Mrunal Economics Compilation

12/26/2014 Mrunal[Economy]3MethodsofcalculatingGDPMrunal
Mrunalhttp://mrunal.org
[Economy]3MethodsofcalculatingGDP
PostedByOn21/04/2011@9:43amInEconomy,miscellaneous|Comments
Disabled
Gotthisquestionfrommail,
whataretheseincome,productionandexpendituremethodsincalulating
GDP?howdotermslikeNNP,NDP,GNP,GDP,NNPFC,NNPMPDIFFER
FROMEACHOTHER.whatisdifferencebetweengdpatconstantprices
andcurrentprices.itsveryconfusing
Illdealwitheachquestioninonepost.First,letsrefreshtheconcepts
again.
GDP(GrossDomesticProduct)means,
Moneyvalueofeverythingyouproducewithinyourcountry.
(Domestic=withincountry).
Everythingmeansproductsandservices.
GNP(GrossNationalProduct)means,
TheMoneyvalueofeverythingyouproducewithinyourcountryPLUSyour
incomefromabroad.AnilKapoorgoestoAmerica,get5milliondollar$to
playbaddieinMissionImpossible4,butsendsthatmoneytoIndia=
countedinIndiasGNP.
Butwithsamelogic,CricketCoachGaryKirstengets50lakhrupeesfrom
BCCI,andsendsittohisfamilyinS.Africa,youvetodeductitfromIndias
GNP.(SouthAfricanswillcountitintheirGNP)
Similarly,AmericanswillsubtractthedollarvalueofAnilKapoors
remittancetoIndiawhilecountingtheirGNP.
So,whatllbethe(stupid)formula?
GrossNationalproduction=Moneyvalueofeverythingproducedwithin
India+IncomingmoneyfromoutsideOutgoingmoneytoabroad.
Oryoucansimplysay
GNP=GDP+incomingmoneyfromabroadOutgoingmoneytoabroad.
HowGDPcalculatedandwhatisaretheseincome,production
andexpendituremethods.
http://mrunal.org/2011/04/economy3methodsofcalculatinggdp.html/print/ 1/5
GDPiscalculatedbythreemethods.
Theoreticallyallthreeofthemshouldgivesamefinalnumber,butinreality
therewillbeslightdifferencebetweeneachofthem.
#A:EXPENDITUREMETHODOFCOUNTINGGDP
Hereyoucountthemoneyspentbyeveryone.
SoHowtomakeatechnicalformula?Askyourself,whereisthemoney
changinghands?Therearefivecomponentsofthat.
#1:CONSUMPTIONBYPRIVATECITIZENS[C]
likeyouandmebuying(overpriced)daal,vegetablesandmilk(courtesy:
SharadPawar).
Ibuyyoursecondhandbikefor15,000Rupees,shouldweincludingitin
theconsumerExpenditure(C)?Nope.BecausethebikeIsnotproduced
again.
Secondhandproductsarenotcounted
WhenyouhadboughtthatbikeforRs.30000,10yearsago,wehad
countedthatmoneyinthatyearsGDP.Sosecondhandproductsale
moneycannotbecountedinthisyearsGDP.
Now,Ibuyyoursecondhandbikefromanautodealer,(whogetsRs.1000
Commission)shouldweincludeitinthe(C)?HellYes,becausehesoldhis
servicetomeuniquely.Everytimehesellsasecondhandproduct,
althoughnonewproductiscreatedbutnewserviceisdeliveredbyhim.
WHATIFSAME1000RUPEENOTEISCHANGINGHANDS?
Eachserviceorproducthasseparatevalueevenifsamecurrencynoteis
usedtopurchaseit
IgaveanoteofRs.1000tothatdealeraspartofhisbrokerage(dalaali)and
hegivesthesameRs.1000notetotheelectricitycompanyforhismonthly
bill.
SameRs.1000noteischanginghandssoisourGDP=Rs.1000?Nope.
GDPisthemoneyvalueofeverythingproducedwithinIndia.Sobrokerage
serviceisRs.1000separatelyandtheelectricityproducedisalsoworth
Rs.1000separately.Therefore,Evenassame1000rupeenoteisgivento
bothparties.
TotalGDP=1000brokeage+1000electricitybill=Rs.2000
Ifelectri.cogivesthat1000rupeenotetoitspeonassalary,thenagainit
hastobecounted.Becausepeonsoldhisuniqueserviceseparatelytothe
company.Sointhatcase
TotalGDP=Brokerge+Electricbill+peon^salary=Rs.3000
#2:Investment[I]
Peopleinvestinginsharemarket,puttingmoneyinbanksetc.
#3:Governmentspending[G]
Likebuying(overpriced)sportsequipmentfromKalmaadisassociates
duringCommonwealthgames.Governmentpayingsalarytostaff,buying
newtanksandmissiles..everything.
#4,5:Export&Import[X&M]
Moneywegetfromexportisadded.
YourememberthatGDPmeansMoneyvalueofeverythingweproduce
withinIndia.Soifweimportsomething,ithastobesubtracted,becauseitis
notproducedwithinIndia.
Soformula(foreaseInremembering)
GDP=Consumer+Investor+Governer+(eXporteriMporter)
Technicallycorrectformula:
GDP(Expenditure)=C+I+G+(XM)

#B:IncomeMethodofcountinggdp
Hereyoucounteveryonesincome.Butsomepeoplemayberunning
businessincredit(udhaari),sometimespaymentsaredelayed.Somaynot
givethefullpictureforthegivenyear.
#C:Productionmethodofcountinggdp
Totalmoneyvalueofeverythingproduced(valueaddedateachstage)
1. FarmerproducedWheatandsold100kgofit@2000Rs.(Original
value)
2. Flourmill,purchasedit,grindeditandsoldtheflourtobaker@
2500Rs.(+500valueaddedtopreviouspurchase)
3. Bakermadebreads,cookiesandbiscuitsandsoldthetotal
production@3500Rstoitsfinalcustomers.(+1000valueaddedto
previouspurchase)
whatistotalGDPhere?
2000+2500+3500=8000Rs?Hellno!Youvetoseethevalueadded.
So,totalmoneyvalueofthislineis:2000+500+1000=3500.
NotallofthewheatgoesintoBakersoven.Someofitwillgoinmaking
beer,someinanormalhouseholdformakingrotiandsoon.Youvetotrack
thevalueaddedineachdifferentline.
TobecontinuedGDPatnominalprice,Marketprice,FactorCost,
etc.etc.etc.
ArticleprintedfromMrunal:http://mrunal.org
URLtoarticle:http://mrunal.org/2011/04/economy3methodsof
calculatinggdp.html
Copyright2014Mrunal.Allrightsreserved.
12/26/2014 Mrunal[Economy]TheFDIinRetailbusinessproconsSinglebrandvsMultibrandRetailMrunal
[Economy]TheFDIinRetailbusinessproconsSinglebrandvsMultibrand
Retail
PostedByOn05/12/2011@5:43pmInEconomy|24Comments
InthefondmemoriesofDevAnand,
WhatsthedifferencebetweenSinglebrandvsMultibrandretail?
SingleBrandretail
NikeCompanyopensoutletsinAbad,Banglore,DelhiandMumbaisellingnothingbutNikeShoes,
NikewristwatchesandNiketshirtsonly.
Thisissinglebrandretail.
FDIinSingleBrandRetailingwaspermittedin2006,totheextentof51%.
Theseweremostlyoutletsforsportswear,luxurygoods,apparel,fashionclothing,jewellery,hand
bags,lifestyleproducts.
ButneitherthePoliticalpartiesnorLocalKiranawalaraisedanyvoiceagainstthis,why?Because
thesearehighendluxuryitemsforbrand
consciousuppermiddleclassandrichclasspeople.Itdoesnthurtpopulationatlarge.Itwasnotlike
peoplewouldstoppurchasingfromlocal
garmentstoretogetNikeorAdidas.
Multibrandretail
BigBazaaropensmallinabovecities:sellingtshirtsofmultiplebrandssuchasReebok,Nike,
Adidas,AllenSolley,VanHuesen,PeterEnglandetc.
+and+theyalsosellunbrandedtshirts(youknowthosebuyonegetthreetshirtsfreefromunknown
companies.)
Sothisismultibrandretail:whenanoutletsellsaproduct(tshirt,tie,shoesanything)ofmorethan
onebrand.

