Public Issue (IPO) : Key Terms

Public Issues are in the air. You can call it the IPO season. It seems that the Primary Market is competing with Bollywood, releasing new issues every week. But before you share your hard earned money with the promoters of the company, it is very important to get a basic understanding about the various technical terms, abbreviations and jargons used in the primary market ( call it the IPO market). I have tried my best to explain in brief some of the key terms, without making any reference to the various sections and clauses governing the primary market. So here are a certain must know Public Issue (IPO) terms :

1. IPO : IPO stands for Initial Public Offer. An IPO is the first sale of shares of a company to the general public. The promoters of the company, after complying with the various guidelines of SEBI (Securities and Exchange Board of India) and The companies Act, ask the public at large to subscribe to their shares so that they can generate capital and utilize the same for expanding their business. A successful IPO can raise a substantially huge amount of capital.

2. FPO : FPO stands for Follow-on Public Offer. Once a company comes with an IPO , it gets listed on the stock exchanges. After a certain period of time, if the company again intends to raise capital from the general public, then it again comes with a public issue which is called an FPO (Follow-on Public Offer ). It is a supplementary issue made by a company once it is listed and established on the stock exchange. In short, the first public issue of a company is an IPO, and any further public issue of the same company is called an FPO. For example, Shipping Corporaton of India (SCI), a listed company, is again coming up with a public issue which will be its FPO ( i.e. a second public issue)

3. Listing : Once the issue gets subscribed and the shares are allotted, they are listed on a recognized stock exchange e.g. BSE, NSE etc. Listing means that company has adhered to the terms and conditions of the stock exchange and its shares are now a part of the list of shares which can be traded on the stock exchange. Post listing, any investor can sell the shares, allotted at the time of the issue, in the secondary market.

4. Bid-cum-Application Form : For applying in any public issue, each investor must fill a standard form providing all the relevant details like Name, PAN, Demat id, Bank account details, Bid price, Number of shares applied etc. Such a form is called a Bid-cum-Application form. It can be submitted through the offline or online mode. An investor must ensure that all the relevant details are filled correctly to avoid rejection of application and to ensure smooth allotment of securities.

5. Price Band : A price band is the range of price within which an investor can place his bid for the securities. The price mentioned by the investor in the bid-cum-application form can neither be less than the lower limit of the price band nor can it exceed the upper limit of the price band. For example, In the recent IPO of Coal India, the price band was Rs. 225-245 per share, which means that an investor can bid only within the range of Rs. 225 to Rs. 245

6. Floor Price : In a price band, the lowest price is called the floor price, below which a bid cannot be placed. In the above example Rs. 225 is the floor price of the Coal India IPO

7. Cap Price : Cap price is the upper ceiling limit in a price band beyond which a bid cannot be placed. Again, taking the same example of Coal India, Rs. 245 is the Cap price, beyond which you cannot place the bid.

8. Minimum order quantity : Minimum Order Quantity is the minimum number of shares which the investor has to apply for in a public issue. For example, in the case of Coal India’s IPO, the minimum order quantity was 25, i.e. an investor has to bid for atleast 25 shares.

9. Market Lot : If an investor wants to bid for shares which are more than the minimum order quantity, then he can do so by bidding in multiples of a certain number of shares which is known as the Market Lot. By continuing the above example, if an investor wants to apply for more than 25 shares of Coal India, then bids can be made in multiples of 25 shares, which is the market lot size in case of the Coal India issue. Thus, applications can be made for 25, 50, 75 …….number of shares until the maximum subscription limit is reached. In case of Coal India, the minimum order quantity and market lot size, both were 25 shares.

10. Maximum Subscription Limit for Retail Investors : Maximum Subscription Limit for Retail Investors is the maximum amount of investment which can be made though a single bid-cum-application form, or simply speaking, by a single individual, in a public issue. Previously, retail investors were allowed to make an application of a maximum of Rs. 1,00,000, but now SEBI has increased this limit to Rs. 2,00,000. Any application by an retail investor which exceeds Rs. 2,00,000 becomes an application by a High Net Worth Individual (HNI), thus disabling the investor to enjoy the benefits of discount which are offered in some big ticket IPOs to the retail investors.

11. Cut Off Price : In book building issues, the issuer company specifies a price band within which the bids are made. The actual issue price can be any price above the floor price and within the price band. This issue price is called the Cut Off Price. This price is determined after considering the demand for the stock by the investors. Investors, in order to get allotments in big ticket public issues, bid at the cut off price, conveying their intention that they are willing to pay any price for the stock within the price band, at the end of the book building process.

