investment. This is so because international companies would find it more attractive to set up units in India to service their foreign units because of the cost advantages, which in the case of a strong currency could be partially or fully wiped out.
  • (d) The repayment of foreign debt by the government will be severely affected due to depreciation in the value of the rupee.
  • (e) Another drawback of a weak currency is that it might dissuade foreign institutional investment (FII) from investing in India. The prospects of a weaker currency could also lead to a rush for repatriation of funds by FIIs. The FIIs are permitted to transfer money in and out of the country at will and therefore if there were a legitimate fear of a large fall in the value of currency, they may be tempted to repatriate a part of their funds. This could result in a selloff in the capital markets.
  • (f) Depreciation of rupee will lead to higher interest rates in the economy, with the help of which the RBI might want to fight off the pressure of depreciation in the value of the domestic currency.

Eurozone crisis: On the brink of chain reaction

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“The expansion of the European financial crisis and its deepening into a political crisis has followed a clear causal chain produced by a series of missed opportunities.”

Eurozone refers to the Economic and Monetary Union of member states of the European Union. Members of the Eurozone have adopted the Euro as their common currency and sole lender. The monetary policy of the Eurozone is laid out by the European Central Bank (ECB). Fiscal Policy, however, is the domain of individual member countries. The eurozone currently consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain. The roots of the ongoing economic crisis in Europe began in early 2009, as a knock-on effect from the 2008 global financial crisis, which had already claimed Iceland as a victim. Iceland was not an institutional issue for the EU, but in 2009 Eastern members of the EU not using the euro began to have balance-of-payments problems. They suffered effective devaluations of their national currencies and sought help from Brussels to resolve their mounting budget deficits. In response, the EU doubled the funds in an existing facility to address balance-of-payments problems. Among the European countries that are affected mainly by the ongoing Eurozone crisis are Portugal, Ireland, Greece and Spain (PIGS countries). Iceland, the country which experienced the largest crisis in 2008 when its entire international banking system collapsed has emerged less affected this time as the government was unable to bail the banks out. In the EU, especially in countries where sovereign debts have increased sharply due to bank bailouts, a crisis of confidence has emerged with the widening of bond yield spreads and risk insurance on credit default swaps between these countries and other EU members, most importantly Germany.

Current Economy

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Statistics:


Lending rates:
Bank Rate - 6 per cent
Repo Rate - 7.25 per cent
Reverse Repo Rate - 6.25 per cent
Statutory Liquidity Ratio - 24 per cent
Cash Reserve Ratio - 6 per cent
Base Rate - 7.60 per cent - 8.50 per cent
Savings Bank Rate - 3.5 per cent
Deposit Rate - 7.00-8.00 per cent

India and British Virgin Islands

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Inks pact with for tax information exchange

India has entered into a pact with the British Virgin Islands for exchange of information to check tax evasion and money laundering. The agreement is aimed at checking the growth of black money.This is the third Tax Information Exchange Agreement (TIEA) — as it is known in the parlance of the Organisation for Economic Cooperation and Development (OECD) — signed by India. India had earlier signed the TIEA with Bermuda and Isle of Man. Under the agreement with British Virgin Islands there is a specific provision for providing banking and ownership information and the requesting state has to provide some minimum details about the information requested. However, information is to be treated as secret and can be disclosed to only specified person or authorities, which are tax authorities or the authorities concerned with the determination of a tax appeal. The agreement also allows for exchange of past information in criminal tax matters.

India inks pact with Bahamas for tax information exchange:

India has entered into a pact with Bahamas for exchange of information to check tax evasion and money laundering. This is the fourth Tax Information Exchange Agreement (TIEA) signed by India. Under the agreement with Bahamas, there is a specific provision for providing banking and ownership information and the requesting state has to provide some minimum details about the information requested.

Understanding the Tax Information Exchange Agreements (TIEAs):

The purpose of TIEA’s is to promote international co-operation in tax matters through exchange of information.  It was developed by the OECD Global Forum Working Group on Effective Exchange of Information. The Working Group consisted of representatives from OECD Member countries as well as delegates from Aruba, Bermuda, Bahrain, Cayman Islands, Cyprus, Isle of Man, Malta, Mauritius, the Netherlands Antilles, the Seychelles and San Marino. The Agreement grew out of the work undertaken by the OECD to address harmful tax practices. The lack of effective exchange of information is one of the key criteria in determining harmful tax practices. The mandate of the Working Group was to develop a legal instrument that could be used to establish effective exchange of information. The Agreement represents the standard of effective exchange of information for the purposes of the OECD’s initiative on harmful tax practices.