Retailmeanswhenproductissoldtotheultimateconsumer(commonman)
http://mrunal.org/2011/12/economyfdiinretailbusinessprocons.html/print/ 1/7
ArgumentagainstFDI
Anti#1:willleadtomassunemployment
1.RetailsectorinIndiaisthesecondlargestemployerafteragriculture.Almost33millionpeople
involvedhere.
2.Nowtheproblempart:Disguisedunemployment.FatherandtwoSonsrunningafarm,
producing200kgsofwheat.Youtakeoutanytwomembers,
theproductionstillremains200kgs.Sameproblemgoeswithfamilyownedoperatedretailstores,
theintermediariesandmiddleagents.
3.Whatshouldbedone?Obviouslyoneofthetwosonsoughttogethimselfinothersector(service,
construction,manufacturing,industry,etc)But
thereislackofopportunities,themanufacturingsectorisnotgrowingatthepace.Sotheargument=:
Displacedretailoperatorswillnotbeabsorbed
inothersectors.ThisFDIwillleadtounemployment.
Althoughthisunemploymentargumentisflawedbecause
1.WalmartcannotopenmallsineverynookandcornerofIndia.Theirelectricity,staffandsecurity
costswillsurpasstheirprofitmargins.
2.CustomerscantgotoWalmartondailybasisforattractivediscountsbecausethepetrolcost(and
timewastedintraffic)willnegatethediscount
onsmallpurchase.Sotheyllbeusinglocalsmallretailerfordailyrequirementsofbread,milk,
newspaperetc.
3.DidSTDboothoperatorsbecomeunemployedafteradventofmobilephoneswithzeroroaming
chargesandfreeincoming?Nope,theydiversifiedand
startedrunningXeroxandcybercafs.
4.DidlocalUdipiownerranoutofbusinessbecauseofMcDonald/KFC?Ofcoursenot.
Anti#2:Predatorypricing
WalmartoranyotherMNCretailmall,forthefirst34yearstheyllgiveheavydiscountsand
seductiveoffers,eveniftheymakelossinthedeal.
Result:allthecustomersinaparticularcityarehookedtowalmartonly.
Thesmalltimeretailplayerscannotrunbusinessgivingsuchheavydiscounts,theyclosedown.
Onceallcompetitioniseliminatedwiththis
predatorypricingWalmartwillslowlystopgivingdiscountsandrecovertheirlossesbyincreasing
theMRP.
SincethesebigMNCshavedeeppockets,theycanaffortthissortofloss.Butinthelongterm,they
recovereverything.
SamewayOncethesmalltimeretailersareoutofbusiness,WalMartwillstartexploitingfarmers,
payingthemextremelylowmoneyfortheirproduce,because
nowWalMartisthesoleretailerinthecity.
counterarguments:Predatorypricing
1.CustomerthinksofTraffic,timeandpetrolcostinvolvedbeforevisitingWalmarteverynowand
then.Notlikesomeonewouldgo10kilometers,just
becausethemallisgivingRs.3discountonapplejuice.
2.ThereisaCompetitionCommissionofIndiatolookintothismatter.(earlierMRTP,Monopolyand
restrictivetradepracticesact)
(sidenote)AnotherexampleofPredatorypricingisourairlineindustry.Oneoftheprimereasons
whytheyremakinglosses.
Anti#3:IndiawillbecomedumpinggroundforChineseproducts
Dumpingmeans,supposeaballpenissoldforRs.10inChinabuttheyintentionallyexportittoIndia
atthepriceofRs.5,inordertoruinthebusiness
oflocalIndianpenproducersandtocapturetheIndianstationarymarket.
Chinaisnotoriousforthisdumpingtactic,earlierwehadtoimposeAntidumpingdutyontheir
rubberproductsandtires.
SomebelievethatentryofForeignretailerswillfacilitatetheChineseschemeofdumpingour
marketwiththeircheapproducts.
ArgumentsinfavorofFDIinretail
Pro#1:Nomorewastageofagroproduce
Indiaisthesecondlargestproduceroffruitsandvegetables,
Ifwearethe2ndbiggestproducersoffruitsandvegetables,whyarewenotabigname/exporter
inworldmarket?Andmore
importantly,ifwearesecondlargestproducer,thenwhyissomuchinflationinfooditems?
BecausePostharvestmorethanRs.1trillionworthfarmproduce,especiallyoffruits,vegetables
andotherperishables,iswasteddueoflackof
storageandtransportfacilities.
Morethan50%ofthiscanbesaved,ifwevepropercoldstoragefacilities.
Governmentisnotdoingmuchaboutthis(duhtheyareunabletosaveeventhewheatinPDS,let
alonecoldstorage)andtheprivateIndianplayers
donothavemuchmoneytoinvestinthiscoldstoragechainorthoseexpensivebigtransporttrucks
ofAmericathatweseeinDiscoverychannel.
SoifFDIinretailisallowed,theMNCswouldinvestincoldstoragechainsandthosebigtransport
trucks.Meanslowerwastedofproduce.More
supplyoffruitsandvegetables.Accordingtosupplydemandrulethepriceswillgodown.
Rightnow,100%FDIIsallowedinColdstoragechain,butforeignplayersarenotcomingthere
becausetheyrenotallowedtosellitinretail
malls.Thereisnotmuchprofitmargininoperatingacoldstoragealone.Itdtakeyearstorecoverthe
investment.OnlyifMNCsareallowedtosell
theproduceaswellintheirretailmalls,theyllfeelinterestedininvestinginthiscoldstoragegame.
SimilarlyFDIinWholesaletradingwasallowedupto100%since1997.
Pro#2:Farmergetsmoremoneyforhisproduce
IndianFarmerdoesnthavecoldstorageortransportfacility,ifhegrew200kilosofcarrots,hehas
nooptionbuttosellitassoonaspossible
beforeitgetspoiled.Themiddleagentbuythisproduceforaslowas24rupeesperkilo,butbythe
timeitreachesmarket,thepricejumpsto2530
rupeesperkilo.WHY?
IndianTruckTransport:OverloadingandBribes
Thereisnoorganizedtrucktransportservice,thetruckoperatorsarerunninginextremely
competitiveenvironmentsotheyvetooverloadtheir
trucks.Oncethisoverloadedtruckgoesthroughcheckpoint,policemanwilldemandbribeforflouting
theroadpermitprovisions.
Sincethetruckisoverloaded,engineefficiencyisreduced.Hehastogethistruckrepaired
frequently.
TheroadqualityandtrafficManagementisbad,moredieselisconsumed.
Truckerwilladdallthesecosts(bribe,repair,extradiesel)inhisservicecharge.
Truckreachesthecity,yourlocalvegetablevendorpaystooffloadthecarrotsbuthegottamaintain
hisownprofitmarginaswell,(+thebribehe
hastopaytolocalpoliceman,municipalityinspectoretc)sothecarrotsthatwereliftedfor2
rupees,ultimatelygetsoldfor25rupeesakiloafter
cuttingeveryonesCommission.
WhenanorganizedMNCretailergetsinpicture,hehashisownextremelyefficientandstreamlined
transportservice.Sothereisnooverloadingof
trucks,thereisverysystematicpackingofgoods.Histruckmaintenancecostisthusverylowand
thereislowwastageduringtransport.
Second,Hedoesnthavetopaysomanybribesateverylevel,because
1.Thereisnooverloadingoftrucks,papersareinorder.Lesschancesforpolicemenetctoblackmail
himintopayingbribe.
2.Hegotdeeppockets,hegivesbigannualdonationsforelectionfundstotherulingpartyand
Diwaligiftstotheconcerneddistrictofficers.
Thatswhysmalltimepettyofficialssuchaspolice,municipality,foodnsanitationinspectorcant
daretobotherhimeverynowandthen,astheydo
tosmalltimeretailers.
SoMNCretailerscostpriceisquitelowcomparedtosmalltimeretailers.Hencehecanaffordto
giveattractivediscountstocustomersaswell.
SamereasonwhymanypoliticalpartiesdislikeMNCsinRetail,youcanextractmoreelectionfunds
from1000smalltimeplayerscomparedtofromone
bigplayer.Bigplayerislesssusceptibletoarmtwistingcomparedtoasmallplayer.
Nomoreintermediaries/Middlemeninthechain=LesserlevelsofCommissions
RightnowIntermediaries[middleagents]dominatethevaluechain.Theyoftentheirpricinglacks
transparency.Theyoftenrunsecretcartels,so
eveninopenauctions,farmersdontgetgoodpricefortheirproduce.
Wholesaleregulatedmarkets,governedbyStateAPMCActs,havedevelopedamonopolisticand
nontransparentcharacter.
TheseelectedcooperativemarketingsocietiesandMandisaremoreorlesssameBJPvsCongress
fightfordominationinuniversityelections,thereis
hardlyanythingpositivereformdoneforthestudents.
Accordingtosomereports,Indianfarmersrealizeonly1/3rdofthetotalpricepaidbythefinal
consumer,asagainst2/3rdby
farmersinnationswithahighershareoforganizedretail.
AstudycommissionedbytheWorldBank:WhyIndiadoesntearnmuchmoneyfromexportingits
Fruitsandvegetable(eventhoughweresecondlargest
producer)=Samereason,Noncompetitiveness.Badsupplylines.
Apricethatthefarmerreceivesforatypicalhorticultureproductisonly1215percentoftheprice
theconsumerpaysataretailoutlet.
SmallandMediumscaleindustries
Examplesmalltimecushions,toys,shoes,plasticwaresmaker.Theydontseemuchbusiness
becausetheydonthavetheavenuestoselltheir
products.Bigmallwithbigfloorspace,providesthemopportunitytomarkettheirproductsandget
customersattention.
Assuredquality,noadulteration
TuneintoAajTaknewschannelduringafternoon,itisalwayssomewhereinUttarPradesh,they
caughtadulteratedMilk,Milkproductsorsoftdrinks
producedusingbannedchemicals.
Morethan40%ofthemedicinessoldinruralandsemiurbanareasofIndiaareoffakebrands.
ForanMNCretaileryoucanatleastfeelconfidentthatitwontbethecase.
Morecompetition=Betterpricesandproducts
Rememberonceuponatime,Mobilecallsusedtocost7Rupeesperminuteandincomingwasnt
free.Why?Becausetherewaslowlevelofcompetition.
Barely23playersinthemarket.FDIcanbeapowerfulcatalysttospurcompetition.
TrickledownTheory
Toopenabigmall,walmarthastopurchaselandandconstructabigbuilding=lotoflaborers,
masons,plumbers,electriciansemployed.
Samewayfarmersaregettingmoremoneysoallthesepeoplehavemoremoneyintheirhands
andtheyuseittopurchasebikes,mobilesetc.somore
demandandmoreemployment.
Thisistrickledowntheory.MarxistandVinodDua(NDTV)disputesthistheory.
Fearexaggerated
Fearsoflargeadverseeffectsonexistingretailersaregrosslyexaggeratedespeciallysincemodern
domesticretailinghasbeguninanycasevia
desiretailerssuchasBigBazzarandReliance.(10thplandocument)
Suggestionsforsafeguards
1.Entryofforeignplayersmustbegradualwithsocialsafeguardssothattheeffectsoflabour
dislocationcanbeanalysedandpolicyfinetuned.
2.Foreignplayersshouldinitiallybeallowedonlyinmetroscitiesonly.
3.Gradualopeningoftheretailsectoroveraperiodof35yearstogivedomesticindustryenough
timetoadjusttothechanges.
4.MorestringentCompulsorycorporatesocialresponsibilityrequirement(e.g.Askthemtoopen1
schooland1clinicineverycitywheretheyre
operatingetc.)
5.RegularmonitoringofmallinventoriestoseethatIndiaisnotusedasdumpinggroundforChinese
products.
Somereportsformythbusting
***Oknowthisiscopypastejob***
ICRIERSTUDIESON:(i)FOREIGNDIRECTINVESTMENTINRETAILSECTORINDIA(2005)
and(ii)IMPACTOFORGANIZEDRETAILINGONTHEUNORGANIZEDSECTOR2008
Basedontheirstudy
#1:Notasmuchjoblossasfeared
1.Unorganizedretailersinthevicinityoforganizedretailersexperiencedadeclineintheirvolumeof
businessandprofitintheinitialyearsafter
theentryoflargeorganizedretailers.
2.Theadverseimpactonsalesandprofit,however,weakensovertime.Therewasnoevidenceofa
declineinoverallemploymentintheunorganized
sectorasaresultoftheentryoforganizedretailers.
3.Therateofclosureofunorganizedretailshopsingrosstermswasfoundtobe4.2percentper
annum,whichismuchlowerthantheinternational
rateofclosureofsmallbusinesses.Therateofclosureonaccountofcompetitionfromorganized
retailwasfoundtostilllower,at1.7percentper
annum.
4.Therewascompetitiveresponsefromtraditionalretailersthroughimprovedbusinesspracticesand
technologyupgradation.
#2goodforconsumers
Whilecustomersfromallincomegroupssavedthroughorganizedretailpurchases,thelowerincome
consumerssavedmore.Thus,organizedretailis
relativelymorebeneficialtothelesswelloffconsumers.
#3Intermediateplayers
Therewasnoevidenceofanadverseimpactbyorganizedretailonintermediaries.Thereis,
however,someadverseimpactonturnoverandprofitof
intermediariesdealinginproductssuchas,fruit,vegetables,andapparel.Overtwothirdsofthe
intermediariesplannedtoexpandtheirbusinesses,
inresponsetoincreasedbusinessopportunitiesopenedbytheexpansionofretail.
#4Moremoneytofarmers
Farmerswerefoundtobenefitsignificantlyfromtheoptionofdirectsalestoorganizedretailers.The
averagepricerealizationforcauliflower
farmerssellingdirectlytoorganizedretailwasabout25percenthigherthantheirproceedsfromsale
toregulatedgovernmentmandis.The
profitrealizationforfarmerssellingdirectlytoorganizedretailerswasabout60percenthigherthan
thatreceivedfromsellinginthemandis.Thedifferencewasevenlargerwhentheamountchargedby
thecommissionagent(usually10percentofsaleprice)inthemandi
istakenintoaccount.
Scenarioinotherthirdworldcountries
FDIispermittedintheretailsectorinBrazil,Argentina,Singapore,Indonesia,ChinaandThailand
withoutlimitsonequityparticipation(thatis
100%FDIallowed)
Thailand:Since1997,100%FDI.Positiveresult:Thailandhasnowbecomeanimportantshopping
andtouristdestination.
********
URLtoarticle:http://mrunal.org/2011/12/economyfdiinretailbusinessprocons.html
12/26/2014 Mrunal[Economy]AstoryofForex,currencyconversion,rupeedepreciation,inflation,subsidiesetc.Mrunal
[Economy]AstoryofForex,currencyconversion,rupee
depreciation,inflation,subsidiesetc.
PostedByOn05/12/2011@8:14pmInEconomy,miscellaneous|Comments
Disabled
AgaininthefondmemoriesofDevAnand.
ImwritingthisstorysothatthenewcomerscangetsomeideaaboutForex,
currencyconversion,rupeedepreciation,inflation,subsidiesetc.(caution:
fulloftechnicallynotsocorrectexamples,justtogiveyouabroadideaof
whatailsIndianeconomy)Okhereitgoes..
Investor:Faithwonandlost
EnteranAmericanMr.James.ThankstoAmericanrecession,hedecidesto
investoutsideUSA,andcomestoIndiawithabagfullofgreendollars,after
hewasassuredbyRBIandCommerceSecretarythatenvironmentinIndia
isveryconductiveforbusiness.Pleasecome,giveusyourdollars,we
convertitintorupees.
He(fullofconfidence)convertshisdollars,attherateof1$=Rs.40
NowJamessearchesforlandtoopenofficeorfactorysomewhereneara
bigcityinIndia.Butpriceoflandissohighthankstotheblackmoney,it
doesntmakeanysensebuyingaproperty.
Hesaysok,letmejustrentsomereadymadebuildingandIllstartinga
smallscaleiphoneproductioncompany.
Buttheelectricityshutsdownatrandom,forhoursanddays.
James:ok,Illbuyadieselgeneratorlikeeveryotherindustrialistinthis
area.
AgainpriceofDieselalsoincreasing,Profitmarginshrinking.
Addinginsulttotheinjury,hisworkershavegoneonstrike.Workersare
demandingpayrisebecauseoftheeverincreasingpricesofmilkandpetrol
andJamesunabletosettlethedisputesoalengthy(andexpensive)legal
battleisdrawn.Meanwhilethefactoryremainsclosedforweeksand
monthstogether.
James:letmestartacoffeehousetopaylawyersfees.
http://mrunal.org/2011/12/economystoryofforexcurrency.html/print/ 1/4
Butthepriceofrawmaterial(milk,sugar,gas)alsoincreasing.
Addthebribehehastopaytolocalgoons,policemen,andmunicipality
corporators.Ifheraisesthesellingpriceofeachcup,therewillbedrastic
reductionincustomers.AgainHardlyanyprofitmarginleft.
Moreoverfrequentlyonepoliticaloutfitoranother,callsforastrike/bandh
forcreationofseparatestateortoprotestagainstinflationorcorruptionor
lokpalorjustbecausesomeoneslappedtheirpoliticalleader.
JamesdarestoopenhisshoponsuchBandhdayandheisbeatenup
severelybythepoliticalgoons,hiscoffeeshopisransackedwhilepolice
watchessilently.
HiscallshisbuddyAlleninAmerica,cautionshimnottoinvestinIndia.
CurrencySpeculations@ForexMarket
AtthelocalbeerbarinCalifornia,Allenoverhearssomeconversation
betweendrunkardsthatsoonIMFandworldbankwillgivebigfinancialaid
totheailingGreekandPortugal,andtheireconomieswillbebackonright
track.Ifoneinvestsmoneyatthispoint,instockmarketorrealestatein
thosecountries,hecouldgetahandsomereturnof4050%ayear.
AllenrecallsaBollywoodmoviehesawonyoutubewithEnglishsubtitles,
thehandicappedoldmaninthatmoviehadgivenaprofoundand
universallyapplicableManagementadvice:Lohaagaramhaimaardo
hathoda
AllenimmediatelyrunstoForexmarket,withhisbagfullofdollarstoget
themconvertedintoEuro.
CrudeOilBill
Curiously,ChairmanofIOC(Indianoilcorp.)isalsowaitingthere@Forex
market,withasuitcasefullofrupees.Heisindesperateneedofdollar$for
KingofSaudidoesntacceptpaymentinRupeesforthecrudeoilsold.
IOCChairman:dudegotanydollars?Comeonman.Ineedthem,please.
Allen:Howmuch?
IOCChairman:Youknowtheroutinerate.1$for40rupees.
Allen:HellNO!!!Iaintselling.Mybestfriendtoldmenotto.
IOCChairman:okokhowabout45rupeesforadollar.
Allen:Nope
IOCChairman:50
Allen:Nope
IOCChairman:52
Allen:ok,Yougotadeal.
TheSolutions
BackinIndia
(uponknowingthatatForexmarket,Rupeeissellingdownat1$=52Rs)
RBIChief:whatinthegodsnameishappening?52rupeesforadollar?
Howarewesupposedtoimportcrudeoilatthisexpensiverate?
FinanceMinister(FM):heylookatthebrightside,althoughourimports
becomecostlierbutnowourexportswillearnmoremoney.ItisGoodfor
callcentresandtextileexporters.Andthentheyusethatmoneyforbuying
itemsinIndianmarket=itwillcreatemoredemand=morejobs=boostin
economy!!!Trickledowntheory!!!
RBI:Waitaminute!Nobodyisgoingtobuynothingunderthishigh
inflation.SoWhateverextraprofitthecallcentreownermakesthanksto
thisrupeedevaluation,helllockitinbanksfixeddepositorpensionfunds
andhellwaitandwatchforthepricestogodownbeforemakinganybig
purchase.Thistrickledowntheoryisntthatlinearandstraightforwardas
yourethinking.Backtothepoint,Weneeddollarstofinancethecrudeoil
import..
FinanceMinister:Noproblem.Youvegotmorethan200billiondollars
Forexreserveinyourcustody.Releasetheminthemarket.
RBIChief:Never.Imsavingitfortherainyday.Godforbidifsituationgets
evenworse,wedhaveourpocketstotallyempty.Whatifawarbreaksout
withPakistanorChina,howwillwepurchaseextraoilforourfighterjets
andcombattanksduringthatcrisis,ifourForexreserveiswastedlikethis?
FinanceMinister:Damnit,ifpricesofpetrolanddieselareincreased
becauseofthisrupeedepreciation,thetrucktransportationcostwill
increaseandsowillthepricesofmilk,eggs,fruitsandvegetables.Spider
mansUncleBenbeforehisuntimelydeath,hadsaidWithgreatpower
comesgreatresponsibilitiesandforgreatPawarcomesgreat
slappingsPleaseman,dosomething,weneedgreendollarstofinance
theoilbills.IveUPelectiontowin.
RBIChief:howaboutyoustopMNREGA?Thatwillstopalotofcorruption,
blackmoneygenerationandtheresultantinflationandpricerise.
FM:Yourekidding,right?HowamIsupposedtowinUPelectionswithout
MNREGA?CentrallysponsoredwelfareschemeistheonlyBrandUSPof
ourparty!
RBI:Okhowaboutdisinvestment?SellapartofyoursharesfromSAIL,
CoalIndiaandotherpublicsectorundertakings.
FM:YeswecandothatbutwaitMadamjiandNAC(Nationaladvisory
council)saidthedisinvestmentmoneyistogoinNationalInvestmentfund
fromwhichitllbespentformoreschemeslikeMNREGA.
RBI:okletsrecoverthe2GandCWGcorruptionmoneyfromRajaand
Kalmadithenuseittofinancetheoilbill.
FM:lolz,comeonman,beserious.Heywait.howaboutyouprint10
suitcasesofrupeesinyourprintingpress.ThenIgotoForexmarketandget
themconvertedintodollars.
RBI:Yesthatcouldwork.Onlyproblemisthattheguyhowbuysthese
suitcasesfromyouinexchangeofdollars.Hemightcomeback,buyall
theonionsandpotatosfromourmarketusingsameprintedrupeesand
takesthemtohishomecountry.Thatwouldleadtoevenfurtherinflationfor
therewillbelesserproduceleftinourmarket.
FM:nonoUPelectionnomoreinflation.
RBI:LookIunderstandyourconstrainsbutIcantreleasedollarsfrommy
reserve.ButHowaboutyouarrangefordollars..youknowsomethinglike
viaFDI?Howabout51%FDIinretail,thatoughttoattractalotforeign
playerswithbagsfullofdollars,theyllgetdesperatetoconvertitinto
rupees.
FinanceMinister:hmminteresting.
URLtoarticle:http://mrunal.org/2011/12/economystoryofforex
currency.html
- Mrunal - http://mrunal.org -
[Economy Q] SENSEX calculation
Posted By On 10/01/2012 @ 10:54 am InEconomy,miscellaneous | Comments Disabled
Before venturing into SENSEX calculation, lets refresh basic concepts of Index calculation,
that we saw in WPI calculation
Suppose Price of a Lifebouy soap was Rs.10 in 2001.