12. ASBA (Application Supported by Blocked Amounts) : ASBA is an alternative mode of making payments in public issues whereby the application money stays in the bank account of the investor until the allotment is made. Only that much amount of funds are debited to the investor’s bank account for which the allotment is made and the rest of the blocked amount is released. In case the application is made using the ASBA facility, the need for refunds is completely obviated. For example : if an investor makes an application for Rs. 2,00,000 , then in the earlier system, he was required to pay the entire sum of Rs. 2,00,000 upfront, either through a cheque or net-banking and then if shares worth Rs. 1,50,000 are only allotted, then Rs. 50,000 used to get refunded. Under the ASBA mechanism, the investor just need to keep Rs. 2,00,000 in his bank account and at the time of allotment only Rs. 1,50,000 would be debited to his account thus releasing the left over blocked amount of Rs. 50,000 and also doing away with the cumbersome task of issuing refunds.

13. Book Building Process : Book Building is one of the methods of carrying out a public issue, the other being the Fixed Price method. Under the Book Building method, the price at which securities will be offered is not known to the investor. The investor is allowed to bid in a given price range called the price band, and then, after the bids are closed & looking at the demand for the shares at various price levels within the price band, the final issue price is decided by the Merchant Bankers or BRLMs. This process leads to a better price and demand discovery. It is called the “Book Building Process” because during the entire issue period, the book for the offer remains open and keeps building up with the bids collected from investors.

14. BRLM (Book Running Lead Manager) : BRLM are those financial institutions whose names you find at the bottom of the bid-cum-application form like Karvy Securities, Kotak Mahindra, SBI Capital, Enam Securities etc. On a serious note, BRLMs or Merchant Bankers are those financial intermediaries which are involved in the IPO process right from the very first stage and play a vital role in preparation & submission of prospectus, price fixation, application processing, allotment and listing.

Happy investing

Source : www.n2moneymatters.com

DIRECT TAX CODE – Will it achieve anything for taxpayers?

Post Rao era, most reforms in tax laws have promised a lot but delivered very little. VAT was announced with a view to avoid cascading effect of taxes and reduce the burden of compliance on the business community. In reality, govt revenues have gone up, incidence of tax has gone up and burden of compliance has not changed one bit. Instead, the increased emphasis on C form for inter-state transactions and increased resistance of the Deptts in issuing these C forms have not only made life more difficult for the business community but also the whole exercise is looking meaningless (there is no incentive for an intrastate sale to be disguised as interstate sale that C form would reveal, because intra-state sale will enable input credit for the buyer while interstate will not).

Likewise, DTC was announced by Finance Minister, Mukherjee to be a revolutionary tax reform for simplification, rationalization and what not. The first draft was a classic repetition of history where too many adverse proposals will be introduced, public will protest and focus will be concentrated on a handful of such adverse proposals which will be diluted and the end result will be a number of adverse proposals passed through legislation quietly. What DTC has achieved is:-

1) Reduction in tax rate slabs, and intention not to revise tax rates every year,

2) Doing away with surcharge on corporate tax, and reduction of corporate tax rate to 30%

3) Increase in MAT rate from 18% to 20%

4) Abolition of the concept of long term capital gain

This is a very small part of tax changes brought about by govts every year, and could easily have been done in the existing income tax act itself. What has gone out of attention of the public is more revolutionary such as definition of capital asset itself. Now, sale of all agricultural lands anywhere in the country will come within the tax net and exemption will be available only if it is reinvested in another agricultural land. Lawfully, each and every farmer, and each and every tribal habitant no matter how remotely they are located, can be issued notices by income tax office to show why they should not be imposed tax on their capital gain arising out of sale of such land. Not only it will be impossible for the Deptt to administer such exercise properly, but also it will be highly breeding ground for corruption, and so on.

I have a strange feeling that in last over 10 years, no tax reforms are done with the intention that is expressed in preamble to such reform. There is always a hidden agenda for collecting more revenue, and to have greater control on the public. No such intention has been expressed in last 60 years to check corruption despite every raid yielding crores under the sack. They could easily have made it imperative for every politician and govt servant to file detailed income tax return with Cash flow statement and Balance Sheet, with reconciliation with the previous year’s, something that Chidambaram proposed to introduce for all tax papers a few years ago. If intention is genuine and noble, a compulsory tax of such return could be introduced with a provision to change auditors every three years, and all such tax returns be brought within the purview of RTI.

