The Management Accountant - CAclubindia...The Management Accountant «Official Organ of The...

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PRESIDENT G. N. Venkataraman email : [email protected] VICE PRESIDENT B. M. Sharma email : [email protected] CENTRAL COUNCIL MEMBERS A. N. Raman, A. S. Durga Prasad, Ashwin G. Dalwadi, Balwinder Singh, Chandra Wadhwa, Hari Krishan Goel, Kunal Banerjee, M. Gopalakrishnan, Dr. Sanjiban Bandyopadhyaya, S. R. Bhargave, Somnath Mukherjee, Suresh Chandra Mohanty, V. C. Kothari, GOVERNMENT NOMINEES Jaikant Singh, D. S. Chakrabarty Ms. Smita S. Chaudhri, P. K. Jena CHIEF EXECUTIVE OFFICER Sudhir Galande [email protected] Senior Director (Examinations) Chandana Bose [email protected] Senior Director (Administration & Finance) R N Pal [email protected] Director (Technical) J. P. Singh [email protected] Director (Studies) Arnab Chakraborty [email protected] Director (CAT) L. Gurumurthy [email protected] Director (PD, Training & Placement) J. K. Budhiraja [email protected]. Additional Director (CEP) D. Chandru [email protected] Additional Director (Membership) cum Joint Secretary Kaushik Banerjee [email protected] Additional Director (International Affairs) S. C. Gupta [email protected] EDITOR Sudhir Galande Editorial Office & Headquarters 12, Sudder Street, Kolkata-700 016 Phone : (033) 2252-1031/34/35, Fax : (033) 2252-1602/1492 Website : Delhi Office ICWAI Bhawan 3, Institutional Area, Lodi Road New Delhi-110003 Phone : (011) 24622156, 24618645, Fax: (011) 24622156, 24631532, 24618645 The Management Accountant « Official Organ of The Institute of Cost and Works Accountants of India established in year 1944 (Founder member of IFAC, SAFA and CAPA) Volume 45 No. 4 April 2010 the management accountant, April, 2010 259 Editorial 261 President’s Communique 262 Budget 2010 : Growth Strategy for 2020 Budget 2010 and development by Anamika Mukherjee 264 Analysis of Budget Changes Relating to Service Tax by P. Ravindram 267 Budget 2010-11 Changes on Central Excise, Customs & Service Tax by CMA S. S. Gupta 272 The Union Budget 2010-2011 and Financial Market Reforms by CMA Venkateswaran R 283 Union Budget 2010 and Indian Agrarian Crisis: Issues and Initiatives by Dr. Manoj Pillai 285 Budget 2010 - A few Challenges by CMA Dr. Sreehari Chava & Dr. Vinayak Deshpande 292 Budget 2010 : Growth Strategy for Social and Human Capital Development by Dr. L. N. Koli & Dr. Brijesh Rawat 294 Union Budget 2010-11: A Reform Oriented Approach by Dr. Arindam Ghosh & Asit Gope 296 Budget 2010: Growth Strategy for 2020 by Savitri Kumari 301 Budget Deficit Demystified by K. S. Ravi & Madhusudhan K. 304 Audit Developments Standards on Auditing and the Quality Review Board by Ashok K Agarwal 308 IDEALS THE INSTITUTE STANDS FOR q to develop the Cost and Manage- ment Accountancy profession q to develop the body of members and properly equip them for functions q to ensure sound professional ethics q to keep abreast of new developments. The views expressed by contributors or reviewers in this Journal do not necessarily reflect the opinion of The Institute of Cost and Works Accountants of India nor can the Institute by any way be held responsible for them. The contents of this journal are the copyright of The Institute of Cost and Works Accountants of India, whose permission is necessary for reproduction in whole or in part. Recent developments in Finance Key Business and Financial Matrices for IT Services Companies by Aloke Ghosh 312 Recent developments in Banking Smart Cards for Banking for Rural Masses-Technology, Security and Costs by S. Mukhopadhyay 314 Recent developments in Finance Limited Liability Partnership-A New Dimension of Business by Nabina Saha 318 51 st National Convention 322 Essay Competition 325 Examination Notification-ICWAI 326 Exam Programme CAT 327 Legal Updates 328 Notification 333 For Attention of Members 335

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Page 1: The Management Accountant - CAclubindia...The Management Accountant «Official Organ of The Institute of Cost and Works Accountants of India established in year 1944 (Founder member

PRESIDENTG. N. Venkataraman

email : [email protected] PRESIDENT

B. M. Sharmaemail : [email protected] COUNCIL MEMBERS

A. N. Raman, A. S. Durga Prasad,Ashwin G. Dalwadi, Balwinder Singh,Chandra Wadhwa, Hari Krishan Goel,Kunal Banerjee, M. Gopalakrishnan,

Dr. Sanjiban Bandyopadhyaya,S. R. Bhargave, Somnath Mukherjee,

Suresh Chandra Mohanty, V. C. Kothari,GOVERNMENT NOMINEESJaikant Singh, D. S. Chakrabarty

Ms. Smita S. Chaudhri, P. K. JenaCHIEF EXECUTIVE OFFICER

Sudhir [email protected]

Senior Director (Examinations)Chandana Bose

[email protected] Director

(Administration & Finance)R N Pal

[email protected] (Technical)

J. P. [email protected]

Director (Studies)Arnab Chakraborty

[email protected] (CAT)L. Gurumurthy

[email protected] (PD, Training & Placement)

J. K. [email protected].

Additional Director (CEP)D. Chandru

[email protected] Director (Membership) cum

Joint SecretaryKaushik Banerjee

me[email protected] Director (International Affairs)

S. C. [email protected]

EDITORSudhir Galande

Editorial Office & Headquarters12, Sudder Street, Kolkata-700 016Phone : (033) 2252-1031/34/35,

Fax : (033) 2252-1602/1492Website :

Delhi OfficeICWAI Bhawan

3, Institutional Area, Lodi RoadNew Delhi-110003

Phone : (011) 24622156, 24618645,Fax: (011) 24622156, 24631532, 24618645

TheManagementAccountan t

« Official Organ of The Institute of Cost and Works Accountants of India

established in year 1944 (Founder member of IFAC, SAFA and CAPA)

Volume 45 No. 4 April 2010

the management accountant, April, 2010 259

Editorial 261

President’s Communique 262

Budget 2010 : Growth Strategy for2020Budget 2010 and development

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○

by Anamika Mukherjee 264

Analysis of Budget Changes Relatingto Service Tax

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○

by P. Ravindram 267

Budget 2010-11 Changes on CentralExcise, Customs & Service Tax

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○

by CMA S. S. Gupta 272

The Union Budget 2010-2011 andFinancial Market Reforms

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○

by CMA Venkateswaran R 283

Union Budget 2010 and IndianAgrarian Crisis: Issues and Initiatives

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○

by Dr. Manoj Pillai 285

Budget 2010 - A few Challengesby CMA Dr. Sreehari Chava &

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○

Dr. Vinayak Deshpande 292

Budget 2010 : Growth Strategy forSocial and Human Capital Developmentby Dr. L. N. Koli &

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○

Dr. Brijesh Rawat 294

Union Budget 2010-11: A ReformOriented Approachby Dr. Arindam Ghosh &

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○

Asit Gope 296

Budget 2010: Growth Strategy for 2020

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○

by Savitri Kumari 301

Budget Deficit Demystifiedby K. S. Ravi &Madhusudhan K. 304

Audit DevelopmentsStandards on Auditing and theQuality Review Boardby Ashok K Agarwal 308


q to develop the Cost and Manage-ment Accountancy profession q todevelop the body of members andproperly equip them for functionsq to ensure sound professionalethics q to keep abreast of newdevelopments.

The views expressed bycontributors or reviewers in thisJournal do not necessarily reflect theopinion of The Institute of Costand Works Accountants of India nor can the Institute by any way beheld responsible for them. Thecontents of this journal are thecopyright of The Institute of Costand Works Accountants of India,whose permission is necessary forreproduction in whole or in part.

Recent developments in FinanceKey Business and Financial Matricesfor IT Services Companiesby Aloke Ghosh 312

Recent developments in BankingSmart Cards for Banking for RuralMasses-Technology, Security and Costsby S. Mukhopadhyay 314

Recent developments in FinanceLimited Liability Partnership-A NewDimension of Businessby Nabina Saha 31851st National Convention 322Essay Competition 325Examination Notification-ICWAI 326Exam Programme CAT 327Legal Updates 328Notification 333For Attention of Members 335

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The Institute reserves the right to refuse anymatter of advertisement detrimental to theinterest of the Institute. The decision of theEditor in this regard will be final.

260 the management accountant, April, 2010


�ICWAI Professionals would ethically driveenterprises globally by creating value to stakeholdersin the socio-economic context through competenciesdrawn from the integration of strategy, managementand accounting.�


�ICWAI would be the preferred source of resourcesand professionals for the financial leadership ofenterprises globally.�


The views expressed by the authors are personaland do not necessarily represent the views andshould not be attributed to ICWAI.


Ref. No. DS-3/1/1/10 January 12, 2010

Finance (No.2) Act 2009, involving Assessment Year2010-2011 will be applicable for the subjects BusinessTaxation (Intermediate) and Strategic Tax Management(Final) under Syllabus 2002 for the purpose of June 2010term of Examination.

Arnab ChakrabortyDirector-Studies


Ref. No. DS-3/2/1/10 January 12, 2010

Finance (No.2) Act 2009, involving Assessment Year2010-2011 will be applicable for the subjects Applied DirectTaxation (Intermediate), Applied Indirect Taxation(Intermediate) and Indirect & Direct-Tax Management (Final)for the purpose of June 2010 term of Examination underRevised Syllabus 2008.

Arnab ChakrabortyDirector-Studies

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the management accountant, April, 2010 261

The month February marks the high point of the Indianeconomic and financial calendar. This is because theshortest month of the year witnesses the two mostimportant financial documents that shape the growth chartof the country for the forthcoming period- the RailwayBudget and the Union Budget. Interestingly, the wordbudget has Gallic origins meaning 'sack' and later Latinizedas 'bulga' or a leather wallet or a bag.

The significance of the Railway Budget is derived from thefact that the Railways is the largest employer (employingnearly 14.22 lakh people) in the country and moreimportantly, in the vast and diverse sub-continent that isIndia, it is truly the carriage of the nation (approximatelycovering 63,465 route kms).

Similarly, the Union Budget defines the nation's financialprojections by the government for the forthcoming financialyear and is also a financial review of the current fiscal year.For obvious reasons, this event occupies the center stageof all Indians (and non-Indians). Reams of literature arewritten; the budget analysed threadbare. Without goinginto nitty-gritty of Budget 2010 in this editorial, we try todelve into the trivia behind this financial exercise.

The Budget speech of the Finance Minister is usually intwo parts. Part A deals with general economic survey ofthe country while Part B relates to taxation proposals.Though the Railway budget is presented separately, thereceipts and expenditure of the Railways form part of theConsolidated Fund of India and the figures relating to themare included in the Annual Financial Statement. The UnionBudget is laid before both Houses of Parliament in theform of Annual Financial Statement. However, it is the LokSabha, the House of the People, whose approval ismandatory for the Budget to come into effect. Theimposition of any central government taxes and distributionof government expenditure from public funds cannot bepossible without an Act of Parliament, which examines andreviews all statements to ensure the proper disseminationof government expenditures. The Budget is predated bythe Economic Survey, which gives a snapshot of theeconomic health of the nation in the year gone by and alsogives early warning signals towards the incipientweaknesses of the economy.

The Union Budget is presented to the Parliament on a dateas fixed by the President. The finance minister is requiredto submit the Budget to Parliament usually on the last dayof February so that the Lok Sabha has one month to reviewand modify the Budget proposals. This ensures that thenew economic activity can commence from April 1, whichis the beginning of financial year for the purpose of

government activity. In an election year, Budget may bepresented twice -- first to secure vote on account for a fewmonths and later in full.

India's first Finance Minister Sir R.K. Shanmugham Chetty,presented the first Finance Budget of Independent Indiaon November 26, 1947. Since then, 28 different UnionFinance Ministers have been presenting the budget yearafter year. Shri Jawahar Lal Nehru was the first PrimeMinister to present the budget when he held the Financeportfolio in 1958-59. Shri C.D. Deshmukh was the first IndianGovernor of RBI to have presented the Interim Budget for1951-52. Shri Morarji Desai has the distinction of presentingthe maximum number of budgets- ten of which two budgetswere presented by him on two leap years (which incidentallywere also on his birthdays). Prime Minister, Shri ManmohanSingh has presented five Budgets in a row as a FinanceMinister, a record which he shares with Shri YashwantSinha. Shri R Venkataraman was the only Finance Ministerwho later became the President of India. Our presentFinance Minister has the rare distinction of presentingtwo regular budgets after a gap of 25 years (in 1982 andthereafter in 2010).

The Budget process has its roots in the Bombay Plan of1944. Bombay Plan was authored by John Mathai, G.D.Birla & J.R.D Tata. The entire budget exercise is shroudedin secrecy. Officials working on the budget are notpermitted to outsource any part of this exercise, they arecut off from the world till the budget is presented by theFinance Minister. Previously, the entire document wasprinted in the Rashtrapati Bhavan but now it is printed inthe mint of the North Block.

General Budget was earlier being presented at 5 pm on thelast working day of February, but since 1999 the GeneralBudget is being presented at 11 am on the last workingday of February, i.e. about a month before thecommencement of the financial year except in the year whengeneral elections to Lok Sabha are held. The precedent forthe convention of the budget speech beginning at 5 pmwas set by Sir Basil Blackett in 1924 in England and thesame was followed in India. According to him, this wasdone to give some relief to officials who worked all nightto present a financial statement. He also felt that this wouldgive traders an opportunity to study the announcementsovernight instead of in the middle of a busy day.

It is hoped that these nuggets will act as an appetizer for awider menu of articles on Union Budget 2010 that follow.From the Editing Team we wish our readers a very happyPoila Baishak, Vaishaki and Vishu.

Budget Bytes

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262 the management accountant, April, 2010

Dear Professional Friends,

Programmes arranged at Durgapur by ICWAI:

28th March 2010 was an excellent day for ICWAI when we had few programmes at Durgapur in theaugust presence of our Hon'ble Minister Mr. Salman Khurshid and our Hon'ble Secretary, MCA, ShriR. Bandyopadhyay, IAS. The above programmes started almost on the previous day at Kolkata whenthe entire Council Members along with the Past Presidents had a meeting with Shri R. Bandyopadhyay,Secretary, MCA. The Hon'ble Minister took pains by coming all the way from Delhi via Chennai andKolkata. He was received at the Panagarh Airport by ICWAI and Durgapur Chapter.

Inauguration of the "i2i Management Hall" at Durgapur Chapter:

The Hon'ble Minister and Secretary, MCA, inaugurated the "i2i Management Hall" at DurgapurChapter, by cutting the tape in the presence of Shri P.K. Bajaj, Managing Director, Durgapur SteelPlant, SAIL and Shri Soiles Bhattacharyya, Director (Finance), SAIL. This hall was built with theassistance of Durgapur Steel Plant. President, Vice President, few Council Members, Chairman andoffice bearers of EIRC along with members of Durgapur Chapter were present on the occasion.

Seminar on "Global Mealtdown and After-Managing Growth:

The seminar was inaugurated by our Hon'ble Minister and attended by Shri P.K. Bajaj, Managing Director, Durgapur Steel Plant,SAIL and Shri Soiles Bhattacharyya, Director (Finance), SAIL. Our Secretary, MCA, Shri R. Bandyopadhyay, IAS, was the Guestof Honour. President, Vice President and Shri T.C.A.S. Prasad, Chairman, Durgapur Chapter of Cost Accountants, took part in theinaugural function. The Hon'ble Minister, while addressing the gathering, appreciated the efforts put in by the Cost and ManagementAccountants and advised the CMAs to take more interest in Green Audit and determine and prepare Social Cost Audit Reportswhich is the need for the nation to help the common man. The seminar was well attended by more than 250 people. Shri R.Bandyopadhyay, IAS, Secretary, MCA, complimented ICWAI and Durgapur Chapter for the laudable efforts in building the "i2iManagement Hall" and undertaking many activities like Investor Awareness Programmes and the Conference on Voluntary Guidelinesissued by the Ministry. President-ICWAI, assured that the call of the Minister and the Secretary-MCA will be addressed to andCMAs will put in their best efforts to deserve a place in the performance for the economic growth of India.

National Conference on "Inclusive & Responsible - The Next Face of India Inc." on 24th March, 2010 at New Delhi withICWAI as Partner, conducted by CII:

Members will be happy to know that in continuation of our initiatives at National Conference at Bangalore on "VoluntaryGuidelines on Corporate Governance & Corporate Social Responsibility", ICWAI partnership with Confederation of IndianIndustry (CII) was a moral boost for ICWAI as our Hon'ble Minster Mr. Salman Khurshid was the Chief Guest and our SecretaryMr. R. Bandhyopadhyay, IAS was the Guest of Honour. As a President it was pleasure for me to participate in the inauguralfunction along with other dignitaries including Mr. Y. C Deveshwar of CII, former Chairman of ITC. Mr. Bandhyopadhyaystressed on the topic of India Corporate Week for an inclusive growth and highlighted the participation of our Institute also. ICWAIwas appreciated for its participation in this National Conference titled "Inclusive & Responsible - The Next Face of India Inc." OurHon'ble Minister Mr. Salman Khurshid commented on the importance of Corporate Governance and particularly CSR, which calledfor self-regulation in doing the business. He told that every company need not do everything, on the other hand every companyshould focus on CSR relevant to community in that area so that the Aam Aadmi will appreciate such actions which will be helpfulto them. He also appreciated the role of ICWA of India and he gave a call for Cost and Management Accountants to take theopportunity and develop a framework in reporting other cost management areas to develop 'Social Responsibility ReportingAccounting Systems'. He said Cost and Management Accountants would have a place in Corporate Governance and CSR Guidelines.I was happy to assure on behalf of members of ICWAI that the advice of Minister will be accepted with responsibility. I appealto all the members of our Council, office bearers of Regions and Chapters and other members to strive hard in acquiring a place inthis role.

