Yellen Sees No Serious Short-Term Obstacles for U.S. Economy

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Federal Reserve Chair Janet Yellen said the U.S. economy faces no serious short-term obstacles, though it must deal with important long-term challenges of low productivity and growing inequality.

“Unemployment has now reached a low level, the labor market is generally strong and wage growth is beginning to pick up,” Yellen said Thursday in a meeting with educators. “Inflation has moved up from a very low level, and it’s a little bit under our 2 percent objective, but it’s pretty close.”

The Fed increased interest rates last month for the first time in a year, to a range of 0.5 percent to 0.75 percent, after judging that near-term risks to the outlook “appear roughly balanced.” Policy makers also indicated they expect to hike three times in 2017, according to the median estimate of their quarterly forecast.

Unemployment was 4.7 percent in December, a slight uptick from November when it reached 4.6 percent, its lowest level since 2007. The Fed’s preferred gauge of inflation, minus food and energy components, was 1.6 percent in the 12 months through November.

Yellen said productivity, a “key determinant” of living standards over the long term, remained at historically low levels and economists were struggling to understand why. Related to low productivity, she said a greater share of income gains were going to workers with higher education, causing inequality to rise in the U.S.

Education and workforce development have been frequent topics of discussion for Fed officials in recent years as technology continues to drive changes in the workplace. Yellen told graduating college students in Baltimore last month that career success will increasingly be linked to education.

Yellen on Thursday was speaking to teachers gathered in the board room at the Fed’s headquarters in Washington and, via web cast, to others through the country. She also touted reforms to banking regulation that followed the financial crisis aimed at making the financial sector safer and more resilient.

“These are very important changes,” Yellen said. “I certainly wouldn’t want to see them rolled back.”

Members of the incoming administration of President-elect Donald Trump have said they will seek to dismantle the 2010 Dodd-Frank Act, the principle legislative response to the crisis.

Source: https://www.bloomberg.com/news/articles/2017-01-13/yellen-sees-no-serious-short-term-obstacles-for-u-s-economy

New Year GIFT for MNC law and audit firms

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Foreign law and accountancy firms now have a chance to operate in India on their own. On January 3, the ministry of commerce and industry amended a rule allowing such foreign firms to set up offices and advise clients from SEZs. The move will initially benefit Gujarat International Finance Tec-City (GIFT).

Current regulations so far do not permit multinational law firms to operate in the country. Indian law and accountancy firms were also not allowed to operate from any of the SEZs. That rule has now been amended which would benefit financial centres.

The notification, dated January 6 but issued on January 3, by the department of commerce allows foreign law and accountancy firms to be established in SEZs. The earlier version of the rule, prior to the amendment, had excluded legal services and accounting.

“This will be the big enabler for the legal and accounting firms to expand their services in multi-services SEZ with IFSC (International Finance Service Centre) and thereby export their services to various global players,” said Nitin Potdar, partner, J Sagar, a law firm. As of now, only GIFT is a multi-services SEZ with an IFSC in India.

“Until now, no foreign law firm could operate in India and not even Indian firms were allowed to provide their services in any of the SEZs. The new amendment allows not only Indian law or accountancy firms to set up a base in GIFT, but even multinationals can directly advise upon international disputes or arbitration by setting up a base there,” Dipesh Shah, head, IFSC at GIFT, told ET.

While many foreign professional services firms such as Deloitte, PwC, KPMG and EY are present in India, they cannot directly operate as auditors and require an Indian affiliate. This amendment does away with that requirement at least in the case of GIFT.

Many Indian law firms have been opposing the entry of multinational law firms in India for some time. Going ahead, many multinationals could set up base in India but they will only be able to advise on cross-border transactions or disputes. Some are also looking to quickly take advantage of this and set up base in GIFT.

“Allowing law firms in GIFT for arbitration or other work would work as a catalyst for economic activities in the country. We ourselves are in discussions to set up an office in GIFT,” said Nishith Desai, founder of law firm Nishith Desai Associates.

But the amendment does not permit foreign law firms to advise Indian clients on local businesses and regulations. Their advice and help would be strictly restricted to arbitrations fought in GIFT, international mergers and acquisitions, international taxation or any other advice for operations outside India.

Industry experts say some foreign law firms may consider partnerships with Indian firms under the arrangement. There could also be stiff competition as both Indian and foreign firms would compete for the same clients in GIFT.

“Many law firms may set up their base in GIFT but that would take some time. And I am a firm believer that it would only lead to betterment of all law firms,” said Desai.

Source: http://economictimes.indiatimes.com/articleshow/56529046.cms

Bankruptcy and Insolvency Code will drive creation of a new debt market

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The Bankruptcy and Insolvency Code will drive growth of debt market in India, which hardly exists in corporate and business financing, Dr. MS Sahoo, Chairman, Bankruptcy Board of India

The Bankruptcy and Insolvency Code will drive growth of debt market in India, which hardly exists in corporate and business financing, Dr. MS Sahoo, Chairman, Bankruptcy Board of India told Fe. While the country has a matured and bullish equity market, the debt market in India was yet to develop. The board was not concerned with default in bank credits or about the rising NPAs. It would mainly look into private creditors interest if their money got locked.

