FDI and Indian scenario

Foreign direct investment (FDI) is direct investment into production in a country by a company located in another country, either by buying a company in the target country or by expanding operations of an existing business in that country.

Foreign direct investment is done for many reasons including to take advantage of cheaper wages in the country, special investment privileges such as tax exemptions offered by the country as an incentive to gain tariff-free access to the markets of the country or the region.

Foreign direct investment is in contrast to portfolio investment which is a passive investment in the securities of another country such as stocks and bonds.

As a part of the national accounts of a country, national income equation is Y=C+I+G+x-m, [(Y = real GDP, C = consumption spending, DI = disposable income, I=investment expenditure, G=government spending, T = tax revenue, X = exports, M = imports,)].

 FDI refers to the net inflows of investment (inflow minus outflow) to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise operating in an economy other than that of the investor.

It is the sum of equity capital, other long-term capital, and short-term capital as shown the balance of payments. It usually involves participation in management, joint-venture, transfer of technology and expertise.

There are two types of FDI: inward foreign direct investment and outward foreign direct investment, resulting in a net FDI inflow (positive or negative) which is the cumulative number for a given period. Direct investment excludes investment through purchase of shares. FDI is one example of international factor movements.

There are four main working pillars of FDI. They are financial collaborations, technical collaborations and joint ventures, capital markets via Euro issues, and private placements or preferential allotments.

In Indian scenario, FDI in retail is an economic reform, which would allow global chains like Wal-Mart Stores Inc and Carrefour to own up to 51 percent of retail ventures.

The policy would let foreign retailers own up to 51 percent of supermarkets and 100 percent of single-brand stores. The policy doesn't require parliamentary approval, but foreign retailers must get approval from state governments where stores will be located.

The government, as a measure of protection, has said foreign retailers would have to source 30 percent of their goods from small industries.

Multi-brand retail in India is largely in the unorganised sector dominated by neighbourhood kirana stores and there is a concern among political parties and traders that these stores would be affected by the entry of global retailers.

India's stellar economic growth is slowing, the rupee has skidded to record lows and inflation is stuck close to a double-digit clip. Faced with this predicament, Prime Minister Manmohan Singh seems to have weighed the benefits of opening a $450 billion market to foreign investment.

Kaushik Basu, one of Singh's close advisers, once said allowing global chains to open their first stores in India would be one of the most effective ways to help the country deal with food inflation, which stands close to 10 percent.

But the UPA seems to have misjudged the political mood on this reform decision. The Trinamool Congress and the DMK, allies which give the UPA government a parliamentary majority, have opposed FDI in retail. The opposition, of course, has united to reject the idea and it has stalled Parliament.

The government failed to convince the opposition, and even some allies, on the reform. The government is likely to allow global supermarkets such as Walmart, Tesco and Carrefour to set up deep discount stores in India, but with a few conditions. 

Corporate India, expectedly, cheered the move terming it as a "game changer" that will reduce wastage, bring down costs and create millions of jobs.

While some shop owners cheer the FDI in retail, small retailers fear loss of livelihood and income from mega stores of transnational corporations terming the move as "a bailout package for large corporations".

Advantages

• ·       Increase economic growth by dealing with different international products
• ·       1 million (10 lakh) employment will create in three years - UPA Government
• ·       Billion dollars will be invested in Indian market
• ·       Spread import and export business in different countries
• ·       Agriculture related people will get good price of their goods

Disadvantages

• ·       Will affect 50 million merchants in India
• ·       Profit distribution, investment ratios are not fixed
• ·       An economically backward class person suffers from price raise
• ·       Retailer faces loss in business
• ·       Market places are situated too far which increases traveling expenses
• ·       Workers safety and policies are not mentioned clearly
• ·       Inflation may be increased
• ·       Again India become slaves because of FDI in retail sector

This is a very complex scenario as per FDI is concerned in Indian context  as consumers will pay lower prices to buy products on the other hand a huge number of person will be affected directly or indirectly by losing their job.

The ultimate question is who is Patriotic those who support this movement or those who don’t! Only time will tell.

Net Currency Bitcoins

A hacker group has recently claimed that it has stolen Mitt Romney’s tax returns. The files were allegedly obtained from the Tennessee office of the big accounting firm, PricewaterhouseCooper, on August 25.

The hackers have threatened to make the files public on September 28 — unless they are paid $1million in Bitcoins, the online currency. Bitcoins are difficult to trace or identify.