Investor Awareness Programmes:

I congratulate the Vice-President, ICWAI Shri Brij Mohan Sharma, Central Council Members and Regions & Chapters in conductingthe Investor Awareness Programmes, which are appreciated by MCA. A message has been received from the Ministry indicatingthat ICWAI should focus on conducting Investor Awareness Programmes all over the country, right from 1st April, 2010 onwardsfor another year till 31.3.2011 to drive the advantage of spreading the Investor Awareness Programme every month, if possibleevery fortnight at various places in India. I request the Chapters and Regions to plan the events in advance and intimate the DelhiOffice and Vice President, ICWAI so that we could focus on the directions of Ministry in implementing their guidelines.

The SIRC of ICWAI organized the Investor Awareness Programme on 14th March, 2010 at Chennai. Shri T.S. Krishnamurthy,former Election Commissioner of India and former Secretary, Ministry of Corporate Affairs graced the occasion as the Chief Guest.The technical sessions of the programme were handled by Mr. V. Nagappa, Chairman, MSE Institute of Capital Markets and Mr.A. R. Vasudevan, Regional Manager, CDSL, Chennai.

lPresident�s Communique l

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the management accountant, April, 2010 263

(GN Venkataraman)PresidentDate : 7th April, 2010


I was happy to be a part of the Students' Fest organized by ICWAI-Bangalore Chapter on 4th March 2010. The bright studentsfrom all over South had participated in this Fest in large numbers. 'Future of the Cost and Management Accountancy' was the themecalled CHITTA CHATURYA as to what Management Accountants has to contribute to the growth of the nation. Congratulationsto Bangalore Chapter for continuing the trend and participating in the movement of ICWAI.

Continuing Education Programmes:

The Institute organized two exclusive programmes for Indian Navy on "Financial Management & Cost Management", and "Cost& Contract Management" and also an exclusive programme was organized for Indian Air Force on "Contract Management". Seniorofficers of Indian Navy led by Rear Admiral Mr. Pritam Lal and Indian Air Force led by Air Marshal Mr. J.N.Burma and Air ViceMarshal Mr. S.K. Gagneja have graced the occasions during the inauguration and valediction of the programmes. The Institute isalso planning to organize three months exclusive programmes for Indian Navy and Indian Air Force, which was well appreciated bythem.

I am also happy to inform that CEP Department organized more than 18 programmes on International Financial ReportingStandards (IFRS) exclusively; few of them with the help of Dr. T.P. Ghosh, a renowned faculty and authority on the subject atdifferent locations in India. The programmes were well received by the participants and organizations. They rated this programmeas the most educative programme on IFRS in India.

INDO-USA Delegation to America led by our Hon'ble Secretary, MCA Shri R.Bandhyopadhyay, IAS.

We are happy to inform you that our Council Members Shri A.N.Raman, Vice-President, SAFA & Member, PAIP, IFAC and ShriChandra Wadhwa, Past President, led by our Hon'ble Secretary, MCA Shri R. Bandhyopadhyay, IAS visited Washington and NewYork and held discussions with various International Bodies to study the implementation of IFRS and also the contribution ofCMAs for the development of management accounting profession. The discussion with IMA-USA was very helpful and both Mr.R. Bandhyopadhyay and Shri Jitesh Khosla, IAS who accompanied the delegation stressed the need for continuance of task underthe existing MOU between ICWA of India and IMA-USA.

Visit of CIMA President, Mr Aubrey Joachim to our Institute.

Mr Aubrey Joachim, President, CIMA-UK visited the Delhi office of the Institute on 10th March, 2010 and met with CentralCouncil Members and officials. After detailed discussions many issues were finalised for further follow-up like, exchange programmebetween the members of the two Institutions for training; undertaking research work jointly in India and other countries, particularlyin the area of Cost Audit, Health and Education; possibility of making e-learning programme available to the Indian students at aconcessional rate; holding joint conference / seminars on various areas like Performance Management, Enterprise Governance, CostAudit etc.

Cost Accounting Standard Board

The Council of the Institute has so far issued 12 Cost Accounting Standards. The Council has also made the application of theseCost Accounting Standards mandatory w.e.f. accounting period commencing on or after 1st April, 2010 for the preparation andcertification of General Purpose Cost Accounting Statements. In case the members of the Institute in practice are of the opinion thatthe aforesaid cost accounting standards have not been complied with for the preparation of the cost statement, it shall be their dutyto make a suitable disclosure / qualification in their audit report / certificate.

Chapter Visits

The Asansol Chapter of Cost Accountants organized its Annual Seminar on 7th March, 2010 on the theme "Managing Growth inTurbulence Times". The Chairman and Director Finance, ECIL participated in the programme and we are thankful to them forgiving the support to Asansol Chapter for its activities.

The Dhanbad-Sindri Chapter of Cost Accountants organized its Annual Seminar 2010 at Dhanbad on 14th March, 2010 on thetheme "Role of GST in Indian Economy".

With regards,

Yours sincerely,

lPresident�s Communique l

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264 the management accountant, April, 2010

Budget 2010 and developmentAnamika Mukherjee*

*Deputy Director, Research & Journal, ICWAI

T he year 2010 has been aninteresting year already. Whilethe world continued to be in the

grip of recession, India showedadmirable resilience and was quick tojump on the path of recovery. This madethe Union Budget 2010 a challengingone for the Finance Minister. Thestimulus taps (opened last year to aideconomic recovery) could no longer beallowed to run at full pace due to fearsof overheating the economy (therebyaggravating an already existent supplydriven inflation) and neither could thetaps be closed too tight risking nippingthe recovery process prematurely in thebud.

The Finance Minister has stood thechallenge with remarkable deftness.This year's Budget has earmarked 37%of its total fund towards social sectorinvestment. Thus the main thrust of theBudget has been the 'aam aadmi' andvery rightly so, since it is the commonman who has been the worst hit by theeconomic crisis. Loss of jobs, pay cuts,lower standard of living owing to risinginflation- the common man has seen itall and suffered (without any safetynet). Social sector is one area where thegovernment's intervention required ismaximum since it is in the nature of meritgoods, where social benefits far exceedthe private benefits. Hence, the Budgetannouncements primarily focusing ongreater financial inclusiveness and onimproving the lot of the common man iscommendable and welcome.

(i) Nobody can afford to ignoreagricultural development since thissector still constitutes thelivelihood of a majority of people inour country. The Budget hasadopted a multi-pronged strategy toboost up this sector viz. (a)

increasing agricultural productionthrough increased allocation to dryland farming and farming of climateresilient crops, (b) increasingfarmers access to cheap creditthrough extension of Debt WaiverScheme and extension of interestsubvention to farmers, (c) providingfurther impetus to food processingunits through setting up of five foodparks. (d) The government intendsin ultimately moving to a system ofdirect cash transfers to farmers. Thiswill serve to reduce the subsidy billwhile at the same time ensuing thatthe benefits of optimum andinexpensive fertilizers reach thebeneficiaries directly.

(ii) The government has taken manysteps for bringing a wider crosssection of the population within thefold of enhanced growth: a)Increased allocation for its flagshippublic works progrmame NREGA. b)Greater coverage of the RashtriyaSwasthya Bima Yojana to all NREGAbeneficiaries who have worked formore than 15 days during thepreceding financial year, therebyexpanding the insurance net for themasses. (c) Contribution bygovernment of Rs.1000 per year toeach New Pension Scheme openedduring the year. This is a steptowards providing a safety net tothe hitherto unprotected workers inthe unorganised sector. (d)Increased allocation to Ministry ofSocial Justice and Empowerement,which will enable revision of ratesfor scholarships to OBC and SCstudents. (e) Increased allocation toMinistry of Minority Affairs. (f)Increased allocation for Women andChild Development. (g) Setting upof Mahila Kisan SashaktikaranPariyojana to meet the specific needs

of women farmers. (h) It is proposedto conduct an Annual Health Surveyat all districts, which shall benefitthe government in its public healthinitiatives. (i) Allocation foreducation has been increased toensure that every child has the Rightto Free and Compulsory Education.(j) Disinvestments of state heldunits through public offers to ensuregreater retail ownership of thesestate assets. (k) Augmentation offunds to Financial Inclusion Fundand Financial Inclusion TechnologyFund. (l) Increased allocation underSwarna Jayanti Shahari RozgarYojana (for employmentopportunities in urban areas) andRajiv Awas Yojana (for slum dwellersand urban poor). (m) Increasedallocations to Micro, Small &Medium Enterprises and to microfinance initiatives through Self HelpGroup linkages with the bankingsystem.

(iii) A robust banking system issystemically critical to the financialhealth of any country. (a) TheBudget has proposed recapitalistionof Rs.16500 crore to help banks meettheir capital requirements due togrowing business and greater risk.(b) Regional Rural Banks, which areimportant vehicles of developmentin rural, remote and unbanked areashave also been capitalized further.(c) To increase geographicalcoverage and increased access tocredit, RBI is considering grantingof banking licenses to non bankingfinancial intermediaries. (d) Thegovernment has set a target ofensuring that banking facilitiesreach every habitation wherepopulation exceeds 2000 by March2012. (e) To prevent banking crisisthat has systemic implications, thegovernments intends setting up anapex level Financial Stability andDevelopment Council for macro-prudential supervision.

Budget 2010 : Growth Strategy for 2020

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(iv)Strengthening transparency andpublic accountability is a vital stepto ensure success of thegovernment's efforts to reach outto the common man. (a) Towards thisend, the Budget envisages settingup of a Financial Sector legislativeReforms Commission that willattempt to rewrite the financial sectorlaws. (b) The government intendsto harness the benefits oftechnology for better administrationand execution by setting up aTechnology Advisory Group forUnique Projects. (c) AnIndependent Evaluation Office willbe set up to undertake impartial andobjective assessments of variouspublic programmes and improveeffectiveness of publicinterventions. (d) Additional grantsamounting to Rs.5,000 crore havebeen given to the states forimproving delivery of justicethrough strengthening of alternatedispute resolution mechanism.

(v) A good infrastructural network isthe lifeblood of any nation. Itimproves standard of living andincreases long-term productivity ofa country. (a) Realizing thissignificance, this year's Budget hasprovided for 46% of the total planallocations for infrastructure. (b)Allocation for road development hasbeen hiked by 13%. (c) IndiaInfrastructure Finance CompanyLimited (IIFCL) has been permittedto also refinance bank lending toinfrastructure projects. (d) Planallocation for power sector has beenhiked. (e) It is proposed to set up aCoal Regulatory Authority to createa level playing field. (f) Increase of61% allocation to New andRenewable Energy. (g) As part ofEnvironment & Climate Changeinitiatives, the Budget proposessetting up of National Clean EnergyFund for funding R&D initiatives inclean climate technologies, a one-

time grant for effluent treatmentplant at Tirupur and budgetaryallocations under 'Mission CleanGanga 2020'.

These measures can be viewed asbuilding blocks for sustainable andinclusive development as envisaged inIndia Vision 2020 by Former Presidentof India, Dr. Abdul Kalam. Dr. Kalam hasidentified five key areas: doublingagricultural production, strengtheninginfrastructural development, providingsocial security to all, leveraging our corecompetencies in IT and self-reliance incritical technologies and strategicindustries. Focus on these areasconstitutes integrated action that canhelp double our GDP and propel Indiafrom a developing to a highly developednation.

However, merely increasing outlaystowards social works programmes willnot be sufficient as can be seen by thepoor utilization of NREGA funds. Theactual utilization was only 39% of thebudgetary allocation in 2009-10. Animportant factor behind the dismalperformance has been the absence ofany social audit. For more effectiveimplementation, it is necessary toundertake regular audits to examine theactual amount of work done and amountpaid, assess the suitability and qualityof the underlying assets created, trackregular progress on the work done,detect loopholes which allowmisappropriation of funds and alsosuggest ways to tie the utility derivedfrom such programmes to localrequirements. Greater use of technologycan help plug the chances of corruptionand leakage and enable greater numberof people to reap the dividend of India'sgrowth.

Increasing funds allocation to theeducation sector, for example withoutfocusing on the outcome will result insluggish pace of growth in literacyrates, (which have grown by just about1% during the past one year) low skillbase and high drop-outs. Thus what is

required is better delivery throughimprovement in student teacher ratio,better quality of teachers and betterequipped physical facilities at schools.

The Budget does not lay a roadmapon enactment of Food Security Bill.Further, curtailment of PublicDistribution Subsidy without anyaccompanying improvement in foodmanagement and delivery of foodgrainat cheap rates to the poor will seriouslyjeopardize the nutritional needs of thepopulation. Similarly, enhancingallocation to agricultural sector andprovision of subsidized credit to farmerswill be insufficient to double productionor improve the lot of farmers since lackof funds has never really been adeterrent. Introducing a Second GreenRevolution, which avoids generatinginter regional disparity and developmentof markets for risk trading by farmers isthe need of the hour.

A major impediment to India'sgrowth has been the lack of world-classinfrastructure. Despite increasingbudgetary allocations to this sector,infrastructure remain woefullyinadequate and of poor quality. Out ofthe targeted infrastructural investmentas a proportion of GDP of 9%, the actualinvestment stands at only 6%. Forexample, out of the stipulated target indifferent phases under NationalHighways Development Programme of3165 kms, the actual road developmentwas only 1490 kms as on 31.3.2010. Thetotal power supply deficit as a ratio oftotal energy availability and peakavailability has been continuouslyrising. As against targeted capacityaddition of 78700 MW, the totalcommissioned capacity addition, as on31.12.2009 was only 19092 MW. Whilepassenger traffic in airports hasincreased by 6%, cargo traffic growthhas remained static. The averageturnaround at Indian ports is around3.27 days as against 10 hours at HongKong ports, which undermines thecompetitiveness of our ports. A study

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by the Dept. of ProgrammeImplementation, which monitorsprogress in Central sector projectsabove Rs.100 crore has found thatproject delays have increased from 41%in 2007 to 55% in 2009. No clear policyguidelines on decontrol of oil prices andinadequate compensation to oilcompanies are hampering oilexploration and thereby endangering oilsecurity. Bureaucratic red tapism, rawmaterial bottlenecks, contractual vendordisputes, tardy dispute resolutionmechanism, lack of proper policyrelating to land acquisition have allcontributed to this sorry state of affairs.These lacunae have to be addressed toensure effective infrastructuraldevelopment and in this mattergovernment has to play a facilitator'srole at legislative, administrative andexecutive levels. Avoiding cost and timeoverruns through proper monitoring in

the form of regular audits is alsoimperative. Considering the fact thatprivate sector investment is only 5.7%in total infrastructure investment (withthe major chunk appropriated by thetelecom sector), it would have beenbetter if the Budget had spelt out clearguidelines for Public PrivatePartnership, allowed greater flexibilityto the existing PPP norms to attractgreater foreign investment in this sectorand increased the Viability Gap Funding.Increasing budgetary allocations haveto be necessarily complemented withthese measures to be truly effective.

One thing that can be concludedfrom the above analysis is that whilethe decisions announced in the Budgetare good in spirit, it has been seen frompast experience that the major stumblingblock is poor implementation andexecution. And it is in this respect whereCost and Management Accountants

can play a major role to plug the gaps.The need of maintaining proper costrecords as a compliance mechanismcannot be overemphazised.Maintenance of proper records servesto create a database that can be used toregulate the interest of the society. Apartfrom being used just as a monitoringmeasure, cost audit is an important toolof resource management by suggestingprudent and optimal businessprocesses and setting up of physicaland financial standards. It covers theinterests of all internal and externalstakeholders and thus serves thesociety at large. Cost audit can also aidin greater business transparency andbetter corporate governance by actingas an effective whistleblower. Thisconforms to Dr Kalam's motto of 'Profitwith Integrity'.q



The Institute has pleasure in announcing results of essay competition on"Cost Management Key to Survival in Current Global Meltdown".The Jury for evaluation of essays comprised of:

CMA - Dr. Heena Oza,CMA - Dr. P.C. Basu, andCMA - Dr. Sreehari Chawa.

The award winners are:

Students Category

First prize: Guruprasad DSecond prize: Praveen MittalThird prize: Arun Sarathy Ravikumar

General Category

First prize: S. Jeyaraj, AICWASecond prize: K.R.Srivarahan, AICWAThird prize: Dilip Choudhary, AICWA

The Institute thanks all the participants for taking part in the Competition. All the participants will receive aCertificate of Appreciation for their efforts.Awards will be commemorated at a function. Date, time, and venue of the function and other details will beintimated to the winners individually.

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Analysis of Budget ChangesRelating to Service TaxP. Ravindran*

*B.Sc, PGDM (Germany), M.L, (PhD)Advocate - Indirect taxes.

T he Indian Budgets are indeed ahardy annual. The Budget hasbecome a national event to look

forward to, with both hope and anxiety.The Governments have used theBudget as an instrument to set policydirections. The important tax changesare also announced at the time ofpresentation of the Budget. The fullimpact of tax changes in a budgetbecomes visible only after an analysis.Thus, it may not be an easy task topronounce on the extent and scope oftax changes in a budget presentation inan instant assessment that has becomea normal feature nowadays. In thisarticle, we will note and briefly discussthe important changes that have takenplace in the arena of service tax asintroduced through the budget 2010-11.

Service Tax:

1. Ever since the legislatureintroduced a levy of tax on services in1994 for the first time, the successivechanges have seen a proliferation in thenumber of services specified as taxable.Instead of adopting a one-off approachin which the services to be taxed will bebroadly defined to mean any offeringfor a consideration other than goods,the Governments in India have chosento follow an incremental approach to thelevy of service tax. Additions to the listof taxable services thus have beencalibrated. This method of jural choiceappears to have been suitable to theIndian context. The service tax changesare looked forward to with great interestas the number of tax-payers hasphenomenally expanded over the years.Here we will discuss the changes inservice tax.

2. Like in the previous years, thelatest budget has adopted the twinapproach of bringing in new servicesunder the tax net as well as tweakingthe meaning and scope of existingservices to milk more revenue out ofthem. Repairs and tinkering in thestatutory provisions are also common,as before. As usual, some of the servicesnewly introduced may be overlappingwith certain other services, giving riseto potential classification issues.

New Services introduced in this year:

(A) Services in Games of Chance:

Services of promoting, marketing ororganizing of or assisting in organizinggames of chance including lottery"[Section65 (105)(zzzzn)].


