Unbelievable functioning of Indian Parliament

Could'nt resist putting this one up on the blog !! This is Nandan Nilekani's brief of his first day in parliament. Do go through. Cheers!

Continuing my tryst with capturing the life and times of Nandan Nilekani in his new avatar as a Cabinet Minister, here is what he had penned after his first day in the Parliament. The last entry stopped when the House was just about to begin. Let’s see what happened thereafter….

The House was in pin drop silence. I was brimming with anticipation and excitement!! !! Manmohan had informed me that my introduction was one of the important points of the agenda. I hoped that I will be able to make my speech properly. After so many interviews and conferences, I was nervous today!!!! After the Speaker indicated that the proceedings of the House could begin, Manmohan formally introduced me to the entire House. He mentioned that as the head of the Unique Identification Authority of India, I was responsible to ensure that each and every Indian had a digital smart card as a proof of his existence.

Manmohan spoke about why I was selected and also some references to the various projects executed by me in Infosys were mentioned. The House listened with rapt attention. I was asked to say a few words and I did exactly the same!!! I thanked the Government of India for having given me this opportunity and I assured the House that I would strive to successfully deliver this project. The Speaker then formally inducted me into the House and before the proceedings could move any forward, there was a small commotion on the other side of the hall.

It was Minister of Textiles who had a comment to make before the next point on the agenda. He made a request that I should be attired in a more austere way instead of a flashy suit. It did not go well with the image of a minister who should live to serve the common man and should be less ostentatious in his habits. I stood up to reply. I offered my apologies to the Honourable Minister and assured that I shall be in a more acceptable dress next time. I felt that he was right. We also used to have corporate dress code in Infosys. So it's here as well!!!!

I sat down and felt somebody nudging me. I turned around and to my surprise; it was the former Indian skipper and one of my favourite batsman Mohd. Azharuddin. I remembered that he had recently won the elections. I smiled at him and mentioned to him that I used to like his game very much, shaking his hand. No Rolex, I noticed. Azhar told me that he would “fix” me an appointment with an Italian designer who had designed his dapper Kurta suit. An Italian designer in Milan doing Kurtas!!!!! I made a note of this and reminded myself to give this example to Friedman for his next book,” The World Markets are flattened”.

Since there was no doubt about the “Fixational” capacities of Azhar, I told him to give me the details and I would consider. The proceedings of the House went on with numerous bills being debated and passed as I sat as a passive audience waiting for my project’s turn to come up. After the lunch break, it was the moment for me!!!!

MY PROJECT’S FIRST REVIEW CAME UP FOR PRESENTATION.

I was at sea. My laptop did not have any reserve power. I went to Manmohan and apprised him of the situation. I was sweating. He calmly replied that this would not be a cause of concern. I was flummoxed!!! ! The Speaker asked me to explain to the House on what were my plans for the Unique Identity Project. I replied that I have a plan prepared for 30-60-90-120 days’ milestones and I have presentation to make for which I need a power socket, a projector and a screen. I had no idea what was going to happen after this.

The next couple of minutes were a complete jolt for me. I was completely in a tizzy. Let me just summarize what happened. A Joint Cabinet Secretary Committee was set up to judge the feasibility of my request. The Under Secretaries for the Ministries of Power, IT and Broadcasting will prepare a Viability Report after scrutinizing National Security threats to my request. This was because the power socket comes under Power, laptop comes under IT and projector comes under Broadcasting. I have also been told to reconsider my timelines of 30-60-90 days and start thinking in terms of years. Probably, they are right. I did not have the foresight in this matter.

The summary of the issue is that I need to come up with a more inclusive, democratic, comprehensive long term plan for this project to be executed over the next five years. I have also been given a presentation slot 3 months from now (by which the issues related to the power cord etc will also be resolved). I am filled with mixed reactions. I was planning for a quick resolution; the management wants a strategic solution. I come out of the House and text Murthy.

“You won’t believe it but these guys work just like us. I am on a NATIONAL BENCH for the next three months!!!!!! !!”