 

About British Virgin Islands: The Virgin Islands, often called the British Virgin Islands (BVI), is a British overseas territory, located in the Caribbean to the east of Puerto Rico. The islands make up part of the Virgin Islands archipelago, the remaining islands constituting the U.S. Virgin Islands. The British Virgin Islands consist of the main islands of Tortola, Virgin Gorda, Anegada and Jost Van Dyke. The capital of British Virgin Islands is Road Town and is situated on Tortola, the largest island. The head of the state is Queen Elizabeth II and the Governor is William Boyd McCleary.

Food Security: Need to establish food democracy

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Over one billion hungry people go to bed every day all over the world; this can be termed as our most tragic achievement in modern days. We have to reclaim our right to food, nutrition and food safety. The need is to produce food where the poor and hungry live and to boost agricultural investment in these regions. Food democracy is the new agenda for ecological sustainability and social justice. The FAO World Food Summit in 1996 had concluded that about 840 million people (15 per cent of population)are undernourished and that under current prospects this

First Quarter Review of Monetary Policy 2010-11

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In order to control to rising inflation rate, the central bank has tightened the liquidity flow by raising the repo rate from 5.5 per cent to 5.75 per cent and the reverse repo rate from 4 per cent to 4.50 per cent. Repo rate is the rate at which banks borrow from RBI. Reverse repo rate is the rate at which the central bank borrows money from banks. But Cash Reserve Ratio (CRR) has been kept unchanged at 6 per cent. This asymmetric raise in rates narrows the LAF corridor from 150 basis points to 125 basis points.

Financial Action Task Force

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Indian has become a full-fledged member of Financial Action Task Force (FATF), an inter-governmental body, responsible for setting global standards on anti-money laundering (AML) and combating the financing of terrorism (CFT). Earlier, India had become Observer at FATF in the year 2006. Since then, India


has been working towards full-fledged Membership of FATF. FATF membership is very important for India in its quest to become a major player in the international finance. It will help India to build the capacity to fight terrorism and trace terrorist money and to successfully investigate and prosecute money laundering and terrorist financing offences. India will benefit in securing a more transparent and stable financial system by ensuring that financial institutions are not vulnerable to infiltration or abuse by organized crime groups. The FATF process will also help us in coordination of AML/CFT efforts at the international level.

ICAT
International Centre for Automotive Technology, Manesar has now launched Online Certification System (OCS) to speed up certification and homologation, related processes. Online Certification System will help
enhance transparency and efficiency in all the critical steps of certification system. Reduced use of paper and less requirement of physical presence of customer will be major USPs of this system. In line with best global practices, OCS would also mean that manufacturers around the world can access their data 24x7x365. All processes such as Type Approval, Conformity of Production (COP), Research & Development projects related to vehicles, engines, generator sets and automotive components are supported by the system. Multi-user and multi-disciplinary options will ensure uniform access to all employees within a particular knowledge domain. Appropriate checks and systems built into OCS will ensure strict control and confidentiality at all times. Another benefit of this system is that clients can track the status of their projects anytime using the system. A single window will give updates on specifications, timelines and costs. iCAT is India’s premier automotive test agency, equipped for full homologation of automobiles as well as components. iCAT’s strengths also lie in its core capabilities in R&D jointly with manufacturers and automotive developers, besides certification and research work, a lot of which is also funded by the Government of India’s Ministry of Heavy Industries. iCAT is one of the most advanced testing and certifying agencies in the world and has a strong IT backbone to support all its activities.

 

A painful shift from APM to MDPM

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After almost two decades of reforms, finally, India saw partially shift from the regime of administrative price mechanism (APM) to market driven price mechanism (MDPM) in the oil sector. It is not surprising at all. This is a very natural and inevitable outcome of the opening of the country and ending of the protectionist regime in the light of the globalization. In fact, the shift from

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