Even though the budget papersdeclare that the above service categoryis at present included in the scope ofBusiness Auxiliary Service but nowculled out as an independent entry inthe list of services, a scrutiny showsthat the new entry is broader in scopethan the existing entry. Let us have alook at the existing entry:

"Promotion or marketing of serviceprovided by the client":

[Explanation—For the removal ofdoubts it is hereby declared that for thepurposes of the sub-clause, "Service inrelation to promotion or marketing ofservice provided by the client" includesany service provided in relation topromotion or marketing of games ofchance, organized, conducted orpromoted by the client, in whatever formor by whatever name called, whether ornot conducted online, including lottery,lotto, bingo:]

The new entry proposed as perSection 75 of the Finance Bill reads asfollows:

"(zzzzn) (service provided) to anyperson by any other person, forpromotion, marketing, organizing or inany other manner assisting inorganizing games of chance, includinglottery, bingo or lotto in whatever formor by whatever name called whether ornot conducted through internet or otherelectronic network".

The following impacts are seen:

Ø The word 'client' is removed and issubstituted by 'any person to anyother person'.

Ø The organizing and assisting in thegames of chance are nowadditionally included in the scopeof taxable service. The widest ambithas thus been given. Earlier thetaxing entry was restricted topromotion or marketing of games ofchance.

(B) Health Services:

The Government seeks for the firsttime to bring health services under theService Tax net. The following threeservices are taxed:

(zzzzo) services provided by anyhospital, nursing home or multi-specialty clinic-

(i) to an employee of any businessentity, in relation to health check-up or preventive care, where thepayment for such check-up orpreventive care is made by suchbusiness entity directly to suchhospital, nursing home or multi-specialty clinic; or

(ii) to a person covered by healthinsurance scheme, for any healthcheck-up or treatment, where thepayment for such health check-upor treatment is made by theinsurance company directly to suchhospital, nursing home or multi-specialty clinic;

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(C) Healthcare -related recordmaintenance service:

(zzzzp)(Service provided) to anybusiness entity, by any other person,in relation to storing, keeping ormaintaining of medical records oremployees of a business entity.


The insurance companies arealready subject to service tax in respectof the premium charged and collected.The payments they make to thehospitals would come from theirpremium income only. There is thus anelement of double taxation whichespecially in the grossly under-providedhealth care sector appears avoidable.

(D) Business Brand or Trade Namepromotion services:

(zzzzq) Services provided to anyperson by any other person, through abusiness entity or otherwise, under acontract for promotion or marketing ofa brand of goods, service, event orendorsement of name, including a tradename, logo or house mark of a businessentity by appearing in an advertisementand promotional event or carrying outany promotional activity for suchgoods, service or event.

[Explanation-For the purposes ofthis sub-clause, 'brand' includes symbol,monogram, label, signature or inventedwords which indicate connection withthe said goods, service, event orbusiness entity]


The tax department has apparentlybeen observing that large corporationsspend a lot of money on brandpromotion. The "brands" themselvesbecome valuable over a period of timeand become prized possessions. Theexercise of developing and promotingbrands is set to become costlier withthis tax. The new entry apparentlyoverlaps with a similar entry under BAS.However, we have an interestingexposition of the change in the TRU'sbudget letter dated 26-2-2010 in which

the department has stated that theexisting BAS scope is limited to aproduct or service offering of the clientand not to a brand or name. Thisdemarcation of the existing BAS scopeis welcome indeed.

(E) Services of commercial use/exploitation of "celebrityweddings", "star nights" and suchother events organized by a personor an organization:

The definition of the proposed newentry goes as follows:

Service provided—

(zzzzr) to any person by any otherperson by granting the right orpermitting the commercial use orexploitation of any event including anyevent relating to art, entertainment,business, sports or marriage organizedby such person:


The events such as celebrityweddings, star nights, song & danceshows and mega sport events aremoney spinners for the organizersowing to sheer popular fascination withthe players and personalities involved.The rights granted to these events arenow subject to service tax. It is not justthe rights formally, but even theallowing of formal or informalcommercial use or exploitation of theseevents will also be subjected to servicetax. The tax coverage is indeed wide.

(F) Services provided by electricityexchanges:

The new entry reads as follows:

"(zzzzs) (service provided) to anyperson by an electricity exchange, bywhatever name called approved by theCentral Electricity RegulatoryCommission constituted under Section76 of the Electricity Act, 2003 in relationto trading, processing, clearing orsettlement of spot contracts, term aheadcontracts, seasonal contracts,derivatives or any other electricityrelated contracts".


The department clarifies that theabove service will not overlap withforward contract service which isalready subject to service tax for thereason that only forward contractscovered by the Forward Contract(Regulation) Act, 1952 are covered inthe scope of existing taxation. Theelectricity exchanges are a newphenomenon and the transactionsthereunder are not covered underforward market regulations. Therefore,the Government has proposed to tax thecharges recovered for services inrelation to assisting, regulating,controlling the business of trading,processing and settlement pertaining tothe sale or purchase of electricity bythe associations authorized by C.E.R.C.

(G) Services Related to copy rightTransactions in Cinematographic Filmsand Sound Recording:

The taxing entry is defined asfollows:

(zzzzt) (Service provided) to anyperson, by any other person, for-

(a) transferring temporarily; or

(b) permitting the use or enjoyment of,

Any copy right defined in the CopyRight Act, 1957, except the rightscovered under sub-clause (a) of Clause(1) of Section 13 of the said Act.


The new tax covers all copy righttransactions regulating to recording ofcine films and sound recordings otherthan the outright sale of such copyrights. The department has clarified thatthe new tax on copy right will not coverindividual artist, composers, performersetc. as their copy rights fall under theexcluded clause (a) of Section 13 of theCopy Right Act.

(H) Special Services provided bybuilder to the Prospective Buyers suchas Providing Preferential Location orExternal or Internal Development ofComplexes on Extra Charges:

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The taxing entry reads as follows:

"(zzzzu) (service provided) to abuyer, by a builder of a residentialcomplex, or a commercial complex, orany other person authorized by suchbuilder, for providing preferentiallocation of development of suchcomplex but does not include servicescovered under sub-clause (zzg), (zzq),(zzzh) and in relation to parking place.

Explanation- For the purposes ofthis sub-clause, "preferential location"means any location having extraadvantage which attracts extra paymentover and above the basic sale price";


The department clarifies that thefollowing facilities are under the scannerin respect of this service which will coverboth residential and commercialconstruction:

v Choice of location such as seafacing, park spacing, corner flat, firstfloor, top floor or lucky number etc.

v Provision of access roads andcommon lighting etc.

v Fire fighting installation.

v Power back-up.

(I) Alteration and Expansion in theScope of Existing Services:

(A) Services Provided in an Airportor Port :

The Government has made asweeping change in the definitionrelating to port and airport services.Now, all services provided in the port /airport premises will fall under thisservice and specific authorization fromthe port or airport authority hithertorequired is no longer a pre-condition forthe levy of this tax. The move aims atconsolidating all the services withinairport or a port under one head.

(B) Auctioneers Service:

The change has been made in thiscase to make it clear that the words"auction by government" in thedefinition of auctioneer's service meansan auction where Government property

is being auctioned by any person actingas auctioneer. Thus, the action ofgovernment property continues to beexempted. Additionally, the implicationis that when government acts asauctioneer or directs the auction forprivate goods, this exemption will notapply. The government thus has the bestof both worlds.

(C) Unit Linked Insurance Plans:

The change in the definition of ataxable service "Management ofinvestment under ULIP serviceprovides that the value of the taxableservice of any year of the operation ofthe policy shall be the actual amountcharged by the insurer for themanagement of funds under ULIP or themaximum amount of fund managementcharges fixed by the IRDA whicheveris higher. The change is expected tobring about some reduction in theservice tax outgo on ULIPs as comparedto the earlier practice.

(D) Transport of Passengers by AirService:

Until now service tax on air travelhas been limited to business class ininternational travel undertaken by ascheduled air liner. Now, service tax hasbeen extended to both domestic andinternational air travel and in any class.The cost of air travel is bound to go up.

(E) International TechnologySoftware Services:

Hitherto, services provided inrelation to I.T.S.S. were taxed only whenthey were used in the course orfurtherance of business or commerce.The change in the definition extends thelevy to cover all I.T. Software Servicesprovided in all cases whether or notused in the course or furtherance ofbusiness or commerce.

(F) Expansion in the Scope ofCommercial Training and CoachingService:

A number of Tribunal decisionshave come holding that the service taxin this category is not leviable when the

institution concerned is not commercialin nature or by constitution. Toovercome the impact of such case law,an amendment has been brought aboutin this service to clarify that the word'commercial' means any training orcoaching that is provided for aconsideration irrespective of thepresence or absence of any profitmotive. To add salt to injury, theamendment is declared to beretrospective from July, 2003. It is a mootpoint whether the amendment will solvethe problem for the department owingto the continuing entrenchment of theword 'commercial' and it is debatablewhether the common parlanceassociated with the word 'commercial'can be given a far-fetched definitionwhich makes the normal popularunderstanding stand on its head. Thetime when parliament could call a man awoman and vice versa is in the past andthe scope of statutory interpretativeclauses in these days and times is notleft uncircumscribed in litigations.

(G) Service Tax on ConstructionServices:

The interpretative confusionregarding levy of service tax in this areais well known. The Board's circularissued in January, 2009 has added tothe boiling cauldron. Now the pot hasbeen stirred even more vigorously bythis amendment in the Budget. Thechange states that if the entireconsideration for the purchase and saleof the property (both residential andcommercial) is paid after the completionof construction (including thecertification by the local authorities) itwould be exempted from service tax. Thisnew condition is an impossibility inpractice and no builder would wait tocollect his charges as late as the timestipulated by the law. The benefit of theamendment will only accrue in caseswhere fully built and readily availableapartment/commercial property is soldby the builder. Litigation appears to beguaranteed and there is the prospect

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that the Courts may read down the lawto permit payment of certain amountsin advance to the builder, even whileretaining the exemption.

(H) Renting of Immovable PropertyServices:

The Delhi High Court, in itslandmark judgment in the case of HomeSolutions Retail India Ltd. Vs. Union ofIndia has struck down the levy byobserving that renting of immovableproperty for use in business orcommerce per se does not attract taxand the taxing entry would only covervalue added services in relation to suchrenting. To overcome the difficulty toRevenue caused by the judgment andrecognizing the havoc caused by theuse of the words "in relation to renting",an amendment has been proposed todeclare that the renting itself is a taxableservice. The amendment is sought tobe given retrospective from 1.6.2007.The constitutionality of service tax onRentals may now be actively challengedon the ground that it impinges the powerassigned to the states under the head"taxes on lands and buildings". Howfar back in time a tax can be taken mayalso be subject to judicial review.

(I) Renting of Vacant Land:

Under the definition of taxableservice pertaining to renting ofimmovable property, the renting ofvacant land used for agriculture,farming, forestry, animal husbandry,mining, education, sports, circus,entertainment and parking purposes isexcluded from the purview of servicetax. Further, 'vacant land', whether ornot having facilities clearly incidentalto the use of such vacant land has alsobeen excluded from the tax net.

However, since plenty of businesshas developed in the use of such vacantland, e.g. renting of vacant land on longterm leases with an understanding thatthe lessee would construct factory orcommercial building on the land, thegovernment proposes to amend thedefinition to levy a tax on the rent of a

vacant land if there is an agreement orcontract between the lesser and thelessee that a construction on such aland is to be undertaken for furtheranceof business or commerce during thetenure of the lease.

(J) Expanding the Scope ofSponsorship Service:

The existing sponsorship service inexistence since 2006 has excludedsponsorship of sports events. Anamendment removes this exclusion. TheDepartment promises suitableexemption for certain categories ofsports events at a later date. Eventssuch as IPL will bring in more revenuefor the Government through this levy.This levy may overlap with brandpromotion service inasmuch as thesponsors are seen generally to promotethe popularity of their brand duringsuch events.

II. Refund of Accumulated CenvatCredit To Exporters-amendments InNotification No.5/2006-ce(nt):

The scope of "input service" hasproved to be a vexed area of disputebetween the department and theassessees. Recently the Central Boardof Excise and Customs came out with acircular No.120/01/2010-ST dated19.01.2010 in which a refreshingly newapproach of allowing CENVAT Crediton input services such as canteencatering, transport pickup of employeesetc was adopted on the principle of theinput services concerned beingessential to the business. To give legalbacking to the circular as well as toexpedite the settlement of pendingrefund claims, the Government hasamended the above notification. Theamendment has the effect of relaxing thecondition that input services should beused in the manufacture of finalproducts which are cleared for exportor be used in providing output serviceswhich are exported. Instead ofstipulating direct use of the inputservices, the new amendment inserts thewords "in relation to" for manufacture

and the word "for" in respect ofprovision of service so that evenindirect use will also result in availmentof CENVAT credit and subsequentrefund claim. The illustration to thecondition 5 of the appendix to thenotification has been deleted. Thisensures that refund of CENVAT creditavailed in the period prior to the quarter/period for which the refund has beenclaimed would also be now eligible forrefund. Henceforth, the refund claimsunder this notification would becalculated only on the basis of the ratioof export turnover to the total turnoverof the claimant and the refund ofCENVAT credit will not be linked toCENVAT credit taken from a particularperiod only. These changes areretrospective from 14.03.2006, the dateof issue of notification No.5/2006.

The statutory Form-A in whichrefund has to be claimed under thisnotification has been changed bydeleting conditions a & b so as to bringthem in line with the amendments madein the main conditions of thenotification. The refund claimparticulars should be given in a tablewhich has been prescribed. The tableshould be certified by a personauthorized by the Board of Directors inthe case of a limited company or by theproprietor / partner in the case of firms /partnerships, if the amount of refundclaimed is less than Rs.5 lakhs in aquarter. Where the amount exceeds Rs.5lakhs, the declaration should also becertified by a Chartered Accountantwho audits the annual accounts of theexporter for the purposes of theCompanies Act. It is unfortunate thatthe Cost Accountants have not beenincluded as a certifying authority. Thesechanges are prospective.

III. Withdrawal of Existing Excem-ptions:

(A) Transport of Goods by Rail:

The existing exemptions undernotification 33/2009 dated 1.9.2009 hasbeen withdrawn by notification 7/2010

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dated 27.2.2010. However, rail transportof certain specified goods such aspostal mail bags, luggage of railpassengers, including householdeffects, food grains, flours and pulses,fire works, soaps, fruits and vegetables,edible oils etc. have been exempted videnotification No.8/2010-ST dated27.2.2010. An abatement of 70% fromtaxable value has also been provided.

(b) Vocational Training Institutes:

Under Commercial Training andCoaching Service, institutes offeringvocational training were exempted andvocational training institute wasliberally defined to mean a commercialtraining or coaching centre whichprovides vocational coaching ortraining that imparts skills to enable thetrainee to seek employment orundertakes self-employment, directlyafter such training or coaching. Now,the liberal and forward lookingdefinition that has so far prevailed isdeleted and a new restrictive definitioninserted vide notification No.3/2010-STdated 27.2.2010. The change retainsexemption for vocational traininginstitutes only when such institutes are-

v Industrial Training Centers

v Affiliated to the National Council ofVocational Training

v Offering courses in the designatedtrades covered under Schedule-I ofthe Apprentices Act, 1961.

(c) Group personal insurancescheme provided by Rajasthangovernment to its employees undergeneral insurance has been withdrawnvide notification No.5/2010-ST dated27.2.2010.

(D) Expansion of "India" forService Tax Levy:

Notification No.14/2010-ST dated27.2.2010 has been issued to bringunder Service Tax Levy any serviceprovided for the following activitieswithin the continental shelf and theexclusive economic zone of India.(What is continental shelf and the

exclusive economic zone will bediscussed in the next issues of thisMagazine).

Ø Construction of installations,structures and vessels for thepurposes of prospecting orextraction or production of mineraloil and natural gas and supplythereof.

Ø Any service provided to suchinstallations, structures and vesselsand for supply of any goodsconnected with said activities.

The expansion aims to garnerrevenue from the substantial businessand industrial activity happening in theeconomic waters of India running intothousands of crores.

Iv. New Exemptions:

1. Abatement of statutory taxescharged by any government(including foreign governmentswhere a passenger disembarks) onair passenger from taxable value forthe purpose of levy of service taxunder the Air Passenger TransportService (Notification No.15/2010dated 27.2.2010). This exemption issubject to the condition that suchtaxes should be shown separatelyon the ticket or the invoice for suchticket issued to the passenger.However, it would have beenwelcome if the government has alsoenumerated what are the "statutorytaxes" which are now exempted.

2. Exemption from service tax undererection, commissioning orinstallation service for the followingitems: (there is unfortunately noclarity on whether the erection,commissioning and installationcovered in the works contractservice will get the same exemption.If not, the department on the groundmay actually deny the exemption byholding that it is not applicable toworks contracts involving erection,commissioning & installation).

Ø Mechanized food grain handlingsystems.

Ø Equipment for setting up orsubstantial expansion of cold storage

Ø Machinery or equipment for initialsetting up or substantial expansionof units for processing agricultural,apiary, horticultural, dairy, poultry,aquatic and marine products andmeat.

3. Packaged IT Software, pre-packedin retail packages and meant forsingle use is exempted from servicetax under IT Software Serviceprovided customs duty and exciseduty accordingly has been paid.The intention appears to be to taxall such software under sometaxation to ensure that suchsoftware does not leak out of theoverall taxation system.

4. Exemption for food grains andpulses added in the list of exemptedgoods under GTA service.

5. Exemption from service tax to IndianNews agencies under onlineinformation and database retrievalservice as well as Business AuxiliaryService provided that such newsagency is a notified one and set upsolely for collection and distributionof news, such news agency doesnot distribute its income in anymanner to its members and suchagency applies the same forcollection and distribution of newsand such news agencies arespecified under clause 22B ofSection 10 of the Income Tax Act,1961.

6. Exemption to services provided toany person by person for thetransmission of electricity. There isno clarity on whether the exemptionwill apply to generation andoperation cum maintenance ofpower plants.

V. Amendment to Export of ServiceRules, 2005:

A major change is that the conditionin the rules that for export treatment,

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Budget 2010 -11:Changes in Central Excise,Customs & Service TaxS. S. Gupta*

*CMA, CA, CS, Expert in Indirect Taxes.

Service Tax

Part - I (A) Changes effective from 27thFebruary 2010.

A. Rate of service tax: There is nochange in the rate of service tax.

B. Changes made w.e.f 27th February2010.

1. Changes in Export of services rules,2005 and Taxation of Serivcesprovided from outside and receivedin India, 2006.

a. Condition of 'provided from Indiaand used outside India' dispensedwith.