Bitcoin is a decentralised digital currency. It is money that can be transferred directly from one person to another on the Net, without going through a bank or clearing house. It is the cheapest way to move money around because you just have to pay a voluntary fee.

You can use them in every country, there are no prerequisites or set limits and your account can never be frozen. Anybody can generate Bitcoins on the Internet by running a free application called the Bitcoin Miner.

Mining requires a certain amount of “work” for each block of coins. The amount that is mined is automatically adjusted by the network so that only a limited and predictable number of coins is generated. They are then stored in your digital wallet.

When you transfer Bitcoins, an electronic signature is added. Bitcoin verifies transactions with a state of the art encryption that is used in military and government applications. After it is verified it is permanently and anonymously stored in the network.

Bitcoin is open source. Unlike a normal bank, the Bitcoin database is a decentralised database. No individual owns it. It is maintained by a community of open source developers.

If the Bitcoin idea takes root, it will revolutionise business on the Net and beyond it just the way Steve Jobs and Steve Wozniak changed computing with their personal computers, or the web changed publishing.

Bitcoins have a checkered past. Where the Euro failed, it is really conditioning people to a single world economy as well as currency. There is still a lot of work to be done on it and many questions are unanswered.

For example who determines the mining work that is required to make them? How secure is it? Wouldn’t it be easy to hack and manipulate accounts if you are careless?

Even with all these questions, it has a devoted following among libertarians and techies. Above all, trading in Bitcoins is becoming popular even in India.

New visa processing system for Indians travelling to US

The United States embassy here Wednesday announced a new visa processing system under which Indians travelling to the US can have easier visa procurement and fee payment system.

"The new visa processing system will streamline appointment scheduling, simplify fee payments and provide the applicants with new delivery options.

Under our new system, we have more payment options available for visa application fees," said Julia Stanley, minister counsellor for consular affairs.

While the changes in procedure are a part of global support strategy programme by US state department across the world, the new system will be implemented in India Sep 26.

Under the new system, the US visa applicants will be able to pay application fees through electronic fund transfer, mobile phones and collect their documents from 33 document pick-up locations in the country.

The moves comes after the launch of interview waiver programme back in March which allowed certain qualified applicants to renew their visas without coming for the interview.

In 2011, the US consular office processed around seven lakh visa applications witnessing an increase of 11 percent over 2010.

According to Stanley, a significant change in the processing system is that applicants will need to schedule two appointments -- one for fingerprint collection at an Offsite Facilitation Centre and one for consular interview at the Embassy or consulates.

The consulate has also launched its new website in Hindi and English where applicants can also track their application status.

"Applicants can also contact us; schedule their appointments through telephone, e-mail or online chat. The call centre service, free for all, can answer questions in Hindi, English, Punjabi, Gujarati, Tamil and Telugu," Stanley added.

Applicants renewing their visa may not have to give their fingerprints more than once.

Courtesy- http://in.news.yahoo.com/visa-processing-system-indians-travelling-us-104129544--finance.html

Chit fund

A Chit fund is a kind of savings scheme practiced in India.

A Chit fund company means a company managing, conducting or supervising, as foremen, agent or in any other capacity, chits as defined in Section 2 of the Chit Funds Act, 1982. 

According to Section 2(b) of the Chit Fund Act, 1982, "Chit means a transaction whether called chit, chit fund, chitty, kuri or by any other name by or under which a person enters into an agreement with a specified of persons that every one of them shall subscribe a certain sum of money (or a certain quantity of grain instead) by way of periodical installments over a definite period and that each such subscriber shall, in his turn, as determined by lot or by auction or by tender or in such other manner as may be specified in the chit agreement, be entitled to the prize amount".

Such chit fund schemes may be conducted by organised financial institutions or may be unorganised schemes conducted between friends or relatives.

There are also variations of chits where the savings are done for a specific purpose. Chit funds also played an important role in the financial development of people of south Indian state of Kerala, by providing easier access to credit.

In Kerala, chitty (chit fund) is a common phenomenon practiced by all sections of the society. A company named Kerala State Financial Enterprise exists under the Kerala State Government, whose main business activity is the chitty.

Chit Funds are also misused by its promoters and there are many instances of the founders running what is basically a Ponzi scheme and absconding with their money.

Chit funds have been a popular savings scheme in several parts of India for generations together now.

It has paved it’s way as a convenient finance option amongst businessmen, small scale industrialists, and other small time investors. Though very often shrouded by news of fraudulence, they have still managed to retain their popularity.