“Banks have some protection in the areas of corporate financing but non banking debt is non existent. Bankruptcy and Insolvency Code would be instrumental in the growth of non bank debt financing, which would lead to reduce dominance of banks in areas of credit.

With a debt market created, debt supplies would ease out and lending rates both for the non banking creditors as well as for the banks would be market driven. “At present demand is chasing supplies but it will be other way round with supplies chasing demand,” Mamata Binani, chairperson, Institute of Company Secretaries of India (ICSI) said at an interactive session organised by the MCC Chamber of Commerce.

She said the code will enable to solve problems of many assets lying dead for years in dispute. Such assets could be quickly liquidated without the judiciary’s intervention and unsecured creditors will always have the first chance to realize its money from the business. The board has estimated that Rs 25,000 crore, which is locked in dead assets, is going to get unlocked in next five years.

While Sahoo made clear that the Bankruptcy and Insolvency Board would not deal with corporate frauds and inter managerial disputes, a creditor who has given unsecured loans should trigger the first available opportunity if he sees his credit at risk.

It will be a creditors committee, which will work on a strict time line, to resolve insolvency. The creditors will not be bound by any set rules to resolve insolvency or debtors problem. They will have flexibility to take their own decision and find a way out and that might come in the form debt restructuring or liquidation. However, if liquidation is unable to recover a debt, it may be a loss for both the creditor and the debtor, Alok Dhir, founder and and managing partner of Dhir & Dhir Associates said.

“But working with this code will gradually prove what is the right approach and there may be changes brought in the law,” Sahoo said adding that the board was also working on a framework for direct liquidation by passing insolvency resolution and the framework would be ready by February- March. But to begin the process on code a company has to address to the National Company Law Tribunal (NCLT), while for personal insolvency, a claimant will have to go to the Debt Recovery Tribunal (DRT). But the framework for personal insolvency was not yet ready and it would take some time before a party could move the DRT, Sahoo said.

However, the NCLT with 11 benches across the country was already functional with the code and there were chances that 93,000 pending BIFR cases could be referred to the board, many of which might not have to begin the process on code but through pre- pack solutions, Sahoo felt. He said the board has selected 974 insolvency professionals on a temporary basis and would begin certification through tests for inducting regular professionals.

Source: http://www.financialexpress.com/market/bankruptcy-and-insolvency-code-will-drive-creation-of-a-new-debt-market/506028/

NPA woes to spill over into next fiscal, says Moody’s

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Weak asset quality will continue to plague credit profile of banks, with their profitability remaining under pressure till the next fiscal, says a report.

“Asset quality will remain a negative driver of the credit profiles of most rated banks in the country and the stock of impaired loans. Non-performing loans and standard restructured loans will still rise during the horizon of our outlook that lasts till the next financial year,” Alka Anbarasu, a vice-president and senior analyst at Moody’s, said in a report today.

The report is jointly penned by Moody’s and its domestic arm ICRA Ratings.

The report said the pressure on asset quality largely reflects the system’s legacy problems, as relating to the strong credit growth seen in 2009-12, when corporate investments rose significantly.

It, however, said aside from the legacy issues, the underlying asset trend for banks will be stable because of a generally supportive operating environment.

“While corporate balance sheets stay weak, a further deterioration in key credit metrics such as debt/equity and interest coverage ratios has been arrested,” the report said.

As per Karthik Srinivasan, a senior vice-president at ICRA, “while bank profitability is not expected to be as weak as the levels seen in the financial year 2015-16, the weakness in asset quality will continue to drag on profitability indicators, with return on equity remaining in the single digits for the financial years 2016-17 and 2017-18.”

Anbarasu said the pace of asset quality deterioration over the next 12-18 months should be lower than what was seen over the last five years, and especially compared to the financial year 2015-16.

She considers the Reserve Bank’s asset quality review in December 2015 as an important catalyst in pushing banks to recognise some large accounts as being impaired.

“We now estimate the ‘true’ level of impaired loans for Indian banks to be around 1-1.5 percentage points higher than the latest reported numbers,” Anbarasu said.

The latest Financial Stability Report by the RBI had said the gross non-performing advances ratio increased to 9.1 per cent from 7.8 per cent between March and September 2016, pushing the overall stressed advances ratio to 12.3 per cent from 11.5 per cent.
Moody’s said given the magnitude of stressed assets in the system, it expects the banks to increase their focus on resolving some of the large problem accounts.

“We expect an increased pace of debt restructuring under various schemes offered by RBI, including the scheme for sustainable structuring of stressed assets (S4A), strategic debt restructuring (SDR) and the 5:25 scheme,” the report said.

“Nevertheless, weak reserving levels and continued pressure on profitability will limit the ability of the banks to proactively resolve problem assets under these schemes,” Anbarasu said.