One of the conditions which wasrequired to be fulfilled for thepurpose of treating the servicesprovided as export of services wasthat the service should be providedfrom India and used outside India.The said condition gave rise todispute in determining the placewhere the use of the service takesplace. The circular no 111/09-STclarified that the use of the servicewas required to be determined withrespect to the beneficial use of theservice. Even after clarification ofcircular no 111/09-ST the Hon'bleCestat in the case of MicrosoftCorporation (India) Pvt. Ltd had notaccepted the principles of the saidcircular and had ordered for pre-deposit of an amount of more than70 crores.

The said condition has now beendeleted in the current budget. Thiswill put a rest to disputes with

respect to export of services and willalso assist in quicker refund toexporter of services.

The amendment is effective from27th February 2010 and will notapply to services rendered prior to27th February 2010.

b. The definition of India has beenextended to include India asincluding the installations,structure's and vessels in the entirecontinental shelf of India andexclusive economic zone of India forthe installations, structure's andvessels to be used for the purposeof prospecting or extraction orproduction of mineral oil and naturalgas and supply thereof. Thus suchservices provided on suchinstallations, structure's and vesselscannot be treated as export ofservices under the service taxprovisions after the saidamendment.

c. The criteria for determining exportof services for the categories ofChartered Accountant services,Company Secretary services andCost Accountant services has beenchanged from performance torecipient based. Amendment hasalso been made to provide fortreating the Mandap Keeperservices as export only if theMandap is situated outside India.

2. Changes in Taxation of Servicesprovided from outside and receivedin India, 2006.

The provision of Taxation ofServices (Provided from outside

India and received in India) Rules,2006 has been amended to defineIndia as including the installations,structure's and vessels in the entirecontinental shelf of India andexclusive economic zone of India forthe installations, structure's andvessels to be used for the purposeof prospecting or extraction orproduction of mineral oil and naturalgas and supply thereof. ThereforeServices received from nonresidentin such extended areas will also beconsidered as taxable. As per theprevalent deeming provisions theservice tax on such services ispayable by the service receiver.

These changes is also effective from27.2.2010 and will apply to servicesrendered on or after 27.2.2010.

3. New Exemptions under InformationTechnology services.

a. Exemption provided for theinformation technology services inrelation to locally manufacturedpackaged or canned software whichis intended for single use andpacked accordingly is given underNotification No 02/2010-ST dt 27-02-2010. The said exemption is subjectto the following conditions:

i. The document providing right touse such software is required to bepacked with the same.

ii. The person manufacturing,duplicating or the person holdingthe copyright of the same shouldhave paid the appropriate exciseduty on sale price of the software.The exemption does not apply if themanufacturer claims the benefit ofany other exemption which resultsin Nil payment of excise duty.

iii. The exemption under service tax isnot applicable if the benefit ofexemption has been availed for non-payment of excise duty on the valueattributable to the consideration forthe transfer or right to use underCentral Excise Notification no 17/2010.

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b. Exemption provided for the aboveservices in relation to importedpackaged or canned software whichis intended for single use and packedaccordingly is given underNotification No 17/2010-ST dt 27-02-2010. The said exemption is subjectto the following conditions:

i. The document providing right touse such software is required to bepacked with the same.

ii. The importer has paid theappropriate customs duty on thesale price of the software. Theexemption does not apply if theimporter claims the benefit of anyother exemption which results in Nilpayment of customs duty.

iii. The exemption under service tax isnot applicable if the benefit ofexemption has been availed for thevalue attributable to theconsideration for the transfer or rightto use under Customs Notificationno 31/2010.

4. Amendment in exemption forVocational Training Institutes.

Notification no. 24/2004 providedexemption to any institute whichprovides vocational training orcoaching to enable the trainee toseek employment or undertake self-employment. The benefit after theamendment will now be applicableto only for those VocationalInstitutes which are IndustrialTraining Institute or an IndustrialTraining Centre affiliated to theNational Council for VocationalTraining and offering courses indesignated trades as notified underthe Apprentices Act, 1961.

5. Exemption under Transport ofGoods by Road Services is beingextended to transportation of foodgrains or pulses. It is advised thatthe transportation invoices towardsthe receipt of services towards thesaid products should be bifurcated(in case multiple type of cargo is

being transported) for substan-tiating the eligibility of exemption.

6. Full Exemption for payment ofservice tax under all categories ofservices has been provided forservices provided in relation totransmission of electricity.

7. Exemption has been provided toTechnical Testing or analysisservice of seeds provided by Centralor State Seed Testing Laboratorytaxable under Technical Inspectionand Certification services for seedsprovided by Central or State Seedcertification agency.

8. Exemption has been granted underthe category of Erection,Commission and installationservices for mechanised food grainhandling systems, equipment forcold storage, equipments /machinery for processing units foragricultural, agiary, horticulture,dairy, poultry, aquatic, marineproducts and meat.

9. The services provided by NewAgency which has been solely setup for the collection and distributionnew has been exempted from servicetax under the category OnlineInformation and database access orretrieval services & BusinessAuxiliary services. The saidexemption is available to those newsagencies which specified undersection 10(22B) of the Income TaxAct, 1961 and who do not distributeits income in any manner to themembers.

10. Jurisdiction of Levy of service taxhas been extended to activities ofprospecting of or extraction orproduction of mineral oils andnatural gas in the Continental Shelfand Exclusive Economic Zone o fIndia .

In the Budget 2009 the jurisdictionof service tax was extended to theinstallations, structure's and vesselsin the entire continental shelf and

exclusive economic zone of India.A question had therefore arisen withrespect to the leviability of servicetax on the services provided duringthe pre-construction phase of suchinstallations, structure's andvessels. In the Budget 2010, thejurisdiction of service tax is nowbeing extended to the whole ofcontinental shelf and exclusiveeconomic zone of India for thepurpose of levying service tax onthe services of construction withrespect to the installations,structure's and vessels to be usedfor the purpose of prospecting orextraction or production of mineraloil and natural gas and supplythereof. Thus service tax is nowapplicable on such servicesprovided.

Thus it can be said that prior to thesaid amendment the provisions ofservice tax were not applicable inrespect of services provided for theconstruction of installations,structure's and vessels in thecontinental shelf and exclusiveeconomic zone of India.

It is advised that a separate invoiceshould be raised for the value oftaxable service upto 26th February2010 for the services provided withrespect to the construction of suchinstallations, structure's andvessels. In case issuing of separateinvoice is not possible then valueof taxable service provided till 26thFebruary in such extended areasshould be shown separately on theinvoice.

The provision of Taxation ofServices (Provided from outsideIndia and received in India) Rules,2006 has been amended to defineIndia as including the installations,structure's and vessels in the entirecontinental shelf of India andexclusive economic zone of India forthe installations, structure's andvessels to be used for the purpose

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of prospecting or extraction orproduction of mineral oil and naturalgas and supply thereof. ThereforeServices received from nonresidentin such extended areas will also beconsidered as taxable. As per theprevalent deeming provisions theservice tax on such services ispayable by the service receiver.

11. The value of Government taxeslevied on passengers travelling byair have been excluded from thevalue of taxable services videamendment to the Valuation Rules.The said value is excludibleprovided it is shown separately onthe ticket, or the invoice for suchticket, issued to the passenger.

Part I - (b) - Changes w.e.f 1st April2010 under the category of Transportof Goods by Rail services -a. Exemption available to Indian

Government Railways is withdrawnconsequently service provided byIndian Railway are now taxable.

b. An abatement of 70% has beenextended to all types of transportby rail services whether in containeror otherwise. The benefit of cenvatcredit will not be available in casebenefit of abatement availed.

c. Exemption has been provided totransportation by rail with respectto specified items such as Defence /Militarily Equipments, RailwayEquipments, Postal Mails, Luggageof passengers, etc.

PART - I (c) - Amendment effective fromdate of enactment of Finance Act 2009.

Amendment in Section 73(3) - Anexplicit explanation is being added insection 73(3) to provide for non-issueof Show notice in cases where theamount has been paid prior to issue ofshow cause notice. The provisions ofsection 73(3) are not applicable to caseswhere duty is paid on account of fraud,collusion, wilfull suppression or mis-statement with an intent to evadepayment of duty.

PART I(d) - Amendment effective fromdate of notification after enactment ofFinance Act 2009.

a) Changes in definition of Existingservices and Other amendment

1. Renting of immovable property services.

Amendmentin brief

(i) Mere Renting of immovable property was not taxable due to judgment rendered by Hon'ble Highcourt of Delhi in the case of Home Solutions Retail India Ltd. & Others that the renting of immovableproperty for use in the course of furtherance of business or commerce does not involve any valueaddition and therefore, cannot be regarded as service.(ii) Under the definition of taxable service pertaining to renting of immovable property, the renting ofvacant land was excluded from the tax net.


(i) Provide explicitly that the activity of 'renting' itself is a taxable service and further any otherservices in relation to such renting is also taxable. This change is being given retrospective effectfrom 01.06.2007; and(ii) Provide that renting of vacant land, where the agreement or contract between the lessor and lesseeprovides for undertaking construction of buildings or structures on such land for furtherance ofbusiness or commerce during the tenure of the lease shall be subjected to service tax. This amendmentis prospective and will be applicable only after the date of notification after enactment of the FinanceAct.

Implications (i) Intention of the legislature is clear to recover service tax on renting of immovable property fromJune 2007. Therefore it is advisable to pay service tax and take the credit if the assessee providestaxable service or manufactures dutiable goods.(ii) Service tax would be charged on rent of a vacant land if there is an agreement or contract betweenthe lessor and lessee that a construction i.e. construction of building or temporary structure on suchland is to be undertaken for furtherance of business or commerce during the tenure of the lease.

2. 'Port' and 'other port' services.

Amendmentin brief

The services provided by port or any person authorised by the port are only liable for the payment oftaxes.Services which were classifiable under any other specific category of service was liable to tax underthe said category and not Port services.


a. It has been proposed that services provided by any person within the port premises in any mannerwill be liable for the payment of service tax.

b. Specific amendments have been made to provide that principles of classification under section65A cannot be applied for the category of port services.

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a. The pre-condition that the service provider should be either the port authority or any personspecifically authorized has been dispensed with. Thus any person irrespective of the fact whetherthe services are provided by authorized person or a person who has only been given entry permitwill be treated as service provider under the said category.

b. Any service provided within the port premises will be liable to service tax under the category of"Port Service" only. The principal of specific classification over general and other rules ofclassification will not apply to services provided within the port.

B) The services of maintenance repair, cargo handling, etc provided within the port will now becovered under the category of port services. Service tax will be leviable even if a service which isother-wise non-taxable is provided within aport.


3. Airport Service

Amendmentin brief

The services provided by airport authority or any person authorized by it are only liable for thepayment of taxes.Services which were classifiable under any other specific category of service was liable to tax underthe said category and not Airport services.


a. It has been proposed that services provided by any person within the airport or civil enclavepremises in any manner will be liable for the payment of service tax.

b. Specific amendments have been made to provide that principles of classification under section65A cannot be applied for the category of airport services.

Implications a. The pre-condition that the service provider should be either the airport authority or any personspecifically authorized has been dispensed with. Thus any person irrespective of the fact whetherthe services are provided by authorized person or a person who has only been given entry permitwill be treated as service provider under the said category.

b. Any service provided within the airport or civil enclave premises will be liable to service tax underthe category of "Airport Service" only. The principal of specific classification over general andother rules of classification will not apply to services provided within the port.

c. The services of maintenance repair, cargo handling, rent -a-cab, etc provided within the airport willnow be covered under the category of port services. Service tax will be leviable even if a servicewhich is other-wise non-taxable is provided within an airport.

4. Auctioneer's Service

Amendmentin brief

The definition of taxable service excludes the services in relation to Auction by the Government.Currentstatus

The meaning of term "Auction by the Government" has been clarified to mean the auction of onlygovernment property by the auctioneer.

Implications The exclusion from the auction services will apply only to those auction which are undertaken toauction government property, assets, etc such as Government land, etc.The auction undertaken by the Government department for the private property for the purpose ofrecovery of the pending dues will now be taxable. Thus services provided for auction of Detainedgoods by Customs authority will be taxable.

5. Transport of Passenger by Air Service

Amendmentin brief

The transport of passenger by air for international journey for travel by a class other than economy isonly taxable.


It has been proposed to widen the coverage under the said category to impose service tax oninternational as well as the domestic air transportation in any class.

Implications The said amendment will cover the services of transportation of all passengers by the international aswell domestic passenger. Thus airlines will be required to charge service tax for the services providedby them to the passengers. The methodology for computation of taxes and abatement will be providedat later stage.

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6. Management of Investment under Unit Linked Insurance Plan

Amendmentin brief

The service of fund management was deemed to a taxable service under the said category. Howeverthe value for the purpose of service tax was defined as the difference between the (a) premium paid bythe policy holder for the Unit Linked Insurance Plan policy; and (b) the sum of premium paid for orattributable to risk cover plus the amount segregated for actual investment.Thus various other charges collected by the ULIP service providers such as premium allocationcharges, policy issue charges, etc were being subject to tax.


The explanation governing the valuation under the said service is proposed to be amended to providethat the value of the taxable service for any year of the operation of policy shall be the actual amountcharged by the insurer as Fund Management charges for the service of management of segregatedfunds under ULIP or the maximum amount of fund management charges fixed by IRDA, whichever ishigher.

Implications The service tax will be leviable only on the amount recovered towards the fund management chargesor on the amount computed as per the rates fixed under IRDA guidelines. The said amendment has theeffect of creating a deeming fiction even for the valuation purposes.The methodology for computation of taxes will be provided at appropriate stage.

7. Information Technology Software Service

Amendmentin brief

The services provided in relation to development, designing, up-gradation, adaptation, enhancement,right to use for commercial exploitation, etc of Information Technology Software for use in the courseof furtherance of business or Commerce are only liable for the payment of service tax.


It has been proposed to expand the levy under the said category to IT services even if the same arenot used in relation to furtherance of business or commerce.

Implications The provision of IT services to government entities, charitable entities, for education purpose,individual service providers will also be taxable now.

8. Commercial Training & Coaching Service


The levy only covered the commercial training or coaching centers and institutes providing trainingwhich imparts skills or knowledge.The term 'commercial training or coaching centre' in the definition was a subject matter of dispute. TheTribunal in the case of Great Lakes Institute of Management Ltd. Vs CST [2008 (12) STT (296)] and inMagus Society Vs. CC&CE [2009 (18) STT (193)] held that non-commercial organization having noprofit motive are not liable for the payment of service tax.


An explanation has been added with retrospective effect from 01-07-2003 to provide that the term'commercial training or coaching centre' will include any institute which provides the training orcoaching for a consideration, whether or not such training or coaching is conducted with a profitmotive.

Implications Thus the decision given by the Tribunal in the case of Great Lakes Institute of Management Ltd. VsCST [2008 (12) STT (296)] and in Magus Society Vs. CC& CE [2009 (18) STT (193)] has been reversedon account of the said amendment.Even charitable institutions, trust, etc providing coaching would now be covered under the servicetax net. The said change is retrospective and therefore the department will proceed to demand servicetax for the past 5 years. The pending disputes at various appellate forums will now have to be decidedbased on the amended provisions.

9. Sponsorship Service

Sponsorship services for sports event is not liable for the payment of service tax.Currentstatus

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Amendmentin brief

It is proposed to cover the sponsorship provided for sports within the service tax net.

Implications Thus service tax will be leivable on Sponsorship services provided for events like IPL, Team Sponsorship,Common Wealth Games, etc.The service tax will be continued to payable by the service receiver.

10. Commercial or Industrial Construction Service.

Amendmentin brief

There has been lots of dispute with respect to leviability of service tax on Construction of flats by thebuilder which are sold during construction.The Gauhati High Court in the case of Magus Construction Pvt. Ltd. Vs. UOI reported in 2008 (11)STR225 (Gau.) held that builder is engaged in sale of flats. Agreement indicates the transaction as sale andpurchase of premises and not for carrying out the construction service on behalf of the prospectivebuyer. It has also held that advance amount given by the prospective buyer is against saleconsideration and not for obtaining service. The circular no 108/2/2009-ST also clarified to this effect.


The coverage under the said category is being widened to treat the service of sale of flats to prospectivebuyer as a deemed service and liable for service tax.The service tax however is not payable in cases where the sale consideration is paid only afterobtaining of the completion certificate by the builder i.e. in case of purchase of ready possession flats.

Implications Service tax will be payable on the bookings of in new buildings made under agreement to sell duringpreconstruction period. Even if a part of the sales proceeds is given to the builder prior to completioncertificate the service tax will be leviable on the entire sale price of the flats.Purchase of flats in resell and purchase of flats in ready possession after issue of completion certificateissued by the competent authority will not be subject to service tax.

11. Definition of Business Entity inserted

Amendmentin brief

The definition of Business Entity was only defined under the services of legal consultancy as the saidterm was only specified under the said category.


Some of the new service specified under the Finance Act, 2010 also cover services provided toBusiness Entity. Therefore the definition is of business entity has been separately provided.Consequently the explanation under legal consultancy services has been deleted.

12. Business Auxiliary Services

Amendmentin brief

The definition of Business Auxiliary services covers the services of promotion or marketing of serviceprovided by the client" includes any service provided in relation to promotion or marketing of gamesof chance such as lottery, lotto, bingo.


The said services have now been notified under a separate heading. Thus as a consequent changethe same is deleted from Business Auxiliary services.

b) New Services on which service taxis proposed to be introduced videFinance Bill, 2010.

1. Services in relation to Games ofchance:

Statutory Definition

(zzzzn) to any person, by any otherperson, for promotion, marketing,organising or in any other mannerassisting in organising games ofchance, including lottery, Bingo orLotto in whatever form or by

whatever name called, whether ornot conducted through internet orother electronic networks;

CommentsEarlier, services provided in relationto promotion or marketing of gamesof chance such as lottery, lotto etc.were taxed under the category ofBusiness Auxiliary Services undersub-clause (ii) of clause 65(19).There was lot of dispute whetherorganization of lottery can beconsidered as service. Therefore to

avoid dispute new, servicesprovided in relation to promotion,marketing or organizing of games ofchance which are conducted byvarious State Governments isproposed to be taxed under this newcategory. Thus, the agentsappointed by the State Governmentfor promoting & organizing thelottery are covered under thiscategory.

