IRDA instructs life insurers to disclose commissions    May 07, 2010

We feel the circular is a "knock-on effect" of the tussle between capital market regulator SEBI and insurance regulator IRDA on the issue of regulating Unit Linked Insurance Plans (ULIPs). However we also feel that this move ensures transparency, thus making it pro-investor. A point to note is that, on the negative side this move may encourage many insurance agents to rebate commissions to their clients, which is an illegal practice.

And in our opinion where is the need to wait till July 1, 2010 for this - why not immediately?

We think that even though the increase of 2.90% may appear diminutive on a month-on-month basis, when analysed on a year-on-year basis, the AAUM has increased by whopping 40% (AAUM in April 2009 was Rs 5,50,994 crore). This displays investor confidence in the Indian economy, at a time when the developed nations appear to be still reeling from more economic crises, such as the trouble being faced by the Greek economy currently.

The proposed Direct Taxes Code (DTC) is likely to retain the Exempt-Exempt-Exempt (EEE) regime of taxation for individual savings. The Finance Ministry is currently giving the final touches to a revised DTC draft, recognising the fact that Exempt-Exempt-Tax (EET) status as earlier proposed in the original draft DTC may not pass muster.

In the EEE regime, savings are exempt from tax at all the three stages - contribution, accretion and withdrawal. However under the EET regime, which is considered to be the best global practice for taxation of savings, exemption is allowed at the first two stages (contribution and accretion) and withdrawals are taxed at the personal marginal rate of taxation (Income Tax).

The Finance Ministry is also reportedly planning to set up a committee to suggest ways to link interest on small savings instruments, like Public Provident Fund (PPF), with market rates. The main intention behind doing so is to administer an interest rate for small savings instruments that is a tad higher than the fixed term deposit rates of banks.

According to a senior Finance Ministry official, the main intention behind the EEE status is to make the DTC less complex. He also hinted at potential political pressure, saying "we would be left with no option but to retain the present regime where the savings are exempt from tax at all three stages".

We believe that it would be a good move for the DTC to maintain the current EEE structure, since this structure facilitates effective tax planning for individuals, in a country such as ours which currently lacks a robust social security system. Additionally, the move would be politically intended to prevent the Government from alienating its vote bank - people who would surely be negatively impacted by an EET regime. On a lighter side it would be interesting to compare the proposed new draft with the original and determine how many bold, revolutionary and necessary proposals fell the victim to vote bank politics!  

 

•  The legendary investor Warren Buffett, who has till now made only a few investments outside the US, plans to visit India next March and is likely to explore possible investment opportunities. Also on an interesting aside, he seems to have come out in favour of Goldman Sachs and its recent problems - time will tell if Mr Buffet has again made a correct call or on this one, he called wrong!!

• A bi-annual survey by the Confederation of Indian Industry (CII) revealed that India Inc. is confident of better business prospects in the first half of the fiscal year 2010-11, despite concerns over inflationary pressures in the country and global economic instability. The business confidence level of the Indian industry has increased, as shown by a 1.5 point increase in the Business Confidence Index (BCI) to 67.6, over the previous survey that gauged the business mood for the six month period ending March 2010. The survey also revealed that India Inc. expects India's GDP to grow by 7.5% to 8.5% during the fiscal year 2010-11.

• US-based NYSE Euronext sold its 5% stake in India's largest bourse - National Stock Exchange (NSE) - for $175 million (nearly Rs 780 crore). This deal values NSE at $3.5 billion (Rs 15,600 crore).

• The Reserve Bank of India (RBI), in a recent notification, increased the overseas travel limit (the amount of foreign currency that outbound travellers can carry without requiring permission from the central bank) to $ 3,000, from the earlier limit of $ 2,000.

• IRDA increased the minimum term for ULIPs to 5 years from the earlier 3 years. Earlier, policyholders had the option to surrender ULIPs after the completion of the 3 years term. The new norms will come into effect from July 1, 2010.

•  Education loans may come cheap, as the Government is working on a refinance scheme to offer education loans at interest rates as low as 4%. The Government also plans to extend the repayment period from 5 - 7 years to 6 - 12 years for those who aspire to become doctors, engineers, fashion designers, and IT professionals. Currently, interest rates for education loans vary between 10% and 12%.

• According to global rating agency Standard & Poor's Financial Services Llc (S&P), Asian nations such as India, which have high debt, but borrow mainly from the domestic market, are unlikely to witness a change in investor sentiments because of debt crisis in European countries such as Greece.