The CBI has almost finished investigations against former director general of Hydrocarbons (DGH) V K Sibal and Mukesh Ambani-led Reliance Industries Limited (RIL) in the KG Basin contract case and FIRs are likely to be registered soon. A senior CBI official told TOI, "We have found complicity of Sibal with RIL." Officials said Sibal and some Reliance officials would be formally questioned now.
The allegations against Sibal in one of the PEs is that he favoured RIL and approved an increase in capital expenditure from $2.4 billion to $8.8 billion for KG D6 field between September and December 2006 for which he got personal favours from RIL. "We have almost finished the enquiries. The final go-ahead would be given by top brass after which regular case would be registered," said a source.
Three PEs were registered against Sibal a few months ago out of which one was turned into a regular case in the first week of July. In the first case, Sibal allegedly favoured a US-based oil exploration company – GX Technology – by escalating the cost which caused a loss of Rs 400 crore to the exchequer. The agency is preparing to send a letter rogatory to US to get more information about GX Technology. After registering the first case, CBI had raided Sibal's residence and documents related to the case were recovered, said sources. The raids were conducted in Noida, Delhi, Dehradun and Mumbai.
Apart from Sibal, the other accused in the first case are ex-chief geologist D K Rawat; then adviser – geophysics S K Jain, former accounts department head K A Murli, then adviser (contracts) Anurit Sahi, ex-finance manager TSLN Reddy, then chief chemist Savendra Gupta, GX Technology and the company's manager of exploration Sujata Subramaniam
News Highlights - Week of 12 - 16 September 2011
Hong Kong, China's industrial production growth rate fell to 2.0% year-on-year (y-o-y) in 2Q11 from 3.5% in 1Q11, due mainly to a decline in the output of textiles and apparels. Textile production fell 13.5% y-o-y while apparel fell 9.6%. In Japan, the Ministry of Economy, Trade, and Industry revised its July production index downward to -3.0% y-o-y from a preliminary figure of -2.8%.
*In the Philippines, merchandise exports shrank for a third consecutive month in July- by 1.7% y-o-y to USD4.4 billion-as the global slowdown curbed demand for electronic products. Meanwhile on a month-on-month basis, exports grew 7.3%. Singapore's non-oil domestic exports grew 5.1% y-o-y in August after posting a 2.8% decline in July.
*In the Republic of Korea, the combined net income of 62 securities companies jumped 74.7% y-o-y to KRW793.2 billion in the first quarter of fiscal year 2011 (April-June). Their return on equity for the quarter increased to 2.1% from 1.3% in the same period last year. According to the Financial Supervisory Service (FSS), the increase was brought about by a 12.4% y-o-y increase in commissions revenue, which reached KRW2.2 trillion for the quarter, as well as a 58.3% y-o-y rise in the income from proprietary trading, which amounted to KRW1.1 trillion.
*Growth in overseas foreign worker remittances to the Philippines eased to 6.1% y-o-y in July-for a total of USD1.7 billion for the month-from 7.0% growth in June. Meanwhile, in the first 7 months of the year remittances rose 6.3% y-o-y for a total of USD11.4 billion. Remittances from land-based and sea-based workers grew 4.3% and 14.1% y-o-y, respectively.
*Powerlong Real Estate, a Chinese real estate company based in Hong Kong, China, issued HKD1.0 billion worth of senior notes to China Life Trustee Limited. The notes mature in 3 years and carry a coupon of 13.8%. In the Republic of Korea last week, Korea Eximbank sold a KRW150 billion 1-year zero coupon bond and a KRW50 billion 6-month zero coupon bond. Korea Development Bank issued a 3-year bond worth KRW150 billion at a coupon rate of 3.76%. Also, Korea Finance Corporation priced samurai bonds totalling JPY30 billion including a JPY15.5 billion 2-year bond, a JPY7.5 billion 3-year bond, and a JPY7.0 billion 5-year bond.
*In Malaysia, property developer Perdana Parkcity issued MYR400 million worth of medium term notes (MTN), while Telkom Malaysia sold MYR300 million worth of 10-year Islamic MTN. Singapore's Housing and Development Board issued last week SGD625 million worth of 5-year bonds and SGD650 million 10-year bonds Meanwhile, Thailand auctioned a 50-year THB5.0 billion bond with a 4.85% coupon.