And now it has increased to Rs.12 per bar.
We take 2001 as our base year.

We take Rs. 10 as our base price.
Then our index for 2001,
= Price of soap in 2001 divided by price of soap in 2001
=(10/10) x 100= 100%
Our index for 2011

=Price of soap in 2011 divided by price of soap in 2001
=(12/10) x 100=120%
The formula is essentially, new price divided by old price
Now for SENSEX
Base year : 1978-79 [to be specific, the price on 1st April 1979]
First the concept of-
Free Float market Capitalization
1. Kingfisher: suppose has total 1 lakh shares: 30,000 held by Malya and rest 70 thousand
held by general public.
2. Value of each share in Bombay Stock Exchange (BSE) on 11 January 2012 is Rs. 150.
Now we first calculate a thing calledFree float Market capitalization for Kingfisher,
which is nothing but
= Number of shares held by general public multiplied with Value of Each share on the given
date in Bombay Stock Exchange (BSE)
= 70 thousand x 150
= 105 lakh rupees
So Kingfishers Free float Market cap (FFMC) for 11 January 2012= 105 lakh rupees.
Like this kingfisher, you pick up total 30 companies, calculate their FFMCs, add them
together.This number becomes our Price of lifebuoy, say it is 15 crore rupees. (NEW
PRICE)
And total Free floating market cap of 30 companies, on that 1st april 1979 was say 10 lakh
rupees. (OLD PRICE)
So as we saw earlier, INDEX= new price divided by old price (% value)
Now SENSEX = Total Free float market cap (FFMC) of 30 companies today divided by
Total (FFMC) of 30 companies on 1st April 1979
=(15 crores / 10 lakh) x 100
=15000
This 15,000 my friends, is the todays SENSEX.
P.S. Actual formula not this linear.
Some points
The 30 companies, in that list keeps changing. So 30 companies in todays SENSEX not
necessarily included in 1979s list. But we take their values.Actual SENSEX calculation
involves minute technical-items such as free float factor for each company but its beyond
the scope of routine competitive exams. However curious souls can access it by clicking
followinghttp://www.ehow.com/how_5184590_calculate-sensex.htmlDifferent companies
have different weights in the Index. So calculation wont be directly new price by old price
but weighted average, similar to how in WPI we assigned weights to different
commodities.Total market capitalization =total number of shares of a company (i.e.
Malya+General public) multiplied with price of each share on given date.SENSEX from
1986 to 2003, was calculated on this Total market capitalization. In 2003, they switched to
Free Float Market Cap.The word SENSEX is made by combining two words: Sensitive +
Index.
Dollex
BSEs dollar version of SENSEX. [SENSEX is calculated on rupee values]
NIFTY
SENSEX is calculated on 30 chosen companies. (Started in 1986)NIFTY is calculated on 50

chosen companies. (Started in 1995), otherwise method is same.Similarly BSE 100=
calculated on 100 companies, since 1989.PS: years and dates are not that important.
Article printed from Mrunal:http://mrunal.org
URL to article:http://mrunal.org/2012/01/economy-q-sensex-calculation.html
Click here to print.
Copyright 2014 Mrunal. All rights reserved.

