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Commerce ministry to meet SEZ developers

New Delhi, Sept 14: Difficulties over the way income tax exemption is granted to the units in Special Economic Zones will come up at the annual meeting of the Export Promotion Councils for EOUs and SEZs.

Commerce and Industry Minister Kamal Nath will review the performance of SEZs in terms of creation of employment, export earnings as also the problems faced by the tax-free enclaves at the AGM of the council, official sources said.

Developers of SEZs and EOUs would place before the Minister 10 key issues that have emerged as procedural bottlenecks for them.

"Issues like exemption from income tax, removal of sunset clause for EOUs, export duty on steel supplied to the SEZs and cenvat credit supplies to the developers would be referred to the Minister," EPCES Director General L B Singhal said.

Developers have been seeking clarification on the interpretation of section 10AA of the SEZ Act that provides exemption from income tax to the units on export income.

Singhal said the other main issue is regarding supplies to SEZs, where domestic manufacturers are not being extended Cenvat (Central Value Added Tax) Credit. The cenvat credit facility is being extended for supplies to SEZ units and this needs to be extended to the developers as well.

Further, developers have demanded exemption from export duty on supply of steel to SEZs for consumption within the zones, which is impacting construction work, particularly in engineering units.

The government has so far given formal approval to 467 SEZs, of which 225 have been notified and are directly employing 97,993 people.

Inflation for food items consumed by Aam Admi is low: Govt

New Delhi, Sept 14: The Finance Ministry on Sunday said inflation for items consumed by the commonman like food is low, even as the rate of price rise remained above the 12 per cent mark despite moderation for three weeks in a row.

"For some of the important consumer items, however, inflation in the current year remained low. The inflation for primary food articles at 4.6 per cent on August 30, 2008 was lower compared to the inflation of 7.1 per cent, a year earlier," a statement from the Finance Ministry said.

Besides, manufactured products inflation for cement stood at 2.0 per cent in the current year compared to 12.9 per cent, a year earlier and machinery items at 5.5 per cent in the current year compared to 8.7 per cent, a year earlier remained lower, the statement added.

Inflation eased to 12.10 during the week ended August 30, declining for the third week in a row.

Finance Ministry sources said, low inflation for primary food items showed that inflation for items consumed by the common man or Aam Admi, particularly the rural folks, is low.

The statement came a few days after the main opposition Bharatiya Janata Party charged the UPA Government with "wrong" economic policies resulted in sharp rise in prices, saying the common man is actually burdened much more than what inflation figures show.

If the prices of the commodities of daily use are taken into account, then the rate of inflation may well cross the 20 per cent mark, BJP President Rajnath Singh had said at the party's national executive meeting in Bangalore.

Your last post on how the the government claims the common man is not being badly affected bring to mind "lies, damned lies, and statistics".

you are quite right vasa.

vasa, yes it is true.

storied Wall Street firms vanish as US financial markets roiled by further shock waves

NEW YORK (AP) -- When Wall Street woke up Monday morning, two more of its storied firms had vanished.
Lehman Brothers, burdened by $60 billion in soured real-estate holdings, said it is filing for Chapter 11 bankruptcy after attempts to rescue the 158-year-old firm failed.

Bank of America Corp. said it is snapping up Merrill Lynch & Co. Inc. in an $50 billion all-stock transaction.

The demise of the independent Wall Street institutions came as shock waves from the 14-month-old credit crisis roiled the U.S. financial system six months after the collapse of Bear Stearns.

The world's largest insurance company, American International Group Inc., also was forced into a restructuring.

And a global consortium of banks, working with government officials in New York, announced a $70 billion pool of funds to lend to troubled financial companies.

The aim, according to participants who spoke to The Associated Press, was to prevent a worldwide panic on stock and other financial exchanges.

Ten banks -- Bank of America, Barclays, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Merrill Lynch, Morgan Stanley and UBS -- each agreed to provide $7 billion "to help enhance liquidity and mitigate the unprecedented volatility and other challenges affecting global equity and debt markets."

The Federal Reserve also chipped in with more largesse in its emergency lending program for investment banks. The central bank announced late Sunday that it was broadening the types of collateral that financial institutions can use to obtain loans from the Fed.

Federal Reserve Chairman Ben Bernanke said the discussions had been aimed at identifying "potential market vulnerabilities in the wake of an unwinding of a major financial institution and to consider appropriate official sector and private sector responses."

