2013-2Q Breaking News, Instant Views


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Ref: BN-0613-05: Thursday, June 6, 2013; Finance ; Precious Metals; Gold
Hindu Business Line Reports today…

Dissuade customers from buying gold, Chidambaram tells banks

At last, FM Chidambaram played into the unimaginative minds of his Bureaucrats, Economic & Planning Commission, Special Economic Adviser Mr. C Rangarajan and those in RBI. Click the above link for full report. I quote only highlights…



Less than 24 hours after the Government raised the import duty on gold (from 6% to 8%) , Finance Minister P. Chidambaram asked banks to discourage customers from buying the yellow metal.

I would urge all the banks to please advise their branches that they should not encourage their customers to invest or buy gold,” said Chidambaram at the 66th Annual General Meeting of the Indian Banks’ Association. India imported 142 tonnes of gold in April and 162 tonnes in May. Last year’s monthly average was 70 tonnes. In the first two months of this fiscal, the monthly average of gold import is 152 tonnes.


Referring to this sharp jump, the Minister, in a lighter vein said, “I hope a day will come when we regard gold as any other metal. It just shines a little more than copper or brass.”

…When there was a sharp drop in gold prices, millions were happy. I’m afraid I was not among the millions. I told the (RBI) Governor that the drop in gold prices internationally is bad news for India. My fears proved true.”

In the medium term, the Minister said he expects that the dip in inflation will make fixed income products more attractive as vehicles of savings and divert some of the disproportionate attention on gold to fixed income instruments.

At a summit later in the day, the Finance Minister said: “All I can do is appeal to the people of India that the country cannot import so much gold. Whatever gold is there in the country can be traded freely… there are no restrictions on that.”…


Kalidas Comments…

Is it FM Chidambaram, a Harvard Business School Alumni, or ordinary looking under-graduate student of Economics, who made above statements?

Before the gold import was liberalized, Indians used to import as much gold from Dubai in “havala” dominated transactions. The $/Rs rate in havala in those days used to range between 8% to 12% over official rate, and even if the cost of smuggling was high, the gold clandestine import was still affordable.

And who is going to follow the advise of their bankers not to invest in Gold? It is well known that the “worst financial advisers come only from Banks”. Even a farmer knows better whether or not to invest in Gold or in bank deposits? Following may happen if the above policies come into force whenever.

  1. Official gold import will be replaced by smuggled gold.
  2. The $/Rs premium in havala which is around 2% to 3% right now, will move upward of 5% to 8%.
  3. The people will be prepared to import “smuggled gold” because even if they pay for higher havala rate of 5%, they will save in custom duty by 8% and Sales Tax or VAT by additional 2%. With so much of black money around, it will be cheaper to buy smuggled gold than officially imported gold.
  4. The Government will lose revenue on multiple side – (1) loss of custom duty on smuggled gold (2) loss of sales tax on unofficial gold trading transactions within India and (3) higher cost of administration for custom border protection, sales tax, VAT, service tax etc.
  5. Trade deficit may look better but the most important Budget Deficit will rise due to loss of revenue on customs duty, excise duty, sales tax and service tax. The deficit may rise by at least Rs 25,000 crores.
  6. The drop in gold price may be bad news for India (or better to say Government of India) but extremely good news for the people of India. Several lakh marriages take place in India every year, so they would need gold more than anything else.
  7. Drop in inflation (if there be any or at all) will cause the interest rates to fall which will bring in less return or yield to investors, For them, gold will be a better choice.
  8. Gold finance company, Mutual Funds, ETF will suffer because their funds will underperform due to higher import duty and sales tax. Some states may even raise Sales Tax imitating Central Government move.
  9. The people “Do Smoke” even after statutory warnings on Cigarette Box that “smoking kills” or “Cigarette smoking is injurious to health”. The gold bugs will therefore ignore “such unsolicited advice” from FM conveyed through their banks.
  10. The farmers, the biggest investors in gold, will laugh at FM, RBI and their Bankers and may teach their children never ever to believe the Ministers. They are FBI…(= F**cking Bastards Idiots)
  11. And if the Finance Minister Chidambaram is so much convinced “not to invest in gold, and in fact divest from gold into bank deposits’, why does not he begin the action from his own stable, the Finance Ministry, Mint and RBI, and SELL 200 tons of Gold India imported @ US$ 1,035 a few years back?
    1. Current price may still give him profit of nearly $400 per ounce or $ 13,200,000 per ton (Rs 75.24 crores per ton @Rs 57/$) or a clean profit of Rs 15,000 crores even at depressed prices?.
    2. The charity begins at home, they say, so he must act now to sell the gold owned by the Government of India and replace it with paper notes so liberally printed by RBI under the instruction of the finance ministry?
    3. He can realize the profit of Rs 15,000 crores (lowering budget deficits) and also realize Capital Investment of Rs. 50,000 crores! (Total amount Rs 65,000 crores)

No doubt, FM has lost his sense of rationality.