12/26/2014 MrunalExplained:QualifiedForeigninvestorsQFIinIndia
[Economy]QFI(QualifiedForeignInvestor)vsFII,Need,
Implication,CurrencyDepreciation,DematAccountandmore(Story
ofForexcontinues)
PostedByOn16/03/2012@11:49amInEconomy,miscellaneous|CommentsDisabled
TheTechnicallyincorrectStoryofForexcontinueswithnewtopics:FII,QFI(Qualified
ForeignInvestors),Demat,PANcardandmore
WhatisFII,WhydidRupeeweakenagainstDollar.WhydidQFIcome?
1. StoryofForeignInstitutionalInvestor(FII)
2. SeriousNoteonFII
3. QFI:QualifiedForeignInvestor
Demataccount?
WhatisDepository?
WhatisDepositoryParticipants(DP)?
TradingaccountforQFI
PANcard
4. QFIfromNewspapers
5. MOCKEconomyQuestionforCSAT
ForeignInstitutionalInvestor(FII)
TomCruise:WhatisFII?AnilKapoor:ItmeansforeignplayercaninvestmoneyinIndian
stockmarket.
TomCruise:Cool.Tellyouwhat,Imnotgettingmuchinterestrateinmysavingsaccount
inAmericanbank,Igot$1millioninthesuitcase,letsgotoBombayStockExchangeand
buysomeshares!
AnilKapoor:Aintthateasy!AnindividualforeignercantsimplywalkintheDalalstreetand
doshopping.GotoMaxwellAssetsManager.Hewillexplaineverythingtoyou.
SubAccountunderFII
MaxwellManager:ImanestablishedfinancialassetManagementfirm.Ivegotalicence
fromSEBItooperateasanFII(foreigninstitutionalinvestor)inIndianmarket.(Afterpaying
$5000applicationfees).Mr.Cruise,youwillhavetoregisterassubaccountunderourFII
firm.Andthenyougiveyoursuitcasetous,wellinvestitinIndianstockmarketonyour
behalf.
TomCruise:AreyoutheonlyFIIguy?
MaxwellManager:WellImnottheonlyFII,therearemanyotherslikeBNPPARIBAS,
MORGANSTANLEYandother1,700FIIsandmorethan5,500subaccountsregistered
withSEBI.Butwearethebest,wechargetheleastCommissionandgivefreecallertunes
andUnlimitedtalktime*.So,LetsgotoSEBIofficeandgetitdone.(*conditionsapply)
cuttoSEBIOffice.
Peon:OurSaahebisgoneforteabreaksowaitfor145minutes.
(after145minutes)
TomCruise:(totheSEBIclerk)yaIwannaopenaFIIsubaccount.
SEBIClerk:ohReally?EverydesidudeherewantstobeanIAS,IIM,IITandeveryfirangi
http://mrunal.org/2012/03/economyqfiqualifiedforeigninvestor.html/print/ 1/6
dudewantstobeanFIIeversincethesubprimecrisis.Butareyouawealthyforeign
individualorfirmwithaminimumnetworthof$50million(aboutRs.260crore)?Onlythen
wegivethelicense,andnottoanyrandomswingingdudethatwalksintoouroffice!
TomCruiseYoudontknowme?ImtheTomCruise.
SEBIClerkWhosthat?
MaxwellManagerHeisafamousHollywoodhero,gotbillionsofdollars.
SEBIClerkhmmneverheardofyou.IonlywatchthemoviesofIndiasFinestActor,
Fighter,DancerandBollywoodSuperstarMimohChakraborty.Anywayshereisthe
applicationformfor$1000.Fillitup,Attachphotocopiesofyouridandaddressproof,
10th,12th,Graduationmarksheets,WorkExandExtracurricularactivitycertificates:
Everythingintriplicate,andattestedbyaGazettedOfficerandyourthreepassportsized
photographswithwhitebackground,nosmile,andsignonyourphotowithblackpenonly.
TomCruise:Manthisissohopeless,itsoundslikeaperfectplotforMissionImpossible#5.
AnilKapoorcangetthe2minutesroleofGazettedOfficer,whileIfooltheIndianaudience
forthesecondtimespreadingrumorsthatheisgivenabigrolejustlikeinMI4!
Tomgetsthesubaccountopened.
MaxwellManager:congrats.NowwecaninvestyourmoneyinIndianStockmarketonyour
behalf,sowhichcompanydoyouwanttoputyourmoneyin?
TomCruise:hmm,Ivebeendoingsomemarketresearchmyself,recentlysawAbhishek
BacchansIdea3GadinDivyaBhaskar(GujaratiEdition),Ithinkthatcompanyandits3G
serviceisgoingtobehugehit.BuysomeIdeasharesformesoIcanearnhugedividends
lateron.AlsobuyafewofVedantacausetheyacquiredsomeoilfieldsfromCairnIndia,
theywillalsomakehugeprofitsandpaygooddividendstotheirshareholders.
MaxwellManagerWhaatanIdeasirji!
Cutto:SupremeCourtcancels2GlicensesofallTelecomcompanies.
TomCruiseManthisishopeless.IthinkinvestinginIdeawasabadIdea.Companyis
gonnamakeanydecentmoneynow,myreturnoninvestmentwillberidiculous.Vedanta
CairndealisalsostuckintheCabinet,meansnoquickandhugeprofitthereeither.
TomCruise(phonecalltoMaxwellManager)hi,sellallmysharesofIdeaandVedanta.
MaxwellManagerSure.ButWhereshouldIinvestthemoneythen?
TomCruise:Ihavenoideasirji,whatdoyousuggest?
MaxwellManagerIhavebeenlookingattheIIP(indexofindustrialproduction),the
numbersaregoinginnegativerange.RBIisalsohellbentontighteningthemonetarypolicy,
thusincreasingtheloanratesanddecreasingthedemandofproductstocontaininflation.
Indianindustriesarefacingaslump,thereiselectricityproblem,thereisproblemofgetting
environmentclearances.Evenbluechipsoftware,chemicalorautomobilecompaniesare
notdoinggoodthankstoslowdowninAmericaandEurope.NohopeinAirlinecompanies
either..
IdontthinkitisworthittoplayinIndianmarketanymore.Besidesyouveonemillion
dollars,meaningIfIndianmarketgivesyou5%returnonInvestmentandSingaporesgives
youjust6%,stillyoushouldrunawaybecause1%ofonemilliondollar=easy$10,000,
hugecash!So,IsuggestwepulloutyourmoneycompletelyfromIndiaandgetitinvested
somewhereelse,Singapore,Australia,perhaps?
TomCruise:JustDoIt.AnythingisbetterthanthestalemateandPolicyparalysisinIndia.
SeriousNoteonFII(copiedfromNewspapers)
Atpresent,aforeignindividualseekingtoinvestinIndianstockshastoberegistered
asasubaccountofanFII,whichinturnhastoapplytoSebionthebehalfofthesub
accountholder.
Indiaallowsonlywealthyforeignindividualsorhighnetworthindividuals(HNIs)who
haveaminimumnetworthof$50million(aboutR260crore)andregisteredasasub
accountofaforeigninstitutionalinvestor(FII)toinvestdirectlyinlocalequities
FIIspulledoutmoneyonaccountofgrowthfallingbelow7%andwidelypublicised
difficultiesinobtainingregulatoryclearances.Netoutflowsexceeded$450millionlast
year
FormanyFIIs,economicwoesintheirhomemarkets,especiallyduetotheEuropean
debtcrisisandaperceivedpolicyparalysisinIndiafollowingastringofscams,
exacerbatedtheirpullout.
EurozonecrisishasledtoinvestorspullingmoneyoutofIndianequities.ForIndia,the
problemhasbeencompoundedbyaslumpininvestorconfidencebecauseofpolicy
inactionleadingtoasharpfallinnewprojects.
ReserveBankofIndia(RBI)estimatesaysthata10percentfluctuationinFII
investmentresultsina35percentvariationinstockprices.
FIIspulledoutmoneyonaccountofGDPfallingbelow7%andwidelypublicised
difficultiesinobtainingregulatoryclearances.NetFIIoutflowsexceeded$450million
lastyear.
QFI:QualifiedForeignInvestor
FinanceMinistersoffice
Secretary:Sir,theFIIsarepullingouttheirmoneylikethereisnotomorrow.Theyhavelost
confidenceinIndiasgrowthstory(thankstoyou).Sincetheyrepullingoutmoney,Demand
ofDollarisincreasedanddemandofrupeeisdecreased.Currently$1goesfor54Rupees
inForexmarket.Wehavetodosomethingbeforeallhellbreaksloose!
FinanceMinister:damn,letusstartanewschemeQualifiedForeignInvestor(QFI)as
Newyeargiftfrom1stJanuary2012toincreasetheconfidenceofinvestorsinIndian
Market.
Secretary:Whatdoesisdo?Another(bogus)schemelikeyourMNREGA?
FinanceMinisterItmeansaforeignindividual,grouporforeignfirmcandirectlyinvestin
IndianstockmarketlikeanynormalIndiancitizen,withoutrequiringthesubaccountwith
FII.Thisshouldbringinsomemoreinvestors,whoreinterestedininvestinginIndiabutfeel
turnedoffbecauseofthissubaccountandstrictHighNetworthrules.
TellRBImanagertodoverificationoftheapplicantsthough,makesuretheseindividual,
grouporassociationsareresidentinaforeigncountrythatadherestoantimoney
launderingandantiterroristfinancingguidelinesasdefinedbythefinancialactiontaskforce
(FATF).
Secretary:GoodideabutIsuggestwenamethisschemeIGQFIorRGQFI
FinanceMinister:??
Secretary:IndiraGandhiorRajivGandhiQFI
FinanceMinister:Whynotbothofthemsimultaneously?IGRGQFI
Secretary:WhaatanIdeaSirji!!
BradPitt:hahamyturnnow,ImgonnapurchasesomesharesfromIndianMarket!
HDFCManager:heyWait,youcantjustwalkinlikethat.FirstyouvetoopenaDemat
accountandaTradeaccountwithaDP(DepositaryParticipant)likeus!
BradPitt:waitwaitwait,somanywordsinasentence,Imgettingconfused,letstalkthis
oneatatime:
WhatisthisDemataccount?
Whenyoupurchaseshares,youdontgetpapercertificates,butthosesharesget
electronicallytransferredtoyourdemataccountintheDepositary.Meaningyoursharesare
notinphysicalpaper(material)formbutelectronicformat.Dematerializied=Demat.No
fearoftheft,misplacement,delayintransferetc.Somethinglikehavingacallertuneinyour
mobile.Youownthetunebutdontactuallyhavetohaveitinyourphonesmemorycard.
WhatisDepository?
ADepositoryislikeabanklockerwheresecurities(shares)areheldinelectronic
(dematerialised)form.
InIndia,thereareonlytwoDepositoriesNationalSecuritiesDepositoriesLimited(NSDL)
andCentralDepositoryServicesLimited(CDSL).
WhatisDepositoryParticipants(DP)?
DPsarelikebankbrancheswheresharesinphysical(paper)formneedaredepositedfor
convertingtheminelectronic(demat)formandemailittotheDepositary.
ExamplesofDepositoryParticipants(DP):ICICI,SBI,HDFCetc.YouvetoopenaDemat
AccountwithanyoneDP.
AndwhataboutthisTradeaccount
ThesameDPbankalsoactasstockbrokers.Youopenatradeaccountwithus,This
enablesyoutotradeinshareswithoutgoingthroughthehasslesofmanuallyconverting
yourdollarsinrupeesorchasingyourbrokerforchequesorTransferInstructionsetc.
Everythingwillbedoneafteryoulogintoouronlineportal.
BradPitt:oksoIfIgetitcorrectly:FirstIpurchasesharesusingmytradeaccount,then
transfertheminmydemataccount.Icandothisallwithoutneedingathirdpartyagent(FII
orShareBroker),justlikehowanIndiancitizencanplayinsharemarketandGovernment
tookthissteptoincreasemoneyinflowandreducevolatilityinthemarket,whichwas
createdbyFIIs.ThisisthecruxofQFI.Soundsgood.ImdesperatetobecomeaQFI,Open
myTradingaccountrightNOW!
HDFCManager:ButforthatyouneedaDemataccount.
BradPitt:Okopenmydemataccount.
HDFCManager:butyouneedaPANcardforthat.
BradPitt:OkopenmyPANcardaccount.
HDFCManager:YouvetogetPANcardfromIncomeTaxdepartment.
BradPitt:Manthisishopeless.NowonderwhyIndiarankslowinDoingBusiness
Index.NowWhatisthisPANcard?HDFCManager:PermanentAccountNumber(PAN)
referstoatendigitalphanumericnumber,issuedintheformofalaminatedcard,bythe
IncomeTaxDepartmentinIndia.
ItisnowcompulsorytoquotePANinsharetradingandfinancialtransactions.Although
DividendsfromcompaniesandmutualfundsarenottaxableinIndia,PANcardisrequired
tofulfilltheKYC(knowyourcustomer)normsforusacriticalrequirementintheageof
launderingandtransferringterroristmoney!
BradPitt:ButImaForeigner!DoIneedPANcardtoo?
HDFCManager:Yesyoudomister.andyoullhavetogetitfromIToffice.
CuttoIncomeTaxOffice.
Peon(ToBradPitt)Saahebisgoneforateabreak.Waitfor145x109minutes.
BradPitt(Facebooktwitterstatusupdate):#missionimpossible6Onaseriousnote,QFI
fromNewspapers
2011:QFIwereallowedtoinvestinpensionandmutualfundsonlyandnotinthe
IndianSharemarketassuch.
UntilnowForeignInstitutionalInvestors/subaccountsandNonResidentIndiansare
allowedtodirectlyinvestintheIndianequity(Share)market.
2012:NowQFIcanalsoinvestinsharemarket.
QFIisanindividual,grouporassociationresidentinaforeigncountrythatadheresto
antimoneylaunderingandantiterroristfinancingguidelinesasdefinedbythefinancial
actiontaskforce(FATF),amultilateralbody.
TheQFIsdonotincludeFII/subaccounts.
QFIscanownupto5%ofIndiancompanieswhiletheircumulativeinvestmentsare
cappedat10%.TheselimitsareoverandabovetheFIIandNRIinvestmentceilings
prescribedundertheportfolioinvestmentrouteforforeigninvestmentinIndia
TheQFIsshallbeallowedtoinvestthroughtheSEBIregisteredQualifiedDepository
Participant(DP),withtheQFIrequiredtoopenonlyonedemataccountandatrading
accountwithanyofthequalifiedDPandmakepurchaseandsaleofequities(shares)
throughthatDPonly.
MockQuestionsforCSAT(Economy)
Whichofthefollowingstatementsarecorrect?
AtpresenttherearefourDepositoriestoholdsharesinDematerilizedform
PANcardisissuedbySEBI
OnlyIndianNationalscangetPANcard.
PANcardhas16digits.
Aadhar(UID)cardhas10digits.
URLtoarticle:http://mrunal.org/2012/03/economyqfiqualifiedforeigninvestor.html
12/26/2014 Mrunal[Economy]RelianceKGBasinIssue:Reason,Controversy,CruxofMatterMrunal
[Economy]RelianceKGBasinIssue:Reason,
Controversy,CruxofMatter
BeforedwellingintoRelianceKGBasinIssue,getsomefoundationsclear
1. NewExplorationLicensingPolicy(NELP)
2. ConventionalMiningandRoyalty
3. ProductionSharingContract(PSC)
4. ThecruxofRelianceKGBasincontroversy
5. DatelineofRelianceKGBasinControversy
6. WarofWords
NewExplorationLicensingPolicy(NELP)
Underthispolicy,governmentauctionedpotentialoilandgasfieldareasto
privateplayerssuchasReliance,Cairnetc.
Thesecompanieswouldtakeallriskofdiscoveringtheoil/gas,drillingitout
andselltotomakeprofit.
ConventionalMiningandRoyalty
ifyouareinvolvedinIronoremining,theIndianBureauofMines(
IBM)willdetermineitspresentmarketvalueandyouhavetopay10%
royaltyofthat,totheGovernment.
Forexampleyoudigged1kilo(!)ironore,itspresentmarketvalueis
Rs.100,youvetogiveRs.10asroyalty
Itdoesnotmatterhowmuchprofityoumakeoutofthis,youvetopay
10%rightfromthedayoneofyourminingactivity.
Butforthegasexploration,thesystemofroyalityisdifferent,itis
called:
ProductionSharingContract(PSC)
Buthereincaseofgas,firstyouvetodoExploration.Itmayhappen
thatyoudrillinapotentialareabutstilldonotfindanygas,andyet
youvetopurchaseexpensivedrillinginstruments,vehicles,hire
engineersandmonthlysalarytostaffetc.
Sothereisagestationperiodinvolved,beforeyouactuallydiscover
thegas,startsellingit,recoveryourcostsandthenseetheprofits.
Ifthereisadirectroyaltysharingformulaslikeconventionalironore
http://mrunal.org/2012/03/economyreliancekgbasinissuereason.html/print/ 1/4
mining,thenprivateplayerswillnotbeinterestedintakingtheriskin
thisgasexplorationactivity.
HencegovernmentcameupwithaconceptcalledProductionSharing
Contract(PSC)
Underthisscheme,thecompanywillhavetoshareroyalty,according
totheprofitmade.
Initiallycompanymakeslowprofit,governmentgetsextremelylow
share,latercompanydiscoversmoreandmoregasfields,its
productionincreasesandcostsgodown,thenithastosharemore
profittothegovernment.
Thisisnotthestandardroyaltymodelasseeninminingsystems,
whererevenueissharedregardlessofprofitability.ThisPSCmodel
allowstheoperator(RIL)tosubstantiallyrecoverhiscostsbeforethe
sharingofrevenue.
However,oncethesecostsarerecovered,thesharingwiththe
governmentisoftenlarge.
ButAsyoucanunderstandPrivatecontractors(RIL)havevirtuallyno
incentivetominimisecapitalexpenditureandasubstantialincentiveto
increasecapitalexpenditure(theyllbuymoreandmorevehicles,