So what exactly are chit funds and how efficient a financial tool is it? Read on to find out more.

The Beginning of Chit Funds

Chit funds evolved years ago, when the present system of banking did not exist. Few families in a village would get together to form a chit or a group, to save money and to avail of loans amongst the group formed.

A sensible person is chosen to manage the group. This informal system of saving prevailed only on trust. Gradually, as groups became larger and the money involved became huge, many companies started chit fund schemes with attractive offers. 

To thus provide for the regulation of chit funds and for matters connected therewith, the government introduced the Chit Funds Act in 1982.

What is a Chit Fund?

A chit fund is a kind of savings borrowing scheme, in which a group of people enter into an agreement to contribute fixed amounts periodically, for a specified period of time. 

The amount so collected (or the chit value) is distributed among each of the persons in turns, which is determined by way of lots or an auction. Chit funds provide an opportunity to save excess cash on a daily, weekly or monthly basis, and give an easy access to it in case of emergency.

How Does a Chit Fund Work?

Different chit funds operate in different ways; and there are also many fraudulent tactics practiced by many private firms. The basic necessity of conducting a 'Chitty' is a group of needy people called subscribers.

The foreman - the company or person conducting the chitty - brings these people together and conducts the chitty. Foreman is also the person responsible for collecting the money from subscribers, presiding the auctions and keeping records of subscribers.

He is compensated a fixed amount (generally 5% of gross chitty amount) monthly for his efforts; other than that the foreman does not have any specific privileges; he is just a subscriber of the chitty.

The general pattern of the chitty can be readily noticed by a simple formula:

Monthly Premium × Duration in Months = Gross Amount

E.g.: 1000 * 50 = 50,000/-. Where 1000 is the maximum monthly contribution needed from a subscriber, 50 is the duration of the chitty in months and 50,000 is the maximum sum assured. 

The duration also equals the number of subscribers, as there must be (not more or less) one subscriber to receive the price money every month.

The chitty starts on an announced date, every subscriber come together for the auction/lot. As per Kerala chit act, the minimum prize money of an auction is limited to 70% of the gross sum assured that is 35,000 in the above example.

When there is more than one person willing to take this minimum sum, lots are conducted and the 'Lucky subscriber' gets the prize money for the month. 

If there is no person is willing to take the minimum sum, then a reverse auction is conducted where subscribers open-bid for lower amounts; that is from 50,000 >> 49,000 >> 48,000, and so on. The person bidding lowest sum get bid amount.

In both the cases the auction discount, that is the difference between the gross sum and auction amount, is equally distributed among subscribers or is deducted from their monthly premium.

For example if the auction is settled on a sum of 40,000, then the auction discount of 10,000 (50,000 - 40,000) is divided by 50 (the total number of subscribers) and everyone gets a discount of 200. The same practice is repeated every month and every subscriber gets a chance of receiving some money.

Drawbacks

Chit-funds do not offer any pre-determined or fixed returns. Higher returns are earned when there are more number of members in the group or if the duration of the scheme is longer.

One would earn more, when more members need emergency funds. Thus returns cannot be calculated and decided when one joins the scheme.

Safety of Chit Funds

With the plethora of chit fund companies around, the safety of a chit fund lies in choosing the right one. In a registered chit fund company, under legal binding, the activities are regulated and institutionalized by the Chit Fund Act. 

And hence could be considered safe. However, other unregistered companies operating informally do exist. One needs to exercise caution while choosing where he desires to invest.

 

Chit funds definitely are an attractive option for regular saving. It inculcates a disciplined approach to financial planning. 

It has the added advantage of bringing a combination of savings as well as hassle free borrowing. This dual purpose investment tool could be a friend in need at times of unexpected financial emergencies.

Should you invest?

A big “no”

These chit funds are not at all proper and reliable investment vehicles where you park your hard earned money.

So, please avoid them unless you want to exactly take that kind of risk.

Sahara told to refund investors

The Supreme Court ordered two Sahara group companies to refund all the money they have collected through so-called optionally fully convertible debentures (OFCDs) to investors in three months, ending a three-year tussle between India’s capital market regulator and the Subrata Roy-owned business.

The apex court upheld the orders passed by the market regulator and the Securities Appellate Tribunal (SAT) that had directed the two firms—Sahara India Real Estate Corp. Ltd (SIRECL) and Sahara Housing Investment Corp. Ltd (SHICL)—to refund the money they had raised through OFCDs.

