NRI Worldwide > NRInvest
India's economy hit by 'reform paralysis, political gridlock'
Report dated 30/04/2012 @ 7:29 PM
Standard & Poor's recent downgrade of India's credit outlook to negative, and its prediction that the nation's investment grade rating faced a one-in-three chance of being downgraded to junk mainly because of 'political gridlock' has put the country at risk and spooked foreign investors.
One economist says with PM Singh's unruly coalition hobbled by graft and infighting, nobody should hold their breath for a born-again government, and see this as a wake-up call for the government to do something meaningful asap.
Analysts are skeptical however calling the government's policy paralysis a situation that is unlikely to change. As well as which with elections due within two years, any big-ticket reforms are even more unlikely, so inflation is also likely to keep interest rates high, thus weighing on growth.
Ratings agency Moody's has kept its outlook stable for India, but says the government does not have the "leaders to push through tough-minded reforms needed to drive the next wave of growth'.
Some see a return to junk status as inevitable, even though Finance Minister Pranab Mukherjee said the government is confident of overcoming the difficulties and there is no need to panic, even though he also said he should not be blamed if he is unable to boost the economy because of the political situation on the ground.
India's mutual funds are taxable in the US
Report dated 28/04/2012 @ 11:19 PM
Mutual funds in India are a good investment avenue. Dividends are tax free as are long term capital gains on equity funds, and if one is a long term investor one probably built a good corpus thanks to the robust Indian equity market. But for US NRIs, Uncle Sam is going to want a bite of your biscuit, because the US tax code collects tax on the global income of its residents an citizens. Foreign mutual funds in particular are targeted.
To fully understand the machinery one must look at tax rules that apply for US mutual funds in which annual gains from sales must be distributed to unit holders and taxed as 'capital gains distributions that are taxed at par with long term capital gains.
Foreign mutual funds however fall under the category of Passive Foreign Investment Company (PIFC), whose rules were introduced to discourage US residents and citizens of parking money in offshore tax havens and deferring US tax liability.
Forms must be filled including Form 8621 that gives one several options including declaring the income as notional gains. that are not only complicated for a lay person but intricately involve one's other holdings.
One is best advised to consult one's chartered account in order to understand what one's liability actually is and what loop holes, if any, are available.
Indian automotive supplier to open shop in Detroit USA
Report dated 27/04/2012 @ 3:05 PM
Sakthi Automotive, a global leader in the automotive supply chain has received a $1.5 million incentive from the Michigan Economic Development Corp (MEDC) to set up shop in America's motor city Detroit, Michigan. The manufacturing facility there is expected to generate up to $18.6 million in private investment and create up to 183 jobs.
The MEDC President and CEO Michael Finney stated that Sakthi Automotive's decision to locate its first North American facility in Detroit demonstrates Michigan's strong advantages as a great place to do business. Investment on the project will begin this year and job creation will ramp up beginning in 2013.
Sakthi Automotive is a division of the Sakthi Group and is a supplier of automotive components. It plans to buy and upgrade an existing vacant building in Detroit for which the city has offered a 12-year tax abatement worth $903,000 for the project.
Standard & Poor's lowers India's outlook to negative
Report dated 26/04/2012 @ 8:40 PM
Ratings agency Standard & Poor's has lowered the outlook on India's sovereign rating to negative, giving rise to fears of a possible downgrade if growth is hit due to the absence of fiscal and policy reforms.
For the moment the agency retained the sovereign rating at BBB-, which is just about investment grade. A downgrade is likely if India's economic growth prospects dim, its external position deteriorates, its political climate worsens, or fiscal reforms slow down.
India's finance minister Pranab Mukherjee said there is no cause or need for panic as the government will surely be able to overcome the situation.
The stock, money and forex markets reacted immediately with the sensex dropping 100 points while the rupee fell to 52.64 against the US$.
Moody's has a Baa3 rating on India, while Fitch rates India BBB-. Both are also minimum investment grade ratings.
India cuts interest rate to spur growth
Report dated 18/04/2012 @ 8:52 PM
The central bank has cut interest rates by 50 basis points to boost the sagging economy, but this may be the last cut for a long while.
The Reserve Bank of India lowered its policy repo rate to 8.00 percent, compared with expectations for a 25 basis point cut. It is indicating that there is a limit for further rate cut expectations and are done with further rates cuts this year. It also warned that India's current account deficit is unsustainable and makes it difficult to finance given projections of lower capital flows to emerging markets in 2012.
Investors and businesses cheered the rate cut, even as some RBI watchers said the move is risky given the potential for resurgent inflation.