2. Health Services by hospital, nursinghome or multi-specialty clinic:

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Statutory Definition

(zzzzo) by any hospital, nursinghome or multi-specialty clinic,-

(i) to an employee of any businessentity, in relation to health check-up or preventive care, where thepayment for such check-up orpreventive care is made by suchbusiness entity directly to suchhospital, nursing home or multi-specialty clinic; or

(ii) to a person covered by healthinsurance scheme, for any healthcheckup or treatment, where thepayment for such health check-upor treatment is made by theinsurance company directly to suchhospital, nursing home or multi-specialty clinic;


Following services provided by anyhospital, nursing home or multi-specialty clinics are proposed to tax:

a) Health check-up or preventive careservices provided to employees ofany business entity, provided thepayment for the same is made bysuch business entity directly to thehospital, nursing home or multi-specialty clinics.

b) Health check-up or treatment of anyperson covered by health insurancescheme wherein the payment of thesame is made by the insurancecompany directly to such hospital,nursing home or multi-specialtyclinics. Thus, cases where insurancecompanies provide cashless facilityto the patients by directly makingthe payment to the hospital arecovered under this category.

The definition does not propose totax individuals. Also, the insurancecompanies & business entities makingthe payment of such service tax wouldbe eligible for cenvat credit.

3. Maintenance of Medical Recordsservices:

Statutory Definition

(zzzzp) to any business entity, byany other person, in relation tostoring, keeping or maintaining ofmedical records of employees of abusiness entity;


Many organizations maintainmedical records of its employees.For example, persons joiningmerchant navy have to undergo eyetesting before joining. The recordsof the report of such employees aremaintained by the company. Theservices provided by any person inrelation to storing, keeping ormaintaining of such records onbehalf of the organizations isproposed to be taxed under thiscategory.

4. Promotion of brand services:

Statutory Definition

(zzzzq) to any person, by any otherperson, through a business entityor otherwise, under a contract forpromotion or marketing of a brandof goods, service, event orendorsement of name, including atrade name, logo or house mark of abusiness entity by appearing inadvertisement and promotionalevent or carrying out anypromotional activity for such goods,service or event.

Explanation.-For the purposes ofthis sub-clause, "brand" includessymbol, monogram, label, signatureor invented words which indicateconnection with the said goods,service, event or business entity;


Services provided in relation topromotion or marketing of anybrand of goods, service, event orendorsement of any name, tradename, logo or house-mark isproposed to be taxed under thiscategory. Thus, services providedby film stars, sports persons etc. inpromoting any brand will getcovered under this category. For

example, Sachin promoting thebrand 'Britannia' will be coveredunder this category.

The services in relation to promotionor marketing of goods or services(not any brand) will continue to betaxable under the category of'Business Auxiliary Services'. Thus,for example Sachin promoting'Britannia Good-Day' biscuit willcontinue to cover under BusinessAuxiliary Services.

5. Granting Rights , Permittingcommercial use or Exploitationservices:

Statutory Definition

(zzzzr) to any person, by any otherperson, by granting the right or bypermitting commercial use orexploitation of any event includingan event relating to art,entertainment, business, sports ormarriage organised by such otherperson;


The services of granting the rights,permitting commercial use orexploitation i.e. permitting therecording or broadcasting of eventsrelating to art, entertainment,business, sports or marriage isproposed to be taxed under thiscategory. For example, the rights of'Filmfare Award' function given to'Sony Television' for permitting itsexploitation i.e. telecasting will becovered under this category.

6. Services provided by ElectricityExchange:

Statutory Definition

(zzzzs) to any person, by anelectricity exchange, by whatevername called, approved by the CentralElectricity Regulatory Commissionconstituted under section 76 of theElectricity Act, 2003, in relation totrading, processing, clearing orsettlement of spot contracts, termahead contracts, seasonal

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contracts, derivatives or any otherelectricity related contract;


The services provided by anyelectricity exchange (approved byCentral Electricity RegulatoryCommission) in relation to trading,processing, clearing or settlement ofspot contracts, term aheadcontracts, seasonal contracts,derivatives or any other electricityrelated contract is proposed to betaxed under this category. Forexample, the charges collected bythe electricity exchange from thebrokers in relation trading of thecontracts (i.e. STT) would becovered under this category.

7. Copyright Services:

Statutory Definition

(zzzzt) to any person, by any otherperson, for-

(a) transferring temporarily; or

(b) permitting the use or enjoymentof, any copyright defined in theCopyright Act, 1957, except therights covered under sub- clause (a)of clause (1) of section 13 of the saidAct;"


Intellectual Property Servicespecifically excludes copyright. Asper Sec. 13 of the Copyright Act,copyright subsists in the following:

a) Original literary, dramatic, musical& artistic works

b) Recording of cinematograph films

c) Sound recordings

The services of transferringtemporarily or permitting the use ofany copyright pertaining tocinematograph films & soundrecordings is proposed to be taxedunder this category.

The copyright pertaining to originalliterary, dramatic, musical & artisticworks continues to remain out of thepurview of service tax.

8. Services provided by builder toprospective buyer:

Statutory Definition

(zzzzu) to a buyer, by a builder of aresidential complex, or a commercialcomplex, or any other personauthorised by such builder, forproviding preferential location ordevelopment of such complex butdoes not include services coveredunder sub-clauses (zzg), (zzq), (zzzh)and in relation to parking place.

Explanation.-For the purposes ofthis sub-clause, ''preferentiallocation'' means any location havingextra advantage which attracts extrapayment over and above the basicsale price;'


The services of providing apreferential location (a locationhaving extra advantage & attractingextra payment above the basic saleprice) or services of development ofcomplex provided to a buyer by abuilder of residential or commercialcomplex is proposed to be taxedunder this category. For example, thepremium charged to any buyer forsea-facing flat will be covered underthis category.

The category specifically excludesthe services provided under'Commercial or IndustrialConstruction' service, 'Constructionof Residential Complex' service &'Management, Maintenance orRepair' service. Also, services

provided in relation to parking placehave been excluded.



The Finance Minister in his speechstated that the GST may beimplemented from the FY 2011-12.Keeping in this view, the rate ofExcise Duty is enhanced from thepresent 8% to 10%. The rate of ExciseDuty is kept in line with the rate ofService tax i.e.10% so that there willcommon rate applicable for goodsand services when the GST is beingimplemented.

2) CHANGES MADE w.e.f. 27thFEBRUARY 2010-02

a) Increase in excise duty from 8% to10% for major chapters. Some of theproducts are as follows :

b) There is no change in the rate ofEducation cesses.

c) Credit on the stock with the traderas on 26th February 2010.

Many of the first stage and secondstage dealer who has stock as on26th February may sell the productsubsequent to 27th February 2010.These products have borne theduty @ 8% plus cesses. The traderswill be able to pass credit @ 8.24%to the customers who purchases theinput after 26th February 2010 ie.duty at the rate of 8.24% paid on theinputs and not at 10.3%

d) In view of the increase in the rate,the manufacturer can clear the final

Chapter Description of Goods Existing Rate New RateHeading of Duty of Duty(1) (2) (3) (4)44 Articles of wood, other than

articles of densified wood and 8% 10%flush doors

4418 Flush Doors 8% 10%20 10

48 Baby and Clinical diapers Exempted 10%

9504 Playing cards 8% 10%

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product which is in stock in thefactory as on 26th February 2010 atthe rate of 10% plus the educationcesses. The basic excise duty hasbeen increased and it is not a newlevy. Therefore, the increase rate willapply even to the stock as on 26thFebruary 2010.

e) The manufacturer is advised to putthe relevant notification number inthe excise invoice prepared from27th February 2010. The relevantnotification for increasing the ratefrom 8% to 10% is 2/2008 dated1.3.2008 as amended.

3) NEW LEVY :-

a) Slabs or Tiles falling under chapterheading 6802 & 6810

A deemed manufacture provisionhas been inserted for tiles underchapter 6802 & 6810. The processof cutting or sawing or sizing orpolishing or any other process, forconverting of stone blocks intoslabs or tiles shall amount tomanufacture"

Therefore, the duty is to be paid forabove goods as per the deemedmanufacture provision and the SSIbenefit is also available for abovegoods.

b) Drawing or Redrawing of aluminiumtubes and pipes for chapter heading7608

A deemed manufacture provisionhas been inserted for aluminiumtubes and pipes falling underchapter 7608. The process ofdrawing or redrawing shall amountto manufacture.

Therefore, the duty is to be paid forabove goods as per the deemedmanufacture provision and the SSIbenefit is also available for abovegoods.

c) Clean Energy Cess

A levy of cess known as CleanEnergy Cess being introduced oncoal, liginite and peat produced in

India. It will be levied and collectedas a duy of excise from coal mines.The rate of duty, rules andprocedure for its collection will benotified after the enactment of theFinance Bill, 2010.

4) Amendment in the notification 5/2006 for refund claims of theCenvat credit for Exporters

There is lot of delay account ofrefund claims under notification no.5/2006-CE (NT) on account ofdifference in perception of thenotification with Rule 5 of Cenvatcredit rule. Circular No. 120/01/2010-ST dated 19th January, 2010 hasbeen given legal backing which willlead to fasten the refund procedure,certain amendment have beenintroduced which haveretrospective effect and certainwhich have prospective effect.

Amendment with retrospectiveeffect:

1. The definitions of terms such as'inputs'/ 'input services' used in theabove notification has beenchanged to the aligned with CenvatCredit Rules and clarify that not onlyinput or input services used inexport of goods or services but alsogoods or services used in relationto manufacture of final product oroutput services exported shall beeligible for refund.

2. The illustration given in condition 5of the Appendix to the Notificationhas been deleted. This ensures thatrefund of CENVAT credit which hasbeen availed in the period prior tothe quarter/ period for which therefund has been claimed is alsoeligible for refund.

Amendment with prospective effect:

The Form A has been changed andnew table has been inserted bydeleting conditions A and B of suchform vide notification 7/2010.

The information contained in thesaid table shall be certified by a

person authorized by the Board ofDirectors or proprietor or anypartner if the refund claim is less thanRs 5Lakhs. In case the refund claimis more than Rs 5lakhs thaninformation contained in such tableshould also be certified by the TaxAuditor or Statutory auditor.

5) Changes Made W.e.f. 1st April2010

A) Changes for SSI Units HavingAggregate Value of ClearanceBelow 4 Crores

a) Duty to be paid on quarterly basis

The goods cleared during thequarter of the financial year, the dutyshall be paid by 6th of the monthfollowing the quarter, if the duty ispaid electronically through Internetbanking and in any other case, bythe 5th of the month following thequarter. For instance, the goodscleared during the quarter April 2010to June 2010, the duty is to be paidby 5th / 6th July 2010. The goodscleared during the last quarter i.e.January 2011 to March 2011, theduty is to be paid by 31st March2011.

b) Full Credit Eligible for Capital Goodsin the Year of Receipt of CapitalGoods.

From 1st April 2010, the SSI is eligibleto avail full 100% credit for capitalgoods in the year of receipt of capitalgoods.

c) Filing of Quarterly Return :-

The ER-3 return is to be filed onquarterly basis within ten days afterthe end of the quarter. Theclarification is provided in the rulein case the assessee avail the benefitof SSI notification, the ER-3 returnis to be filed on quarterly basis forthat whole year.

B) Changes effective from 1st April,2010

a) Extension of non-applicability ofRule 6(6) for three more supplies :-

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The assessee avail the credit oninput and input services used in orin relation to the manufacturing ofdutiable and exempted goods, then,the assessee is required to pay anamount @5% on the value ofexempted goods. Now, from 1stApril, the assessee is not requiredto pay the amount @5% on the valueof exempted goods for the followingsupplies.

(i) The goods which are exempted fromcustom duty and CVD whenimported in India and are supplied :-

a) against International CompetitiveBidding

b) to a power project from which powersupply has been tied up throughtariff based competitive bidding

c) to a power project awarded to adeveloper through tariff basedcompetitive bidding.

b) The Cenvat Credit Rules has beenamended to provide that themanufacturer will be eligible to creditin respect of jigs, fixture, moulds andties sent outside the factory to

a) another manufacturer for theproduction of goods or

b) job worker for the production ofgoods according to hisspecification. The credit is notrequired to be reversed even thoughthe above items are not available inthe factory i.e. available withanother manufacturer or job worker

c) Relaxation to the requirement of pre-authentication of invoices.

The rule for authentication each foilof the excise invoice has beendeleted.

Therefore, there is no requirementto authenticate the invoice book.

d) New depreciation rate given forcomputers and computerperipherals cleared after use.

Earlier, when the capital goodscleared after use, the amount equalto the credit taken as reduced by

2.5% per quarter as payable onremoval. Now, the rule clarified thatthe duty reversal calculation is tobe made by straight line method. Thenew rate of depreciation forcomputer and computer peripherals,which are as follows

For each quarter in thefirst year 10%

For each quarter in thesecond year 8%

For each quarter in thethird year 5%

For each quarter in thefourth and fifth year 1%

The manner of determining theamount to be reversed for othercapital goods is same as earlier.

C) Change effective from the date ofenactment of the Finance Act.

a) The section 11A(2B) has beenamended that no penalty under anyof the provisions of this Act or therule made thereunder shall beimposed in respect of duty paidunder this sub-section.

b) The power has been given toCentral Government under Section37 to make rules for "provide forwithdrawal of facilities or impositionof restriction (including restrictionon utilisation of cenvat credit) onmanufacturer or exporter orsuspension of registration of dealer,for dealing with evasion of duty ormisuse of Cenvat Credit"

c) The Settlement Commission hasbeen empowered to admit the cases

in which manufacturer has notmaintained proper records ofproduction and clearance.

d) Changes on levies under Medical& Toilet Preparation Act.

i) Section 3 of the M &TP Act, 1955,is amended to exclude goodsmanufactured in a special economiczone.

ii) Excise duty on medical and toiletpreparation cover under M & TPAct, 1955, is being reduced from 16%to 10%.

iii) The rate of abatement on toiletpreparation covered under M& TPAct, 1955 is revised from 40% to 35%

D) Cenvat Credit: Rule 57CC, 57AD &Rule 6 of Central Excise Rules, 2001and rule 6 of Cenvat Credit Rules2004 are proposed to be amendedretrospectively to provide option tothe manufacturer to pay an amountof credit attributable to use of inputor input services in the manufactureof exempted goods along withinterest of 24%. On payment of suchamount demand raised in showcause notice will be set aside.


A) No change in Peak Rate. There is nochange in maximum basic rate ofcustoms duties. It remains @ 10%.

B) Changes in duty rates of major itemsas applicable w.e.f 27th Feb 2010 areas follows:

C) Electrical energy is classified undercustoms tariff entry No. 27160000and attracts nil rate of basic

Description of goods Earlier PresentCrude Petroleum Nil 5%Petrol & diesel 2.5% 7.5%Platinum Rs.200 per 10 gram Rs.300 per 10 gramGold bars (other than tola bars) Rs.200 per 10 gms Rs.300 per 10 gms& gold coins*Other form of gold* Rs.500 per 10 gms Rs.750 per 10gmsSilver Rs.1,000 per kg Rs.1,500 per kg

* - Applicable even if imported as personal baggage.

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282 the management accountant, April, 2010

customs duty from 26-6-09. In thisbudget levy of customs duty of 16%for sale of electrical energy from SEZto DTA and non-processing areasof the SEZ.

The tax is being levied fromretrospective effect from 26-6-2009.

D) Project Imports:

(a) Following projects classified under9801 will now attract c.v.d @ 10%(earlier 8%)

(i) Fertlizer project

(ii) Coal mining project

(iii) Power generation project

(iv)Power transmission project

(b) Following four projects are beingnotified to provide concessionunder Project Imports @ 5% basiccustoms duty.

(i) Cold Storage, cold room (including

farm pre-coolers) or Industrialprojects for preservation, storage orprocessing of agricultural, apiary,horticultural, dairy, poultry, aquatic& marine produce and meat.

(ii) Project for installation of mechanizedhandling system and pallet rackingsystems in mandis or warehousesfor food grains and sugar.

(iii) Mono Rail Projects for urban publictransport; &

(iv)Setting up of Digital Head End

E) Exemptions w.e.f 27th Feb 2010

(i) Goods imported in pre-packed formfor retail sale requiring declarationof MRP under Standards of Weights& Measures Act is exempted frompayment of 4% SAD. Thisexemption is available to MobilePhones, Watches & Readymadegarments. Prior to this date the

importer had the option to claimrefund of SAD under notificationNo. 102/07-Cus if central sales tax/VAT has been paid at the time ofsale.

(ii) Value of commercial sample beingimported as personal baggage isincreased from Rs.1 lakh to Rs. 3lakhs.

F) Changes in statutory provisionseffective from date of enactment ofFinance Act, 2010

(i) Section 3 is being amended tocharge c.v.d. based on MRP minusabatement for the goods chargeableto excise duty on the basis MRPunder M & TP Act, 1955

(ii) Section 127 is amended on the linesof Central Excise to expand the scopeof cases which can be admitted bySettlement Commission.q

Contd. from Page 271

the service should be provided fromIndia and used outside India has beendeleted under notification No.6/2010-STdated 27.2.2010. This will extend exporttreatment to services where all theactivities are done in India but thebenefit accrues outside India. This is awelcome change.

Another change is the explanatoryclause that "India" includesinstallations, structures and vesselslocated in the continental shelf of Indiaand the exclusive economic zone ofIndia, for the purposes of prospectingor extraction or production of mineraloil and natural gas and supply thereof.

VI. Other Significant Amendments:

(i) Sub-section 3 of Section 73 of theFinance Act now has now got a secondexplanatory clause which clarifies thatno penalty should be imposed wherethe service tax along with interest hasbeen paid before issue of notice by thedepartment. The relief is not extended

to cases coming under section 78. It is apity also that this concession is notextended to cases where the tax had tobe paid after the issue of SCN but withapplicable interest, and where there isno suppression of facts etc. Theconcession appears, any way,inconsequential in as much as theexisting proviso to the sub section (3)states that no SCN should be issuedwhere the tax with interest is paid bythe assessee on his own or asdetermined by the departmental official.Without SCN being issued, the questionof imposing a penalty will not arise.Thus, the amendment which restricts itsrelief only to non-suppression cases isnot new at all. It seems to provide noreal relief.

(ii) The term "business entity" as itoccurs in any definition of taxableservice is now broadly defined toinclude an association of persons, bodyof individuals / company or firm but will

only exclude an individual. Groupsstyling themselves as "associates" willnow be clearly covered.

VII. The date of effect of the changes:

A) Service tax on the new services willcome into fore from a date to be notifiedafter the enactment of the Finance Bill.

