Posts Tagged ‘Government’

“The Costliest And dreadful Affair”…Final Part :)

Continuing the Hurricane “costliest & dreadful affair”…………….. 🙂

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“Major affected areas”…it’s a nightmare for North and South America, and it comes from north-African low pressure systems and moves west. The Caribbean, Mexico, and United States are most often hit by hurricanes. Nearly half of U.S. oil refining capacity is located in hurricane affected areas.

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“Dreadfully risky business for insurance companies”…I hope every year insurance companies pray for clear weather for hurricane affected area. Imagine, insurance companies paid $66 billion for Katrina loss and it was the costliest disaster in the history of insurance. Louisiana accounted for 63 percent of insured losses and Mississippi accounted for one-third. On the contrary, it’s a boon for construction industry.

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“Makes big hole…effect on economy”… hurricane like other natural disasters, disturb the economic activity of regions in many ways as business activity is interrupted and infrastructure is destroyed. Approximately, single hurricane Katrina cost around $125 billion, with $66 billion in insured losses. It affected 19% of U.S. oil production. Power and energy companies’ financial condition gets damaged due to hindrance in production and supply activities amid storm restoration costs. Shipments also get affected and we know that nearly two-thirds of all oil processed by the region’s refineries arrives via ship, hence any natural disturbance will result in supply disruption. The Gulf’s ports are trading points for over 20% of cargo tonnage in the US.

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“Destruction…the ripple effect of hurricane”… just imagine the total loss, done by hurricane in US that single hurricane Katrina and Rita destroyed 113 offshore oil and gas platforms and damaged 457 oil and gas pipelines. Hurricanes Katrina and Rita reduced oil production by 103 million barrels and natural gas output by 610 billion cubic feet. But this is not enough; Katrina also struck the heart of Louisiana’s sugar industry, with an estimated $500 million annual crop value and made 75000 people homeless. Entergy New Orleans also filed for bankruptcy protection on September 23, 2005.

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“Impact on commodity…higher energy keeps inflation at higher side”… hurricane affected areas produces about 15% of US supply of natural gas and 7% of its oil. The Gulf of Mexico is responsible for 13% of the U.S. natural gas production (and 30% of its domestic crude oil production). Any supply disruption gives a leap to the crude and natural gas prices. By and large we observe price of crude oil and natural gas augment during the period of June to October. It’s a very active time for speculators and we can see the changes in front month contracts based on weather forecasts. Crude already zoomed up to the level of $87.15 on 3rd May, 2010. Now it headed towards quarterly decline since 2008. But there are major factors, which will keep the fire on in energy complex. Hurricane Alex has already hit this season and 20 more hurricanes of different categories are expected to hit in 2010. Hence any news of hurricane would fuel the prices. Driving season in US has already begun, which is the time, when money managers prepare to pull their sleeves to build a large position in crude. Furthermore ongoing summer season can give additional strength to the prices. Hence these factors will keep the crude prices at higher side but any weak economic indicator will cap the upside.

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In nutshell, nobody desires to get up with the news that hurricane is heading towards Louisiana when the entire world is struggling to overcome its financial problem. Whenever hurricane season starts it hoist, there is a fear of price rise of crude oil, which is not at all upbeat for the economies already in poor health. Traders start to quit their short positions. When you see a significant changes in the position of traders near June or July months, then you can assume simply that hurricane is about to knock the US field and money managers are preparing for a wild movements!!!

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“The Costliest And dreadful Affair”…Hurricane 1

It was only two months back when European debt crisis   wreked havoc on EU and the rippled effect was seen in other countries as well. Till date, many nations are still fighting with the financial problem, at the same time met department gave another jolt to the world and announced the unwelcomed and killer hurricane season.

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Hurricane…. derived from huracan, the Carib god of evil is once again become the headlines and racing the heart beat of people of affected areas, economists , government and all.  The forecast is expecting for a very active 2010 season with above-normal threats on the US coastline. This news is not at all encouraging for world economy, especially when world economy is under attack of financial tsunami. Let’s have a look on the details of this deadly hurricane which is a regular visitor every year and give crucial impact on the health of economy…

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“Timings, which does matter”… generally hurricane season starts from June and end in October. But very peaked season is from “August to October”; especially “early to mid-September” is the pinnacle. But of course, it is not mandatory that Mother Nature will follow the same calendar every year; remember hurricane Wilma hit on 21st and 22nd October, 2005. Weather specialists are predicting an above-average activity for the 2010 Atlantic hurricane season. Alex, first hurricane of 2010 already showed its existence.