*China National Petroleum Corp. (CNPC) and China Railway 16th Bureau Group announced that they plan to issue commercial paper with a maturity of 1-year on the interbank market. China National Petroleum Corp. will issue CNY15.0 billion and China Railway 16th Bureau Group will issue CNY560 million.
*Government bond yields rose for all tenors in Indonesia and Malaysia and rose for most tenors for Korea; Philippines; Singapore and Thailand as risk aversion rises over concerns that Greece may default. Yields fell for most tenors in the PRC; Hong Kong, China and Vietnam. Yields changes were mostly mixed for Japan. Yield spreads between 2- and 10-year tenors narrowed for the PRC and Hong Kong, China but widened for the rest of the Emerging East Asian markets.
Amnesty Scheme in Works to Get Back Money in Foreign Accounts
Unlike in previous attempts, govt in position to roll out scheme this time due to robust tax info
OUR BUREAU NEW DELHI
India could announce an amnesty scheme to give its citizens an opportunity to come clean on their undeclared assets and bank accounts held overseas, joining the likes of the US, UK, Italy, and Germany that have announced similar schemes.
The finance ministry is considering a scheme — offshore voluntary compliance scheme — that could allow for voluntary declaration of undisclosed assets held overseas, helping put such funds to productive use in the country and also raise revenues. "The scheme is under consideration. The income-tax department's flow of information has become robust. So, it time to consider such a scheme," said a finance ministry official. A panel on black money headed by the Central Board Direct Taxes chairman is expected to take up the proposal at its next meeting later this month.
However, selling such a scheme politically will be difficult, as it is sure to invite charges of condoning black money at a time when corruption issue has created widespread angst. In its reply to Parliament earlier this year, the finance ministry had categorically ruled out such an amnesty scheme but has begun to deliberate it after India Inc made a pitch for channelising undisclosed funds lying overseas for infrastructure development in its interaction with finance minister Pranab Mukherjee on August 1.
The ministry is looking at various options, such as reduction in penalty and relief from prosecution and mandatory disclosure of source of income. "Final call on the scheme and its structure would be taken only after considering all pros and cons," said the official.
Tax experts say such a scheme can only work if confidentiality of data and identity is kept and income-tax investigation becomes more rigorous. "Deterrent has to be strong enough for such a scheme to make sense," said Sudhir Kapadia, tax markets leader, Ernst & Young.
An expert group in the Central Board of Direct Taxes had recommended a similar scheme earlier, but it could not be launched as flow of information on overseas accounts and assets was not robust.
India has signed information exchange agreements with tax havens and set up overseas tax units in certain sensitive tax jurisdictions, such as Mauritius, which has helped increase the flow of information.
The income-tax department has also strengthened its internal information systems and has created a directorate of criminal investigation to deal with tax-related crime.
Investigation directorates have collected data from agents and officials of foreign banks offering services and soliciting opening of foreign banks accounts.
The income-tax department is also receiving data from the financial intelligence unit in India that has begun to receive data from other FIUs. The department had recently issued showcause notices to some of the foreign account holders based on information it received through different channels.
Officials feel the possibility that bank accounts and funds held overseas could come to the notice of tax authorities may encourage people to avail of the scheme.
The buzz of the government launching an amnesty scheme had got louder ahead of Budget 2011-12 but no scheme was unveiled. Mukherjee later clarified: "Amnesty schemes have a double side. Sometimes these are criticised. People say these are at the cost of honest tax payers and sometimes it helps bring in money." Previous such schemes had also attracted criticism. The Supreme Court also called the menace a "plunder of the nation".
(The following column by George Soros first appeared in the New York Review of Books and on Reuters.com. The opinions expressed are his own)
By George Soros
REUTERS – The euro crisis is a direct consequence of the crash of 2008. When Lehman Brothers failed, the entire financial system started to collapse and had to be put on artificial life support. This took the form of substituting the sovereign credit of governments for the bank and other credit that had collapsed. At a memorable meeting of European finance ministers in November 2008, they guaranteed that no other financial institutions that are important to the workings of the financial system would be allowed to fail, and their example was followed by the United States.
Angela Merkel then declared that the guarantee should be exercised by each European state individually, not by the European Union or the eurozone acting as a whole. This sowed the seeds of the euro crisis because it revealed and activated a hidden weakness in the construction of the euro: the lack of a common treasury. The crisis itself erupted more than a year later, in 2010.
There is some similarity between the euro crisis and the subprime crisis that caused the crash of 2008. In each case a supposedly riskless asset – collateralized debt obligations (CDOs), based largely on mortgages, in 2008, and European government bonds now – lost some or all of their value.
