India did well in year of global economic turmoil: Finance Minister Arun Jaitley

Finance Minister Arun Jaitley dismissed grumblings about the economy not having taken off as "cynicism - a way of life in India".NEW DELHI: Voicing “great satisfaction” over performance of the Indian economy in “a year of turmoil and volatility” globally, Finance Minister Arun Jaitley today dismissed grumblings about the economy not having taken off as “cynicism — a way of life in India”.

Looking back at 2015, Jaitley said India has been the bright spot with growth prospects of 7-7.5 per cent despite global slowdown and adversities, and expressed optimism that the growth rate which is “quite good” would improve further in the months to come.

India has responded well to the challenge posed by the slowdown in global economy, he said, but acknowledged that “there are areas (in which) we have to respond faster”.

“As the year ends, I look back with a sense of great satisfaction,” Jaitley told PTI in an interview, during which he underlined that India’s fiscal fundamentals are “extremely sound”.

Outlining his priorities for the New Year, the Finance Minister said he would continue with structural reforms and the priorities would include GST, rationalising direct taxes, further easing the system of doing business.

“After having done that, I would like to concentrate essentially on three things – more money for physical infrastructure, more money on social infrastructure and lastly more money on irrigation because that is a neglected sector.”

Asked about murmurs that the economy has not really taken off, Jaitley dismissed such grumblings as without merit and said that “the revenue collections do not go up without the economy taking off”.

“Cynicism is a way of life in India. You can question any other data but you cannot question the actual rise of revenue and the actual rise of revenue is showing that the economy is doing better,” he said.

Asked whether the Indian industry was also prone to such cynicism, Jaitley said, “Well, I think a section of the Indian industry has overstretched itself and those who have overstretched themselves see this as a universal problem.”

Besides global headwinds due to slowdown in China and weakness in commodity markets, India also had to face domestic challenges in form of two continuous weak monsoons and slower private sector investment, making the management of the Indian economy a “great challenge for us,” Jaitley said.

“Private sector investments continued to be slow because the private sector had overstretched itself… they had surplus capacity and demand was slow.”

The government responded well to these challenges by stepping up public investment, which has been complemented by 40 per cent rise in FDI and a rebound in consumption, he said.

The government has utilised the savings from low oil prices for infrastructure spending, resulting in sectors like highways, rural roads and railways getting a significant step-up of investment. Port areas have also been targets of private sector investments, he said.

“As a result, despite the global slowdown and adversities, India became the bright spot in the global economy with a growth prospect of 7-7.5 per cent. It is lesser than our targetted 8 per cent. I have no doubt if we have had a normal monsoon, we would have been close to the target.”

Jaitley said the services sector continues to be strong, while “revival of manufacturing and the IIP (Index of Industrial Production) are high points of this year”, which is also reflected in record rise in indirect tax collections.

“Inflation remains under control, the repo rate (the policy interest rate decided by RBI) has come down this year by 125 basis points. Foreign exchange reserves were as good as always. Compared to the rest of the global economies, we were far more stable vis-a-vis the dollar,” Jaitley said while summing up the macroeconomic trends for 2015.

“The year 2015 has been an extremely challenging year as far as economy is concerned, because the world economy has been going through a downturn,”he said, while adding that imports as well as exports have shrunk due to decline in prices and shrinking of the global trade.

“International trade has contracted. So both imports and exports have shrunk. In India context, the shrinkage is more in value (terms) because the prices are low and to some extent in volumes because of the shrinkage of global trade,” he said.

Jaitley further said that the government has continued with its reform process including on fronts like FDI norms and ease of doing business, while some of the old taxation issues are being resolved “one by one”.

“The rationalisation of subsidies in a big way has taken place. The methodology of distribution of natural resources has become extremely fair… These are important positives which have emerged as far as our economy is concerned.”

On way ahead for the Indian economy, Jaitley said a “fast moving economy” will help generate more revenues for investing in physical and social infrastructure as well as irrigation.

“I have already been constrained by a 42 per cent (tax) collections going to the states on recommendation of the Finance Commission. Next year, I am constrained by Rs 1,02,000 crore extra spending because of the Pay Commission. So, I have to always keep counting my balance resources,” he said.

On some states requesting deferring the Pay Panel recommendations due to lack of resources available with them, Jaitley said a committee of secretaries was already working on the implementation.

“The Pay Commission has already raised the expectations of government servants and defying that expectation is very difficult. I don’t grudge the government servants being paid more because after all they are supposed to work harder and work honestly.”