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“Very attention-grabbing naming in chronological order”… they are named alphabetically. First tropical storm or hurricane starts by A, then B…and in this order. List contains hurricane names that start from Ato W, but exclude names that start with a “Q” or “U.” There are six lists which rotate. Changes occur in list only when there is a hurricane, which is extremely dangerous, after that the name retires and another hurricane name replaces it. Even in 2010 list, there are certain changes; viz- Charley was replaced by Colin, Frances was replaced by Fiona, Ivan was replaced by Igor, and Jeanne was replaced by Julia.

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“Category…grading of damages”…there are five category of storms viz.1, 2, 3, 4 and 5. Category 5 storms are the most catastrophic hurricanes that can form. On an average it forms once in three years, if we talk about Atlantic basin. Only four times — in the 1960, 1961, 2005 and 2007 hurricane seasons — have multiple category 5 hurricanes formed. However, on larger canvas between 1924 and 2007, 32 hurricanes have been recorded at category 5 strength. An average season usually has 11 storms, six hurricanes, and two major hurricanes.

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To be continued…………………

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Weekly Update 3rd- 7th May 2010

The week started on a positive note on the back of good global tidings. Markets worldwide have gained after Greece decided to tap into the EU- IMF loan, but the rally could not be sustained and fell like nine pins as heightened sovereign debt troubles in Europe sent global markets in a bit of a tizzy.

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On the global front, FOMC maintained the target range for the federal funds rate at 0 to 1/4 percent as the economy is still seeing high unemployment, modest income growth, employers reluctance to add to payrolls & bank lending contraction. It said that it would continue to monitor the economic outlook and financial developments and would employ its policy tools as necessary to promote economic recovery and price stability. Japan saw unemployment rate climbing to five percent indicating job rebound may moderate. Europe equity markets fell after Standard & Poor’s downgraded three Eurozone members.

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Investors withdrew money from the Europe equity funds & debt funds saw net inflow. Closer home too, markets witnessed volatility as traders rolled over their positions in the derivatives segment from the April 2010 series to the May 2010 series. On the flip side the Q4 March 2010 corporate earnings announced so far have been good with net profit of a total of 441 companies rose 28.70% to Rs 29125 crore on 36.40% rise in sales to Rs 249959 crore in the quarter ended March 2010 over the quarter ended March 2009. The IMF is optimistic about the growth of Indian Economy. It has estimated that India’s $1.2 trillion economy will expand 8.8% this year and 8.4% next year, higher than it projected in January. While RBI expects India’s economy to expand 8% in the year ending March 2011 (FY 2011) with an upward bias expecting normal monsoon this year and sustenance of good performance of the industrial and services sectors on the back of rising domestic and external demand. The IMD has predicted normal monsoons in 2010 at 98% of Long Period Average subject to an error of (+/- 5%). Besides the passing of the Finance Bill 2010 by FM on Thursday with some minor changes in tax proposals may boost sentiment as the government has pledged to the path of fiscal consolidation rather than political opportunism.

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Overall the world markets were quite volatile in the week gone by with wild swings on both sides. Shanghai and Hang Seng could not recover from the fall though other markets recovered. Base metals also took a sharp correction. The strength in the stock markets is there more in cash stocks rather than front line heavy weight index stocks. Nifty has support between 5200-5150 levels & Sensex between 17400-17300 levels.

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Recent moves in commodities are showing that they are moving in different directions. It is indicating the state of uncertainty, where commodities are moving on their own fundamentals. Safe haven buying may keep gold in upper range. While after a steep fall, base metals may try to trade in a range.

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Approaching summer demand amid availability of ample crude stocks can keep crude oil in a range. Some agro commodities viz., pepper, jeera, chilli, cardamom, mentha etc., may surge on good overseas as well as domestic demand.

BUDGET OUTCOMES COMMODITIES :)

·Finance minster reaffirms commitment to introduce GST along with DTC in April, 2011. 🙂

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·A Nutrient Based Subsidy policy for the fertiliser sector has since been approved by the Government and will become effective from April 1, 2010.

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·To extend the green revolution to the eastern region of the country & propose to provide Rs.400 crore for this initiative.

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·Propose to organize 60,000 “pulses and oil seed villages” in rain-fed areas during 2010-11 and provide an integrated intervention for water harvesting, watershed management and soil health, to enhance the productivity of the dry land farming areas.