With corruption taking a good part of our revenue, and with govt (centre+states) revenue being anywhere around 12 to 15% of GDP of this country, the focus better be shifted from extracting more revenue to curbing misuse and making more effective use of existing revenue. The eye wash of such dummy tax reforms such as DTC should be resisted.

Tax 2010-11: Should you invest in infrastructure bonds?

One of the fresh tax reliefs that has come as an outcome of the budget 2010 is the deduction allowed for investing upto Rs 20000 in the infrastructure bonds. Many articles and the FM have said that this is a very positive thing. But how can the same thing be positive for every individual. If not negative it should at least be neutral for many.

Else life would be so boring. This article will try to look the pros and cons of investing in Infrastructure bonds for the sake of tax saving. The analysis will be from the perspective of the different “tax groups” post budget 2010.

Tax group 1: Taxable income Rs. 1.6-5 lakhs

Tax group 2: Taxable income Rs. 5-8 Lakhs

Tax group 3: Taxable income above Rs. 8 lakhs

To understand the pros and cons of any tax saving investment we need to look at 4 major parameters

Actual tax saving (let’s take the highest saving possible).

Returns from the investment (during the lock in period at the least).

Opportunity cost (what if the same money had been invested in some other investment?).

Effect of Inflation on the returns on investment (what would the worth of your investment be when it comes to redeem/incash it?).

For the sake of parameter two we will have to take an assumption on the lock-in period (as nothing has so far been announced by the Finance Minister). As is generally the case with most tax saving instruments we can assume two scenarios – 3 year lock-in and 5 year lock-in

Let’s assume the rate of return on infrastructure bonds = 5.5% per annum.

Let’s consider overall rate of inflation to be 8%. (Food inflation itself is currently at 18 %).

For people in the 1.6- 5 lakh taxable income group, as per the new norms the income will be taxed at a rate of 10%.

Parameter 1: Actual tax saving: 10% of Rs 20,000 = Rs 2000 (if you invest Rs 20000 in the instrument you get to reduce your taxable income by 20,000 thus giving a 10% benefit)

Parameter 2: What will be the returns at the end of the lock in period? For a lock in period of 3 years an investment of 20000 would fetch an income of Rs. 3484. When added to the tax saved we get an effective return of Rs 25485 (Rs 20000+3484+2000) on our investment

Parameter 3: If this same amount were to be invested in a market instrument that fetched a return of 15% (which is very reasonable considering that the benchmark Sensex and many mutual funds have given comparatively higher returns on a long period.) the investment would fetch an effective return of Rs 27, 376 (Rs 20000-2000=Rs 18000 invested @15% per annum for 3 years).
Parameter 4: What would be the minimum amount required to counter inflation at 8%? The amount would be Rs 25, 194.

Thus we see that for a person in the slab of 1.6-5 lakh the benefit out of investing in an infrastructure bond as a tax saving instrument will be only Rs 291 (Rs 25485-25194) whereas the benefit out of paying the tax and investing the balance in any decent instrument would be Rs 2182.

Requirement for maintaining books of account

Maintenance of accounts: [section 44AA and rule 6F]

A.In case of specified professions [Gross receipts exceeds Rs.150000…] : the followings books of accounts shall be maintained by a person carrying on the specified profession:-

i.A cash book;

ii.A journal, (in case of mercantile system of accounting);

iii.A ledger;

iv.carbon copies/ counterfoils of bills and receipts, serially numbered, issued by him, Provided that nothing in this clause shall apply in relation to sums not exceeding Rs.25;]

v.original bills and receipts issued to him [where such bills and receipts are not issued and the expenditure incurred does not exceed Rs.50, payment vouchers prepared and signed by him or adequate particulars of expenditure in the cash book]:

B.Other: the following persons shall maintain such books of account and other documents as may enable the A.O. to compute total income in accordance with the provisions of this Act:-

i.A person carrying on Specified professions, whose Gross receipts do not exceed Rs.150000 in any one of three previous years preceding to the current previous year. (in case profession is newly setup gross income is not likely to exceed in current previous year)

ii.A person carrying on other professions or business, whose Gross receipts exceed Rs.10 lakh or income from PGBP exceeds Rs.120000 in any one of three previous years preceding to the current previous year. (in case profession/ business is newly setup: likely to exceed in current previous year)

iii.A person to whom section 44AD or section 44AE or section 44AF [or section 44BB or section 44BBB], as the case may be, and he claims his income to be lower than the deemed profits under respective sections.

