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Today's Hot Stories - January 14, 2013

10 Headlines for Today

(1) Won’t remain passive when attacked: Army chief
(2) Lakhs throng confluence of Ganga, Yamuna, Saraswati
(3) UPS dumps $6.9-billion TNT Express takeover bid
(4) Retail inflation rises to 10.56 per cent
(5) Amid volatile rupee, NRI deposits nearly double to $11.24 bn, says RBI data
(6) Swatch to buy luxury brand Harry Winston for $1 billion
(7) Former Test cricketer Rusi Surti dead
(8) Thirimanne’s ton leads Sri Lanka past Australia
(9) Women’s (under-20) hockey: Karnataka in semifinals
(10) NASA buys private inflatable room for space station

5 Stories for Today

(1) Govt. postpones GAAR implementation by 2 years
(2) India-Pak flag meeting fails to ease border tension
(3) TRAI says existing tariff regime to continue
(4) Nokia ‘Xpress’ browser faces privacy concerns
(5) The challenge of gold

(1) Govt. postpones GAAR implementation by 2 years

Giving a big relief to overseas investors, the government has postponed implementation of controversial GAAR provisions by two years to April 1, 2016.

“Having considered all the circumstances and relevant factors, the government has ...decided that provisions of Chapter 10A of the Income Tax Act (dealing with GAAR) will come into force from April 1, 2016 as against April 1, 2014,” Finance Minister P. Chidambaram said in New Delhi on Monday.

The General Anti Avoidance Rules (GAAR) provisions, introduced by the then Finance Minister Pranab Mukherjee in the Budget 2012-13, were aimed at checking tax avoidance by overseas investors. The proposal, however, generated controversy, with investors expressing apprehensions that it would result in unnecessary harassment by tax authorities.

The decision to postpone the implementation, Mr Chidambaram said, follows the recommendations of the Shome Committee which was set up by Prime Minister Manmohan Singh in July last year to look into investor concerns.

The government, Mr Chidambaram further said, has accepted major recommendations of the panel with some modifications.

“The modifications that we have done are fair, non-discriminatory, just and strike a balance between interest of revenue and interest of investors. So, all apprehensions should now be addressed,” he said.

(2) India-Pak flag meeting fails to ease border tension

Brigade-level meeting lasts only 15 minutes; India conveys outrage over the killing of two soldiers, no discussion on restoration of cross-LoC trade and travel

The Brigade-level flag meeting between Indian and Pakistani authorities at Chakan Da Bagh near the Line of Control in Poonch on Monday afternoon ended without any breakthrough.

Official sources revealed to The Hindu that the meeting on the Zero Line between Commander of the 10th Brigade, Brig. T.S. Sandhu and his Pakistani counterpart, lasted just 15 minutes. The two were joined by over a dozen of the field commanders from the two sides.

Brig. Sandhu is understood to have conveyed India ’s deep outrage over the brutal killing of two soldiers of the 13 Rajputana Rifles regiment, allegedly by a joint Border Action Team of Pakistan’s 29 Baloch regiment commandos and militants of Lashkar-e-Taiba, near Chattri post in Mendhar area of Poonch on January 8, 2013.

Brig. Sandhu made it clear to the other side that India reserved the “right to retaliate” until there was publicly an apology besides returning of the severed head of Lance Naik Hemraj and the weapons looted from the two slain soldiers, the sources said. He also demanded an assurance that there would be no repeat of such an “unprecedented and unprofessional heinous act” and made it clear that the Indian Army would respond to such a violation of the November 2003 ceasefire with “appropriate and quick response”, they added.

It was not immediately clear as to what was the response from the other side.

Sources said that, contrary to expectations, there was no discussion on restoration of cross-LoC trade and travel that remains suspended since January 10. As many as 65 trucks loaded with perishables have been returned to Poonch and Rajouri and over a hundred passengers have been stranded on either side of the LoC in the Jammu-Poonch sector on the Indian side and the Hajeera-Rawalakote area across the border.