GOVT Considers FDI in Real Estate

All said and done, the government is already on the right track by considering the hiking of income tax exemption available for interest payment on home loans to Rs 2.5 lakh a year. However, there are still a number of blanks to be filled. The Budget should make high-priority provisions for the laying down of necessary infrastructure so that new areas can be opened up. The concept would be to create and link-up satellite settlements to main cities that will help tackle the demand-supply mismatch.

The Budget should provide clarity on the STPI guidelines whether they will remain or not, or whether they have changed. The Budget should offer clarity on the introduction of a real estate regulator, since the fact that India is now a member of the global village makes higher levels for transparency imperative. This regulator may not necessarily decide on rates, but should put down firm principles in terms of property dealings and also quality parameters in terms of rating of constructions.

The Budget should provide forward momentum for real estate mutual funds so that real estate becomes accessible to retail investors, as well. The Budget should free the rental income yielded by commercial premises from service tax. The Budget should extend the tax holiday under Section 80-IA (4) (iii) for developers who build, operate and maintain industrial parks so that the compromised IT industry gets a shot in the arm. The Budget should finally and decisively enable the entry of foreign direct investment into the real estate sector. The Budget should reintroduce tax exemption for developers who construct flats of smaller size with tax benefits, offer incentives to developers to concentrate more on affordable housing and rationalise stamp duty registration charges for land so that obtaining land for affordable housing becomes more feasible for developers.

Tax exemption to be raised to Rs 2.5 lakhs from Rs 1.5 lakhs

The government is taking some bold positive steps to boost the real estate sector. The tax exemption limit for the interest on a home loan may be raised to Rs 2.5 lakhs from the current Rs 1.5 lakhs in the upcoming budget. Besides this, the repayment of principal amount is part of investments eligible for benefit under Section 80(C) of the Income-Tax Act, which has a ceiling of Rs 1 lakh.

The existing tax exemption limit is considered inadequate at a time when a two-bedroom house in big cities costs at least Rs 25 lakh. Considering a person takes a loan of Rs 20 lakh at an interest rate of 9.5%, he would pay Rs 1,88,493 towards interest alone in the first year. His annual interest payment in the first five years would be more than Rs 1.5 lakh. Hence a raise to Rs 2.5 lakhs would benefit the home buyers and be an impetus for growth of the housing sector.

If the exemption limit is hiked to Rs 2.5 lakh, then a person paying that much home loan interest in a year will save an additional Rs 31,000 in tax every year (WOW!!) . This saving of over Rs 2,500 a month would be significant for most borrowers, making home purchases more affordable. However, as per existing norms, the tax benefits start flowing in only after the construction of the house is completed, which usually takes 2-3 years in case of builder flats. The housing industry has urged the government to allow for the deduction as soon as loan repayment starts, as it would give substantial relief to home buyers and boost demand

TATAs ambitious housing projects

After successful completion of cheapest car project, Tata group is now working on cheapest hosing solution through its two realty subsidiaries, Tata housing and Tata Realty. Tata group has discussed about the land requirement for the project and they have decided to develop land in 3 major ways. First one is Tata housing working with the company that owns the land. Second one is, Tata housing can also take the SPV route and then decide on the profit sharing ratio and the third one is the option of purchasing the land. After completion of project, the property could either be sold or leased. Managing committee refused to share any kind of details by saying that it would be premature to comment.

Real Estate Update

Indian realty majors have been reeling under a severe cash crunch for a long time now. Will the crisis subsiding (atleast seeming to subside), real estate players have started taking prudent measures to improve their financial condition. Capital Intensive projects have been scrapped/ deferred and affordable housing has become the buzz word.

Players are looking at deleveraging their business with asset monetisation and equity stake sales. Sobha is looking at raising PE funds (in talks with Actis, JPMorgan, and IL&FS Private Equity), DLF is planning to sell its non core assets, Unitech has done a QIP, Parsvnath is planning a 2500 crore QIP and others have been also been following the same path.