Icra said a muted level of credit off-take — on the back of weak demand, increasing competition and greater disintermediation — will continue to exert downward pressure on lending rates.

It said the overall capitalisation levels of most of the public sector banks remain moderate to weak, given that they need to attain the regulatory minimum tier-I requirement of 9.5 per cent by March 2019.

The current plan of infusing Rs 45,000 crore during 2016-17 and 2018-19, of which Rs 16,414 crore have already been infused in the current year, is below ICRA’s estimate of capital requirements of Rs 1,50,000-1,80,000 crore.

Source: http://www.business-standard.com/article/finance/npa-woes-to-spill-over-into-next-fiscal-says-moody-s-117010900510_1.html

UAE firm launches world’s 1st offsite manufacturing park in TN

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The world’s largest and first fully integrated industrial park has been opened in Tamil Nadu by a NRI-owned multinational group based in the UAE that specialises in innovative offsite manufacturing technology.

KEF Infra, the infrastructure subsidiary of KEF Holdings yesterday launched the KEF Infra One Industrial Park, the fully integrated offsite manufacturing park in Krishnagiri, Tamil Nadu.

The park is built on an area of one million square feet and developed at an investment of Rs 650 crore, the company said in a release.

The chief guest for the occasion was Narayana Murthy, Founder of Infosys and Faizal E Kottikollon, Founder and Chairman, KEF Holdings, Shabana Faizal, Vice Chairperson, KEF Holdings, Sumesh Sachar, CEO, KEF Infra among others were also present.

The park features a diverse range of cutting-edge technology that can revolutionise manufacturing and delivery processes in the construction industry.

“Today, India is at the cusp of growth led by innovation and we are pioneering an age where technology is being effectively integrated into infrastructure, thus heralding industrial revolution 4.0. Our aim is to fast forward this progress by radically changing the landscape of infrastructure in India.

“Offsite manufacturing of infrastructure reduces delivery time by up to two-thirds, thereby speeding up the construction process. The launch of KEF Infra One is a step towards our vision of pushing forth the next phase of India’s growth through world class infrastructure and we are proud to present this to the world,” Kottikollon said who was born into an industrialist family in Kerala.

Narayana Murthy said India has always been on the path of development, and with the arrival of technology, has witnessed exponential growth.

“However, every sector that contributes to India’s progress is supported by infrastructure that is future-ready. This is where KEF Infra is a true pioneer and is helping shape the future of the infrastructure industry as well as that of the country as a whole,” he said.

Source: http://www.business-standard.com/article/pti-stories/uae-firm-launches-world-s-1st-offsite-manufacturing-park-in-tn-116122000574_1.html

Transfer pricing treaty for investors from cyprus

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The government on Monday afternoon clarified that according to the amended Cyprus treaty, investors need to pay only 10% tax with retrospective effect from November 1, 2013, instead of the 30% tax they have already paid. While bringing in clarity on this matter, a lacunae as far as transfer pricing still remains.

The genesis of the problem lies in 2013. The government had, on November 1, 2013, blacklisted Cyprus as an investment destination through a notification. So, investments made through Cyprus attracted 30% tax (TDS) instead of 10% tax under the original India-Cyprus treaty.

The government had blacklisted Cyprus after the island country had refused to share some data related to investors with India.

The government also said that transfer pricing could also apply on returns given to Cyprus investors by Indian companies.

However, the government later amended the treaty (through a notification on December 14, 2016) after Cyprus agreed to co-operate on sharing investor data. Under the amended treaty, the higher taxation part was rescinded. But the transfer pricing portion still remains unclear.

What led to a cause of worry was the fact that many private equity investors had paid 30% tax between 2013 and 2016 on returns from Indian investments. The government clarification on Monday came as many foreign investors were worried that the 10% tax would not be applicable for the three years between 2013 and 2016. However, following Monday’s clarification, they can now claim refunds from the tax department.

Most of the investors used Cyprus as a pooling vehicle to invest in Indian real estate. Most of the investments were in debt vehicles. In some cases, while the equity investment were made either in listed or unlisted companies through Mauritius or Singapore, debt investments were made through Cyprus.

Transfer pricing conundrum
Transfer pricing is normally only applied in cases where two companies— one an Indian and another multinational— do a merger or acquisition. People close to the development said that some of the transfer pricing adjustments could be made in the coming months. In cases where the tax officers have already gone ahead with the transfer pricing procedures, it may not be possible to undo it, say experts.

Treat for genuine investors, though need for clarity in Tax Rules
This reworked Tax Treaty comes very much after India demonstrated flexibility and lifted the so called sanctions after Cyprus agreed to share information on tax evaders. The reworked tax treaty between India and Cyprus for effective information sharing is also a step towards global cooperation on tax transparency. It will provide relief to genuine investors in Cyprus. But investors loathe uncertainty. The need is for stability and certainty in the tax system, and therefore tax rules must be clear.

Source: http://economictimes.indiatimes.com/articleshow/56073396.cms