Futures pegged to the Dow Jones industrial average fell more than 250 points in electronic trading Sunday evening, pointing to a sharply lower open for the blue chip index Monday morning. Asian stock markets also tumbled, with India's Sensex sinking more than 5 percent. Japan and Hong Kong were closed for holidays.

The stunning weekend developments took place as voters, who rank the economy as their top concern, prepare to elect a new president in seven weeks. It likely will spur a much greater focus by presidential candidates -- Republican John McCain and Democrat Barack Obama -- and members of Congress on the need for stricter financial regulation.

Samuel Hayes, finance professor emeritus at Harvard Business School, said the Bush administration may get a lot of blame for the situation, which could benefit Obama.

"Just the psychological impact of this kind of failure is going to be significant," he said. "It will color people's feelings about their well-being and the integrity of the financial system."

Lehman Brothers' announcement that it is filing for bankruptcy came after all potential buyers walked away. Potential suitors were spooked by the U.S. Treasury's refusal to provide any takeover aid, as it had done six months ago when Bear Stearns faltered and earlier this month when it seized Fannie Mae and Freddie Mac.

Employees emerging from Lehman's headquarters near the heart of Times Square Sunday night carried boxes, tote bags and duffel bags, rolling suitcases, framed artwork and spare umbrellas. Many were emblazoned with the Lehman Brothers name.

TV trucks lined Seventh Avenue opposite the building, while barricades at the building's main entrance attempted to keep workers and onlookers from gumming up the steady flow of pedestrians flowing in and out of Times Square.

Some workers had moist eyes while a few others wept and shared hugs. Most who left the building quietly declined interviews.

People snapped pictures with cameras and their phones. Observers pressed up against a police barricade drew the ire of one man who emerged from the building and shouted: "Are you enjoying watching this? You think this is funny?"

Merrill Lynch, another investment bank laid low by the crisis that was triggered by rising mortgage defaults and plunging home values in the U.S., agreed to be acquired by Bank of America for 0.8595 shares of Bank of America common stock for each Merrill Lynch common share.

That values Merrill at $29 a share, a 70 percent premium over the brokerage's Friday closing price of $17.05, but well below what Merrill was worth at its peak in early 2007, when its shares traded above $98.

Charlotte, N.C.,-based Bank of America has the most deposits of any U.S. bank, while Merrill Lynch is the world's largest brokerage. A combination of the two would create a global financial giant to rival Citigroup Inc., the biggest U.S. bank in terms of assets.

Strategically, most industry analysts say it's a good fit. If the deal goes according to plan, Bank of America will be able to offer Merrill's retail brokerage services to its huge customer base. There is not a great deal of overlap between the two companies -- Bank of America does have an investment bank already, but it has never been terribly strong.

Where there is duplication, however, the combination of the two companies could result in more layoffs. Both Merrill and Bank of America have already cut thousands of investment banking jobs over the past year.

The deal would not come without risks, however. Merrill Lynch, like many of its Wall Street peers, has been struggling with tight credit markets and billions of dollars in assets tied to mortgages that have plunged in value. Merrill has reported four straight quarterly losses.

Bank of America's own finances are far from robust. As consumer credit deteriorates, the bank has seen its profits decline, and the company is still in the midst of absorbing the embattled mortgage lender Countrywide Financial, which it acquired in January.

Insurer AIG, hit hard by deterioration in the credit markets, said Sunday it is reviewing its operations and discussing possible options with outside parties to improve its business after a week when its stock dropped 45 percent amid concerns about the company's financial underpinnings. It was working with New York Insurance Superintendent Eric Dinallo and a representative of the governor's office through the weekend to craft a solution that protects policyholders, according to Dinallo's spokesman David Neustadt.

"It's clear we're one step away from a financial meltdown," said Nouriel Roubini, chairman of the consulting firm RGE Monitor.

The meetings that began Friday night were a who's who of financial heavyweights: Treasury Secretary Hank Paulson, Timothy Geithner, president of the New York Fed, Securities and Exchange Commission Chairman Christopher Cox, and a host of CEOs, including Vikram Pandit of Citigroup Inc., Jamie Dimon of JPMorgan Chase & Co., John Mack of Morgan Stanley, Lloyd Blankfein of Goldman Sachs Group Inc., and Merrill Lynch & Co.'s John Thain.