Asked whether it would be implemented from January 1, Jaitley said, “The expert committee will decide (that). The Secretaries Committee is already working on the matter”.

Asked whether there have been any disappointment, Jaitley said, “I would say fighting a slowdown is a challenge, it can never be a disappointment and we have responded to the challenge”.

On areas where the government needs to respond faster, he said these include various structural changes.

“We need to bring our direct taxes at par with what is happening elsewhere in the world… I had hoped that we complete the process of GST this year,” Jaitley said, while putting the blame on Congress for delaying this reform with its “plain and simple obstructionism”.

“In fact, a national party adopting a disruptionist role and getting a sadistic pleasure in stalling a reform which could add to India’s GDP is a disappointment.

“It used disruption in order to obstruct and I think it is a very bad precedent for India’s Parliamentary democracy if this is followed in state legislatures, if this is followed by future opposition parties, I think it would be a bad trend to set.”

Jaitley further said the Parliament itself would have to find alternative methods of approving legislation if the Congress party does not change its tactics.

Asked about such alternatives, he said, “I hope it does not come to a stage where all legislations are passed in a din or you rely on money legislations, you rely more on executive decision making”.

Stating that some of the legislations have been passed even without discussion, Jaitley said it was not the “ideal way how laws should be passed”.

On his comments about the role of Rajya Sabha, Jaitley said, “I have frankly not argued for a fresh look at Rajya Sabha. Rajya Sabha is essential and part of India’s basic structure. The structure of Rajya Sabha cannot be altered.”
Asserting that he would never suggest altering this structure, Jaitley said, “I am only on the impact on Parliamentary democracy if the indirectly elected house continues to veto a directly elected house”.

“… Rajya Sabha as a house which is supposed to maintain a check and balance, can once in a while disagree with a legislation passed by the Lok Sabha. It can be referred to a joint session, but every other law they cannot disagree with. It cannot happen too frequently.
“And if the indirectly elected house, for political and collateral reasons, vetoes a directly elected house, it does not augur well,” he said.

Talking about the system in other countries, Jaitley said, “In Britain, they follow a pattern that the Upper House can send it (a bill) back once for reconsideration to the Lower House and if the Lower House, which works on a mandate and which has been elected on a manifesto, second time approves it, the Upper House always accepts it.”

Asked whether that can be followed in India too, he said, “That could be accepted as a possible precedent.”

On rising bad loans of banks, Jaitley said it was “a problem inherited from the previous regime”.

“We are addressing each one of the sectors – the highways, the infrastructure contracts, the discoms. There is a lot of activity on each and all of these fronts. There is a system of recapitalisation of banks, but the problem is large and therefore, we will have to continue this effort and probably even improve on these efforts,” he added.

Modigliani-Miller for Climate Change Financing

In recent years, attention has focused on alternative instruments to finance projects to combat climate change. Advocates of these so-called “Green Bonds” sometimes argue that the bonds result in the financing of more “green” projects and are thus a critical weapon in the battle against climate change. While this claim may be true, it doesn’t necessarily follow.

Projects that are economically viable would get funding from traditional sources just as easily as from non-traditional Green Bonds. After all, profit-seeking investors hoping will finance projects offering higher returns. So, in this perspective, the issue is whether Green Bonds allow projects that don’t offer as high private returns (but generate high social returns) to go forward.

It is possible, for example, that Green Bonds attract socially-minded investors that are prepared to accept lower rates of return. But if the buyers of Green Bonds are mandated to finance green projects, it isn’t at all clear that more projects would be undertaken–those projects could just as easily be financed by plain-vanilla bonds. In this case, the issuance of Green Bonds merely displaces plain vanilla with the same number of green projects undertaken.

The only way to increase the number of projects is to increase the rate of return on them or reduce the rate of return investors are prepared to accept. Trust funds that provide “sweeteners” to a financing package do the latter. But, if we are serious about addressing climate change and really want to expand the volume of projects undertaken, the relative returns of carbon-based projects have to fall relative to green alternatives. That is to say, the way a project is financed is less important than the underlying stream of returns on that project.

Fifty years or so ago, Modigliani and Miller (M-M) made an analogous argument with respect to corporate finance. Given the strong assumptions they invoked, whether a firm is financed more by debt or equity is irrelevant to the value of the firm. What matters for firm valuation is the underlying profit stream.