B) Alterations & modifications in thetaxing entries will take effect from a dateto be notified after the Finance Bill isenacted.

C) Amendments to statutory provisionssuch as section 73 (3) and the definitionof "Business entity" would also beeffective from a date to be notifies afterthe enactment of the Finance Bill.

D) The exemptions from service tax areeffective from 27-2-2010

E) Service tax changes carried bynotifications are effective from the dateof publication in the official Gazette orthe date of issue of notification or from1-4-2010, as the case may be.q

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The Union Budget2010 - 2011 and FinancialMarket ReformsVenkateswaran R*

"This Budget belongs to 'Aam Aadmi'. It belongs to the farmer, the agriculturist,the entrepreneur and the investor. The opportunity is great. The time is right. Ihave placed my faith in the hands of the people who, I know, can be dependedupon to rise to any occasion in national interest. I have placed my faith in thecollective conscience of the nation that can be touched to scale undreamt ofheights in the coming years."

— Shri Pranab MukherjeeBudget Speech 2010 - 2011

February 26, 2010

*CMA & Assistant Director, Securities andExchange Board of India (SEBI). The viewsexpressed are personal and not necessarilythose of SEBI.

Shri Pranab Mukherjee, Hon'bleMinister of Finance, Governmentof India, tabled the Economic

Survey 2009 - 2010 (hereafter referredto as the Survey) in the Parliament onFebruary 25, 2010 and presented theUnion Budget 2010 - 2011 (hereafterreferred to as the Union Budget) in theLok Sabha on February 26, 2010.

The Survey underscored thenecessity for every efficient andhealthy financial market to avoid theshortcomings as gleaned from theexperience of the global financial marketsin the last couple of years. The Survey,thus, stressed the importance ofinvestors/institutions paying adequateattention to the fundamentals,transparency in the pricing of risk andratings for the wide variety of financialinstruments and adequacy of regulatoryoversight. The financial market reformproposals in the Union Budget have tobe viewed in this background.

The Union Budget began by takingnote of the fact that India has weathered

the current global financial crisis well.The Union Budget, nevertheless,identified quick reverting to the highGDP growth path of 9% and then findingthe means to cross the 'double digitgrowth barrier' as a major challenge.There is also a recognition expressed inthe Unionn Budget that as a result ofeconomic development and financialsector reforms, the focus of economicactivity has shifted towards the non-governmental actors, which has broughtinto sharper focus the role of theGovernment as an enabler. The UnionBudget also indicated the Government'sintention to move towards the preferredpath of fiscal consolidation thatfacilitated the remarkable growth in thepre-crisis five year period. The rest ofthe Article looks into the financialmarket reform proposals in the UnionBudget.

In order to strengthen andinstitutionalise the mechanism formaintaining financial stability, theUnion Budget has proposed to setupan apex-level Financial Stability andDevelopment Council (FSDC). It isproposed that the FSDC will monitormacro prudential supervision of theeconomy, including the functioning of

large financial conglomerates, andaddress inter-regulatory coordinationissues. The FSDC will also focus onfinancial literacy and financial inclusion.The Union Budget has categoricallystated that the FSDC will not in anywayaffect the autonomy of the existingregulators. Some later reports haveindicated that the Government will comeout with a discussion paper on theFSDC.

The Union Budget has provided asum of Rs.16,500 crore to ensure thatthe Public Sector Banks (PSBs) are ableto attain a minimum 8% Tier-I capital byMarch 31, 2011 as well as to providefurther capital to strengthen theregional rural banks (RRBs) so that theyhave adequate capital base to supportincreased lending to the rural economy.The Government has, thus, indicated itsreadiness to infuse the required capitalinto the PSBs to help them maintain acomfortable level of Capital to RiskWeighted Asset Ratio (CRAR).

The Union Budget noted that theGovernment had introduced theCompanies Bill, 2009 in the Parliament,which, when passed, will replace theCompanies Act, 1956. The UnionBudget has assured that the proposedBill would address issues related toregulation in corporate sector in thecontext of the changing businessenvironment.

The Union Budget has alsoproposed to extend banking, insuranceand other services to the targetedbeneficiaries through the Lead BankScheme in habitations havingpopulation in excess of 2,000. Businesscorrespondent model as well as othermodels, with appropriate technologyback up, will be employed to providethese services. The Union Budget hasset an ambitious target of 60,000habitations to be covered by thisscheme. It is expected that this will adda big boost to the initiatives aimed atfinancial literacy and financial inclusion.

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The Union Budget noted that mostof the legislations governing thefinancial sector are very old. In addition,a large number of amendments to theparent Acts, made at different points oftime, has also increased ambiguity andcomplexity. The Union Budget has,thus, proposed to set up a FinancialSector Legislative Reforms Commission(FSLRC) to rewrite and clean up thefinancial sector laws to bring them inline with the requirements of the sector.

To provide timely delivery of justiceto all, the Union Budget has proposed

the setting up of the National Missionfor Delivery of Justice and LegalReforms. The objective of the missionis to help reduce legal backlog in courtsfrom an average of 15 years at presentto 3 years by 2012. It will also help inimproving the legal environment forbusiness.

The Union Budget also hasproposals to implement the Direct TaxCode (DTC) and Goods and ServicesTax (GST) from April 01, 2011, to set upa Technology Advisory Group forUnique Projects, to formalize a symbol

for the Indian Rupee (which will reflectand capture the Indian ethos andculture), to broaden the personal incometax slabs, to provide greateropportunities to people to participatein the Government's disinvestmentprogramme and to launch theSwavalamban scheme to encourage thepeople from the unorganized sector tovoluntarily save for their retirement andto lower the cost of operations of theNew Pension Scheme (NPS) for suchsubscribers.q

Budget 2010 : Growth Strategy for 2020


The author of article "Union Budget - 2010: Key Performance Indicators”, on page199 of the March 2010 issue of The Management Accountant is Shri MrityunjayAcharjee, Senior Member of ICWAI and also a Company Secretary. The inadvertentomission is genuinely regretted.

Dr. Bhabatosh Banerjee on being nominated by the International Associationfor Accounting Education and Research (IAAER) as a member of theStandards Advisory Council (SAC) of the International AccountingStandards Board (IASB) for a period of at least one year.


Shri K. G. Goyal, former Central Council Member of ICWAI on being

elected as Hony. Jt. Secretary of Rajasthan Chamber of Commerce &



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Union Budget 2010 andIndian Agrarian Crisis:Issuesand Initiatives

Dr. Manoj Pillai*

*Assistant Professor, Department ofCommerce, Mahatma Gandhi Govt. College(Affiliated To Pondicherry CentralUniversity), Chalakkara, New-Mahe - 673311

Agricultural sector in India is passing through a crucial and decisive phase asit coincides with globalization, economic liberalization and new internationaleconomic integrations. Ironically this phase has been marked by decrease inpublic investment in irrigation and infrastructure, lack of sound credit facilitiesand crop insurance schemes, farmers quitting farming, decline in agriculturalproduction, weakening of the public distribution system and adverse climaticvariations due to the global warming. All these have resulted in the slow anduneven growth of agriculture when compared to other sectors of Indian economy.Thus on one hand there is tremendous optimism and euphoria associated withthe economic restructuring and reengineering of the Indian economy on theother hand the Indian agriculture is in the doldrums and it portrays a gloomyand sad picture. Budgetary allocation is an important tool which can revitalizeand resurrect the Indian Agriculture sector. This article delves into the problemareas of Indian Agriculture particularly relating to rural indebtedness andfinancial exclusion. It also analyses the impact of budgetary allocations onagriculture growth in the long run with specific emphasis on Union Budget2010.


I ndian Agriculture and its alliedsectors which includes animalhusbandry, forestry and agro

forestry, fisheries and agro industriesis a dynamic and vital component ofIndian Economy as it provideslivelihood to over 60 percent of theIndian population. It is the main stay ofthe Indian economy as is treated as thebackbone of the rural economy. India'stotal geographical area is 328.7 millionhectares of which 141 million hectaresis the gross cropped area. The netirrigated area is 57 million hectares witha cropping intensity of 134 percent. Theagriculture sector contributes to about21 percent of India's Gross DomesticProduct (GDP), 11 percent of total

exports and provides employment toaround 60 percent of the workforce.Thus the Agricultural sector is directlyrelated to self - reliance, meeting the foodand nutritional security of the people,equitable distribution of income andwealth in rural area, reduction ofpoverty and improvement in the qualityof life.

Agricultural sector in India ispassing through a crucial and decisivephase as it coincides with globalization,economic liberalization and newinternational economic integrations.Ironically this phase has been markedby decrease in public investment inirrigation and infrastructure, lack ofsound credit facilities and cropinsurance schemes, farmers quittingfarming, decline in agriculturalproduction, weakening of the publicdistribution system and adverseclimatic variations due to the globalwarming. All these have resulted in the

slow and uneven growth of agriculturewhen compared to other sectors ofIndian economy. Thus on one handthere is tremendous optimism andeuphoria associated with the economicrestructuring and reengineering of theIndian economy on the other hand theIndian agriculture is in the doldrums andit portrays a gloomy and sad picture.The most agonizing and sad aspect ofthis phase is the large number of suicidesby the farmers throughout India.Regular crop failures and rural indebtedness are the main reason for the suicides.Even though the share of agriculture inthe gross domestic product of India ishighest as compared to the other sectorsof the economy, its overall growth rateas well as the incremental capital outputratio is lowest among all the sectors ofthe Indian economy. Similarly the planoutlays during the eighth, ninth andtenth five year plans stands at anaverage of a meager 5 percent.

Table I highlights the compositionand structure of growth of varioussectors of Indian economy duringEighth, Ninth and Tenth Plan.

The above tables show that therehas been considerable decline in theagricultural growth rate as well as theincremental capital output ratio from theeighth five year plan to the tenth fiveyear plan. Similarly the planned outlaysfor the agriculture sector have shown aconstant decline over the years. Thesedevelopments have adversely affectedthe agricultural sector in India.

Rural Indebtedness and AgrarianCrisis

Rural indebtedness is a potent factorbehind the contemporary agrarian crisis.Despite a rapid expansion of branchnetwork in the rural areas particularlyafter the nationalization of banks in 1969and regular flow of institutional creditfor agriculture, the severity ofindebtness has persisted (Patil,Balasaheb Vikhe, 2008). The moststriking aspect of the present phase ofrural indebtedness is that majority of

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1 Agricultural and

allied activities 4.69 1.59 2.06 4.05 3.97 1.99 24.7 20.5

2 Mining and

quarrying 3.59 10.74 3.81 5.44 4.30 7.99 2.3 1.9

3 Manufacturing 9.77 6.67 3.68 18.37 9.82 7.77 15.3 16.7


Electricity, Gas

and Water


5.50 18.00 6.46 15.43 7.99 14.97 2.8 2.8

5 Construction 3.56 1.74 6.82 1.0 8.34 0.99 6.0 6.1

6 Trade 9.06 0.54 5.86 1.09 9.44 0.91 12.7 13.6

7 Rail transport 1.95 27.94 4.70 9.87 5.40 14.66 0.9 0.8

8 Other transport 8.42 4.41 5.63 6.09 7.54 5.37 4.9 4.8

9 Communication 14.31 7.25 17.40 5.28 15.00 8.33 1.7 2.3

10 Financial

services 10.21 2.23 8.93 1.35 11.69 1.56 6.3 7.5

11 Public

Administration 3.91 7.82 9.21 4.09 6.43 5.45 6.6 6.1

12 Other service 6.22 4.19 8.19 3.70 9.26 3.53 15.8 16.8

13. Total 6.54 3.43 5.35 4.53 7.93 3.58 100.0 100.0


the indebted farmers belong to smalland marginal category who have lessthan one acre of land. Table 3 highlightsthe details related to incidence of ruralindebtedness based on size of landpossessed in big Indian states.

Thus it is clearly evident that themaximum incidence of rural

indebtedness based on land possessionis related to marginal and small farmers.Indebtedness is less among the mediumand large land owners throughoutIndia.

Rural Indebtedness and FarmersSuicide In India

The preface of the Report of the

Expert Group on AgriculturalIndebtedness under the Chairmanshipof Prof.Radhakrishna highlights that thedeclining agricultural income resultingfrom the inability to repay debt has leadto the agrarian crisis. It also triggersfarmer's decision to commit suicide.Thus the indebtedness of the farmer hasbecome a key issue which needs an

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I PLAN (1951-56)* 2378 354 14.9

II PLAN (1956-61)* 4500 501 11.3

III PLAN (1961-66) 8577 1089 12.7

ANNUAL PLANS (1966-69)** 6625 1107 16.7

IV PLAN (1969-74)** 15779 2320 14.7

V PLAN 39426 4865 12.3

ANNUAL PLAN (79-80) 12177 1997 16.4

VI PLAN (1980-85) 97500 5695 5.8

VII PLAN ( 1985-90) 18000 10525 5.9

ANNUAL PLAN (1990-91) 12177 1997 16.4

ANNUAL PLAN (1991-92) 64751 3851 6.0

VIII PLAN (1992-97) 434100 22467 5.2

IX PLAN (1997-2002) 859200 42462 4.9

X PLAN (2002-2007) 398890 20668 5.2

XITH PLAN (2007 – 2012) 1096860 54801 4.9

Table 2 highlights the plan outlays to the agricultural sector from the first five year plan.TABLE - 2


* Includes Animal Husbandry, Special Area Programme, Rural Development and Forestry and Wildlife.* Includes buffer stocks of Rs140 crores for 1968-69, Rs24crore for 1969-70, Rs50 crore for1971-72and Rs25 crore for 1972-73 and 24crore for 1973-73. Thus the figure for Vth plan work out to Rs 124 crore against the original plan provision of Rs225 crore.

urgent and holistic solution. In the 5years from 1997 to 2001, there were 78,737 farm suicides recorded in Indiawhich is on an average around 15,747each year. But in the next four years(2002-2005) there were 70, 507, which ison a yearly average of 17,627 farmsuicides that is a rise of nearly 1900 inthe yearly averages of the two periods.(Sainath.P, 2008) Table 5 focuses on aState wise analysis of General SuicideRate (GSR) per 100,000 population andFarmers Suicide Rate (FSR) per 100,000farmers.

The fundamental reason behindfarmer's suicide is a complex andmultifaceted phenomenon. The riskfactor can be related to eitherneurological or of socio- economicdomain. The neurobiological reasons

can be associated with the internalpsyche of the individual and areconsidered as predisposing factorswhere as the socio- economic factorsare more external environment orientedand can be termed as precipitatingfactors. Some of the neurologicalfactors may also have their roots in thesocio- economic domain.

The Radhakrishna Committee onAgricultural Indebtedness (Report ofthe Expert Group on AgriculturalIndebtedness) highlights that theSuicide Mortality Rate (SMR per 100,000persons) for male farmers and male nonfarmers were more or less the same atabout 12 in 1996. But for male farmers itincreased from 12.3 in 1996 to a peak of19.2 percent in 2004, and then declinedto 18.2 in 2005, where as the SMR for

male non farmers increased from 11.9 in1966 to a peak of 14.2 in 2000 and thereafter declined to 13.4 in 2005. The surgein the SMR for male farmers is 4.8 percentper annum while the increase for malenon farmers was marginal. The numberof suicides between the period 2001 -2005 stands at 86,922. The four states,of Andhra Pradesh, Karnataka, Kerala,and Maharashtra accounts for 54percent of these cases. The gapbetween farmers and non farmers SMRwas particularly high in Maharashtraand Kerala. Similarly Chattisgarh, TamilNadu, Pondicherry, Goa, Delhi andSikkim also recorded high SMR for malefarmers. The suicide mortality rateamong farmers is rising through outIndia with Kerala, Maharastra,Karnataka, and Andhra being the worst

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% of Marginal Indebted farmer

House holds (upto 1.0 Ha. of land)

% of small Indebted farmers

Households (1.01 to 2.0


%of semi medium Indebted Farmer

Households (2.01 to 4 Ha)

% of Medium Indebted Farmer

Households (4.01 � 10.00


% of Large Indebted Farmer

Households (Above 10.00


1 Uttar

Pradesh 71.3 17.4 7.8 3.4 0.3

2 Maharashtra 36 26.2 23.3 12.2 2.4

3 Madhya

Pradesh 33 27.1 23.1 13 3.9

4 Rajasthan 49.9 19.8 17.8 14.1 4.5

5 Karnataka 50.7 22.2 15.9 9.3 1.2

6 Andhra

Pradesh 55.7 21.8 15.1 6.6 0.7

7 Bihar 86.9 9.2 2.8 0.7 .06

8 West Bengal 88.7 8.5 2.4 0.4 0.0

9 Punjab 53.3 15.8 17 11.8 2.2

10 Orissa 70.3 20.6 12.5 1.7 0.0

All India 61 18.9 12.5 6.4 1.2

SOURCE: Report number 498 (59/33/1). Situation Assessment Survey of Farmers: Indebtedness of Farmers Households,National Sample Survey's 59th round. (January December 2003)

hit states where the farmer suicidemortality rate is higher than that of nonfarmers.

Financial exclusion is a prominentfactor which has crippled the ruraleconomy of India. It is related with theinability to access necessary financialservices in an appropriate form due toproblems associated with access,conditions, prices, marketing and selfexclusion. C. Rangarajan Committee onFinancial Inclusion has defined it as"Financial inclusion may be defined asthe process of ensuring access tofinancial services and timely andadequate credit where needed byvulnerable groups such as weakersections and low income groups at anaffordable cost." Thorat, Usha (2008)opines that the working or operational

definitions of financial exclusiongenerally focus on the ownership oraccess to particular financial productsand services. The financial services area broad concept and it includes savings,loans, insurance, credit, payments etc.The financial system has to provide itsfunction of transferring resources fromsurplus to deficit units but both deficitand surplus units are those with lowincomes and poor background. Byproviding these services, the basic aimis to help them come out of poverty.Sharma, Purti (2009) relates financialinclusion with easy safe and affordablecredit and other financial services tosocially and economically weakersections of the society. Dasgupta (2009)points out the following fundamental

factors as the potent reasons for thefinancial exclusion in India.