For all their efforts, Lehman appeared ready to file for bankruptcy.

The end of Lehman may not stop the financial crisis that has gripped Wall Street for months, analysts said. More investment banks could disappear soon.

The independent broker-dealers "are going the way of the dodo bird," said Bert Ely, an Alexandria, Va.,-based banking consultant.

That's partly because some of the firms, particularly Merrill, made bad bets on real estate. But several analysts said that investment companies will need the deep pockets of commercial banks to survive the next few years.

On Sunday, there was also an emergency trading session being held at the International Swaps and Derivatives Association to "reduce risk associated with a potential Lehman Brothers Holdings Inc. bankruptcy." The ISDA, which arranges trades for derivatives, said it was allowing customers to make trades and unwind positions linked to Lehman.

Roubini said it's difficult to accurately gauge the health of companies like Merrill because their financial health depends on how they value complex securities. As a result, their finances aren't very transparent, he said.

That can lead to a loss of confidence in the financial markets, he said, which can overwhelm an investment bank even if it is financially healthy by some measures.

"Once you lose confidence, the fundamentals matter less," he said.

The common denominator of the financial crisis, analysts said, is the bursting of the housing bubble. Home prices have dropped on average 25 percent so far. Roubini predicted they could drop another 15 percent.

The crisis has begun to slow the broader economy as banks make fewer loans and consumers have begun cutting spending. Many economists are now forecasting that the economy could slip into recession by the end of this year and early next year.

That, in turn, could cause additional losses for commercial banks on credit cards, auto loans and student loans.

The Fed is widely expected to keep interest rates steady at 2 percent, below inflation, when it meets Tuesday. It was possible, however, that the central bank might decide in coming weeks to cut rates if such a move is seen as needed to calm turbulent financial markets.

The International Monetary Fund predicted earlier this year that total losses from the credit crisis could reach almost $1 trillion. So far, banks have only taken about $350 billion in losses.

Commercial banks are also starting to feel the pinch. Eleven have closed so far this year, including Pasadena, Calif.-based IndyMac Bank, which had $32 billion in assets and $19 billion in deposits.

Christopher Whalen, managing director of Institutional Risk Analytics, a research firm, predicts that approximately 110 banks with $850 billion in assets could close by next July. That's out of 8,400 federally insured institutions, he said, which together hold $13 trillion in assets.

Individual customers are starting to get nervous about the financial health of their banks for the first time in generations, he said. Whalen's firm analyzes the safety and soundness of banks for business clients, but began receiving inquiries from individuals in the past two months for the first time, he said.

"If we don't get ahead of this, we are going to face a run on the retail banks by election day," he said.

AP Business Writers Madlen Read, Tim Paradis and Stephen Bernard in New York, Martin Crutsinger in Washington, Ieva Augstums in Charlotte and Michael Liedtke in San Francisco contributed to this report.

Jim Rogers bullish on commodities, but won't invest in India

Mumbai, Sep 12, 2008 (Asia Pulse Data Source via COMTEX) -- Renowned investor Jim Rogers today said India as an investment destination was overpriced, which was why the markets were going through a bearish phase.

"As an investment destination, I would not invest in India for the time being. The Indian market is overheated and overpriced. That is why it has come crashing to these levels these days. India's agriculture, water and tourism sectors are attractive," Rogers said.

"It is the right time to buy commodities. Normally September and October in investment markets are weak months, so you are at the right time to start investing in commodities. The next big opportunities for investment are in silver, cotton, coffee, sugar and zinc," Rogers, who is the Chief Executive of Rogers Holdings, told reporters here.

"The shortest bull market for commodities lasted 15 years, the longest 23 years, so if history is any guide, they have got a long way to go." "I am very bullish on metals and precious metals. Crude oil price will continue to rise because there is a major demand-supply mismatch," he said at a mutual-fund conference.

"No major crude oil discovery has happened in the last 40 years. Agricultural stocks are at a 60-year low. And at the same time, three billion people in Asia are raising their incomes and lifestyles and consuming more every day," he said.

One of the world's best-known investors said he wasn't investing in India or in other emerging markets at present but was bullish on Taiwan as it has a lot of potential.

