Archives for: Analysis Category

Eroding the tax base

06 March 2015 - 14:21 pm
The big bad truth about Indian government budgets is that they are too small. The total tax revenue collection by the central government peaked at 11.71 per cent in 2007-08, the year before the western financial crisis roiled the economy. For the year that is about to close, tax revenue is expected to be only 9.93 per cent of GDP. If we had the revenue-GDP ratio of seven years ago, taxes would have been higher by about Rs 2,25,000 crore. If the centre gave 40 per cent of that money to states and retained the rest, the central fiscal deficit would have been lower by more than 1 per cent of GDP, at 3.0 per cent — thus meeting the desired fiscal deficit level two years ahead of schedule. Alternatively, the government could have kept the year’s deficit at 4.1 per cent of GDP and spent an extra Rs 1,35,000 crore — on everything from health and education to roads and railways, and defence.

So why has revenue fallen in the last seven years, in relation to GDP? The biggest culprit is excise, which has fallen in these seven years by more than 1 per cent of GDP, from 2.56 per cent of GDP to 1.47 per cent. An important reason for this is that the main excise rate in 2007-08 was 16 per cent, whereas this past year it has been 12 per cent (plus surcharges). The rate was dropped in the 2008 Budget from 16 per cent to 14 per cent, and then to 10 per cent when the financial crisis hit later that year. These steps have been retraced only a part of the way to 12 per cent, and to 12.5 per cent for next year (with no surcharge). Since the economy is on the path to recovery, sooner rather than later the rate should be taken back to the 16 per cent that used to exist. If businessmen protest, as they will because nobody likes paying taxes, they could be reminded that this is simply restoring the status quo ante; and necessary if they want investment in roads, railways, ports and electricity.
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More than half of Russians would vote for President Vladimir Putin if a snap presidential election were held, a survey published Thursday showed.

Fifty-five percent of the 1,600 adults across Russia polled about their voting intentions by the independent Levada Center last month said they would cast their ballot in favor of Putin if a snap presidential election were held the following weekend. Of those people who said they would definitely turn out to vote and who had already made up their minds who to vote for, 86 percent would choose Putin, according to the poll, which had a margin of error not exceeding 3.4 percent.

Support for Putin has skyrocketed since Russia’s annexation of Crimea last March. In January 2014,  29 percent of Russian voters said they would vote for Putin in a snap election. In April, after Crimea had joined Russia’s federal fold, 49 percent of Russians were ready to cast their ballots in his favor.

Putin’s approval rating currently stands at 86 percent, according to the Levada Center. The president’s approval rating hit a historic high of 88 percent in October, amid intense fighting between pro-Russian rebels and Ukrainian military forces in eastern Ukraine. >> Read More


For Lord Rothschild, preserving wealth has “become increasingly difficult,” recently, as he warns, rather ominously, “we are faced with a geopolitical situation as dangerous as any we have faced since World War II.” Furthermore Lord Rothschild summarizes his thoughts briefly, eloquently, and ominously… as he touches on the global debasement of fiat currencies, disappointing growth (in light of massive monetary stimulus), and extreme stock market valuations. As Rothschild Wealth Management noted last year, equities are not well supported by current valuations, while monetary policy is limited by high debt levels and interest rates that are already close to zero… exposing equities to a potentially sharp correction.

Lord Rothschild summarizes his thoughts briefly, eloquently, and ominously…

Our policy has been clearly expressed over the years. Simply put, it is to deliver long-term capital growthwhile preserving shareholders’ capital; the realisation of this policy comes at a time of heightened risk, complexity and uncertainty. The economic and geopolitical environment therefore becomes increasingly difficult to predict. >> Read More


Thick black smoke billowing from oil wells northeast of the city of Tikrit is obstructing Shi’ite militiamen and Iraqi soldiers attempts to drive ISIS from the Sunni Muslim city after militants set them on fire. Reuters reports a witness and a military source said Islamic State fighters ignited the fire at the Ajil oil field to shield themselves from attack by Iraqi military helicopters. As we noted previously, the battle for Tikrit is key as it will determine whether and how fast the Iraqi forces can advance further north and attempt to win back Mosul, the biggest city under Islamic State rule. 