The apex court verdict will require the two Sahara firms to refund Rs.24,029.73 crore along with 15% annual interest to all OFCD investors within three months. The companies had collected the money from at least 29.61 million investors between April 2008 and April 2011, the order said.

The 270-page order passed by justices K.S. Radhakrishnan and Jagdish Singh Khehar brings to a close the battle between the Securities and Exchange Board of India (Sebi) and the Sahara group, with the strongest possible endorsement of the regulator’s decision and emphatically upholding the sanctity of the country’s securities law. The money that has to be returned is among the highest restitutions the Supreme Court has ordered.

The court order is a landmark judgment that upholds securities regulations and investor rights, and will encourage better disclosures by companies raising funds from investors, said Akil Hirani, managing partner of Majmudar and Partners, a law firm.

“The Supreme Court order is a victory for rural investors as they are the soft targets of such kinds of fund-raising and will set a precedent of immense significance as it reinforces compliance of securities norms,” he said. “This order will impact all the companies that have raised public money through chit funds or any other means without adequate disclosures.”

Sebi had in 2010 accused the Sahara group firms of violating certain regulatory norms by raising money through OFCDs from the public in the guise of private placement. Sebi’s former whole-time member K.M. Abraham had restrained the two firms, their promoter Subrata Roy and their directors from accessing the capital market till the the entire OFCD money was refunded to the investors with interest. Subsequently, the order was challenged at SAT, which upheld Sebi’s argument in its verdict in October 2011.

Following the SAT order, the two Sahara firms had moved the Supreme Court in November.

According to a recent affidavit filed at the apex court, SIRECL owed Rs.17,656.53 crore and SHICL Rs.6,373.2 crore to their OFCD investors as of 31 August 2011.

“It is clearly apparent that the appellant companies (the two Sahara firms) had clearly taken upon themselves to tread a path different from the mandate of law delineated under the Companies Act,” said the Supreme Court order.

The court supported Sebi’s argument that there was a pre-planned attempt by SIRECL and SHICL to bypass the regulatory and administrative authority of the market regulator.

Sebi will be the custodian of the deposits collected by the two Sahara companies. The court has also appointed retired Supreme Court justice B.N. Agarwal to oversee the refund process to be carried out by the market regulator.

The watchdog has been authorized by the apex court to take recourse to all legal remedies, including attachment and sale of property, and freezing of bank accounts of Sahara firms for recovery of the OFCD money if it is not refunded in the next three months.

The court further directed the two Sahara firms to furnish every detail of their OFCD issuances, subscriptions and refunds within 10 days.

The two companies will then have to “furnish all documents in their custody, particularly the application forms submitted by subscribers, the approval and allotment of bonds, and all other documents to Sebi”.

The refund process will start after Sebi verifies the authenticity of the documents produced by Sahara. If the documents are found incorrect, Sebi can proceed with the refund process on the assumption that the companies have not paid any amount to subscribers who had invested money in OFCDs through six types of bonds issued by the two firms in 2008 and 2009.

According to the order, if Sebi is doubtful about the bonafides of the subscriber, it will have to give the Sahara firms a chance to establish the legitimacy of the investor. Sebi’s decision in such a case will be final.

Following Sebi’s verification, the money of investors that can’t be traced will be credited to the Union government’s account, said the apex court order.

This is not the first time the Sahara group has been ordered to repay investors. In 2008, the Reserve Bank of India (RBI) had banned Sahara India Financial Corp. Ltd, the country’s biggest residuary non-banking financial company, from taking deposits from the public and asked it to wind down its operations by 2011. RBI had set a three-year sunset window on Sahara India Financial, allowing it to accept fresh deposits maturing until 30 June 2011.

A 4 June 2008 RBI release had said Sahara “continuously” violated investment norms; payment of prescribed minimum rate of interest to depositors; asset-liability management guidelines; “know your customer” norms for opening deposits, and had failed to intimate depositors when their deposits matured.

The central bank wanted Sahara India to wind down its close to Rs.20,000 crore public deposit base. It directed Sahara India to repay the deposits as and when they mature and bring down the aggregate liability to depositors to zero on or before 30 June 2015.

According to a Sahara group advertisement in newspapers, in August 2011, Sahara India Financial accepted Rs.73,000 crore of deposits until June 2011, but didn’t say anything about outstanding deposits.

Courtesy- http://www.livemint.com/2012/08/31212631/Sahara-told-to-refund-investor.html?atype=tp