machinesetc)tokeeptheiroperationcosthigh,whichwouldresultin
low/lowestshareofprofitforthegovernmentofIndia
ThecruxofRelianceKGBasincontroversy
ItisallegedthatRelianceusedfalseaccountingmethodstoshow
hugecostsandoperatingexpensestokeeptheprofitlowsothatthey
havetopaylessmoneytotheGovernment.
CAGfoundthisoutafterauditing,mediastartedreporting,rightnow
matterinPAC(Publicaccountscommittee)ofparliament.
Also,RILhadtotakepermissionofgovernmentbeforeraisingthesale
priceofGas.
Socitingtheheavycostandlowprofit,Reliancealsoincreasedthe
salepriceofgaswithGovernmentspermission.
Andthenthis(expensive)gaswassoldotfertilisercompanies,power
plantsandthussnowballingeffect:priceoffertilisers,electricityalso
increased=inflation.
Directorgeneralofhydrocarbons(DGH)wasresponsibleforlooking
afterthisexplorationactivity,howmuchgasisgenerated,whatisthe
operatingcost,isthereanyreallossetc.(butasthecommonsense
suggests)hemighthavetakensuitcasestoturnablindeyetoall
this.
DatelineofRelianceKGBasinControversy
1999VajpayeeGovernmentintroducedNELP(NEwexploration
licensingpolicy)
2000ReliancegotthelicencetoexploregasinKrishnaGodavari
Basin
2002RelianceIndustriesdiscoveredhugereservesofnaturalgas
andsomesmallreservesofcrudeoilinablockcalledD6.
2007CAGstartsauditing
2011CAGsubmitsauditreportandmediastartsreportingthis
controversy.
WarofWords
CAG
OilMinistryanditstechnicalarm,theDirectorateGeneralofHydrocarbons,
didnotpayadequateattentiontoprotectingthegovernmentsfinancial
interest.
RelianceIndustrysresponse
CAGhasnotfoundanyfalseinflationofthecostoranydishonestyin
developingthenationslargestgasfields.
Corporaterivalrymotivatedafewpeoplewithvestedintereststoindulgein
avicioussmearcampaignagainstus
CAGneitherhadanyexpertiseinhydrocarbonexploration
AshokChawlaCommitteeonPricingofNaturalResources
ProductionSharingContractsliketheoneRelianceIndustriessignedforthe
gasrichKGD6aredesignedtobenefitprivateplayersatthegovernments
expense.
TapanSen,aRajyaSabhaMP
ifyourproductionisincreasing,thenyourexpenditureperunitmust
comedown.But,here,productioncostalmostquadrupled.
evenifyoutakeintoaccountthetrialanderrormethodofdigginghere
andthere,evenifyoutakeintoaccountyourwastedeffortsof
searchinggasandexploring,
yourdevelopmentcostcannottripleorquadruple.
Reliancecantchargethecountrylikethis.Itsaclearcaseofgold
platingthecost.
Itwouldincurthegovernmentabiglossbecauseonlyafterrecovering
thecostofproductionwouldthegovernmentstartgettingareturnon
thenationalasset.
inflatedcostofReliancehasnationalramifications.Ifthecostofgas
explorationistoohigh,thenitwillaffecttheprices.
Reliance,thecompanythathadgoldplatedtheexpenditureof
exploration
ThenReliancehikedthepricefrom$2.34mmBtuto$4.2mmBtu.So,
fertiliserscompanies,powerplantsandcommonconsumersare
payingmoretoReliance.Thiscollectivelossbythenationandto1.2
billionpeopleshouldbecalculated.
WhateverthemoneyReliancehastomake,theyhavemade.
Thegovernmentshouldhavequantifiedthelosstotheexchequer.
ThegovernmentshouldhavecalculatedwhenwouldReliancerecover
itscostandwhenwouldthegovernmentstartsharingprofits.
ThesameReliancesold30percentstaketoBritishPetroleumfor
$7.2billion.Itwasapprovedbythegovernment.
DirectorGeneralofHydrocarbonsshouldbeprosecuted.The
productionsharingcontractshouldberewrittenandpricelevelshould
berevised.
Itwillmakeelectricitycheaper,fertiliserscheaperandindustrieswould
benefit.
IdontblameReliance.IfIgettheopportunitytosteal,amIgoingto
leaveit?Itisthedutyofthegovernmenttoseethatnobodytakes
peopleforaride.
URLtoarticle:http://mrunal.org/2012/03/economyreliancekgbasin
issuereason.html
12/26/2014 MrunalExplained:DebtvsEquity,SharesvsBonds,IPOs,Angelinvestor
[Economy]BondsvsShares,DebtvsEquity,IPO,Underwriter,
VentureCapital,AngelInvestor,JunkBonds,BearerBonds,Gilt
Edgedsecurities:Meaning,Explained
PostedByOn29/03/2012@12:00amInEconomy|91Comments
1. Howtoarrangebusinessfinance?
2. Financemethods:DebtOREquity
3. #1:Debt:Bonds
JunkBondsvsGiltEdgedSecurity
BearerBonds
4. #2:EquityShares
ShareholdersandBoardofDirectors
WhatisIPO?
5. VentureCapitalistandAngelInvestors
WhatisVentureCapital?
WhoisAngelInvestor?
6. WhoisUnderwriter?
7. DebtvsEquity:Pros&Cons
IwanttostartanIcecreamcompany,whatwillIneed?
Land Tobuildafactory.
Labor Workerstorunthemachines.
MoneytobuyFreezers,mixersandpackingmachinestomake
Capital
icecream.
Entrepreneurship Totaketheriskanddoabovethreethings.
Thesearecalledthefourfactorsofproduction.
Ialreadyhavetheentrepreneurshipinmyheartandmind.
Butitrequirestruckloadofcashtoarrangefortheotherthreeitems:Land,Labour
andCapital.
HowTogetthecashtostartmycompany?
Icanrobabank
OrIcanjuststartmyownIITBombay,sellitsapplicationformsfor5,000rupees
andthendeclarecutoff99.99%andthusearningtruckloadofcashwithout
actuallywastingasinglerupeeinarrangingtheadmissioninterviews.
OrIcanjoinpolitics.
Problemsinaboveoptions
CantrobarobabankbecausethistoorequiresLabour(gangsters)andguns,
masks,vehiclesandEntrepreneurship(totaketheriskofgoingtojail).
CantstartmyownIITBombaywouldagainrequirethosefourfactorsof
production(Land,Labour,Capital,Entrepreneurship)+Permissionsfrom
UGC/AICTE.
CantjoinpoliticsbecauseOnlyministerscanmakehugemoney,MPs/MLAs
http://mrunal.org/2012/03/econdebtequity.html/print/ 1/9
dont.AndUnfortunatelyImnotasonordaughterofsomebigpoliticiansoIcant
becomeminister@youngage(AgathaSangma,SachinPilot,NaveenJindalet
al)SoevenIfIjoinpoliticsrightnow,IllhavetodobootlickingofPartyhigh
commanduntilIget60yearsold,onlythenIcanbecomeministerandbreakthe
recordssetbyA.RajaandMadhuKoda.
Now,Therearetwowaysto(legally)arrangemoneyforstartingacompanyorto
expandacompany.FirstisDebtandSecondEquity.Seethischart
Financingmycompany:DebtOREquity
Withinthat,twomajortypes:Gildedgedsecurities,junkBondsandCouponbonds.
#1:Debtbond
Theworddebtisselfexplanatory.Youborrowmoneyfromsomeone:Itcanbea
bank,itcanbeafriend,itcanbeastranger.
Iwriteonapieceofpaper:TowhoeverpaysmeRs.1000,Illpayannual10%
interestrate(Rs.100).Andafter5years,Illalsorepaytheprincipleamount
Rs.1000.Noifsandbuts.
Thisisonetypeofsecuritypaper.WecallitBOND.
IFyouholdmybonds,Imliabletopayyoumoneynomatterwhathappens.
WhethermyicecreamcompanyactuallymakesprofitorgoesKingfisher.Ihave
tokeeppayingfixedmoneytoyou,everyyear.
JunkBondsvsGiltEdgedSecurity
InabovecaseIofferedyou10%interestrate.Butinreallife,therearecredit
ratingcompanieslikeCRISIL,S&P,Moodysetc.Theyllgivecreditratingstoa
bond.(i.e.AmIcapableenoughtoactuallypayyou?).
Basedonthat,theygiveratingsexampleAA,A,BBB,BB,C,Detc.
Ihadtalkedabouttheminmypreviousarticle.GothroughtheArchiveon
www.mrunal.org/economy
JunkBonds
IfmyBondgetsCorDrating,itmeansImnotcreditworthy,Imaydefaulton
thisloan,Imayrunaway.SomybondisasjunkasRa.Onemovie.Awiseman
willnotinvestinit.
So,howcanIseduceyouintopurchasingmybonds?HowcanIconvenience
youtotakethehigherrisk,inbuyingmyjunkbond?
HowaboutFreecallerTunesorascratchcardthatoffersyouachancetodine
withSachinorKatrina?
OrHowaboutHigherInterestrates:IfyougivemeRs.1000,Illgiveyou25%
interestrateperyear!
ThisisalsoknownasHighYieldBond,becauseyouregettinghigherprofit.
GiltEdgedSecurities
Likeanicecreamcompany,Governmentalsoneedsfinanceattimeswhentax
collectionislowandtheyneedsometemporaryfunds.
Theyissuestreasurybonds.RBIsellsthesetreasurybondsonGovernments
behalf.
ButGovernmentsgenerallyhavetheaukaattorepaytheprincipleandinterest
rates.HenceGovernmentbondshavehighercreditratings(AA).So,theydont
needtoseduceyou,theyllofferverylowrate,say4%.
Similarly,wellknowncompanieswithhighcreditratings(AA)alsoissuebondsbut
paylowrates.
Ifyoudontliketotakerisks,youllinvestinsuchbonds.Thesearecalledgilt
edgedsecurities.
BearerBonds(andBadGuys)
InBollywoodmovies,KidnapperdemandsransomofRs.10lakhsbuthewants
themoneyinthedenominationofRs.5/10/50Rupeenotes.Why?Becauseitis
easytocirculatethesenotesandharderforpoliceorbankstokeeptrackofthis
money.
Sameway,inHollywoodSpythrillermovies,theVillainwillaskyoutopay10
milliondollarsinBearerbonds.
Bearerbondsaresameasregularbonds,buttheydonthaveHoldersNameon
them.Thesebearerbondshavecouponsattachedwiththem.So,ifyoudont
wanttowithdrawthewholemoney,youcancutafewcouponsandsellthemtoa
brokertowithdrawpartialamount.
E.g.Rs.100interestistobepaidon1stApril2012,ButevenonDecember2011
youcansellthecoupontoaBroker.AlthoughhellnotgiveyouRs.100but
somethinglikeRs.95or90.(Whyso?Thinkaboutit!)
Anyways,thepointis,Noonecankeepatrackofwhowithdrewthemoney,whos
buying,whossellingBecausetherearenonames,addressesorrecords.Bad
guyslikeit,becausethisensuresanonymity.
SeethefollowingexamplephotographofaBearerbondofGovernmentof
Palestine.NoticethatitdoesnthavespaceforOwnersnamesandthereare
threecouponsattachedatthebottom.
Question:WhywouldGovernmentissuebearerbonds?Becausewhentheyrein
direneedofmoney,thereisemergency,thereiswargoingon,theycannotwaste
timeincheckingthelengthyregistrationforms.So,Betterjustsellthebondsto
anyswingingdudethatcomes,withoutaskinghisname,address,mobilenumber
oremailid.
Although,inreallife,itishardtofindBearerbonds.Becausemostofthebonds
now,existinElectronic(DEMAT)formatandyouvetogiveyourpancardnumber
(orothersimilarpersonalinformationinforeigncountries)tobuyorsell
bonds/sharesoranysimilarsecuritypapers.So,nowbadguyswantpaymentin
gold,diamondorotherpreciousmetalsinsteadofbearerbonds.
#2:Equity:IPOsandShares
Sofar,wesawthatfirstoptionistoborrowmoneyandpayregularinterestrate.
(Debt>Bonds).Nowcontinuingthisnotsotechnicallycorrectarticle,
Secondoptionis,ItakemoneyfromyouandinreturnIofferyoupartnership.This
iscalledEquity.
AssumingthatIneed1crorerupeestostartmycompanyandIve30lakhsinmy
savings.So,Iwriteonapieceofpaper:Illgive0.0001%ownershipofmy
companytowhoevergivesmeRs.1000.
Thisisagainatypeofsecuritypaper.ButsinceImsharingapartofownership
withyou,incrudeterms,wellcallitShare.
ThenIprint10,000suchpapers.Whatsthevalueofthesepapers?
10,000PapersmultipliedwithRs.1000each=1crore.VoilathatstotalmoneyI
need.
AndsinceIalreadyhaveRs.30lakhs,Icanpurchase3000shares.(because
3000papersxRs.1000each=30lakhs)
SooutoftheTotal10,000sharesthatIprinted,Iwillown3,000shares,so
percentagewiseIown30%ofthiscompanysequity.
Relatedtothis:HowdotheyCalculatedSENSEX?ClickMetoReadit
ShareholdersandBoardofDirectors
SinceImissuingtheshares(Equities),undertheCompanylaw,Iveto
Constituteaboardofdirectorsandholdannualgeneralmeetingofthe
shareholders.
Forimportantpolicydecision,Illhavetotakevotesoftheshareholders,the
BoardofDirectorswillsuperviseovermyactivities.InshortIcannotrunthe
companyasIplease,Ivetogiveanswerstothosepeople.
Onthefirstyear,ImakeprofitofRs.25lakhs.Theboardofdirectorswill
meetanddecide
distributeRs.10lakhsasDividendamongtheshareholders.Nowaboutthe
remaining15lakhs,investthembackinthecompanytoexpandour
productioncapacity,buybiggermachinesandinstallnewfactoriesin
PakistanandSomalia.
Hereisthecoolpart,IcanbecomeCEOofmyowncompanyandsayIlltake
salaryofRs.1only!Andstill,IwillearnRs.3lakhs.
How?BecauseIown30%ofsharesinthiscompany,sowhenthatRs.10lakh
Dividendissharedamongtheshareholders,Iget30%ofit=3lakhs,apartfrom
myRs.1salaryasanemployeeofthiscompany.
Hereisademophotograph,ofCreekMiningCompanysshares.
TheownerMr.Georgeown200sharesofthiscompany.Andinthesmallfonts,itis
mentionedthattotal30,00,000sharesof$1each.MeaningMr.Georgeowns(200/30
lakh)x100=0.0067%stocksofthisCreekMiningCompany.
Butinreallife,nowadays,whenyoupurchaseshares,youdontgetsuchcoollooking
colorfulpapercertificates.Yougetthesharesinelectronicdematerializedformat.They
gettransferredinyourdemataccount.(alreadydiscussedinQFIvsFIIarticle.).
WhatisIPO?
MithunChokrobarthysSonMimohChakrabarthywaslaunchedinthefirstfilm
Jimmy.ThatyearhegotBestNewcomeraward.Moviewasflop,thenMimoh
decidedthatchanginghisname,wouldbringhimsomeluck.
SohebecameMahaakshayChkarbartyandyetgaveafewmoreflopfilms.
NowpeopledontcallhimNewcomer,theycallhimflophero.
Moralofthestory:Whenyouactinyourfirstfilm,yourecalledanewcomer.
Theninyoursubsequentmovies,yourecalledaflopactor,althoughyourethe
samehumanbeingfromyourdaddyseyes.
Sameway,WhenIsellmysharepapersforthefirsttime,tothepublic,the
processiscalledIPO(initialpublicoffer)
Thenyou(thebuyersoftheseshares),sellthesepaperstoeachother,thesame
paperiscalledShareorEquities.
FromDaddyspointofview(Mine),itsthesame.Ifsomeonehasonepaper,he
gets0.0001%fromthedividends.
PrimaryvsSecondaryMarket
Primarymarket=thisisthePlacewhereIPOsaresold,
SecondaryMarket=thisistheplacewhereIPOsareresoldasshares.
Physicallyboththingsaredoneinthesameplacee.g.BSE(BombayStock
Exchange)butthisvirtualclassificationhelpsinkeepingtrackofthings,making
statisticalanalysisetc.
VentureCapitalistandAngelInvestors
NowTwomoresubtypesofEquityfinancers
WhatisVentureCapital?
VentureCapitalisacompanythatgivesyoumoney,tostartyourcompanyorto
expandyourcompanybutinreturntheydemandpartofownership.
Theydealwithonlybigthings,bigprojects,biginvestments.Theywonthelp
metoopenanicecreamparlourinGujaratUniversitydespitethefactthatits
monthlyrevenuewillbehigherthanSBIGeneralManagerssalary.
CopypastingexampleofOjasventure,India
WeinvestintechnologybasedbusinessesinsectorssuchasMobiletechnology,
Telecom,Software.
WemakeaninitialinvestmentofUS$250,000toUS$1.5million.
Howdotheygetmoney?
Ofcoursemoneydoesntfallfromsky,theseVentureCapitalistcompanies
themselvesborrowmoneyfromothercompanieslikemutualfunds,pensionfunds
ortheymaybeissuingtheirownbondstogetmoney.
Howdotheyoperate?
TheyvetheirownteamofManagementexperts,corporatelawyers,chartered
accountant,andbusinessconsultants.Theystudyyourbusinessplan,approve
themoney.
TheylldemandseatsinyourcompanysboardofdirectorstoInfluencethe
DecisionMakinginyourcompany,accordingtotheirrequirementandsoon
WhoisAngelInvestor?
Thesearerichgentlemen.Theyfinancestartupcompaniesforgettingpartial
ownershipandorassuredreturnsoninvestment,afterfewyears.Theycangive
debt(i.e.justlikemoneylendersandbanks)orEquity(i.e.partialownership).But
mostlytheyplayintheequityfield.
WhatistheneedofAngelInvestors?
YoucangetmoneyfromBanks/Bonds(Debt)orIPO/VentureCapitalist(Equity),
ifyourbusinessprojectislikelytobearsuccessbasedonpreviousexperiance.