As Reuters reports,

Islamic State militants have set fire to oil wells northeast of the city of Tikrit to obstruct an assault by Shi’ite militiamen and Iraqi soldiers trying to drive them from the Sunni Muslim city and surrounding towns, a witness said.


The witness and a military source said Islamic State fighters ignited the fire at the Ajil oil field to shield themselves from attack by Iraqi military helicopters.


The offensive is the biggest Iraqi forces have yet mounted against IS, which has declared an Islamic caliphate on captured territory in Iraq and Syria and spread fear across the region by slaughtering Arab and Western hostages and killing or kidnapping members of religious minorities like Yazidis and Christians.


Black smoke could be seen rising from the oil field since Wednesday afternoon, said the witness, who accompanied Iraqi militia and soldiers as they advanced on Tikrit from the east.


Control of oil fields has played an important part in funding Islamic State, even if it lacks the technical expertise to run them at full capacity.

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Shanghai Securities News: China average GDP growth may slow to 6.2% 2016-2020

Shanghai Securities News cits CASS vice president Cai Fang

Headlines on Bloomberg 

 Chinese Academy of Social Sciences (CASS)

Perhaps echoing two entire nations’ frustration, one reporter loses his cool when Mario Draghi explains how everyone else in Europe gets free money except Greece and Cyprus

 Having explained that The ECB’s Bond-Buying program wil lnot include Greek and Cypriot bonds, “feisty” veteran Greek journalist Aristidis Vikettos unloads on Draghi… “You’re Biased…” he exclaimed, leaving Draghi speechless

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The European Central Bank is to launch a €1.1 trillion blitz of bond purchases from Monday to avert deflation and revive lending, finally joining the “QE club” a full six years after the Bank of England and the US Federal Reserve.

The belated move came as the ECB sharply raised its growth forecasts to 1.5pc this year and 1.9pc next year, leaving it unclear whether such massive stimulus is still needed or even advisable.

Year-on-year retail sales jumped 3.7pc in January as the delayed effects of falling energy prices feed through to household spending.

Mario Draghi, the ECB’s president, said the radical measures first unveiled by the central bank nine months ago had restored confidence and were starting to bear fruit, alleviating credit stress across every part of the eurozone.

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Overnight US Market

06 March 2015 - 8:56 am

Stocks broke a two-day slide and closed higher after the European Central Bank said it would start its market-friendly bond-buying program on Monday and Wall Street cheered a big deal in the pharmaceutical space.

Gains were led by utilities, financials and health care sectors.

The Dow Jones industrial average rose 38.82 points, or 0.2% to 18,135.72 and the Standard & Poor’s 500 index gained 2.51 points, or 0.1% to 2101.04.

The Nasdaq composite moved back up towards the 5000 mark, rising 15.67 points, or 0.3% to 4982.81. >> Read More


Iron ore producers will be shifting uneasily this morning. The price of the steel-making ingredient has slumped to a six-year low below $60 a tonne.

According to the Steel Index, a price reporting agency, benchmark Australian ore for immediate shipment to China fell $2.8, or 4.5 per cent, to $59.3 a tonne on Thursday

The decline came as China, the world’s largest consumer of seaborne iron ore, cut its growth target to 7 per cent – the slowest expansion for a quarter of century. Reports also claimed the Chinese government had ordered some steel mills in Shandong province to shut down, in a further sign of its intention to get tough on pollution.

The world’s biggest iron ore miners are bracing themselves for a further decline in iron ore prices. Rio Tinto, for example, is set to cut hundreds of jobs in its mines in the Pilbara region of Western Australia.

“The scenario for 2015 and beyond reinforces the absolute need for us to maintain our position as the lowest-cost producer, particularly when compared with other Pilbara producers,” the head of Rio’s iron ore business Andrew Harding wrote in a recent note to staff in early February. >> Read More

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Technically Yours,
Team ASR,
Baroda, India.