Looking at Green Bonds though the Modigliani-Miller lens is useful because of the importance of the challenge the international community faces. Now, it might be the case that Green Bonds are worthy of the claims made of them; in particular, they could they address information asymmetries that prevent investors with a mandate to invest in green projects finding them. This would be consistent with the original M-M result, which assumes full information and perfect certainty. But I suspect that investors with green mandates have a surfeit of investment opportunities. And, if Green Bonds are merely as a fashion statement and are viewed as a substitute for measures to alter the relative return on carbon-based and green projects, through carbon taxes, for example, questions could legitimately be raised whether they are worth the effort.

FinMin, RBI plan to put curbs on capital funds, term loans for firms

Arun Jaitley

In order to develop the corporate bond market, the finance ministry and the Reserve Bank of India are planning to restrict the amount of working capital funds and term loans that companies can borrow from banks. The ministry and the regulator plan to encourage companies to meet a portion of their funding requirements by raising funds in the corporate debt market and through commercial papers.

Another measure on the cards is to lower the transaction in corporate bonds for all category of investors, and reserve a specific portion of the bonds for retail investors, just as it is done in case of share sale during initial public offers by companies, a finance ministry official said.

Corporate bond issuance in India is currently dominated by private placements with institutions, which accounts for over 95 per cent of the total issuance of corporate debt. “We have met the RBI a number of times in recent months and discussed ways to boost the corporate bond market. A roadmap is being prepared, which will be rolled out in due course. The plan is to get companies to raise more funds through corporate bonds and to attract institutional and retail investors to participate in the market,” the official said.

The Financial Stability and Development Council, chaired by finance ministerArun Jaitley, has discussed these steps as well.

The government further plans to amend the SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) Act, 2002 to enable bond and debenture trustees to use provisions of this law in case of default by a corporate bond issuer.

At present, only banks and financial institutions can use the SARFAESI Act provisions in case of default. Amendments to the SARFAESI Act are being finalised and these are expected to be moved in the upcoming Budget session of the Parliament, the official said. One problem being faced in development of corporate bond market is that while the corporate loans given by banks are

not marked to market, there is a requirement of bonds to be marked to market, the

official said. This means whenever a company’s bonds rating come under pressure or there are doubts on the company’s repayment capacity, the bond investors including banks have to book mark-to-market losses in their books of accounts. In case of corporate loans, there is no such requirement of booking mark-to-market losses. The government and the RBI are trying to resolve this anomaly, the official said.

The RBI has also proposed that corporates may be encouraged to re-issue existing bonds under the same International Securities Identification Number or ISIN code. This is expected to augment market liquidity, reduce the cost of borrowings and prune the documentation requirements.

The official said that the Insolvency and Bankruptcy Code, 2015, which was introduced by the government in Parliament on Monday and later referred to a 30-member join parliamentary panel, would also help in developing the corporate bond market.

The bill aims freeing up banks’ resources for other productive uses and boosting credit markets by providing for faster liquidation of a company’s assets in case of defaults.

As per the proposed legislation, the corporate insolvency would have to be resolved within a period 180 days, extendable by a further 90 days. It also provides for fast-track resolution of corporate insolvency within
90 days.

Boost for corporate debt market

# Corporate bond issuance in India is currently dominated by private placements with institutions, which accounts for over 95% of the total issuance of corporate debt

# Only banks and financial institutions can use the SARFAESI Act provisions in case of default

# The government further plans to amend the SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) Act, 2002 to enable bond and debenture trustees to use provisions of this law in case of default by a corporate bond issuer.

10 Infamous ‘Last Words’ of Personal Finance

Worried Young Woman Doing CalculationsManaging your finances can be confusing. You might hear all sorts of advice that seems prudent. And you might assume that you’re taking the right approach by acting on this advice.

But what seems like a smart course of action might actually jeopardize your financial security. Here are 10 personal finance statements that financial experts have heard at least once from clients or others that weren’t wise moves.

1. ‘I want to cash out my IRA and buy a new truck.’

Jeff Rose, a certified financial planner and founder of Alliance Wealth Management, said a client once said he wanted to use the money in his IRA to buy a new fully loaded GMC Denali. It might have seemed like a good idea to Rose’s client because he would be using his own money rather than borrowing to make the purchase. But there’s a high price to tapping an IRA before retirement.

“When I explained to him the taxes he would be paying by cashing out his retirement account were almost half of what the truck’s sticker price was, he back pedaled a bit,” Rose said. IRA withdrawals are treated as taxable income and subject to an additional 10 percent early withdrawal penalty if you take money out of your account before age 59½. Plus, cashing out an IRA before retirement might mean you won’t have enough money saved to retire.