Forexample:Pharmaceuticals,Dairy,Engineeringinstruments,Mining,Telecom,
Textiles,OilRefineryetc.
Buttheymaynotgetinterestedinyou,ifyoutalkaboutuntriedanduntested
businessplans/productorfields.
ImagineSteveJobsrequestingSBIBankManagertogivehimbusinessloanin
1970stostartAppleComputers,
orSameSteveJobslaunchingIPOofAppleinNewYorkStockexchangeduring
thattime!
ButtherewasanangelinvestorMikeMarkkula,whoactuallybelievedinhisplan
andgavehimsomemoneyandgot1/3rdownershipinthecompanyin1977.
Angelinvestordoesntmindtakinghugeriskbyhelpingevensmalltimerswith
totallyuniqueanduntestedidea,ifhethinkthatitllgrowuphugesuccessin
future.
Similarly,AmazononlineshoppingwebsiteandStarbuckscoffeechainalso
startedwithAngelInvestors.
CapitalGainTaxRevisited
RecalltheargumentgivenbyMr.VodafoneinCapitalGainstax?
Anindividualwhoowns45percentsharecapitaldoesnotown45ofthat
companysassets.Thereisadifferencebetweenthesaleofsharesina
companyandthesaleofassetsofthatcompany.
Whyisitso?
BecausemostofthecompanydontdirectlystartwithIPO/Shares.Firstthe
entrepreneurstartsasmallcompanyusingmoneyfromhisownsavings,
borrowingfromfriends,relativesandbanksorfromanAngelInvestor.
Oncethebusinessstartsbooming,helllaunchanIPOtogetextrafundsfrom
public,toexpandhisbusiness.
So,Healreadyhassomebuilding,machinery,vehiclesetcassetsinhissmall
companybeforelaunchinghisIPO.
Takeareallycrudeexample
IhaveRs.30insavings,IborrowRs.20(Debt)andthusstartacompanyforRs.50
Afterfewyears,IneedanotherRs.50toexpandbusiness,soIlaunchanIPO:
Total50sharepapersworthRs.1each(Equity)
Youbuy10sharesfor10rupees.Meansyouown10/50th=20%ofmy
shares/stocks/equity/IPOwhateveryouwanttocallit.
Butthetotalassetsofmycompanyare=FromRs.50Ihadalready+Rs.50from
IPO=TotalRs.100
So,Youdontown20%assetsofmycompany,becauseyouvegivenmeonly
Rs.10!andmytotalassetsarefinancedfrombothDebt+Equity.
Sameway,ifyoupurchase10%sharesofJetAirways,doesntmeanyouown
10%oftheirairplanesandbuildings.
WhoisUnderwriter?
Sofarweveseenthat
ToarrangemoneyIcaneitherborrow(debt,Bond)orIcangiveshares(equity,
IPOs/shares).
Hereistheproblem:IcannotprintthosesecuritypapersonmyownHomePCs
cheapprinter.
First,Alengthylegalandaccountingpaperworkhastobedone,itllrequire
charteredaccountants,CorporateLawyersexpertsinthesematters.
So,Igotoanunderwriter,hechargesCommissionbuthepromisestocoverallthe
technicallythings,paperwork,SEBIregulations,selling,acceptingmoneyfor
IPO/Bondssaleetc.etc.etc.
Sameunderwriteralsooffersakindainsurance,thathellbuytheIPO/Bondsif
othersdontbuyit.
KotakMahindra,ICICIoffersuchunderwritingservices.
DebtvsEquity:ProsandCons
Inreallife,companiesdontrelyonsinglesourcetofinancetheiradventure.
TheyllarrangepartofthecashfromDebt(Borrowing)andpartofthecashby
issuingIPOs(Equity).
Eachhasitsownadvantageanddisadvantage.Letscheck
Goodthings:bondsvsshares
Debt(Bond) Equity(IPO/Shares)
Ihavecompleteownershipand
controloverthecompany.Im
accountabletonobodyjustlikeUPA
Ifthecompanymakesloss,Idont
II.
havetoshareanymoneywiththe
Idonthavetosharemyprofitwith
shareholder,justlikeKingfisher.
anyone.Igettoeatthewholecake.
Sothereisnoregularinterest
Icanclaimincometaxdeductionfor
payment,aswedointheloan.
payingtheloan.
MeaningIvelesstension
Itrequirelesspaperworkandtimeto
comparedtobankloan/bonds.
borrowfrombank/friendthanvia
sharemarket(SEBIpermission,
boardofdirectorsetc)
Badthings:bondsvsshares
Debt(Bond) Equity(IPO/Shares)
EvenifIdontmakeprofit,Ive
topayinterestrate,because Idontgetcompleteownershipand
basicallythisisaloanjustlike controloverthecompany.
homeloanorcarloan.Whether Ivetoconstituteaboardofdirectors,
youearnornot,youvetopay holdgeneralmeetingsofshareholders,
theEMI. Imaccountabletothem.Theboardof
Imayhavetomortgage directorscanthrowmeoutofCEOjob,
something(machinery,building) ifIdonotdeliverresults,unlikeMohan.
togettheloan.SoincaseI Itrequiresheavypaperworkandtimeto
defaultontheloan,the initiateIPO,sharemarketthing(SEBI
bank/financercantakeitaway permission,underwritingetc)
fromme.
So,itdbebetterifIfinanceapartfromdebtandapartfromequity.Thatleadsusto
thediscussionaboutDebttoEquityRatio.(tobecontinued),Allmyarticleson
economy,arearchivedatMrunal.org/economy
URLtoarticle:http://mrunal.org/2012/03/econdebtequity.html
12/26/2014 MrunalExplained:TypesofcompaniesPublic,Private,Holding,PSU
[Economy]DifferentTypesofCompanies:Pvt.Ltd,
PublicLtd.,PublicCorporation,Departmental
Undertaking,PSUs
Disabled
1. PaidupCapital
2. Privatecompany
3. Publiccompany
4. Holdingcompanyandsubsidiarycompany
5. Departmentalundertakings
6. GovernmentCompany
7. Publiccorporation
8. PSU(PublicSectorundertakings)
PaidupCapital
Thiswordisgoingtokeepreappearinginnextfewarticles,sobetter
understanditinadvance.
Youalreadysawthattherearetwowaystofinanceacompany:Debt+
Equity.
PaidupCapitalmeanstheamountofmoneycontributedviaEquity
(shareholders)
Privatecompany
IthasaminimumpaidupcapitalofRs.1lakh
Itneedsminimumtwomembersandmaximum200members(i.e.The
personswhoholditsequity)
ThiscompanyistousethewordPrivateLimitedattheendofits
name.
Itcannothavemorethan50members
Itcannotborrowforgeneralpublic.
ForexampleBalajiTelefilmsprivateltd=EktaaKapoorscompany,
involvedinmakingthoseboringSaasBahuserials.
Anotherexample:Neelatelefilmsprivateltd.=AsitModiscompany,
theyproducethecomedyserialTarakMehtaKaaooltaChashmaa.
Flipkart.com:theonlineshoppingwebsiteisalsoaprivatecompany,
startedbySachinandBinniBansal.
Publiccompany
http://mrunal.org/2012/04/economydifferenttypesofcompanies.html/print/ 1/3
IthasminimumpaidupcapitalofRs.5lakh.
Requiresminimumsevenmemberstostartapubliccompany.
Ithastoholdannualgeneralmeetingofshareholders.
ItcanborrowfromgeneralpublicviaIPOsandBonds.
Forexample,Infosysstartedasaprivateltdcompanyin1981,butin
1992,itreregistereditselfasaPublicLtdcompanyandlaunchedthe
IPOin1993.
Holdingcompanyandsubsidiarycompany
IfcompanyAholdsmorethan50%SharesofcompanyBthen,
CompanyAisaholdingcompany
CompanyBisasubsidiarycompany
Example:CoalIndiaisaholdingcompany.BharatCokingltd,
MahanadiCoalFieldsltdareitssubsidiarycompanies.
Similarly,KonkanRailwayisasubsidiarycompanyofIndianRailways.
AlthoughIndianRailwaysisnotaHoldingCompany,itisa
Departmentalundertaking.
Departmentalundertakings
Theyareinvolvedinsomecommercialactivitysuchasengineering,
manufacturingetc.But
Theyredirectlycontrolledbythegovernment,justlikeanyother
department
Forexample:IndianRailways,postalDepartment.
Theyarenotregisteredascompaniesunderthecompaniesact
Theyarewhollyfinancedbythegovernment(andnotthrough
Debt+Equitylikeanormalcompany)
Theycannotusetheirprofittomeettheirexpenditure,ortoexpand
theirbusinessactivitieswithoutthepermissionofGovernment(by
extensionparliament.I.e.RailwaybudgetforRailwaysandGeneral
UnionbudgetincaseofpostalDepartment)
Theiremployeesaregovernmentservants.
DirectlyauditedbyCAG.
RTIappliestoDepartmentalundertakings.
GovernmentCompany
Itisacompanyinwhichgovernmentholdsnotlessthan51%ofpaid
upsharecapital.
Forexample,ONGC,SAIL
Here,TheGovernmentmeanstheuniongovernmentortheState
government(s)onboth.
Forexample,inCompanyA,30%sharesareheldbyunion
government,10%byGujaratgovernment,11%byMadhyaPradesh
government,stillCompanyAisaGovernmentcompany
(30+10+11=51%)
Thegovernmentcompanyismanagedbytheboardofdirectors.
BoardofDirectorsareappointedbytheshareholders.Butsince
governmentownsmajorityoftheshares,majorityofdirectorsare
chosenbythegovernment.
TheycanborrowextramoneyfrompublicviaIPOsandbonds.
ThiscompanydoesnotneedParliamentsapprovalonhowtousethe
profit,ButitwillneedapprovalofBoardofdirectorsonhowtospend
theprofit.
TheyrenotdirectlyauditedbyCAG,butCAGappointstheprivate
firms(Charteredaccountants)asauditors.
RTIappliestoGovernmentcompanies.
Publiccorporation
TheyareestablishedbyaspecialactofParliamentorstatelegislature
(VidhanSabha)
Theactdefineshowthisorganizationwillrun.Forexample:LIC,Air
India,IDBI,UTI
Theyarewhollyfinancedbythegovernment,butstilltheycanalso
borrowfromgeneralpublicviaBondsandshares.
Governmentappointsboardofdirectors.
Theycanusetheirprofitaspertheirrequirementswithout
Parliamentsapproval
Employeesofpubliccorporationarenotgovernmentservants.
DirectlyauditedbyCAG,althoughinsomecasesCAGoutsourcesthe
worktoprivatefirms.
RTIappliestoPublicCorporations.
PSU(PublicSectorundertakings)
WhenweusethewordPSU:itmeansPubliccorporations+
Governmentcompanies.
Departmentalundertakings(Railway/Postal)arenotPSUs.
CAGhastwowings:
1.TheCivilwinglooksaftertheauditingofMinistries+Departmental
undertakings.
2.TheCommercialwinglooksaftertheauditingofGovernment
companies+PublicCorporations.
URLtoarticle:http://mrunal.org/2012/04/economydifferenttypesof
companies.html
12/26/2014 Mrunal[Economy]SharesvsStocks,RightsIssueofShares,BonusShares,RSUMrunal
[Economy]SharesvsStocks,RightsIssueofShares,
BonusShares,RSU
Disabled
1. Shareversusstock
2. Differenttypesofshares
3. Rightsissueofshares
4. So,whatsthepointindoingrightsissue?
5. Toreducethedebt:equityratio
6. Bonusshares
7. Employeestockoptionscheme
8. Restrictedstockunit(RSU)
Shareversusstock
Supposethecompanyhasissued1000shares,worthRs.10each
Youpurchased50sharesofthiscompany.Soyouhavetopay50
sharesx10Rs.Each=Rs.500
Thatmeansyouown50Sharesofthiscompanyand
YouownstockofRs.500inthiscompany.
Inshort,whenwetalkaboutshareswerefertothenumberofpapers
heldbyyou.
Whenwetalkaboutstocks,werefertothemoneyvalueofthose
papersheldbyyou.
Butultimately,bothsharesandstockssuggestthesamething:
Equity.
Differenttypesofshares
Normalshares
Itcomeswithvotingrights.Thisiswhatyougetfromroutine
IPO>>Sharething
Preferentialshares
AlreadydiscussedintheSBIcapitalinfusionarticle
StillTherearesometopicsrelatedtoshares
Rightsissueofshares
YoulaunchIPO,getfundsfromthepublic,andstartacompany.
http://mrunal.org/2012/04/economysharesvsstocksrightsissue.html/print/ 1/4
(Equity)
Aftersomeyearsyouwantsomemoremoneytoexpandthe
company,soyouwanttoissueadditionalshares.Butunderthe
companiesact,youcanissueadditionalsharestotheexisting
shareholdersonly.Thisiscalledrightsissueofshares
Here,yougivenoticetotheexistingshareholders,offerthemtobuy
yournewshares,youcannotofferanyotheroutsidertopurchasethe
shares.
Ifyoudonotwantrightsissueofshares,youhavetoholdageneral
meetingofshareholdersandpassaresolutionthatcompanydoesnot
needtooffernewsharestotheexistingshareholders,andthesenew
sharesareavailableforanybodytopurchase
So,whatsthepointindoingrightsissue?
Wellthedirectutilityofrightsissue=obviouslytogathermoremoney
toexpandyourcompany.
Butitisalsousedforotherpurpose
Toreducethedebt:equityratio
FromDebtVSEquityarticle:TherearecreditratingagenciesS&P,
CRISILetc.theygiveratingtoyourcompanysbonds.AAA,BBBetc.
Lowertherating=highertheinterestrateyouvetooffer,toseduce
thepeopleintobuyingyourbonds.(RecalltheJunkBonds.)
Butbeforegivingratingtoyourbonds,thecreditratingagencywill
lookintoyourcompanysperformance,assets,liabilityeverything.And
oneofthethingtheyreinterestedin,isDebttoEquityRatio
Thecompanywithhighdebttoequityratio=ithasmoredebt=
compulsoryinterestpayment=trouble=lowerrating.
Ifsuchcompanyissuesmorebondstogathermoney,itllhavetrouble
itsnewbondswillreceiveevenlowercreditrating.So,whatcanthey
do?
Anothercase:Yourekingfisher.Yourenotdoinggood,nobodyis
helpingyou.Soyouwantsomeforeigninvestortocomeandhelpyou.
Buthellalsolookintodebt:equityratiobeforefinalizingthetermsof
deal.Whatcanyoudotoappeargoodinfrontofhim?
Obviously:reducetheDebttoEquityratio.Buthow?
Simple:offernewequity(shares)toexistingshareholders@a
discountedrate.(=Rightsissuesofshares).Youveofferitata
discountedrate,elsenoonewouldbuyit.Youredoingthiswhole
exercise,becauseyoureintroubleinthefirstplace.
Forexample:HereismyofferofRightsissue:
1:1,FacevalueRs.100,@DiscountofRs.50
Meaning,ifyoualreadyhave10sharesofmycompany,youcanbuy
10moresharesfromme(1:1),EachoftheseshareswillhaveWorth
Rs.100printedonitbutIllgiveittoyouforRs.50only.
Whatgooddoesitdotome?Wellinthelegalrecord,forthe
calculationofDebtVsEquity=theyllcalculateusingRs.100face
value.ThusmyDebt:Equityratiowillgodown,andIlllookgoodwhen
creditratingagency/FDIinvestorstartsevaluatingme.
Bonusshares
Inthedebtversusequityarticle,yousawthatacompanycancollect
moneyfrompeoplebyissuingshares(IPO/Equity/Stockwhateveryou
wanttocallit),buteveryyear,companyreportstheprofittotheboard
ofdirectors.Theboardofdirectorswilldecidehowmuchprofitistobe
reinvestedinthecompanyandhowmuchprofitistobesharedwith
theshareholders.
Theprofit,thussharedwiththeshareholdersiscalleddividend.
Generallydividendissenttotheshareholdersviacheques.
Butsometimes,companyalsogivesyouextrashares.
Itmeanscompanypaidthemoneytopurchasesharesonyourbehalf
andgivesittoyou.Soyougotfreesharesandnextyearwhen
companydistributesthedividends(cash),youwillgetmoredividend,
becausenowyouareholdingmoreshares.Alternatively,youcansell
awaythesebonussharestosomeoneelseandtakeoutthemoney.
Thesearecalledbonusshares
WhatisthedifferencebetweenBonussharesandrightsissues
Well,asashareholder,yougetsharesforfreeunderbonusshares.
Butyoullhavetopaymoneyforbuyingnewsharesunderrights
issue
Employeestockoptionscheme
Herethecompanyissuessharesitsemployeeatadiscountprice.
Thisisdonetomaketheemployeescommittedtothesuccessof
companybecauseifthecompanymakesmoreprofit,theycanwalk
awaywithhigherdividends.
Suchshareshaveminimumlockinperiod:forexampleifyourboss
givesittoday,youcannotsellitforoneortwoyears.
Restrictedstockunit(RSU)
ThisisalsoaformofEmployeeStockOptionbutherethecompany
promisestodeliversharestoitsemployeeinfuturedate.
Forexample,ApplesnewCEOTimCook:hellget$900,000ofcash
salaryanda$377millioninRSU.
Applewilldeliverhim500,000sharesofApplestockin2016,and
500,000moresharesin2021aslongashestaysemployedatthe
company.
URLtoarticle:http://mrunal.org/2012/04/economysharesvsstocks
rightsissue.html
12/26/2014 MrunalExplained:GAARGeneralAntiAvoidanceRulesinIndia
[Economy]GeneralAntiAvodianceRules(GAAR):
Meaning,Pros,Cons,Implications,Explained
1. DraftingoftheDTCBill
2. RulesofGAAR
3. BurdenofProof
4. ParliamentofIndia(August2009)
5. ReviewbyStandingCommittee
6. ProandAntiGAARviewpoints
7. Summery
8. Epilogue
Beforereadingfurther,makesureyouhavereadthepreviousarticleon