Unfortunately the euro crisis is more intractable. In 2008 the US financial authorities that were needed to respond to the crisis were in place; at present in the eurozone one of these authorities, the common treasury, has yet to be brought into existence. This requires a political process involving a number of sovereign states. That is what has made the problem so severe. The political will to create a common European treasury was absent in the first place; and since the time when the euro was created the political cohesion of the European Union has greatly deteriorated. As a result there is no clearly visible solution to the euro crisis. In its absence the authorities have been trying to buy time.
In an ordinary financial crisis this tactic works: with the passage of time the panic subsides and confidence returns. But in this case time has been working against the authorities. Since the political will is missing, the problems continue to grow larger while the politics are also becoming more poisonous.
It takes a crisis to make the politically impossible possible. Under the pressure of a financial crisis the authorities take whatever steps are necessary to hold the system together, but they only do the minimum and that is soon perceived by the financial markets as inadequate. That is how one crisis leads to another. So Europe is condemned to a seemingly unending series of crises. Measures that would have worked if they had they been adopted earlier turn out to be inadequate by the time they become politically possible. This is the key to understanding the euro crisis.
Where are we now in this process? The outlines of the missing ingredient, namely a common treasury, are beginning to emerge. They are to be found in the European Financial Stability Facility (EFSF)-agreed on by twenty-seven member states of the EU in May 2010-and its successor, after 2013, the European Stability Mechanism (ESM). But the EFSF is not adequately capitalized and its functions are not adequately defined. It is supposed to provide a safety net for the eurozone as a whole, but in practice it has been tailored to finance the rescue packages for three small countries: Greece, Portugal, and Ireland; it is not large enough to support bigger countries like Spain or Italy. Nor was it originally meant to deal with the problems of the banking system, although its scope has subsequently been extended to include banks as well as sovereign states. Its biggest shortcoming is that it is purely a fund-raising mechanism; the authority to spend the money is left with the governments of the member countries. This renders the EFSF useless in responding to a crisis; it has to await instructions from the member countries.
The situation has been further aggravated by the recent decision of the German Constitutional Court. While the court found that the EFSF is constitutional, it prohibited any future guarantees benefiting additional states without the prior approval of the budget committee of the Bundestag. This will greatly constrain the discretionary powers of the German government in confronting future crises.
The seeds of the next crisis have already been sown by the way the authorities responded to the last crisis. They accepted the principle that countries receiving assistance should not have to pay punitive interest rates and they set up the EFSF as a fund-raising mechanism for this purpose. Had this principle been accepted in the first place, the Greek crisis would not have grown so severe. As it is, the contagion-in the form of increasing inability to pay sovereign and other debt-has spread to Spain and Italy, but those countries are not allowed to borrow at the lower, concessional rates extended to Greece. This has set them on a course that will eventually land them in the same predicament as Greece. In the case of Greece, the debt burden has clearly become unsustainable. Bondholders have been offered a "voluntary" restructuring by which they would accept lower interest rates and delayed or decreased repayments; but no other arrangements have been made for a possible default or for defection from the eurozone.
These two deficiencies – no concessional rates for Italy or Spain and no preparation for a possible default and defection from the eurozone by Greece – have cast a heavy shadow of doubt both on the government bonds of other deficit countries and on the banking system of the eurozone, which is loaded with those bonds. As a stopgap measure the European Central Bank (ECB) stepped into the breach by buying Spanish and Italian bonds in the market. But that is not a viable solution. The ECB had done the same thing for Greece, but that did not stop the Greek debt from becoming unsustainable. If Italy, with its debt at 108 percent of GDP and growth of less than 1 percent, had to pay risk premiums of 3 percent or more to borrow money, its debt would also become unsustainable.
The ECB's earlier decision to buy Greek bonds had been highly controversial; Axel Weber, the ECB's German board member, resigned from the board in protest. The intervention did blur the line between monetary and fiscal policy, but a central bank is supposed to do whatever is necessary to preserve the financial system. That is particularly true in the absence of a fiscal authority. Subsequently, the controversy led the ECB to adamantly oppose a restructuring of Greek debt-by which, among other measures, the time for repayment would be extended-turning the ECB from a savior of the system into an obstructionist force. The ECB has prevailed: the EFSF took over the risk of possible insolvency of the Greek bonds from the ECB.