Cross-LoC travel is handled on Mondays and trade on the four following days at Chakan Da Bagh in Jammu and Salamabad, Uri, in Kashmir valley. However, the skirmishes since January 6, when a Pakistani soldier reportedly died in the Indian retaliation across Charonda village, trade and travel operation has not got disrupted on Srinagar-Uri-Muzaffarbad route.

Brig. Sandhu proceeded to the district headquarters without speaking to the media on his return from the Trade Facilitation Centre at Chakan Da Bagh. Unconfirmed reports said that he drove all the way to the Rajouri-based headquarters of the 25 Division where the Divisional Commander would hold a meeting with all brigade commanders of the Poonch-Rajouri belt.

(3) TRAI says existing tariff regime to continue

Regulator TRAI has decided to continue with the existing tariff regime for the time being that allows operators to decide on charges for telecom services.

“TRAI sought views of stakeholders on the need to review the existing regime of tariff forbearance... Taking into account the feedback received from stakeholders, the Authority has decided to continue with the existing tariff regime for the time being,” TRAI said in its annual report.

The Telecom Regulatory Authority of India (TRAI) had started consultation process in February 2012 to review existing tariff regime which is under forbearance except for rural land line services, national roaming and leased circuits.

Forbearance of tariff for a service means TRAI has not, for the time being, notified any tariff for that particular telecommunication service and the service providers are free to fix tariff for such service.

The consultation paper ‘Review of Policy of Forbearance in Telecom Tariff’ was floated by TRAI after telecom companies increased call and mobile Internet services rates in 2011.

Telecom experts were of the view that the Supreme Court’s cancellation of 122 telecom licences has reduced competition in the market that can lead to increase in telecom tariffs.

In mid 2012, telecom operators openly said multi—fold high spectrum price recommended by TRAI can lead to increase in telecom tariff by up to 100 per cent.

The telecom regulator had sought comments from sectoral players to review the existing policy and see if it was required to put a ceiling on tariffs.

“Some of the recent developments indicate that there is perhaps a need to review the policy of forbearance in telecom tariffs,” TRAI had said in its consultation paper.

In the annual report TRAI said, “Views were also sought on a suitable tariff framework for data services” and based on the comments received from stakeholder, it decided to continue with existing tariff regime.

Telecom major Airtel and Vodafone had recently raised tariff of their 2G Internet service by up to 30 per cent. The consultation paper was opposed by telecom operators.

(4) Nokia ‘Xpress’ browser faces privacy concerns

While the ‘Xpress’ browser is quick and used on resource-constrained devices that cannot run a full-fledged web browser, it appears that it decrypts data that flows through its ‘HTTPS’ connections – giving the company the ability to peep at connections set up for banking session, encrypted email and the like.

The fast-loading default browser used on most Nokia mobile handsets, including its ‘Asha’ range, appears to be a double-edged sword.

While the ‘Xpress’ browser is quick and used on resource-constrained devices that cannot run a full-fledged web browser, it appears that it decrypts data that flows through its ‘HTTPS’ connections – giving the company the ability to peep at connections set up for banking session, encrypted email and the like.

“From the tests that were performed, it is evident that Nokia is performing a ‘man in the middle attack’ for sensitive HTTPS traffic originating from their phone – and, hence, they have access to information which could include user credentials to various sites such as banking and social networking,” said Gaurav Pandya, a security analyst at Unisys Global Services India.

Nokia, in a statement, however has rejected claims that it might be spying on its user’s encrypted Internet traffic but admitted that it temporarily decrypts secure HTTPS connections for the benefit of customers.

“The compression that occurs within the browser means that users can get faster web browsing. When temporary decryption of HTTPS connections is required by our proxy servers, it is done in a secure manner. Claims that we would access complete unencrypted information are inaccurate,” a company spokesperson said.