(i) Geographical, i.e. non- existenceof branches in the area, (ii) Accessexclusion, i.e. restricted access becauseof bank risk assessment process, (iii)Condition exclusion, i.e. the conditionrelating to the products failing to meetthe needs, (iv) price exclusion, i.e.charges associated with the productsor services are very high, (v) Marketingexclusion, i.e. strategic exclusion ofcertain markets, and (vi) Self exclusion,i.e. some section of the populationrefuse to approach banks believing thatany request would be turned down

Table 5 highlights the incidence offinancial exclusion both from formal andinformal sources and the proportion of

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RATE (PER 100,000






very high general suicide




















GROUP II STATES (states with high General suicide rates and large numbers of farmers suicide)

22.5 15.1 19.0 13.4 13.8 15.6

36.4 29.9 35.7 18.4 19.2 25.8

1.6 2.0 1.9 1.4 1.4 1.7

GROUP III STATES (states with moderate general and farmer suicide rates

9.9 9.5 9.5 11.0 10.0

4.5 10.2 4.8 6.0 6.9

0.5 1.1 0.5 0.5 0.7

GROUP IV STATES (states with low general and farmer suicide rates)

0.8 5.1 1.5 2.7 5.7 2.2 2.3

0.7 1.1 0.9 2.2 3.8 3.0 2.6

0.9 0.2 0.6 0.8 0.7 1.4 1.1

ALL INDIA 10.6 12.9 1.2

Table - 4 State Wise General Suicide Rate and Farmers Suicide (Per 100,000)

Source: Table formulated by Dr. K Nagaraj, Madras Institute of Development Studies, drawing from various records of NationalCrime Records Bureau (NCRB). Publications 'Accidental Deaths and Suicides in India (Ministry of Home, GOI) census, 2001

non indebted house holds belongingto various categories.

It can be seen from Table - 5 that87% of all non indebted farm households belong to the marginal (70.6) andsmall (17.1) farmer categories. Similarlythe incidence of exclusion by bothformal and non formal sources is higherin marginal and small farmers. The abovetable also highlight that 51.4 per cent of

all categories of house holds are stillfinancially excluded.

Table 6 below shows that the incidenceof financial exclusion among noncultivator households was estimated at78.2 percent out of which 78.8 areagricultural laborer households, 71.4percent of artisans, and 79.9 belong toother rural house holds. Out of the 5.96crore non cultivator house holds about

4.66 crores were estimated to befinancially excluded.

Thus it is clearly evident that theIndian agricultural sector is in the midstof a severe crisis. Several weak links canbe associated with the crisis butreduced public outlays and sparsebudgetary allocation, infrastructuralbottlenecks, rural indebtedness andfinancial exclusion are majorconstraints which has crippled the rural

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MARGINAL < 1 589.06 324.04 55.0 70.6

SMALL 1.01 –


160.60 78.68 49.0 17.1



2.01 –


93.50 39.10 41.8 8.5

MEDIUM 4.01- 10 42.58 14.84 34.9 3.2

LARGE 10.0 + 7.76 2.60 33.6 0.6

ALL SIZES 893.50 459.26 51.4 100


Source: C. Rangarajan Committee Report on Financial Inclusion







2.12 0.77 3.06 5.96





1.67 0.55 2.44 4.66




78.80 71.40 79.70 78.20


Source: C. Rangarajan Committee Report on Financial Inclusion

agrarian economy. Government of Indiais fully committed to revitalize andresurrect the agrarian set up. Manycommittees have been established sothat the root cause of the constraintscan be assessed and analyzed andeffective policies can be designedbased on the recommendations of thesecommittees. Agriculture is also given

prime important status in the budgetaryallocations as many new initiatives aretaken in every Union Budget.Agricultural Development Initiatives inBudget 2010

The Government of India firmlybelieves those agricultural sectorsoccupies a pivotal and centre stage inthe Indian economy as it promotes

inclusive growth, enhances ruralincomes and sustain food security. Inorder to revitalize the AgriculturalSector, Budget 2010 has initiated a four-pronged strategy covering (a)Agricultural Production (b) Reductionof Wastage of Produce (c) Creditsupport to farmers, and (d) a Thrust tofood processing sector.

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Major Budget Allocations Towards theFour Pronged Strategy includes theFollowing

(A) For enhancing the agriculturalproduction the following importantallocations have been made:

i) Budget 2010 provides Rs 400Crores for extending green revolutionto the eastern region of India comprisingBihar, Chattisgarh, Jharkhand, EasternUP, West Bengal and Orissa.

ii) Provision of Rs. 300 crore fororganizing 60,000 "pulses and oilseedvillages" in rain fed areas during 2010-2011 and provide an integratedintervention for water harvesting, watershed management and soil health, toenhance productivity of the dry farmingareas.

iii) Provision of Rs. 200 crores forlaunching a climate resilient agriculturalinitiative with specific emphasis onconcurrent attention to the soil health,water conservation and preservation ofbiodiversity.

(B) In order to reduce wastages instorage as well as in operations thefollowing important decision weretaken:

i) Steps will be taken for reducingsignificant wastages in storage as wellas in the operation of the existing foodsupply chains. The Government of Indiabelieves that opening up of the retailtrade will help in bringing down theconsiderable difference between thefarm gate prices, wholesale pries andretail prices.

ii) In order to meet the deficit storagecapacity the time frame for hiring ofprivate go downs have been extendedto 7 years from 5 years.

c) Availability of credit to farmers isa very important component particularlyin the background of indebtedness andfinancial exclusion. Budget 2010 makesthe following allocations of rural creditfront.

i) The target for agricultural creditfor 2010-11 has been raised to Rs. 3,75,000 crores from Rs. 2, 75,000 croresin 2009-10.

ii) In view of the drought and floodsituation is various states the budgetproposes to extend by six months the

period for repayment of loan amount byfarmers from December 31, 2009 to June30, 2010.

iii) The budget proposes 2 percentinterest subvention as an incentive tothose farmers who repay short term croploans as per schedule. The effectiverate of interest of such farmer will be 5percent per annum.

d) Budget 2010 provides impetus tothe development of food processingsector by providing state of the artinfrastructure. The following importantinitiatives are being made in the presentbudget:

i) In addition to the ten mega foodpark projects already been set up, theGovernment has decided to set up fivemore such park.

ii) External commercial borrowingswill henceforth be available for coldstorage, including farm level precooling, for preservation or storage ofagricultural and allied produce, marineproducts and meat.

Besides this the budget hasapproved a nutrient based subsidypolicy for the fertilizer sector which willbecome effective from April 1, 2010.This policy is expected to promotebalanced fertilization through newfortified products and focus onextension services by the fertilizerindustry. This will lead to an increase inagriculture productivity andconsequently better returns to thefarmers. Thus on the whole the UnionBudget of 2010 has made an attempt toinfuse fresh vitality to the Indianagrarian sector.

ConclusionThe economic reforms initiated

since 1991 has succeeded in putting theIndian economy on a higher growthtrajectory. The planning commission inits approach paper to the 11th five yearplan has stated that 9 percent growthrate in GDP would be feasible duringthe 11th Five Year plan period. However,Agriculture, which accounted for morethan 30 percent of the total GDP at thebeginning of the economic reforms, haswitnessed a sharp deceleration ingrowth after the mid 1990s. The twofundamental factors in the emerging

distress are the manifestation ofagrarian crisis that threatens thelivelihoods of farmers, particularlythose of small and marginal ones andthe agriculture development crisis inreduction of its overall growth rateaccompanied by declining profitability.The post liberalized India has witnessedweakening of support system to farmingand the rise of input prices due toabsence of cost effective technologies.

Though there are number of factorsrelated with agrarian crisis, it is thegrowing volume of indebtedness andfinancial exclusion that requires urgentattention. An integrated andcoordinated effort from the CentralGovernment, State Governments andthe apex financial institutions likeReserve Bank of India (RBI) and TheNational Bank for Agricultural and RuralDevelopment (NABARD) is of utmostimportance if an early and effectivesolution to the present crisis has to bedevised. Union Budgetary allocation isan effective tool to accelerate of thegrowth of the agricultural sector, reduceagrarian distress and revitalize andresurrect the Indian agrarian structure.Union Budget 2010 has number ofstrategic allocations for the agricultureand allied sector. Its properimplementation will definitely benefit theoverall growth of the agrarian set up inIndia. Increased budgetary allocation inannual budgets will assist in theaugmentation of agriculture in the longrun.

References1. Dasgupta (2009). Two Approaches to

Financial Inclusion, Economic andPolitical Weekly, Volume XLIV Nos.26& 27, P.41

2. Patil, Vikhe Balasaheb (2008).Agricultural Indebtedness: Crises andRevival, Economic and Political Weekly,February 2nd 2008, P 47

3. Sharma, Purti (2009). FinancialInclusion by Channelizing ExistingResources in India, Indian EconomicReview, PP. 76 -82

4. Thorat, Usha (2008). Financial Inclusionand Information Technology, ReserveBank of India monthly Bulletin, October2008, p1643.q

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Budget 2010 - A few ChallengesDr. Sreehari Chava*Dr.Vinayak Deshpande**Important Aspects

The focus of Union Budget of 2010is on three important aspects ofthe economy viz. quick return to

the economic growth trajectory, fiscalconsolidation and inclusive growth. Ithas clearly been an attempt to reconciletwo equally pressing considerations-economic growth and financialconsolidation. While growth is essentialto have a larger cake to share, financialconsolidation is needed to ensure thatthe gains do not dissipate as aconsequence of skewflation.

The budget has sent clear signalsto the effect that increase inconsumption and private savingswould be the priority of the day. Thebiggest move has been the recasting ofpersonal income-tax slabs and allowingtax free investment in infrastructurebonds. The move is expected to increasethe disposable income to the extent ofRs 56,000 each in the hands of over 3crore taxpayers and thus boostconsumption. The Budget, in general,has touched people across all incomelevels, for example by extending thedeadline for farm loan repayment (underdebt waiver scheme) and raising thesubvention for timely repayment of croploans from 1 per cent to 2 per cent forFY11.

There are, however, a few majorchallenges - some tangible and othersintangible -before the government thatneed to be tackled with due diligenceand integrity. An important one outlinedby the Finance Minister in his budget

speech relates to the weaknesses ingovernment systems, structures andinstitutions at different levels ofgovernance. The FM adds on to saythat if there is one factor that can holdIndia back in realising our potential as amodern nation, it is the bottleneck ofour public delivery mechanisms. Heemphasizes that we have a long way togo before we can rest on this count.

Two obvious bottlenecks in thegovernment systems are leaky bucketsand unsustainable expenditures. Alatest estimate on black money pinpoints that the existing tax revenue ofRs.5,34,000 crore can move up to a mindboggling to Rs.12,50,000 crores if thegovernment can devise a means ofchannelizing this money into the mainstream. The proposals relating to DTCand GST, when implemented, areexpected to tap a substantial portion ofthis unaccounted chunk.

Cost of Governance

An important parameter that mayunravel the unsustainable governmentexpenditure is the cost of per capitagovernance. The population in Indiahas grown by 41.84% during the last 20years whereas the cost per capitagovernance of the union governmenthas shot up from Rs.1255/- in 1990-91to Rs.9317/- by 2010-11 reflecting anincrease of a huge 953%.

The cardinal principle is that theincrease in the cost of governance shallbe directly proportional to the increasein population with appropriateadjustments for price index. Assuminga price increase of 250%, the logicalincrease in per capita governanceshould be pegged at Rs.2568/- for 2010-11 as against Rs.9317/- being born byus. In other words every Indian is put

to carry on an additional burden ofRs.6749/- towards the uncontained costof governance. Apart from zero basedevaluation, stringent performance &social audits rather than the expenditureaudits may help substantialcontainments in unproductiveexpenditures.

Alarming Fiscal Deficits and PublicDebt

Another important area of concernto the Indian Economy is the alarminggrowth in Fiscal Deficits and PublicDebt. The Economic Survey highlightsthat the fiscal deficits in India aredominated more by structural featuresand less by cyclical components.Therefore, the rapid and significantfiscal consolidation achieved in thepost- FRBMA period up to 2007-08 wasindeed an important achievement thatenabled greater fiscal space for amacroeconomic policy stance tocounteract the impact of the globaleconomic crisis. Besides, as aproportion of the GDP, the reductionsin fiscal deficit in the period 2003-04 to2007-08 were made possible in equalmeasure by higher tax revenues andexpenditure compression. Thisfacilitated use of both tax andexpenditure measures in theexpansionary fiscal policies to boostdemand. As such, the progress in fiscalconsolidation in India is considered tobe different from the typical modelselsewhere driven purely by expenditurecompression.

The resurgence of abnormal PrimaryDeficits since 2008-09 has, however, ledto a reversal of the declining trend inthe Debt-GDP ratio, and raises severeconcerns about the sustainability ofPublic Debt in near future. The totalInternal Liabilities of the CentralGovernment are put at Rs.34,98,452crore, working out to 56.75% of the GDP,as of 31st March 2010.

The rise in public debt means threemajor implications:

*CMA & Director of ShanthiniketanBusiness School, Nagpur.

**Economist & Director of BusinessManagement, Nagpur University.

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(a) The concomitant interest burdenabsorbs an increasing proportion ofrevenue receipts. The interestpayments work out to 36.45% of therevenue receipts for the financialyear 2010 -11.

(b) The rising level of borrowings castsan upward pressure on interestrates, crowds out interest sensitiveinvestments in the short run andthereby adversely impacts theeconomic growth.

(c) The substantial additionalborrowings add to the repaymentburden and may result in the problemof frequent debt rollovers.

The bare financial fundamentalswarrant that the Gross Fiscal Deficitshould lead to Incremental GDP and inturn Incremental Revenue Receipts.These incremental receipts should besufficient to cover the Interest Cost ofthe Deficit and as also the repayment ofthe borrowings within a reasonable timeframe. In other words, the RevenueReceipts attributable to the IncrementalGross Domestic Product (IGDP) shouldbe adequate to service the incrementalinterest payments and repayment of therelevant debt installment. Thus the vitalEquilibrium that should be targeted byany Finance Minister is "RevenueReceipts attributable to IGDP shall beequal to or greater than Annual InterestCost plus Annual Debt Installment."The Indian story of deficits completelyignores this principle of equilibrium.

In the process, the cumulativeimpact of the fiscal deficits and thepublic debt has lead us to an InterestBurden of 37 paise of every rupee beingearned in 2010-11. There could be norespite unless & until the barefundamentals are appreciated andstringent strategies advocated by theFinance Minister.

If the debt-servicing burden iscontained, there could be larger amountof resources spared for vital sectorssuch as health, education, social welfareand other needy avenues of the

economy. This is especially so sincealmost the entire quantum of borrowedfunds is being used for financingcurrent consumption. Moreover, adisproportionate burden of debt isbeing shifted on to the futuregenerations by excessive growth inpublic debt and rising debt servicingburden.

A clear roadmap to achieving fiscalconsolidation will send the right signalsto the global community and is a step inthe right direction towards earningimproved sovereign credit ratings forthe country. Although the fiscal policyenunciated by the Central Governmentis committed towards reducing the fiscaldeficit and debt to a sustainable level,such a commitment is not backed byspecific actions that would ensurecompliance and enforcement by theGovernment.

Window Dressing

Every Finance Minister attempts hisbest to window dress the budget byunderplaying expenditure items such asfertilizer subsidy or petro bond liabilityor down plying the borrowings byexcluding small saving loans and so on.

The revenue deficit of Rs.2,82,735crores projected in the budget estimatesfor 2009-10 has shot up to Rs. 3,29,061crores in the revised estimatesfurnished now. The deviation ofRs.46,326 crores between the budgetestimates and the revised estimates isworrisome. The contributing factors tothis huge increase in the deficit mainlyconsisted of Rs.37,203 crores ofshortfall in revenue receipts coupledwith excessive revenue expenditure oRs.9,123 crores. Such of thesedeviations reflect the inability of thebudget controllers to achieve thetargeted goals and affects the integrityof the Budget severely. As a result thesanctity of the budget stands diluted.

Looking at the other way, the unionbudget is expenditure driven and is acommitment for the nation. The burdenshould be shared by every citizen in an

equitable manner within the canons ofeconomy, ability and transparency. Inthe absence of adequate transparencyand a suspicious secrecy surroundingthe Indian Budget, the canons ofeconomy and ability are severelyimpaired pushing up the cost ofgovernance.


The 13th Finance Commission hasrecently recommended that "tweakingtax and duty rates annually" should bestopped and they should switch to a"three-year rolling budget". A rollingbudget means that tax and duty rateswould remain unchanged for a longerperiod. This would help the companiesand individuals to plan their financialstrategies better. It would also improvethe quality of government expenditure.Many developed countries follow asimilar practice. It is time that Indiamoves on to such a system which willamount to a stable tax regime for areasonable period. In essence, such arolling budget will make good sense forstability and planning.

In the ultimate, good governanceshould consist of five basic componentsi.e. political accountability, free market,the rule of law, social justice, andeducation. The government that rulesand controls the nation, therefore, hasto be properly streamlined. We should,in fact, learn from the experience of theEast Asian countries, and try to behonestly 'hard' rather than beingdishonestly 'soft'. In the process ofachieving the aim of Inclusive growththe fear is of unfair exclusion andunjustified inclusion. The presentgrowth strategy seems to be-consumption driven and not investmentdriven.

Therefore, it is important to simplifytax laws, be it be Direct Tax Code or GST,plug in the leaky buckets and spreadout the age old Indian Ethics and bringdown the per capita cost of governanceto sustainable levels which will go a longway in expenditure containment andnational prosperity.q

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Budget 2010 : GrowthStrategy for Social andHuman Capital DevelopmentDr. L. N. Koli*Dr. Brijesh Rawat**

*Reader, Deptt. Accountancy & LawFaculty of Commerce, DayalbaghEducational Institute[Deemed University]Agra-5 (U.P.).**Director, SPCJIM [ Dr B. R. A. Univ.] Agra.

Social welfare aimed at humandevelopment or improvement in thewell being of the people is an

important objective of developmentplanning. While economic growth isextremely important, it has to beaccompanied by improvement in the qualityof life of the people for the developmentprocess to be sustainable in the medium tolong run. More importantly, it has to beinclusive in nature. The notion of inclusivegrowth relates essentially to equality ofopportunity to all for a productive andmeaningful life with freedom and dignity. Itis much broader than the objective of povertyalleviation. It encompasses humandevelopment and economic and socialmobility for all sections of the society, andin particular, for the disadvantaged andmarginalized population groups of thesociety. These population groups have notonly to be brought into the economic andsocial mainstream but made activeparticipants and legitimate beneficiaries ofthe development process. Ultimately, ahealthy, educated and an empoweredpopulation contributes to improvedproductivity which, in turn sustainseconomic growth.