"The USD 60 billion a year in direct foreign investment combined with a trade surplus has brought China's foreign currency reserves to over USD one trillion. China will surpass the United States as the world's largest economy in as little as 20 years," Rogers said. On commodity futures market in India, Rogers said the Government has done the most "senseless" act by banning futures trading in a few commodities. "How can you rein in inflation by banning the commodity futures market?" he said.

While there is a boom in commodities globally, high food prices and inflation have hit growth rate of many countries, he said.

"Inflation affects everyone. High oil prices, inflation and food prices have hit countries like India very hard. India is not getting any worse than other countries. Commodity prices are still going up despite the ban. India needs to understand that there is no easy solution to high prices," Rogers said.

Rogers was bearish on the dollar and was not sure how long the rally would last. He said fundamentals of the US unit were flawed and saw an eventual downside in the dollar.

US financials face more chaos as the credit market worsens, Rogers said. Recession, hard times, sliding dollar, inflation and the US Fed Chairman's decision to print more of the greenback does not help the situation, he added.

On gold prices, Rogers said buyers should go for the yellow metal if it continued sliding further. Gold could go to USD 500 an ounce and see a big correction.

"All markets see big corrections and they scare everybody but a 50 per cent correction is normal. If it goes down 50 per cent, it will be a good investment opportunity," he said.

Paulson says Americans can remain confident in the soundness, resilience of financial system

WASHINGTON -- Treasury Secretary Henry Paulson said Monday the American people can remain confident in the "soundness and resilience in the American financial system."
Briefing reporters at the White House, Paulson said he "never once" considered it would be appropriate to put taxpayer money at risk to resolve the problems at Lehman Brothers. The nation's fourth largest investment bank filed for bankruptcy protection earlier Monday.

Starting Friday, Paulson participated in three tense days of negotiations at the New York Federal Reserve Bank in which he held firm to the position that the federal government would not step in and supply any money to resolve the crisis at Lehman.

Faced with the prospect of no government help in dealing with Lehman's huge losses on its mortgage holdings, other financial firms lost interest in trying to buy the venerable firm. That forced New York-based Lehman to file for bankruptcy protection, making it the largest bankruptcy in history in terms of assets, surpassing the failures at Worldcom and Enron earlier in the decade.

Paulson explained his decision by telling White House reporters that any decision to put taxpayer money at risk to prop up a private company must be undertaken only after considering all alternatives.

"Moral hazard is something I don't take lightly," Paulson said, referring to the belief that when the government steps in to rescue a private financial firm it encourages other firms to engage in risky behavior.

"I never once considered that it was appropriate to put taxpayer money on the line in resolving Lehman Brothers," Paulson said.

The current credit crisis will not be resolved until the prolonged slump in housing comes to an end, he said.

"Until we stem the housing correction, until the biggest part of that is behind us and we have more stability in housing prices, we're going to continue to have turmoil in financial markets," Paulson said.

Paulson, who was heavily involved in the decision last week for the government to take control of mortgage finance giants Fannie Mae and Freddie Mac, said if that action works as expected in helping to stabilize the mortgage markets, then housing should start to rebound.

"I'm not saying two or three months, but in months as opposed to ... years," he said.

As financial hurricane takes Lehman, workers write farewell e-mails, pack desk mementos

NEW YORK -- Steve Levy left Lehman Brothers in 2005 but called his former secretary there on Monday to offer his support. She burst into tears after answering the phone.
She wasn't the only one.

The financial hurricane that whipped through Wall Street Monday suddenly made the Street, long a source of fabulous wealth, look uncertain and scary. In New York, where a half-million people work in finance, nearly everyone was shaken, from hedge fund billionaires to secretaries from Queens.

Lehman, the fourth largest investment bank in the U.S., filed for Chapter 11 bankruptcy reorganization Monday, the same day Merrill Lynch was bought by Bank of America Corp. in a snap deal for roughly $50 billion. Meanwhile, American International Group Inc., the world's largest insurer, and Washington Mutual Inc., the nation's largest thrift bank, were rumored to be close to ruin.

"How did this mess get so big?" said Levy, who worked at Lehman Brothers Holding Inc. for seven years before leaving in 2005.

The roughly 25,000 workers at Lehman, as well as many of the 60,000 at Merrill, face a double whammy: Many will lose their jobs and the companies' plunging share prices likely wiped out much of their net worth.