The above news may also be taken by all readers as clue that If India decides to sell gold now, it will cause heavy slide in gold price internationally, and at that point time, go long on gold, silver and palladium aggressively.

India and Dubai will have mushroom growth of gold trading companies. India will have more Dawoods, Chhota Shakil and other mafias who will be getting into “offshore gold export industry” running into $15 billion per month.

If I were to sing the brilliant song composed by AR Rahman for “Slumdog Millionaire” – I would sing coarse aloud – JAI HO, Chiddu


Ref: BN-0613-004: June 3, 2013; News Report; Commodity; Gold Business Standard reports…

Govt mulls ban on gold coin sales by banks
With the surge in gold imports again posing a threat to the country’s widening current account deficit (CAD), the government on Monday said it might review its import policy. It added it might ban the sale of gold coins by banks.

Finance Minister P Chidambaram said the country was not in a position to afford high levels of imports; policies could be reviewed to reduce imports of the yellow metal, he added. In May, gold imports stood at 162 metric tonnes, he told reporters.

…India is the world’s largest consumer of gold and the commodity holds the second-highest weightage in the country’s import basket, after crude oil. According to commerce ministry data, gold and silver imports jumped 138 per cent to $7.5 billion in April, against $3.1 billion in the year-ago period.

In January, the government had raised duty on gold imports to six per cent. It had also allowed gold exchange-traded funds to deposit part of the physical gold held by them with banks; relaxation in gold deposit schemes of banks was also proposed.

Kalidas comments….
FM Chidambaram is adopting negative approach to contain the trade deficits. We have two deficits – Trade Deficit and Budget Deficit. The latter is more cause of concern for the global investors, IMF, World Bank and GDP watchers.

Containing imports will not address the issue of budget deficit. The Government is already earning 6% of imports as Custom Duty (Income source under Budget deficit) plus 1 to 2% sales tax being earned by various states.

In all, containing imports will cause revenue loss of  7% on imported value. Presuming, gold import is contained up to 60% of current volume, the revenue loss will be 7% of 40% of total imports ($60 billions on average) = $1.98 billions or Rs 11,400 crores at current exchange rate (Rs 57/$)

Due to restrained imports, there could be job losses in the Gold Industry. Most of gold workers are not literate, and earn their living from the personal art of making jewellery. Assuming loss of 40% imports of gold or $24 billions = Rs 136,800  crores in turnover, the job losses could be in several lakhs of workers – across the country. The loss of excise, sales tax and income tax on lost revenue and wages could be devastating. The budget deficit will rise further by another Rs 15000 crores (or total Rs 26,000 crores inclusive of custom duty on imports)

Looks like no one thinks in India while making policy statement. No one believes in preventive cures but only in post mortem analysis.

If the Government wants to restrain the import cost, the best thing is to let Rupee rise, so that cost of oil and gold import could significantly come down. But right and positive approach rarely comes to the passive mind of the bureaucrat running Finance Ministry and Reserve Bank of India.

Mr. Chidambaram, be a leader, not follower. You can do much more than your predecessor Pranab Mukherji, who is consigned to Presidency, away from policy making exercise. Make it worthwhile.


Ref: BN-0613-003     June 2, 2013: Business Std.; Finance; IT Raid

Report Quote:

FM asks I-T to avoid raids

Finance Minister P Chidambaram has asked officials to tread cautiously while chasing tax evaders and avoid raids as long as possible.

“The finance minister said our approach should be non-intrusive. We will get as much information as possible on our own and then give the tax evaders a chance to pay up their dues. There need not be a surprise element.”

Report Unquote:

Kalidas Comments…

Finally, realism has downed upon the Finance Minister. No doubt, Mr. Chidambaram is talking sense after all. The Government of India’s policy has so far been “Trust me You, Trust I don’t”. The people of India vote the party to govern the nation by trusting them. However, those very people begin to “distrust” by following weird process, one of them is “RAID” by the IT Department.