With prices down ~30% from the peak, genuine buyers are returning to the market, albeit only in the housing segment. In the last three months, Unitech and DLF have sold 3.2msf and 2.5msf of launched properties. Demand is bound to accelerate over the next 12 months as the economy revives and interest rates stay soft, though commercial demand would come only after the

oversupply is absorbed.

Rentals at Saket for commercial/ retail property have fallen to Rs 120 (who would have imagined that last year). In Gurgaon, rates for new apartments have been cut by over 30% by builders. A lot of construction activity seems to have restarted with the realty players having consolidated their finances.

However, there is a lot of dirt and debt in the balance sheet of most of the realty players which will need prudent financial decisions to clear. Real estate is still away from recovering. Real estate stocks though have shown a decent bounceback in the recent rally of the Sensex. Most of the stocks are up over 50% from its March lows.

The IPO market has seen some activity with Mahindra Holidays coming out with a public offering at a conservative price. The issue has been subscribed 20% on the first day itself, though the pre IPO placement to SBI and Jacob Ballas have taken a 32% haircut on their price!

Education sector the next target for Real Estate players!

At a time when the biggies of real estate are divesting non core businesses, a clutch of mid-level developers are chalking up plans to invest in the ‘recession proof’ education sector. In the last one month, four real estate developers have announced plans of setting up business schools across the country with the combined investment exceeding Rs 500 crore. The Chennai based R. R Industries, Ahmedabad based Omega Realty, Delhi based Ansal Plaza and Kolhapur based Sanjay Ghodawat group are betting heavily on the `business of education’ to diversify their businesses; a model that has worked successfully in some countries like US and Canada.

With diminished demand for housing and a cash constraint, it’s a natural progression for many developers with available land banks. The reason for the rush into education is the burgeoning demand supply gap and also a logical extension into an adjacent category for builders who have the necessary wherewithal.

Ansal has tied up with Educomp and has leased out its three operational schools in Gurgaon to Educomp. The realty major also plans to build school in townships being developed by them. Similarly, the Ahmedabad based Omega Realty plans to get into business schools - to be named as United World School of Business - with a proposed investment of Rs 105 crores. The three proposed schools in Mumbai, Delhi and Ahmedabad will commence operations in academic session 2009-10.

Sanjay Godhwat Group plans to offer courses in engineering, management and also in the pipeline is an international school. The development of the 150 acre Sanjay Godhwat Institute will happen in three phases with an investment of over Rs 250 crore. The trend is being seen amongst the builders in south too. Chennai based real estate firm R. R Industries has tied up with National Management School (NMS) which is being set-up by US academics to start 25 business schools across the country with an estimated cost of Rs 9 crore.

It is only time before which the biggies, i.e, DLF, Unitech, Sobha get into education.

DLF surrenders 5 IT/ ITES SEZs

Notwithstanding, the relief rally in the stock market , the real estate sector has not much to cheer about yet. The country's largest property firm DLF which has been facing credit crunch like most of its smaller peers, is now said to have approached the government to surrender five of its nine IT-ITeS notified special economic zones (SEZ), according to a PTI report quoting a senior Commerce Ministry official.

As per the SEZ Act, the tax-free enclaves cannot be surrendered once they become operational. DLF, however, has not started work on the five SEZs that it wants to surrender. Its nine notified SEZs are located in various states. 

According to official data, the land bank of DLF's nine notified SEZs include 10.61 hectares near Hyderabad, 10.12 hectares in Gandhinagar, 12.06 hectares and 10.73 hectares in Gurgaon, 10.24 hectares in Sonepat, 10.33 hectares in Pune, 10.23 hectares in Bhubaneswar, 13.29 hectares in Kanchipuram and 10.48 hectares in Kolkata. It is not clear which SEZs are now sought to be cancelled.

Realty firms have been facing credit crunch which had forced them to shelve some projects. DLF had earlier surrendered its 40-acre IT SEZ in central Delhi and Parsvanath had put on hold its 12 IT/ITeS SEZ projects.