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·Propose an allocation of Rs.200 crore for launching this climate resilient agriculture initiative.

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·FCI has been hiring godowns from private parties for a guaranteed period of 5 years. This period is now being extended to 7 years.

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·Targets set for agriculture credit flow has been raised to Rs.3,75,000 crore from Rs.3,25,000 crore in the current year.

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·Propose to extend by six months the period for repayment of the loan amount by farmers from December 31, 2009 to June 30, 2010.

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·Provided an additional one per cent interest subvention as an incentive to those farmers who repay their short term crop loans as per schedule.

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·External Commercial Borrowings will henceforth be available for cold storage or cold room facility.

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·Customs duty on silver raised to 1,500 rupees from 1,000 rupees per kg.

Stay Tuned for More updates :)

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BUDGET PREVIEW 2011 – Final Part :)

Continuing The Final Part Of The Budget Preview 🙂

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We believe that this year Finance Minister will take a gradual move towards fiscal consolidation by increase in Excise duty. Excise duty forms around 40% of Indirect Tax collections. Excise duty collections were down by 13% in April to December period to close to Rs. 70,000 crore comprising around 66% of Budgeted Estimates of Rs. 1,06,477 crore. The factors that contribute to our belief are; 😀

·Though the growth in corporate sales is not astonishing but profitability has improved to due to various cost control efforts which is quite evident by the corporate tax collection that have shown a growth of 44% in December 2009. Cumulatively Net direct tax collections increased by 8.5 per cent during April- December 2009.

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·India being a consumption story has shown healthy growth in sales of consumer durables. For instance Automobile industry’s sales went up by 32 per cent in December over the same month in 2009. It is believed that a gradual hike in duty will get absorbed without affecting medium term prospects of the industry.

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·Partial rollback would also help the finance ministry effect a calibrated integration of excise duty with the services tax by the end of the next financial year, when the proposal for a Goods and Services Tax is likely to be implemented.

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·Finance Minister had indicated that he would like the fiscal deficit for 2010-11 to be around 5.5 per cent of GDP. The proposal to raise excise duty by two hundred basis points is being endorsed also to help the finance ministry raise more revenue and stick to the projected fiscal deficit target.

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Disinvestment would be the key focal point in the Budget. We believe that the Finance Minister would place high targets from the PSU sale proceeds. The factors that contribute to our belief are:

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·In order to bring Fiscal deficit under control that would subsequently ease upward pressure on interest rates.

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·This will help Investment in social sector projects which promote education, health care and employment & will also help in Capital investment.

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On the Corporate Tax front, we believe that the Finance Minster is unlikely to lower tax to 25% from the current 30% as per Industry demands. The rationale behind our belief is:

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·The direct tax code that proposes corporate tax to be 25% will be implemented in fiscal 2011 – 2012 & Industry have to wait till its implementation as it will replace the existing Income Tax act.

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·Already, government is trying to make up more tax revenue & is unlikely to take step in this direction as it may come as an obstacle in order to control fiscal deficit.

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On deregulation of Petroleum sector, we believe that in order to cut down on subsidies government could provide the road map for partial deregulation of the petroleum sector. The road map may provide OMC’s to review the prices of petrol and diesel on a regular basis however, LPG and kerosene could continue to be administered by the government. Factors that complement to our belief:

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·In view of the commitment of the UPA regime to flagship social security programmes that require huge allocations, Mr. Mukherjee has told Mr. Deora that it would not be possible to provide huge subsidies to the OMCs in future.

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·On the External Economy side, we expect that the Finance Minister may continue to provide certain concessions like interest subsidy and extension of other export oriented schemes. The rationale to our belief:

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·In the recent two months i.e. November & December, merchandise exports registered a positive growth of 18.2% & 9.3% respectively. But in the period of April to December 2009, the exports were still negative to the tune of 20% as compared to the corresponding period.

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·The world economic recovery especially in US & Europe is still questionable & the regions constitute approximately 15% & 21% respectively of our merchandise exports, thus directly affecting the trade.

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·Sectors such as engineering goods, jute, carpets, handicrafts and leather goods are continue to be in bad shape, others such as gems & jewelry drugs, plastics and petroleum products are showing improvement.

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·Concluding, the main point is that it may not be a good time to take back the stimulus so soon that may derail the recovery.