Note:
Ø Specified professions: legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, authorised representative and film artist

Ø Such books and documents shall be kept and maintained for a period of 6 years from the end of relevant A.Y.

Ø In case assessment reopened u/s 147 within the abovesaid period, then all the books etc shall be continue to be kept and maintained till the completing of assessment so reopened.

Penalty: A.O. or CIT (appeals) may direct to pay Rs.25000 as penalty. [section 271A]

TDS at a higher rate on all transactions not having PAN -PROVISION TO COME INTO EFFECT FROM 1ST APRIL 2010

TDS at a higher rate on all transactions not having PAN

PROVISION TO COME INTO EFFECT FROM 1ST APRIL 2010

A new provision relating to tax deduction at source (TDS) under the Income Tax Act 1961 will become applicable with effect from 1st April 2010. Tax at higher of the prescribed rate or 20% will be deducted on all transactions liable to TDS, where the Permanent Account Number (PAN) of the deductee is not available. The law will also apply to all non-residents in respect of payments / remittances liable to TDS. As per the new provisions, certificate for deduction at lower rate or no deduction shall not be given by the assessing officer under section 197, or declaration by deductee under section 197A for non-deduction of TDS on payments shall not be valid, unless the application bears PAN of the applicant / deductee.



All deductors are liable to deduct tax at the higher rate in all transactions not having PAN of the deductees on or after 1st April 2010. In order that there is no dispute regarding quoting / non-quoting of PAN or accuracy thereof, the law requires all deductees and dedutors to quote PAN of deductees in all correspondences, bills, vouchers and other documents sent to each other. All deductors are, therefore, advised to intimate their deductees to obtain and furnish their PAN so as to avoid TDS at a higher rate. All deductees, including non-residents having transactions in India liable to TDS, are advised to obtain PAN by 31st March 2010 and communicate the same to their deductors before tax is actually deducted on transactions after that date.



The procedure for obtaining PAN is simple, inexpensive and quick. Application for PAN can be filed in Form 49A to National Securities Depository Ltd. (NSDL) or Unit Trust of India Investor Services Ltd. (UTIISL) or their intermediaries. Non-residents can apply through the local embassy / consulate of India. Applications can also be filed, paid for or tracked online through the Internet on the following web-sites:-



http://incometaxindia.gov.in/

https://incometaxindiaefiling.gov.in/portal/index.jsp

http://www.tin-nsdl.com/

http://www.utitsl.co.in/

Budget 2010- Income Tax

Budget and Income Tax



The Union Budget 2010 is definitely inflationary for Aam aadmi. Middle class shall become poor class! There is no respite from continuing inflation and the budget provisions are adding fuel to the fire of inflation. India too shall be in the list of most expensive countries in the world. It may break all the records and may be on the top of such list!

Income tax provisions:

There is no change in basic exemption limit in Income Tax for individuals including women and senior citizens; but tax slabs are changed to 10% for an income in between above Rs.160000 to Rs. 500000 ; 20@ above Rs.500000 to Rs.800000 and 30% for above 800000.There shall be some relief in total tax as earlier rates are same except 20% for above 300000 to Rs.500000 and 30% for above Rs.500000. Whatever there is relief in income tax that shall be offset by an increase in other essential items –mainly petrol / diesel prices.

There shall be deduction of an additional amount of Rs. 20,000 allowed, over and above the existing limit of Rs.1 lakh on tax savings, for investment in long-term infrastructure bonds as notified by the Central Government. It would be better if maximum ceiling is raised to Rs. 120000 and let the assesses decide in which funds or where an amount be invested within specified investments.

The current surcharge of 10 per cent on domestic companies is reduced to 7.5 per cent. Also the rate of Minimum Alternate Tax (MAT) increased from the current rate of 15 per cent to 18 per cent of book profits. For simplification surcharge and MAT should be abolished in toto.To compensate the revenue on account on these accounts, raise 1 or 2 per cent rate of tax!

The Limit of turnover for the purpose of presumptive taxation of small businesses

enhanced to Rs. 60 lakh. It should be further raised to Rs, 1 Crore.

The income tax department to notify SARAL-II form for individual salaried

taxpayers for the coming assessment year. It should be assesses friendly –salaried individuals must be able to fill themselves without any help from anyone!

Also such Saral forms are the need of the hour for individuals having small business or profession –i.e., who are outside the ambit of tax audit!