I lived in Hong Kong for over 27 years, and never saw a single raid in my entire history. The government trusted the people, and even if there were some violations, they overlooked unless the crime is severe. They followed normal procedure to call the assesses for information. Raid, never ever.

Right step, Chidu, keep it up. What you need to do is to cut the wings and legs of the bureaucrats who have been ruling the nation for over 65 years, regardless of who is in power at any time. They should be made aware that power of “electees” is more than the power of “appointees”.

Ref: BN-0613-002:     June 2, 2013 ; News report; Stocks; Infosys

News Headlines ….“Infosys…Kamath out, Narayan Moorthy IN”

Finally, it happened, it had to. K C Kamath, appointed as Chairman of Infosys at the recommendation of outgoing Founder -Chairman N. Narayanmoorthy, had finally called it a day, resigned after a few years at the helm, and replaced by his fan and once a patron, same Narayanmoorthy

In the language of computer, it was an over extended “undo” operation. DO “Narayanmoorthy out, Kamath in and then “Kamath out and Narayanmoorthy in.” UNDO

When Narayanmoorthy was mesmerized by the hyped up reputation of Kamath of ICICI Bank, which persuaded him to invite him to join his founded company, KALIDAS commented at that time “that Infosys is entering bad phase after years of growth, and that hand picked “Kamath” will destroy the company.” And he (Kamath) did, compelling NN to fire him ultimately and replace him with own self again at this old age. It reminds me of Arnold Schwarznegger in his prime movie “ Total Recall”

A few years have passed by, and finally, Kalidas was proved right again, right on spot. I deserved to pat myself, and I did!

Ref: BN_0613-001:   June 2, 2013: News report; Stocks; Essar Oil

Business Standard reports on its June 3 edition that..

Essar Oil to double refining capacity of Vadinar plant

This will involve an investment of around Rs 35,000 crore going forward

Essar Oil plans to increase the capacity of its Vadinar refinery in Gujarat from the present 20 million tonnes to 40 million tonnes per annum (mtpa) in the next five years. This would involve an investment of about Rs 35,000 crore. Another investment of about Rs 40,000 crore would be made to set up an integrated petrochemical project.

“We have the land and environment clearance is available with us. But we would put the expansion plans in place sometime down the line, only after we have achieved a reasonable certainty on our leverages and have certain cash flows. We have to show to the world for the next year that we are on a comfortable footing,” Lalit Kumar Gupta, managing director and chief executive, told Business Standard.

…..As on March 31, Essar Oil’s debt stood at Rs 22,380 crore, with a market capitalization of Rs 1,758 crore. During the January-March quarter of FY13, Essar Oil posted a net profit of Rs 200 crore, against a loss of Rs 515 crore in the same quarter last year. However, it paid Rs 920 crore towards finance costs during the quarter. For 2012-13, finance costs were Rs 3,424 crore, from Rs 1,387 crore in 2011-12.


Kalidas Comments…

Sure way to bankruptcy……Bankers beware. EOL came out of near bankruptcy a few years ago, but as they say…”Old Habits Die Hard”. Ruia are up again. They want to just “refine, refine and refine” (Oil) when the finances are getting “dirty, dirtier and dirtiest” day by day.

The Finance Minister Mr. Chidambaram should now put “cap” on expansion by any firm unless the expansion cost is funded by equity by at least 50%. If he does not act now and show restraint, many nationalized banks will also bankrupt. What happened to Kingfisher Airlines? Boom, Boom, Boom and Bust… Learn the lesson easy way or hard way..the Choices are yours, Mr. Chidambaram

Refineries are mostly automated plants, involving thousands of crores in CAPEX and generating very low level of jobs. They are not in the interest of the economy.

Look at Baroda, for instance, even after years of existence of IPCL presence there, the town remained “sleepy” all the time. The property prices were almost frozen at low level for over 15 years (not now since the mortgage financing started). When I visited last, it was more like Sholay’s “Gabbar Village” – not many people on the street. Now look at Surat – there is one car for every 7 persons in the city. Reason …..thriving Textile and Diamond industry which has created thousands of new jobs (not by new refineries in Hazira et al)

Ruia is a traditional “marwari” who believe in debt and OPM (Other People’s Money). He does not and would not want to understand even when the interest rates are hefty 10% t0 15%, the rupee sinking day by day, and most of his profits are eaten away by interest cost alone.

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