VodafoneHutchCapitalGainstaxcase.
Location:MinistryofFinance,Delhi(2008)
Whygovernmentwantstoextractmaximumrevenue?
Ok,Thisyearweneedtocollect8lakhcrorestofinance
ourbogusschemesandotherRoyalExpendituressuch
asluxuryforeignvacationtripsofPratibha+business
Pranab classAirticketsforSharadetal..Ivetoldthecustom
andexciseDepartmenttocollect3lakhcroresinindirect
taxes,andyougetmetheremaining5lakhcroresfrom
directtaxes.ElseIwontpromoteyou.Understood?
IT Butsiryourtargetisimplausiblejustlikereadingentire
Commissioner MishraPuriandDuttSundaramforeconomy!
Well,theDiamondtradersinSuratandBuildersin
Pranab Mumbaigotplentyofblackmoney.Youraidtheiroffices
everymonth,startingfromtonight.
IT Wearealreadydoingthat.Yes,werecoveredtruckload
Commissioner ofcashbutstillyourtargetisjustwaytoohigh.
ThencatchthosebigfishesthatuseCaymanislandand
Pranab
othertaxhavensformakingbusinessdeals!
Matterisoutsidemyjurisdiction.AndevenifItrytodo
IT
somethingaboutit,theyllgotocourtandwinthecase.
Commissioner
So,First,youvetoupdatetheIncometaxactof1961.
BetaaIdonthavetoupdatetheITAct.Itsyourjobto
http://mrunal.org/2012/05/economygeneralantiavodiancerules.html/print/ 1/9
Pranab writethebill,givepapertomeIpresentitinparliament,
andifparliamentapprovesandPresidentsigns,thebill
becomestheActandItakeallthecredit.
ITCommissionercallsupotherseniorandexperiencedofficersfromhis
departmentandstartsupdatingtheIncomeTaxAct.
DraftingoftheDTCBill
Alright.Imdonewritingthemajorprovisionabout
IncomeTaxinDirectTaxCode.Onlyonepartremains:
IT
OurDepartmentmusthavethepowertotakeaction
Commissioner
againstthesefolkswhousetaxhavensformaking
businessdeals.
RetiredIT Yes,Weshouldmakethenecessaryrulesandcallit
officer GAAR:GeneralAntiAvoidanceRules.
WowthatnameGAARsoundsreallyuniqueand
IT
awesome,asifthe*Singham*(lion)isroaringgrrrrI
Commissioner
wishIcouldgetselectedinIPS
Betaathereisnothingreallyuniqueorawesomein
GAAR.AustraliahasGAARsince1981.ThenCanada,
NewZealand,Germany,FranceandSouthAfricaalso
RetiredIT adoptedGAAR.HellevenChinagotGAARin2008!
officer
ImsurprisedtoseeIndianauthoritiesweresleepingall
theseyearsandsuddenlyrealizedin2009thatwetoo
needaGAAR!
IT
Well,Betterlatethannever!
Commissioner
BothgentlemenwatchTarakMehtakaaOoltaaChashmaonSABTVand
writetheGAARrulesforIndiainbetweentheadvertisementbreaks.
ITCommissioner(ToPranab):Sir,IvefinisheddraftingtheDTCand
includedGAARInit.LetmetellyouthespecificrulesunderthisGAAR,
whichareasfollowing
RulesofGAAR
Undertheserules,Icantakeactionagainstthosepeopleinvolvedin
taxavoidance.
I,theIncomeTaxCommissioner,willhavefullpowertodecide
whetherabusinessdealisgenuineorsomeshamtoavoidtax
payment.Itdoesntmatterwhetherthebusinessdealwasdonein
IndiaoroutsideIndiaor
ItdoesntmatterwhetherthedealisbetweenanyIndiancitizens/
NRIs/Foreigners.
Itdoesntmatterwhetherthedealisprotectedbysomebilateraltax
treatybetweenIndiaandthegivencountry.
GAARprovisionsshalloverridethetermsofanyDoubleTaxation
AvoidanceAgreement(TaxTreaty)thatIndiamayhaveenteredinto.
NoifsandnotbutsIllhavefulljurisdictiontoquestionany
businessdeal.
Icansendnoticetotheconcernedpartiesanddemandexplanation.
Afterhearingtheirside,ifImnotsatisfied,IshallordermyAssessing
offer(AO)within12months,totakenecessaryactionagainstthem
andrecoverthetaxes.
Ifthepartyisunhappywithmyorder,itcanappealinDispute
resolutionPanel(DRP),whichwillconsistofthreeITCommissioners
likeme.
DRPwillhavetogivetheverdictinninemonths.
IfthepartyisstillunhappywithDRPverdict,itcanfileappearbefore
theIncomeTaxAppellateTribunal(ITAT)
IfpartyisunhappyevenafterITATverdict,itcanapproachHighcourt
andSupremeCourt.
BurdenofProof
Intheregularcriminalcases,suspectispresumedinnocentuntil
provenguilty.Theburdenofproofrestedontheprosecution,i.e.
SarkaariVakil(andPolice)hastoconveniencethecourtthatRajais
guilty.
However,incaseofGAAR,theburdenofproofrestswiththeparty,
Rajahastoprovethatheisinnocent.
ThisissimilartoTADAandPOTA:BurdenofProofrestedonthe
suspect.TheSuspectwaspresumedguilty,andhehadtoprovethat
hehadnocriminalintent.
Pranab:Verygood.JustthewayIwantedit.NowIlltablethisbillin
parliament.
ParliamentofIndia(August2009)
PranabtablestheDirectTaxCode2010billinparliament.Asusual
OppositionMPsstartshoutingslogansagainsthim.
LokSabhaTVviewer:Yaar,ektohPranabsBengaliEnglishaccentisso
hardtodecipherinthefirstplaceandallthisshoutingismakingit
impossibletounderstandwhatheissaying!
ReviewbyStandingCommittee
ThebillissenttotheStandingCommitteeonFinance,headedbyBJP
LeaderYashwantSinha,forreview.TheCommitteeissuesan
advertisementinthemajornewspapers:
WeveuploadedthedraftDTCcodeonourwebsitesoifanyonegot
problemorsuggestion,senditbyordinarypostormeetusinperson
becauseourfaxmachineisnotworkingandourSecretaryforgottheGmail
password.
OnesuchstakeholderisourgoodoldMr.Vodafone,heappearsbeforethe
standingCommitteetopresenthiscase.
ProandAntiGAARviewpoints
Mr.Vodafone:ThisGAARistotallyrubbish.Istronglyopposeitbecause
ShouldbeaseparateAct
GovernmentshouldhaveintroducedGAARasaseparateact.But
PranabhasmischievouslypackedthisGAARwithDirectTaxcode
(DTC).
TargetaudienceofDTC=corporates+middleclasstaxpayersbut
targetaudienceofGAARismostlybigcorporatessuchasmyself.
AndthedimwitmediaofIndiadoesntreallyunderstandwhatisthe
issueandconfusesthejuntaasifwethecorporatesareagainstthe
entireDTC.
No,wearenotagainstDTCweareconcernedaboutGAAR.Butyet
weareunnecessarilygettingvilifiedjustlikeanyonewhodaresto
speakagainstTeamAnnaisautomaticallylabelledasCongiagent.
AssumptionofGuilt
Mr.Vodafone:Addinginsulttotheinjury,theGAARrulesays,Itshallbe
presumedthattaxavoidanceisthemainpurposeofabusinessdeal,
unlessotherwiseprovedbythetaxpayer.Whatthehellman??Thisis
samelikePOTAandTADAwereitwaspresumedthatapersonisguilty,
andtheburdenofproofrestedonthesuspect.
Whytreatingusasterrorists,especiallywhenyoudonthavethegutsto
say,Maoists=terroristsinUNassembly?
KalmadicanwalkoutonbaildespitestealingcroresfromIndiantaxpayers
andwearenotevenallowedtodopropertaxplanning.
EvenSupremeCourtsaidintheVodafonecasethat.
Alltaxplanningscannotbesaidtobeillegal/illegitimateorimpermissible.
Genuinestrategictaxplanningispermissible.
ConflictofInterest
Mr.Vodafone:IntheGAAR,ITCommissioneralonewilldecidewhethera
businessdealisgenuineorataxavoidancesham?ButWhygivehimthis
discriminatorypower?
WeallknowthatITCommissionersaregivenrevenuecollection
targetsfromabove.
SowhenanITCommissionerisunderpressuretomeetthetarget,he
mayissueanoticetousevenwherethereisnocaseoftax
avoidance,andthedealistotallylegit.
Ultimatelywellhavetotreathimasmaaibaap,givehimgiftsand
bribeseveryHoliDiwali,thusGAARwillbringbacktheInspectorRaj.
AndITCommissionerisgivensomuchpower.HellbePolice,Judge,
JuryandtheExecutioner.Ononehand,youareagainsttheJan
LokpalgivingsameargumentandyetallowitinGAAR.
Inmostofthecountries,ITCommissionersdonthavesomuch
discretionarypowers,theGAARmatterisgenerallyhandledbya
panel/CommitteesystemandnotbyindividualCommissioners.
Pranab:buttherearesafeguards.YoucanappealtotheDRT,ITAT,High
courtandSupremecourt,ifyourenothappywithITCommissionersorder!
Mr.Vodafone:Butwellhavetowastesomuchofourmoneyinhiringtax
lawyers!Doyouhaveanyideahowmuchtimeandmoneydiditcostmeto
provemyinnocenceinVodafoneHutchdeal?ThisGAARwillonlygenerate
moreincomeforthetop1012taxlawyersofIndia.
Misplacedpriorities:TaxEvasionvsTaxAvoidance
Meansillegalarrangementswhereliabilitytotaxishidden
Tax orignoredi.e.Thetaxpayerpayslesstaxthanheislegally
Evasion obligatedtopaybyhidingincomeorinformationfromtax
authorities.Blackmoneyfallshere.
Anarrangementofataxpayersaffairsthatisintendedto
reducehisliabilityandthatalthoughthearrangementcould
bestrictlylegal.Thekeydistinctionbeingthatintax
Tax
avoidancethekeyfactsandfinancialdetailsarenothidden
Avoidance
bythetaxpayerbutareonauditrecord.Sothereisno
blackmoneybecauseallthemoneyisreportedtothetax
authorities.
Tax Arrangementofapersonsbusinessand/orprivateaffairs
Planning inordertominimizetaxliability.
GAARisnotanantidotefortaxevasionitcanonlysolvetax
avoidance.
TheGAARcannotdealwithtaxevasionsinceitcannotdealwithwhat
isnotreported.
YouveshownenthusiasmagainstTaxevasionbutyoudontflexyour
musclesinsamemannerwhenitcomestoHasanAliandothertax
evaders!
SoinsteadofclubbingGAARwithDTC,makeaseparatelawforthat
incorporatesnotonlyGAAR(taxevasion)butalsoprovisionsforblack
money.
GAARisonlyapiecemealapproach.Thesituationrequiresaholistic
approachtohandlebothTaxAvoidance+Taxevasion.
PiecemealvsHolisticApproach
Pranab:Butmyfriend,somethingisbetterthannothing.Asyourewell
aware,IdontenjoymajorityinRajyaSabha.Itisverytoughformetopass
anybillbeitwomensreservationbillorpensionandinsurancereforms.
AccordingtotheConstitution,Incometaxlegislationfallsunderthe
domainofUnionGovernment.ThereforeIcanproceedeasilywith
DTCwithoutconsultingStateGovernments.BesidesDTCtarget
audience=middleclass+corporates=Thevotebankislargeenough
sonopartydarestoopposeDTCbeyondalevel.Icaneasilypass
DTC(+GAAR)inRajyaSabhatoo.
ButwhenwetalkaboutHolisticapproachofdealingwithBlack
Money,thatinvolvesbothdirectandindirecttaxes.So,Ivetotake
stategovernmentsinconfidencebeforepassinganylegislationor
framework,justliketheFDIinretailorGST(Goodsandservices
tax.)
YouvealreadyseenallNonCongressichiefministersopposing
NCTC.EvenifIwanttodosomethinggood,HowamIsupposedto
proceedwithaholisticapproach/legislationtodealwithbothTax
Avoidance+Taxevasion?
NorespectforbilateralTaxtreaties=Uncertainty
Mr.Vodafone:TheGAARevensaysthatitsprovisionsshalloverridethe
provisionsofanyDoubleTaxationAvoidanceAgreement(TaxTreaty)that
Indiamayhaveenteredintowithothernations.Thismeanstotaldisrespect
forbilateraltaxtreaties!
ViennaConventionontheLawofTreatiesthatthatatreatyshouldbe
interpretedandmustbeperformedbypartiestoitingoodfaith.
Pranab(intervenes):hahadudewehaveneithersignednorratifiedthat
ViennaConvention!
Mr.Vodafone:ButthenhowamIsupposedtodobusiness?Thereisno
certaintywhetheryouregoingtorespecttheInternationaltaxtreatiesor
not.ItwillalldependonthewhimsandfanciesofyourITCommissioner.
HowamIgoingtomakebusinessdealswithothercompaniesabroad?
Economycannotprosperinplaceshavinganytypeofuncertainty.Takethe
caseofNaxalaffectedregions.
BesidesSupremeCourthassaidinmycase
Taxpolicycertaintyiscrucialfortaxpayers(includingforeigninvestors)to
makerationaleconomicchoicesinthemostefficientmanner.
Pranab:yayaIknowitverywellwhatSupremeCourtsaidinyourcase.
AndthemainreasonfordoingGAARistomakesurethatyoucantwinin
Supremecourtnexttime.
Mr.Vodafone:ThenIllmakesureyouthatgetadowngradeinStandard
andPoor(S&P)srating.JustonestrokeandtheFIIswillpulloutcrores
fromyourmarketinaweek=Rupeeweakens=crudeoilbecomes
expensive=inflation.FirGAARkipoongibajaaterahenaa.
Summery
GAARisasetofrulestocheckontaxavoidance.
ProGAARLobby
Pranab,Hisparty,JholaachhapNGOsandLeftwingcolumnistsofThe
Hinduetal
BigcompaniesselltheirproductsinIndianandmakehugecash.Yet
theydobusinessdealsinMauratius,Caymensislandetctoavoid
payingtaxestoIndianGovernment.
WithGAAR,wecanrecovertaxesfromthemanduseitforpoverty
removal(!)
AntiGAARlobby
BigCorporates,Sharebrokers,RightwingColumnistsofIndianExpress,
TimesofIndiaetal
GAARisadraconianAct,initspresentform.
ITCommissionersarevestedwithsomuchdiscretionarypowers,and
theyllabuseittomeettheRevenuecollectiontargets.
Burdenofproofrestswithsuspectandnotwiththeprosecution.
GAARputstheonusonthetaxpayertoprovethathisbusinessdealis
notfortaxavoidance.Thiswillcreatealotofuncertaintyandcould
potentiallyleadtoadangeroustrendoftheITCommissioner
questioningalmosteverytransactionthatresultsintaxsaving.
GAARdoesntrespectbilateraltaxtreaties=uncertainty=notgoodfor
makingbusinessdecisions.
Endofarticle.DiehardfansofSachin,NupurTalwaarandanyoneelse
notasboredandfedupasIm,canleavenow.Noneedtoreadfurther.
Epilogue#1:Mr.Vodafone
Somenewspapercolumnist:GAARisblahblahblahblahGAARisblah
blahblah..
Mr.Vodafone:whatisthisyaar?GAARshouldhavebeenanewsissue
sinceAugust2009whenPranabintroducedtheDTCbillinparliament.
ButOnlyin2012,afterVodafonejudgmentandBudget2012,youfellas
startwritingaboutGAARandthattooonlyfornamesake.Andnobodyis
gonnareadyournewspapercolumnsexceptthoseUPSCandMBA
aspirants.ThisGAARissuerequiresproperpublicdebatebecauseithas
directimplicationsonForeigninvestment,IIP,GDP,employment,inflation
everything.WhynonewschannelistakingupthisGAARmatter?
NewchannelAnchor:sorrymanbutmynewsscheduleistotally
jampackedwithSachinsRajyasabhanominationandNupurTalwarsbail
case.Ivetocoverthesetwobreakingnewstirelesslyfornext15days24/7.
Mr.Vodafone:ThousandsofgirlsgetrapedandkilledacrossIndiaondaily
basis.Whataboutthem?Theyrenotimportant?Donttheytoodeserveto
getjusticeandmediaactivism?PoshvictimsofDelhiNoidaregiondeserve
quickerjusticethansomepoorvictimsinChhattisgarhorRajasthan?
ZeeNews,AajTak,NDTV,StarNews,TimesNowandCNN_IBN,nomatter
whichchannelIswitchto,thereisonlyNupurTalwaar,NupurTalwaarand
NupurTalwaar.Youregivingminutebyminutelivecoverageofher:Nupur
woreherownclothestojail,sheborrowedajaillibrarybook,shewasgiven
ablanket,amug,andshedinedonbrinjalpotatoes,dalandrotis.Hell,
evenNathuramGodse,LeeHarveyOswaldandNaliniSriharandidnotget
thismuchattention!
NewchannelAnchor:Howcanyoubesocruelandinsensitiveaboutthe
Arushimurdercase?Ifshewasntmurderedshecouldhavebecomethe
nextfemalePresident,SpeakerorPrimeMinisterofIndia.
Mr.Vodafone:ohyesright.nowIgetit.AndsinceSachinisbecoming
aRajyaSabhaMP.Riversofmilkandhoneywillflow,Naxaliteswillstop
kidnappinggoodCollectors,Drunkardswillstopbeatingtheirwives,
Lokpaalbillwillbepassed.,Blackmoneywillbebroughtfrom
Switzerland,Kashmirissuewillbesolved,BhopalGasvictimswillget
propercompensationandalltheMBAcollegesofIndiawillstoplooting
aspirantsinfeerefunds,bydeclaringtheirresultssimultaneouslyonsame
date,right?
NewchannelAnchor:Haahaahaareallyman,pleasestoptalkinglike
JusticeKatju!
Mr.Vodafone:ButIdidntmentionFarmersuicidesorSunnyLeone.
Epilogue#2:Pranab
Damnit!!ThisGAARthingisstillstuckinthe
parliamentaryCommittee.HowamIsupposedtoget
moreRevenueinthemeantime?HowwillRahulbaba
Pranab sayinGujaratassemblyelectionrallieskihumDelhise
paisabhejtehailekinHaathiModipaisakhaajaataahai!