Tax Deduction at Source (TDS):

TDS limit for interest on bank deposit remains at Rs.10, 000, it must be raised to Rs. 20,000 and for Professional incomes it is proposed to enhance from Rs.20000 to Rs.30, 000 –it should be further enhanced to Rs.50, 000.



Senior Citizens are ignored:

No TDS should be deducted from any income for Senior Citizens. At present they are required to fill a Form in Duplicate for their TDS non deduction. It increases paper work and barring a low percentage of Senior citizens, their incomes are below taxable limits. Let them pay Advance tax for their income if it is more than taxable limits.

Even the age limit is maintained at 65 years for Senior citizens. In the present budget only it should be lowered to 60 years as per National Policy of Senior Citizens.



Administrative Reforms:

Further ordinary income tax assesses wish some Administrative Reforms too like Issuance of Refunds and completion their assessment in time limit and receiving Assessment Orders in time without a visit to the Income Tax Office (ITO) .As old as cases for Assessment Years 2006-07 there are a good number of such cases pending with the Income Tax Department. On its own the Department should find such cases and issue pending refunds and complete all such assessments and send assessment orders to all such assesses. Also Reduce Scrutiny time for issuance and completion of assessments. I hope this is not a dream!

Income Exempt from Tax

Overview of section 10

There are certain incomes which are absolutely exempt from tax under section 10 of the income tax act. It’s upon the assessee to prove that a particular item of income is exempted under this section.

· Receipt by a member from HUF [sec 10(2)]: This section is based on the principle of avoidance of double taxation. Wherein any sum received by an individual, as a member of HUF who are entitled to demand share on partition or are entitled to maintenance under the Hindu law, is exempt from tax.

· Share of Profit under partnership [sec 10(2A)]: Share of profit received by the partner from a firm is not taxable in the hands of partners. Here also the principle of avoidance of double taxation applies.

· Allowance to Government employee outside India [sec 10(7)]: Any allowance paid or allowed outside India by the government to Indian Citizen, for rendering service outside India, is wholly exempt from tax.

· Gratuity [sec 10(10)]: Any gratuity received by government employee is fully exempt from tax. Where gratuity is received by a non government employee covered by the payment of Gratuity Act,1970, it is exempt from tax fully or partly subject to conditions under sec 10(10)(ii). Where gratuity is received by a non government employee not covered by the payment of Gratuity Act,1970, it is exempt from tax fully or partly subject to conditions under sec 10(10)(iii).

· Educational Scholarship [sec 10(16): Scholarship granted to meet the cost of education is exempt from tax. The cost of education takes within its ambit tuition fee as well as incidental expenses incurred for acquiring education.

· Income of Minor [sec 10(32)]: In case the income of an individual includes the income of his minor child, such an individual shall be entitled to exemption of Rs.1500 in respect of each minor child.

· Dividends & Interest on units [sec 10(34)/(35)]: Any income by way of dividend referred to in sec 115-O , any income in respects of units of a mutual fund, income from units received by a unit holder of UTI, income in respect of units from a specified company is exempt from tax.

· Capital gain on compulsory acquisition of urban agricultural land [sec 10(37)]: Capital gain arising to individual/HUF on transfer by way of compulsory acquisition of urban agricultural land is not chargeable to tax subject to certain condition.

· Long term capital gain on transfer of equity share/units in cases covered by STT [sec 10(38)]: Such capital gain is not chargeable to tax if such transaction suffers securities transaction tax.

· Income from any international sporting event [sec 10(39)]: Income arising from a notified international sporting event (i.e., Commonwealth Games 2010) is exempt from tax , if such event is approved by the international body and has participation by more than two countries.

The Budget and the Indian Economy

he latest budgetary exercise has clearly been an attempt to reconcile two equally pressing considerations—economic growth and financial consolidation. While growth is important to have a larger cake to share, financial consolidation is needed to ensure that the gains do not dissipate as a consequence of inflation.



Fortunately, what the country is witnessing today is food inflation primarily due to supply constraints on account of the worst monsoon in 30 years. But as the Economic Survey report warns there is every danger of this inflation percolating to other sectors, if timely steps are not taken.



It was in this backdrop that the Finance Minister Mr. Pranab Mukherjee in his budget proposals, took the first step towards fiscal consolidation by making a modest beginning in partially withdrawing the concessions given in the stimulus package last year. The economy then was in a serious downturn and it needed government help to withstand global pressures. The picture today is different. All indicators point to a reviving economy, much before other world economies. The cuts in excise duties on all non- petroleum products have thus been restored by 2 percent to 10 percent, still less than 12 percent earlier. The service tax has not been raised but broad based.