2. ‘I’m going to pull my money out of stocks and wait until the market straightens out to get back in.’

Investors often say this during market downturns because they’re afraid their investments will lose value, said Ken Weber, president of Weber Asset Management and author of “Dear Investor, What the Hell Are You Doing?” But their reasoning is flawed.

“When you get out when the market is low, you’re locking in your losses and you’re locking yourself out of the eventual recovery,” Weber said. As long as you have a diversified portfolio of mutual funds, you should stay the course during downturns.

3. ‘I’ll save for retirement after I pay off student loans, buy a house and send the kids to college.’

If retirement is far off in your future, it might seem smart to prioritize other financial obligations. “Saving for retirement is last on people’s list in our immediate gratification society,” said Robert Johnson, president and CEO of The American College of Financial Services, which provides education for financial professionals.

However, time is what people need to be able to save adequately for retirement. “Success in investing is not about timing the market, but time in the market,” he said. “You simply can’t wait until retirement is approaching to start planning for retirement.”

4. ‘Let’s consolidate our credit card debt with a personal loan.’

Using a personal loan that carries a lower interest rate can be a good way to pay off high-interest credit card balances and wipe out your debt quicker. However, if you continue using those cards and charge more than you can afford to pay off, then you are setting yourself up for financial trouble because you’ll have a personal loan and credit cards to pay, said Michelle Black, a credit expert with the credit education and restoration company Hope4USA.

“Consolidation must be coupled with a commitment to financial change,” she said. “Otherwise, you are only creating a larger problem for yourself to try to deal with down the road.”

5. ‘Take advantage of buy now, pay later.’

This advice was given to Jason Hull when he was buying his first home. Hull, a certified financial planner and chief technology officer for online financial planning servicemyFinancialAnswers, was considering a Department of Veterans Affairs mortgage offer to veterans and service members that often doesn’t require a down payment.

“While putting no money down meant that we could purchase a house that we otherwise could not have purchased for lack of a down payment, it also encouraged bad financial behavior right as we were starting out: namely, buying now and paying later,” Hull said. The better course of action is to rent until you’ve saved up enough for a 20 percent down payment so you’re not saddled with excessive mortgage debt.

6. ‘The way this country is going, I don’t want to invest.’

Weber said that he’s heard this countless times over the years because people are afraid by what they hear or read in the news. Don’t let fear guide your investing decisions, he said. Instead, if you need guidance, hire a professional who can help you pick the right mix of investments that will offer growth while meeting your tolerance for risk.

7. ‘I have credit card debt but want to open a new card to get 25,000 airline miles.’

As tempting as the offer may be, you shouldn’t take advantage of it, says Heather Lovett, director of public relations for DealNews. “If you are carrying credit card debt, your only goal should be paying off that extremely expensive debt,” she said.

Most credit cards that offer travel rewards require that you spend a minimum amount to accrue points or free miles. “Those free miles will suddenly be very expensive when the $3,000 minimum spend costs you 22 percent in interest per year,” Lovett said. “And if you fall further behind, your credit score will drop, making any future borrowing more expensive.”

8. ‘I don’t need to worry about retirement savings because I expect to get an inheritance.’

It’s unwise to assume that just because your parents are retired and seem to be doing well, you will inherit a significant sum, said Michael Fuhr, a certified financial planner with SageVest Wealth Management. Your parents may need a large portion of their assets for health-related expenses, especially if they require nursing home care and don’t have long-term care insurance to cover it, he said. If there are multiple siblings, a potential inheritance may be reduced further.

Or your parents might decide to spend their hard-earned money on themselves during retirement. “If you don’t know what their plan is, then you can’t assume it includes you in a significant way,” Fuhr said. It’s always best to be disciplined and save for your own retirement.

9. ‘Let’s use our savings to start a business.’

It’s good to have an entrepreneurial spirit. But you should also realize that many businesses fail, said Priyanka Prakash, a lending specialist at “A lot of people with hopes of owning a business dump their entire life savings into it,” he said. If the business goes belly up, they might have to declare bankruptcy.

Prakash said new business owners should have saved enough to cover six to 12 months’ worth of expenses to fall back on if the venture doesn’t succeed or grow as fast as expected. He also suggested that they limit exposure to their personal assets by finding outside investors for their business.

10. ‘That won’t happen to me.’

People often assume they don’t need to insure themselves against disaster, said Jeff Jones, a certified financial planner with Longview Financial Advisors. He also said that many believe they won’t need long-term care.