.
Boss,TellhimnottorepeatthespeechesofUPralliesin
IT Gujarat,elseUPresultfiascowillalsogetrepeatedin
Commissioner Gujarat.Anyways,Ivegotanideaaboutincreasing
Revenuecollection.
Pranab Thenbyallmeansshareitwithme.
Howabout80%taxonskinwhiteningcreamsandalso
IT
onthebrandambassadorsofthoseskinwhitening
Commissioner
creams:SRK,JohnAbrahametal.
Butheavydirecttaxationleadstomoretaxevasion
andheavyindirecttaxationleadstosmugglingasit
Pranab
happenedinOnceUponATimeInMumbaaibecause
IndiaJuntahasobsessedwithwhiteskin.
OkanotherideaSirji.Youbecomebrandambassadorof
SandhiSudhaTel(oil).Infrontofcamera,youjusthave
IT
tosay:
Commissioner
Ididnotneedakneereplacementsurgerythanksto
SandhiSudhaTel.(onetypeofsnakeoil!)
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12/26/2014 Mrunal[Economy]3MethodsofcalculatingGDPMrunal

[Economy Q] SENSEX calculation

Posted By On 10/01/2012 @ 10:54 am InEconomy,miscellaneous | Comments Disabled

Suppose Price of a Lifebouy soap was Rs.10 in 2001.

We take 2001 as our base year.

Our index for 2011

The formula is essentially, new price divided by old price

Now for SENSEX

Free Float market Capitalization

P.S. Actual formula not this linear.

BSEs dollar version of SENSEX. [SENSEX is calculated on rupee values]

SENSEX is calculated on 30 chosen companies. (Started in 1986)NIFTY is calculated on 50

Article printed from Mrunal:http://mrunal.org

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Copyright 2014 Mrunal. All rights reserved.

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