The action is in line with not only the recommendations of the Economic Survey report but also the Prime Minister’s Economic Advisory Council suggesting a partial roll back of the stimulus package.



In his post-budget interviews Mr. Mukherjee has made it clear that while a modest beginning has been made he would consider a full withdrawal of the stimulus package only when the economy attains a growth of 8.5 to 9 percent. According to his own estimates, corroborated by other surveys, the economy would grow by around 7.2 percent in the current financial year which would go up to 8 to 8.5 percent in 2010-11 and reach 9 percent and more in the subsequent year.



The budget also envisages a fiscal deficit of 6.8 percent for the current year which would fall to 5.5 percent in the next fiscal and 4.9 percent in 2011-12. This would in turn mean lesser borrowings by the government, making more funds available for investment by the private sector. On the financial side the government will collect a revenue of Rs.46, 500 crore through taxes but would suffer a revenue loss of Rs.26, 000 crore by giving concessions in direct taxes. This will mean a net revenue of Rs. 20,500 crore.



A clear disinvestment plan has also been put in place. The government is confident that it will be able to raise Rs. 25,000 crore though disinvestment in the current fiscal ending 31 March 2010. It also envisages to collect Rs.40,000 crore through disinvestment in the next fiscal. The 3-G auction is estimated to bring in about another Rs.35,000 crore.



All these measures aim at checking the inflationary pressures on the fiscal side. But there is a supply side as well. The budget recognizes the fact that it is really the supply side that has to be tackled more effectively to control inflation. That explains a steep increase in the allocations for the farm sector. A 9 percent growth rate will be possible only if we achieve at least 4 percent growth in agriculture which grew only at 1.6 percent in 2008-09 and actually a shrinkage of 0.2 percent in the current year. A new strategy for farm growth has thus been put in place in tune with the needs of the economy. While allocating Rs. 400 crore for extending the green revolution to the eastern region comprising, Bihar, Chhatisgarh, Jharkhand , Eastern UP, West Bengal and Orissa, Rs. 200 crores have been provided for conservation farming to increase productivity and reduce losses. The target for farm credit too has been raised from 3,25,000 crore to 3,75,000 crore. Loans to farmers will be provided at a concessional rate of 5 percent. To give a push to the food processing sector, five more mega food parks will come up in addition to the 10 already being set up.



The relief given to the middle class by raising income slabs for personal tax and allowing a further savings of Rs.20,000 in infrastructure bonds for tax relief, will on the one hand leave more money will the people to spend and thus raise demand and on the other hand provide for better savings, given the propensities of an average Indian. This will lead to creation of additional funds for investment.



The increase in excise duty on petroleum prices is no doubt going to increase inflationary pressures but as the Minister put it the impact will only be marginal which will be absorbed in due course of time.



Massive allocation for the social sector will help the backward classes and boost incomes in the rural sector. It has been increased to 37 percent of the total plan outlay in 2010-11.



Mahatma Gandhi National Rural Employment Guarantee Scheme has been given Rs. 40,100 crore, a thousand crore more than the previous year. Rural infrastructure programmes under Bharat Nirman got Rs.40,000 crore. Similarly allocations for other sectors like education, health etc. have also been increased substantially.



By accepting all the major recommendations of the 13th Finance Commission, the Finance Minister has taken care of the states finances as well. The Commission has come up with a bonanza for the State Governments. Their share in central taxes will go up by 2.5 percent which means an additional amount of Rs.71, 000 crore out of the divisible pool next year. There will be a substantial increase in the states shared taxes and grants as well. The Finance Minister has also announced his plans to bring in both the Direct Taxes Code (DTC) and the Goods and Services Tax (GST) in April 2011 which will further streamline the financial structure in the country.



So the mood is upbeat and India is well on the path of economic recovery. By being the first country to kick off a calibrated fiscal consolidation it has demonstrated that the fundamentals of its economy are sound. As the Economic Survey points out the reforms would make India the 4th fastest growing economy in the next 4 years. What has helped the economy to look up is the brilliant performance of the industrial sector which has recorded consistent growth this year. Though the negative growth in the export sector has been arrested, it is still not out of the red. Calibrated policy measures are thus in tune with the needs of the economy. The focus now has to be on dealing with the double digit food inflation, which is a source of concern for the time being.