The government has till date given formal approval to 571 SEZ projects and notified about 270. Firms cutting across sectors rallied to announce SEZ projects when the economy was growing very fast and stock markets were on a high. Many analysts saw it as a mere strategy to profit by procuring cheap land to be sold later.

It all changed last year after the market crash followed by serious liquidity problem. Most of the promoters of SEZs have either dropped plans of further development or postponed plans indefinitely as there are no takers for setting up greenfield units in these zones nor are there lenders who are ready to provide debt.

Personal Financial Planning!

At what stage in life where should the money go and how best to plan my taxes.

1. Don’t confuse investments with tax planning. First decide in which financial instrument you want to park your money. This is because whether you want insurance, property, FD/bonds or mutual funds, there is always some tax saving instrument to help you.

2. At any given point of time have liquid assets to cover for 6 months of expenses. This could be parked in savings bank, or FDs or other financial instruments that can be prematurely encashed instantly without attracting much penalty. This cash often comes handy when you are between jobs, during emergencies esp. medical and when family/friends need you. I strongly advise that an individual should not dip into it and also refrain from any long term investments until this reserve has been created.

3. Work towards reducing your loans. If you have a education loan which costs you more than the Bank Fixed deposit (even after accounting for the tax break it provides) then it is advisable to retire it before doing any financial planning.

4. I would recommend you to keep your personal finances separate from that of the parents. However, what good of is all the money if it is not there for those who need it, when they need it. If your parents/family needs money or has taken a high cost debt, work towards retiring that.

5. After taking care of all these, I would recommend you to read this amazing book “Rich Dad, Poor Dad”. This simple book gives a remarkably different insight about how one should classify various assets and investment options.

Now some serious stuff……. 
6. FDs are a good place to park the money. You can be sure that your money is safe and will be there when you need it. However the returns this generates is hardly sufficient and inflation eats into it. Hence One should invest in the Stock Market linked instruments (Shares, Mutual Funds, ULIPs etc.) Early on when your savings are small and risk appetite sufficient, then one should park upto 50% of the money these instruments.
However it is also advisable to reduce it as you age. The best way I found is to put an artificial cap of 3 years of Salary on your Market portfolio. 3 years of salary is large enough that it will be a substantial part of your investment. Yet at 15% p.a. expected returns, it won’t be able to generate half of what you earn from 8-10 hours of labor. Hence the market performance will not be a major distraction from work.

7. Now comes property/home: Some people who want to take less risk want to buy a property immediately after graduating. However I would recommend you to push off this decision by a couple of years. The reason for this is that even if land prices don’t fall, it often involves taking a EMI on floating rate. With EMI payments exceeding 50% of the salary, the financial flexibility one has to cope up with unexpected events is severely limited. Once you have sufficient savings and/or a working spouse, then investing in property is advised.

8. Insurance: It is one of the most mis-sold financial instrument. An insurance is neither an investment avenue, nor a tax saving instrument. It is taken to enable a person to take care of the unexpected. The best times in life to buy a life insurance are:
a. When you take a long term loan (for property/education etc.)
b. Marriage (esp. to a non working home-maker)
c. Planning for Kids
Also whenever possible, please buy Term Insurance (huge insurance cover for a small premium) and medical insurance.

So to summarize we have covered liquid assets, market linked portfolio, property and insurance. Last is tax.

9. Most tax savings happen under 80c. If you buy an insurance, its contributes under this segment.
If you plan to go for bonds: then NSC, Infrastructure bonds, PPF are few of the avenues
If you want to invest in market then ELSS (Equity Linked Savings Scheme)
If you want to invest in property then Home Loans give you tax shields.
Hence you should first look into what lock in period you are looking for and what risk/return profile you fall into and then select the tax saving instrument accordingly.

I hope this really long and boring post helps. How different is your investment philosophy?

Got this off a blog that I follow...Hope it helps