“We are living longer and a long-term-care need, such as an extended nursing home stay, may be one of the largest single financial risks to a retiree’s financial plan,” he said.

The average annual cost of care in an assisted-living facility is $43,200 and is $91,250 for a private room in a nursing home, according to Genworth’s 2015 Cost of Care Survey. Medicare offers limited coverage. Medicaid programs typically require that all of your assets are spent before coverage becomes available, Fuhr said. However, a long-term-care insurance policy can help offset the tremendous cost of assisted living and nursing home care.

How to Avoid 5 Costly Credit Card Traps

Man Sitting With Laptop And Credit Card Shopping OnlineWhen used properly, credit cards are extremely valuable personal finance tools. Credit cards can offer four big benefits:

1. Responsible usage of a credit card is the easiest way to build a good credit score. Despite widespread myths, you don’t need to go into debt to have a good credit score. If you use less than 10 percent of your available credit and make your payment on time and in full every month, you will build an excellent credit score over time without paying a dime of interest. Having a good score can help you get the best mortgage and auto insurance rates. In addition, credit scores are used by auto insurance companies in most states to determine your rate.

2. Using a credit card for purchases provides you with much better fraud protection than a debit card. According to Peter Dean, the CEO of Optimizing Risk, the Fair Credit Billing Act only limits your liability to $50 if you report unauthorized use within two days. After two days, your liability increases to $600. After 60 days, you have unlimited liability. With credit cards, the liability is always capped to $50, and most credit card issuers waive that for marketing purposes.

3. Credit card companies offer a grace period. That means you will never pay interest if you pay your statement balance on time and in full. You are effectively able to borrow money at zero percent every month.

4. You can earn rewards or airline miles with a credit card. It is easy to find a cash back credit card that pays 2 percent unlimited cash back. But you can even find cards with better earn rates. A study by MagnifyMoney has found cards paying 3 percent or more in certain categories.

Despite all of these benefits, credit cards can become incredibly expensive when not used properly. Here are the five biggest credit card traps to avoid.

1. You spend more than you should. Credit card companies typically issue limits that are multiples of your monthly gross income. If you make $3,000 a month before taxes, you should not be surprised to receive a credit limit of $6,000 or more. Credit card companies just need to ensure that you can afford to pay the minimum due every month, which is typically 2 percent of the balance. With big limits, it is easy to spend more than you should. Countless studies have shown that people spend more when they use plastic instead of cash. If you don’t have the self-discipline to spend only what you can afford to pay in full every month, you can end up in debt very quickly.

2. You pay a much higher interest rate than you should. Interest rates on credit cards are not low. The average interest rate oncredit cards is 14 percent, and for people with lower credit scores the rate can be much higher. Personal loans typically have much lower rates than credit cards. You can find some of the best personal loan providers at, and rates start as low as 4.05 percent.

3. You use your credit card for a cash advance. A cash advance can be very expensive on a credit card. You will typically be charged a fee for the cash advance, which is usually around 5 percent (or a minimum of $10). So, if you take out $500 you would be charged $25 right away. In addition, you wouldn’t earn rewards and interest accrues immediately. There is no grace period. Finally, there is a separate cash advance rate that is much higher than a purchase rate.

4. You use your credit card for overdraft protection. Mistakes can happen, and having overdraft protection can be a useful insurance policy. However, linking your credit card can make it a very expensive insurance policy. Most banks would charge you twice. First, the checking account would charge an overdraft transfer fee of $10 to $12. Second, the credit card would charge a cash advance fee, because the overdraft would be treated as a cash advance on the credit card. That means interest would accrue, at a higher interest rate, immediately. It is far better to link a savings account for overdraft protection. Even more importantly, you should just make sure you build a buffer in your checking account. With savings account interest rates so low, you would likely be better off keeping that money in your checking account to avoid an overdraft fee, rather than earning 0.01 percent in your bank’s savings account.

5. You pay late. Late fees on credit cards can be shockingly high, typically $30 or more. And you only need to be a day late for most credit card companies to charge you the fee. The good news is that your credit score will likely not be impacted, because most credit card companies only report delinquencies after you are 30 days late. However, you will be wasting a lot of money. Just automate your monthly payment to avoid the fees. If you do become 60 days or more late, your interest rate can increase to a punitive rate, which is usually around 30 percent.

If you are responsible, and have self-discipline, a credit card is a wonderful tool that makes it easy and safe to pay all over the world. But if you can’t control your spending, a credit card can become dangerously expensive quickly. Make sure you have an honest assessment of yourself before you decide whether to swipe or carry cash.