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B&E This Fortnight
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Issue Date - 02/02/2012
Airlines in Trouble

The New Year started on a bad note for Air India whose bank accounts were once again frozen by the service tax department for non-payment of dues. This is the second time in two months that the Central Board of Excise and Customs (CBEC) has frozen the account of the national carrier. Earlier, the tax department had frozen 11 accounts of Air India and 10 accounts of Kingfisher Airlines in the month of December for defaulting on service tax payments. The service tax arrears of AI now amount to Rs.3 billion. In all, Kingfisher Airlines and Air India owe the government a total of over Rs.3.6 billion towards service tax. While AI has failed to pay its arrears for the month of December last, Kingfisher also defaulted to pay its service tax dues for December, which could lead to freezing of its bank accounts once again, besides attachment of its properties and imposition of additional penalties. The freezing of accounts is not the only issue that has the aviation industry in a state of turmoil. The aviation regulator DGCA is also reviewing airlines on the measures of safety. The regulator’s audit had suggested withdrawal of Kingfisher’s flying permit and slashing of operations of AI Express, even as it criticized other carriers like IndiGo, SpiceJet, Jet Airways, GoAir, Alliance Air and JetLite on issues like non-reporting of incidents, lack of pilots, proper and regular training, absence of qualified safety officials and non-compliance of safety audits.

100% FDI

The New Year kick-started with good news on the economic policy front. The dream of 100% FDI in single brand retail becomes a reality after the Department of Industrial Policy and Promotion notified it on January 10, 2012. According to the DIPP’s press note, “Foreign Direct Investment (FDI), up to 100%, under the government approval route, would be permitted in single brand product retail trading.” However, there are some caveats to the removal of the investment cap. In respect of proposals involving FDI beyond 51%, the mandatory sourcing of at least 30% would have to be done from the domestic small and cottage industries, which have a maximum investment in plant and machinery of $1 million. Though 51% FDI in single brand was allowed in February 2006, not much investment has come in the sector. During the past three and half years, FDI worth only Rs. 1.96 billion was received in the sector. The new policy will help global fashion brands, especially from Italy and France, and other international brands to strengthen their interest in the growing Indian market. Global chains like Gucci and Louis Vuitton can now have full ownership of their Indian operations. Many of these chains have already set up operations in India by partnering with domestic firms, but this policy will allow them to buy out the domestic partners.

Websites in legal jam

Search engine giant Google, social networking site Facebook and other online content providers are facing charges in an Indian trial court for allowing posting of obscene online content on their sites. A trial court in Delhi issued summons to 21 Internet companies for objectionable content posted on their websites. The Indian government has sanctioned the prosecution of executives from companies like Google and Facebook along with other 21 Internet companies. The companies can be charged for “promoting enmity between groups” or for carrying “deliberate malicious acts intended to outrage.” Since some of the charges are non-bailable, the government had to indicate whether it agreed with the need for the websites to stand trial. The case, which has stoked worries about freedom of speech in the world’s largest democracy, was brought by a private petitioner seeking to remove images considered offensive to Hindus, Muslims and Christians from websites.

Gold likely to fall

The glitter of the yellow metal will continue to lure investors this year too, especially those who are wary of the choppy equity markets. Last year, bullion gold gave returns of 31.1% to investors. But the performance of gold is not a true reflection of its worth. The metal delivered returns of only 10.52% last year in dollar terms. In recent days, gold prices declined by 0.58% to Rs 27,600 per 10 grams in futures trade. Internationally, gold prices have already fallen by about 16% since the record high of $1,900 per ounce on September 5 2011. The magnitude of the decrease indicates that the asset class is on the brink of a bear phase. According to a report of the World Gold Council (WGC), global demand for gold jewelery slumped 10% in the quarter as compared to the previous year. India, the world’s largest market for gold jewellery, gold bars and coins, witnessed a corresponding decline of 26% and 18% in tonnage demand in the two segments as compared to last year.

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