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BUDGET PREVIEW 2011 – Part 1 :)

At last the much talked topic “BUDGET” among AAM ADMI, CORPORATES or INVESTORS that comes to INDIA – is approaching. “The million dollar question is that will 2010 budget be another year to cheer the economy by giving some relief in indirect taxes, personal income tax and by implementing various schemes to induce social & infrastructure sector in order to maintain high trajectory growth”.

Generally, it is seen that the incentives which are given in the period of recession or slow down and moreover, when the government in power is about to complete its tenure, are above from expectations. It is seen that budget in two years usually comes good when the Govt. is in the last year of power & in the first year of the rule as a vote of thanks.The mid three years out of the five year term usually remains tight on the policies.

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For the common man, we expect that Finance Minister may raise the exemption limit in personal income tax & investment limit Under Sec.80C. The reason to our belief:

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1. The rocketing prices of food articles like sugar, pulses and vegetables have been cutting the pockets of a middle class.

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2. By coming out with these measures (above mentioned) the government will lower the tax incidence on the common man & will also help it to put the opposition on backfoot.

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By & large everyone is aware of the level of fiscal deficits globally and many of us know that it is essential to minimize deficits & returning to fiscal consolidation is necessary. The main question is why it is so important. Let’s look at the consequences of high fiscal deficit:

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A risk to high government borrowings leads to more debt servicing that cuts expenditure on various social welfare schemes, if TAX revenues do not matchup. In the current financial year, out of the 4 lakh crore borrowing, more than 50% has gone towards interest payments.

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Secondly, the higher government borrowing from market means less availability of funds to private borrowers. In the current Fiscal year, due to dismal credit growth, we haven’t seen pressure on Interest rates. But going forward we foresee normal credit growth in the next financial year. However as the government borrowing is expected to remain at same level in the next fiscal, pressure on interest rate is expected.

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So, this year the theme of Budget would any way be to maintain economic recovery through investment for building infrastructure rather than funding the expenses/consumption. But at the same time focus will be to bring down the fiscal deficit.

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The catch here is bringing down deficit by cutting expenditure means risk to growth & the other alternative is to increase revenues. While the direct tax collections are encouraging, on the indirect taxes front the government is still struggling to get desired revenues. This is because after September 2008, when the global financial system collapsed, the government came out with stimulus packages to keep up the desired growth pace.

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Excise rates since December 2008 had been progressively cut from 16, 12 and 8 per cent to 10, 8 and 4 per cent respectively depending on the product in question. Service tax was also reduced from 12 to 10 per cent.

Rising Food Prices Burden the Poor

Hello Friends here we come up with the Latest Agri Commodities updates from various parts of the country.

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Rising Food Prices Burden the Poor

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Rising prices burden the poor:

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Rising prices of essential commodities coupled with wage deflation and increasing joblessness are pushing the poor households in India to a point of distress.

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Cosmetic measures of the government are unable to address the situation.

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The government of the day is harping upon the idea that an annual GDP growth rate in the range of 7% to 9% would be able to address the situation.

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The country has already experienced a GDP growth rate of 7.9% in the second quarter of the current fiscal 2009-10, but the situation has not improved.

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This is enough to prove that the GDP growth rate alone would not solve the problem.

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Government’s heavy dose of fiscal stimulus can give a big push to the corporate performance and post a good industrial growth which has already been possible in the second quarter of the current fiscal year.

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In Other major Commodities Updates we have information regarding dip in sugar output and regarding centre’s direction to state govts to rationalise taxes on food items in order to check price rise.

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Sugar Output dips 2 lakh tonne:

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India produced 7.84 million tonne (78.4 lakh tonne) sugar till January 15 in the current season (October-September), lower by 2 lakh tonne compared to the output in the same period last year, industry body Indian Sugar Mills Association (ISMA) said.

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ISMA attributed the fall in output to sluggish supply of the cane in Uttar Pradesh, the second largest sugar producing state.

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Centre to ask state govts to rationalise taxes on food items to check price rise:

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The central government is expected to strongly emphasize on states the need to rationalize their tax structure on food grains and sugar to bring down price of essential commodities at the forthcoming meeting of state chief ministers later this week.

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Prime Minister Manmohan Singh will hold the review meeting on food prices with state chief ministers.

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According to official sources, agriculture minister Sharad Pawar is also expected to list the steps taken by the central government including :

extension of deadline for white and raw sugar, extra allocations of wheat and rice over normal PDS supplies—announced after the meeting of cabinet committee on prices last month.

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