At Lehman, stock and options could make up as much as 60 percent of an executive's pay and share awards vested over five years. For most employees, stock and options were about 40 percent of pay, with the same vesting schedule.

On Monday, groups of grim-faced employees walked into Lehman's million-square-foot headquarters on Seventh Avenue, many of the men wearing Lehman-green ties and the women in green shirts. One woman wore a green dress.

Lehman's doors were flanked by security guards, one with a black guard dog. Employees walked past reporters and gawkers lined up behind metal barricades, as bystanders took pictures with their mobile phones. They brought gym bags, shopping totes and Lehman travel bags to cart home personal files and pictures from their desks.

Lehman workers called professional friends up and down Wall Street to give them their personal contact information. Analysts, afraid the company's server might go down, wrote farewell e-mails to clients, signing off with their cell phone numbers and personal e-mail addresses.

News trucks were camped out outside the building and reporters were there at dawn, waiting for employees. The media had worn out their welcome: A coffee truck by the company's office put up a cardboard sign last week saying, "No coffee for Lehman reporters."

In brief interviews, workers in New York who requested anonymity described themselves as shocked and devastated.

"We really didn't see this coming. We thought some bank would buy Lehman," said Duo Ai, who worked in research in Lehman's London office. "Any other option would be better than this."

The consensus in finance was that this would just be one more in a succession of grim days following the mortgage bust.

"It's like a bad flu," said Steve Schlussler, a director at CapitalSource, a smaller financial firm near Lehman. "You have to get violently ill to get better."

"The Fed can't bail everyone out," he said.

For workers, the year has brought waves of layoffs -- some announced cuts of thousands of jobs, some quieter culling of hundreds. Wall Street firms have slashed the ranks of contractors and hacked at expenses like car service and business travel.

"The Wall Street that we knew was gone when we woke up this morning," said Anthony Conroy, head trader for BNY ConvergEx Group, who said he worked a 12-hour day Sunday and arrived at his office Monday at 5 a.m.

Bad times in finance mean bad times in New York City, because the sector is an outsized proportion of the city's total payroll.

While finance and insurance account for only 7 percent of the jobs in Manhattan, the sector accounts for one-quarter of total pay, according to the Census Bureau. The Street's bankers, techies and messengers brought home a grand total of $93.1 billion in 2006, the most recent data available.

Outsiders said the Street's veterans would rebound.

"If you're a trader, 40 percent of the time, you're wrong," said Ari Kiev, a New York city psychiatrist who treats financial sector workers and author of "Mastering Trading Stress."

"Part of job is learning how to ride out downturns," Kiev said. "You have more experience dealing with disasters than the ordinary person."

Big Risk: Surging Debt Makes U.S. More Dependent on China, Russia, Gulf State

Sep 15, 2008 12:07pm Task in Investing, Recession, Banking
Related: BAC, MER, LEH, AIG, C, XLF, ^DJI
The demise of Lehman Brothers, Merrill Lynch, and Bear Stearns this year has investors contemplating the long-term outlook for other once-venerable institutions, including Dow members Citigroup, AIG and Bank of America.

But there's an even bigger financial institution with greater debt and an increasing level of bad loans on its books: The U.S. government.

Given the actions already taken, from the Housing Bill to the nationalization of Fannie Mae and Freddie Mac, the U.S. deficit could double to $800 billion in two years, says Nouriel Roubini, of NYU's Stern School and RGE Monitor. (Even worse, the official government deficit figures exclude the costs of the wars in Iraq and Afghanistan, as well as the unfunded liabilities of Social Security and Medicare.)

The big risk is that foreign holders of Treasuries will no longer accept low interest rates to help fund U.S. debt spending, says Roubini, noting countries like China, Russia and oil-producing nations in the Middle East have becoming increasingly important holders of Treasuries. Should they demand higher rates to hold U.S. debt or, worse, dump their holdings, it could have profound ramifications on the U.S. economy and the value of the dollar.

Roubini further notes the Federal Reserve has put its balance sheet -- and independence -- at risk via its intimate involvement in thus-far failed attempts to stem the crisis.

It's tempting to dismiss the notion of a "run" on the U.S. government as unthinkable and some bears have been warning for years, even decades, about such a worst-case scenario. But after the events of this weekend, much less the past six months, it's clear that (almost) anything is possible and no scenario too "outrageous" to seriously contemplate.