(5) The challenge of gold

Can policy actions by themselves reduce the demand for gold in India? The craving for gold, both as jewellery as well as an investment option, has reached such dimensions that the government and the Reserve Bank of India (RBI) are working in tandem to moderate the domestic demand. The point has been made several times before, including by the Finance Minister, P. Chidambaram, recently that the demand for gold has been such that the macro economy has been adversely impacted. The widening of the trade deficit and with it the current account deficit (CAD) is one obvious fall-out. Recently, the CAD seems spinning out of control to touch 5.2 per cent of gross domestic product (GDP) during the second quarter (July-September of 2012-13). Gold and petroleum imports have been behind the high trade imbalance. Both have remained inelastic. Policy-makers have had very limited success in moderating the imports of both.

A working group constituted by the RBI to study the issues connected with gold and gold loans by non-banking finance companies (NBFCs) has just submitted its report (see RBI’s website). Apart from addressing the key question as to whether the large gold imports pose a threat to macro-economic stability, the group has sought to examine whether there are any systemic issues arising out of the inter-connectedness of some banks and gold loans of NBFCs.

Necessary moderation

Moderation of gold imports is necessary for the sake of external sector’s stability. However, in the past, gold imports have not strictly been amenable to policy changes. They have also been price inelastic for a variety of reasons. The banking system has a definite role to play although its share of canalised gold imports has been declining.

One promising remedy would be “financialisation” of gold, both the imported component as well as the domestic stock. Banks and institutions need to introduce attractive savings packages based on gold. Simultaneously, alternative avenues for investment should be made to provide a real rate of return that is higher than what obtains now. Only then can domestic consumers be weaned away, at least partially, from their craving for gold.

Simultaneously, there is a need to monetise the domestic stock of gold. Gold loans are already popular. There is a need to refashion them to safeguard the interests of consumers as well as banks that disburse them directly or through refinancing of NBFCs. Banks can consider accepting gold as collateral for their regular loans.

An opposite view is that since the easy availability of gold loans is a principal factor behind the increased demand for gold, policy measures must aim at reining in such loans. Given the certain appreciation of gold, it pays for even the average person to pledge his or her gold to buy more gold and repeat the cycle. A decent return of around 15 per cent is assured, say experts. That, of course, is an unproductive use of gold.

Obviously, the group is hard-pressed to find “real” solutions to the problem. There is really no magic bullet. In the past, neither higher duty on gold imports nor any other form of restraint has been effective. The Finance Minister has hinted that the duty might be increased. It is doubtful whether that will reduce the demand. Gold trade might shift underground and adopt other illegal channels. India’s jewellery industry is vast and flourishing. Any move to curtail imports of gold will adversely affect the prospects of an industry that has immense export potential as well.

There are very few recommendations of the expert group that might be considered original or novel. The ones that can be implemented need to be taken up. Products such as gold accumulation plan, gold-linked account, modified gold deposit and gold deposit have been suggested by the committee. Most of these obtain in other principal ‘gold’ centres such as Singapore. Basically, these involve an amalgam of the features of existing deposit schemes (example recurring deposit) with the features of gold trading. It goes without saying that banks and others who will operate these schemes should be equipped to handle gold as an investment. While popularising such schemes it must be ensured that the intermediation (bank) charges are kept low and publicised as such.

Breaking status quo

Ultimately, it is a question also of breaking the strong emotional and cultural links that owning gold has in this country. Long before this current craze, in States such as Andhra Pradesh, agricultural gold loans have been extremely popular. In times of crop failures or agrarian distress, gold loans were taken to tide over the crisis. Gold in the hands of individual households might not be large but they came in handy during difficult times. By no stretch of imagination can this be considered speculative demand for gold. It would be good, therefore, if policy-makers recognise the different facets of the current gold craze. From a macro-economic point of view, there is really no permanent solution, except by winning the battle over inflation, and, equally importantly, convincing ordinary people that their investments in conventional bank deposits as well as in those backed by gold yield a real return.

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