This paper highlights the importantissues concerning social sector, like ruralinfrastructure and development, education,health, women and child development,welfare and development of weaker sectionsof society, social security and related issues.This paper also briefly highlights sectoralalloca-tions in budget 2010-11 for socialsector.

The ultimate objective of developmentplanning is human development or increased

social welfare and well-being of the peopleof a nation. This goal is also importantbecause the sustainability of thedevelopment process hinges upon thequality of life enjoyed by the people. Ahealthy and educated population lends toincreased productivity which, in turn, cancontribute effectively to output growth.Development strategy, therefore, needs tocontinuously strive for broad-basedimprovement in standards of living. Highgrowth is essential to generate resources forsocial spending. However, the fruits ofgrowth need to be shared equitably amongall section of society. Especially, if needs tobe ensured that the weaker and disadvantagedsections are not left out of the benefits ofgrowth. The eleventh plan has this veryobjective as it aim to ensure that highergrowth of the economy helps overcome theproblem of chronic poverty, ignorance anddisease.

Investment in human capital is essentialbecause expenditure on education andtraining can step up the growth rate of aneconomy. By developing skill in thepopulation, capital formation is speeded upwhich along with physical capital formation,helps in the process of economic growth.Thus, a country ought to spend moreresources an education to promote economicgrowth. But in less developed economicsthis is a serious problem due to lack of funds,very little amount is spend on educationsthe people. Consequently, the rate of growth

remains at a low level. In such countries it isthe duty of the government to increase itssupport to educational institutions at variouslevels.Social and Human Capital DevelopmentHuman Development

As per the united nations developmentprogramme human development report2009, the human development index (HDI)for India in 2007 was 0.612 on the basis ofwhich India is ranked 134 out of 182countries of the world placing it at the samework as in 2006. The HDI is based on threeindicators, namely GDP per capital, lifeexpectancy at birth, and education asmeasured by adult literacy rate and grossenrolment ratio.Trends in India's Social SectorExpenditures

Central government expenditure onsocial services and rural development hasgone up consistently over the years. Theshare of central government expenditure onsocial services including rural developmentin total expenditure has invested from 10.46percent in 2007-08 to 15.48 percent in 2009-10; Central support for social programmeshas continued to expand in various formsalthough most social sector subjects fall withthe purview of the states.

Expenditure on social services whichinclude education, sports, art and culture,medical and public health, family welfare,water supply and samitation housing, urbandevelopment, welfare of scheduled castes,scheduled tribes and other backgroundclasses, labour and labour welfare and socialsecurity.Social Sector Initiatives

I. Poverty alleviation and employ-ment generation programmes- Severalpoverty allevation and employmentgeneration programmes are being implementby the government the important amongthese are-


Central Government expenditure on social services and rural development

(As % of total expenditure)

2007-08 (Actual)

2008-09 (Revised)

2009-10 (Budgeted)

- Social Services - Rural Development

11.39 2.56

11.19 4.55

13.35 4.30

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1. The national rural employmentguarantee scheme

2. Swarn jayanti gram swarozgar yojana3. Swarna jayanti shahari rozagar yojana

II. Social Protection Programmes-In view of the predominance of informalsector workers in the workforce, there isneed for expansion in the scope and coverageof social security schemes for theseunorganized workers so that they areassured of a minimum level of socialprotection. Many measures were taken bythe government of India, like-1. Aam Admi Bima Yojana2. Rashtriya Swasthya Bima Yojana3. The unorganized woker's Social Security

Act, 20084. Bilateral Social Security agreements

III. Rural Infrastructure andDevelopment- Substantial progress wasmade by the central government is creatingrural infrastructure during the year. This wasin accordance with the committed to fastersocial-sector development to remove

disparities under the 11th five year plan.These include Bharat Nirman, the totalsanitation campaign and the national ruralhealth mission. It is evident that the focusof these programmes is on providing betterfacilities and quality of life to ruralpopulation.

IV. Bharat Nirman- This programme,launched in 2005-06 for buildinginfrastructure and basic amenities in ruralarea, has six components, namely ruralhousing, irrigation potential, drinking water,rural roads, electrification and ruraltelephony. It is an important initiative forreducing the gap between rural and urbanareas and improving the quality of like ofpeople in rural areas. The allocation in 2009-10 for Bharat Nirman was stepped up 45percent over 2008-09. upto December 2009,a total length of about 250554 Km of roadshas been completed under the PMGSY witha cumulative expenditure of Rs.59800 crore.Under rural roads component of BharatNirman 33812 habitations have beenprovided all weather road connectivity upto

Budget 2010 : Growth Strategy for 2020

December 2009 and projects for connecting20067 habitations are of different stages.

Sectoral Allocation In Budget - 2010- Rs. 400 crore for extending greenrevolution in the eastern region comprisingBihar, Chhattisgarh, Jharkhand, Eastern UP,West Bengal and Orissa.

- Rs.66100 crore for rural development.

- Rs. 40100 crore for NREGA.

- Rs, 48000 crore for Bharat Nirman.

- Rs. 10000 crore for Indira Awas Yojana.

- Allocation for Housing and UrbanPoverty Alleviation raised to Rs. 1000crore

- Rs. 1270 crore for Rajiv Awas Yojanafor slum dwellers and urban poor.

- Rs. 22300 crore for health sector.

- Rs. 31036 crore for school education.

- 25% of plan outlay allocated to developrural infrastructure.

- And Rs. 137674 crore , which stands37 % of the total plan outlay , for socialsector.q

C A N C E L L AT I O N O F R E G I S T R AT IO N U N D E R R E G U L AT I O N 2 5 (1 ) O F C WA A C T, 1 9 5 9R E G I S T R AT IO N N U M B E R S C A N C E L L E D F O R JU N E -2 0 1 0 E X A M I N AT I O N

U P T OE R S /0 0 0 9 0 4

N R S /0 0 10 5 6 (E X C E P T 96 , 11 9 , 1 2 7 , 1 4 0 -1 4 5 ,4 8 8 - 4 9 9 , 5 3 3 - 6 0 0 , 9 0 1 - 9 2 3 , 9 3 7 -9 5 0 )S R S /0 0 2 1 9 1 ( E X C E P T 20 6 2 – 21 0 4 )

W R S /0 0 1 8 1 8R S W /0 7 5 3 7 6R A F / 0 0 5 8 2 4


T h e s tu de n ts w h o se R eg is tra tio n N u m b ers h ave b een can ce l led ( in c lu sive o f th e s tu d en ts reg is te red up to 3 1 s tD ece m b er-2 0 0 2) as ab ove bu t d es ire to ta ke th e In s ti tu te ’s E x am in a tion in Jun e-20 1 0 m u s t ap p ly fo r D E -N O VOR eg is tra t ion an d o n be in g R eg is te red D E -N O V O , E x em p tion f ro m in d iv idu a l sub ject(s ) a t In te rm ed ia te /F in a lE x am in a tio n o f th e In s ti tu te secu red u n de r th e ir fo rm e r R eg is tra tio n , i f any, sh a l l rem a in va lid as pe r preva len tR u les .

F o r D E -N O VO R eg istra tio n , a c an d id a te sh a l l have to ap p ly to D irec to r o f S tu d ie s in p resc r ib ed F o rm (w h ichcan b e h ad e ith er from th e In s ti tu te ’s H .Q . a t K o lka ta o r from th e co n cern ed R eg io n a l O ffices o n p ay m e nt o f R s .5 /- ) a lo n g w ith a re m ittan ce o f R s. 2 00 0 /- o n ly a s R eg is tra tio n F ee th rou g h D em a nd D ra ft d raw n in favo ur o fTHE ICWA OF INDIA, payable at KOLKATA.

Kindly ignore the earlier Circular dt. 27 th January, 2010 in this regard.Arnab Chakraborty,

Date: 24th March, 2010 Director of Studies

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Union Budget 2010-11: AReform Oriented Approach

Dr. Arindam Ghosh*Asit Gope**

**Reader and Head, Department ofCommerce, Panihati College; Life Member,Indian Economic Association & BengalEconomic Association.*Research Scholar, Department ofCommerce, University of Kalyani.


T he Finance Minister Mr. PranabMukherjee's budget speech hasinstalled confidence that the

Indian economy is well on its way torecovery. The budget-industry nexus isa completely different framework fromthe past. In the early periods, the mosthighlighting points were taxes, incomes,customs and excise. Since the economyof our country is moving towards amaturity stage, the impact of the budgeton industry has gone far beyond andnow it is not only a simple matter oftaxes or customs etc. but it also includesdifferent areas of our economy. This isso because, the structure of ourindustry culture not only consists ofmanufacturing concerns but it alsoincludes many varieties of serviceindustry sectors and infrastructure andagribusiness. However, the budget 2010shows a clear approach towards itschallenging nature to different sectorsof our economy. Therefore, thechallenge of getting back to fiscalconsolidation was always expected.

Thus, the increase in the rate of exciseduty from 8% to 10% or increasingduties on oil and oil-related areas, aswell as other sectors, were inevitableand predicted. So far as the recovery ofour economy is concerned the budgetmakes a clear approach by themethodical exit from the fiscal stimuluspackage. The finance minister's plan torein in the fiscal deficit at 5.5% of GDPin 2010-11 and thereafter to 4.8% and4.1% in the subsequent years is the keytakeaway from this budget. However,

Budget 2010 is considered to be a landmark as it significantly the broad agendaon fiscal reforms by introducing the dual goods and services tax (GST) to replacethe current multiple mechanism of indirect taxes across central and state levels.This budget has made many people happy with its outcome of tax proposals. Theoverall theme of the Union Budget for 2010-11 was a shift in fiscal policy fromstimulating growth to maintaining the growth momentum while embarking on arenewed path towards fiscal consolidation. A second and more careful readingof the budget documents may very well change the positive feelings that havebeen generated.

Table:1 Efforts to restore fiscal balance in the Budget 2010-11

(Rs. Crores) 2008-09 2009-10 (RE) 2010-11 (BE)

Total Receipts 883,956 1021,546 1108,749

Revenue 540,259 577,294 682,212

Capital 343,697 444,253 426,537

Total Expenditure 883,956 1021,547 1108,749

Revenue 793,798 906,355 958,724

Capital 90,158 115,192 150,025

Revenue Deficit 253,539 329,061 276,512

Fiscal Deficit 336,992 414,041 381,408

RD to GDP ratio (%) 4.5 5.3 4.0

FD to GDP ratio (%) 6.0 6.7 5.5

Source: Tata Strategic Management Group

Budget 2010 is considered to be alandmark as it significantly the broadagenda on fiscal reforms by introducingthe dual goods and services tax (GST)to replace the current multiplemechanism of indirect taxes acrosscentral and state levels. This budget hasmade many people happy with itsoutcome of tax proposals. A taxpayerwith an income up to Rs. 5 lakh can nowenjoy a saving close to 37% of hispayable tax with the new slabsintroduced in the budget. For other smalltaxpayers, there is relief on this front inone way or the other. The reduction inthe surcharge has made the corporatesector happy too. But this budget isbased on quite a few assumptions,which, if not properly attempted, mayprove the all efforts in vain.

Overall Economic Picture:

The Indian economy turned aroundin the second quarter of 2009-10 with agrowth of real gross domestic product(GDP) at 7.9 per cent and is estimated togrow at 7.2 per cent for the full year 2009-10 as per the latest data - AdvanceEstimates (AE) of the Central StatisticalOrganisation (CSO) released onFebruary 8, 2010. Following an uncertain

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period since the onset of the globalfinancial crisis, which soonmetamorphosed into a global economicrecession that led to a slowdown in theIndian economy with quarterly growthat around 6 per cent in the third andfourth quarters of 2008-09 and the firstquarter of the current fiscal, the sharpturnaround underscored the strongmacroeconomic fundamentals andbrightened the economic prospects forthe medium term. On the demand sideof the GDP, the rise in gross capitalformation in the second quarter of 2009-10 indicates a broad based recovery.The economic overview is shown belowin gist form:

1. GDP Growth:

The CSO effected a revision in thebase year of its National AccountsStatistics (NAS) from 1999-2000 to 2004-05 while presenting the Quick Estimatesfor 2008-09. As per the 2004-05 series,the economy is estimated to have grownby 6.7 per cent in 2008-09 following agrowth of 9.2 per cent in 2007-08. TheAdvanced Estimates for 2009-10 placesthe growth in the GDP at factor costand constant 2004-05 prices at Rs44,53,064 crore and the GDP at currentmarket prices at Rs 61,64,178 crore.

2. Industrial Production:

The recovery in the economy asgleaned from the quarterly estimates ofthe GDP is due to the resurgent industry.The latest information as per index ofindustrial production (IIP) also mirrorsthis. The IIP crossed the 10 per centmark for the fourth time the current fiscalin December 2009. IIP grew by 16.8 percent in December 2009 (compared to -0.2 per cent in December 2008) - thehighest level of growth in the recentpast. This follows growth of 10.6 percent in August 2009, 10.3 per cent inOctober 2009 and 11.7 per cent inNovember 2009. Fourteen out of the 17industry groups at the double digit levelhave shown positive growth duringDecember 2009 as compared toDecember 2008.

3. Agricultural Production:

As per Fourth Advance Estimatesof agricultural production released bythe Directorate of Economics &Statistics, the total foodgrainsproduction in 2008-09 was estimated at233.88 million tonnes as compared to230.78 million tonnes in 2007-08. As perthe latest available estimates, area sownunder wheat, pulses and groundnut ismore this year (up to February 4, 2010)compared to last year. The deficiencyin South West monsoon of 23 percent,compared to the long period average,severely affected the area sown duringkharif 2009-10 season.

4. Inflation:

Inflation, measured in terms of thewholesale price index (WPI) on a year-on-year basis, eased sharply from itspeak of 12.8 per cent in August 2008 to1.2 per cent in March 2009. Averageannual inflation (April-December) stoodat 1.6 per cent in 2009-10 compared to10.2 per cent in 2008-09. The currentfinancial year (2009-10) started with aninflation rate of 1.3 per cent in April 2009and remained in negative territory fromJune to August 2009. In the month ofDecember 2009, the year-on-yearinflation was 7.3 per cent as against 6.1per cent last year in the correspondingmonth. Since December 2009, there havebeen signs of these high food prices,together with the gradual hardening ofnon-administered fuel product prices,getting transmitted to other non-fooditems, thus creating concerns abouthigher-than-anticipated generalizedinflation over the next few months.

5. External Sector:

India's merchandise exports haveshown remarkable resilience in recentyears with a growth rate of 20 per centplus in US dollar terms since 2002-03.Despite full impact of recession in theeconomy the growth in exports in 2008-09, as per the revised data, is placed at13.6 per cent. In the month of November2009, exports grew by 18.2 per cent aftera nearly continuous 12-month spell of

negative growth. On the other hand,Trade deficit fell to US$ 76.2 billion (asper customs data) in 2009-10 (April-December) from US$ 106 billion in thecorresponding period of the previousyear.

6. Balance of Payment:

As per the latest data for the fiscal2009-10, exports and imports on BoPbasis showed substantial decline duringApril-September (H1) of 2009-10 vis-à-vis the corresponding period in 2008-09. There has however beenimprovement in the balance of payment(BoP) scenario during H1 of 2009-10over H1 of 2008-09, reflected in highernet capital inflows and lower tradedeficit. The trade deficit was lower atUS$ 58.2 billion during H1 (April-September) of 2009 as compared withUS$ 64.4 billion in April-September 2008mainly on account of decline in oilimport.

Roll-out of Goods and Services Tax:

On the reform front, the governmentreiterated its commitment to tax reforms,implementation of GST and Direct TaxCode by April-11, which will help reduceinefficiencies and leakages within thesystem. However, lack of a clearroadmap on oil sector reforms was anegative surprise. The finance ministerhas put to rest all speculation on thedate for the rollout of GST and hasannounced April 1, 2011 as the date ofits introduction in India. Budget 2010 issignificant, as it not only brings clarityto the introduction of GST, but alsomarks the government's commitment toensure its introduction. The proposalstherein also strongly signal thephilosophy and the thought processsurrounding GST, of a broad based andmoderately rated tax that would applyto all consumption at a uniform rate,whether they are goods or services. Inhis Budget speech, the finance ministerhas indicated that the concerted effortsof the Empowered Committee of StateFinance Ministers (EC) and theThirteenth Finance Commission (TFC)

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Budget 2010-11: HighlightsIndian Union Budget 2010-11 Highlights are as follows :- . The total expenditure proposed in the budget estimates is Rs.11,08,749 crore , an increase of 8.6 per cent over last year. • The plan and non-plan expenditure estimated at Rs.3,73,092 crore and Rs.7,35,657 crore respectively, an increase of 15 percent in plan expenditure and 6 per cent in Non-plan expenditure over the BE of previous year. 1. Additional Rs 1, 65, 000 Crs for bank re-capitalisation 2. Rs 3000 Crs for agricultural impetus 3. Farm loan payments to be extended for six months 4. Fertiliser subsidy to be reduced 5. Rs 100 Cr woman farmer fund scheme 6. Coal regulatory authority to be set up 7. Clean energy fund to be established 8. Interest subvention of 2% to be extended for handicrafts and SMEs 9. Rs 200 Crs for Tamilnadu textile sector 10. India faces a challenge of reverting to double digit growth 11. Economy can achieve GDP growth of 10% 12. Interest subvention for housing loans up to 1 lacs 13. Allocation to defence raised to Rs 1.47 lac Crs 14. Defence capex raised to Rs 60000 Crs 15. Hope to implement Direct Tax Code from April 2011 16. GST to be implemented from 2011 17. Divestment target of Rs 25,000 Crs 18. Rs 1200 Crs assistance for drought in Bundelkhand 19. Rs 48000 Crs for Bharat Nirman 20. NREGA scheme allocation raised to Rs 40,100 Crs 21. Allocation to health Rs 22,300 Crs 22. Allocation for school education up from Rs 26800 Crs to Rs 31036 Crs 23. Allocation to power sector at Rs 5130 Crs 24. Rs 10,000 Crs allocated for Indira Awaas Yojna 25. Social Security Fund to have corpus of over Rs 1000 Crs 26. Rs 2400 Crs for Micro, Small and Medium Enterprises 27. Government to contribute Rs 1000 per month for pension security 28. Rs 5400 Crs allocated for urban development 29. Rs 66100 Crs allocated for rural development 30. Rs 1900 Crs allocated for UID project 31. Gross tax receipts Rs 7.46 lac Crs 32. Govt. to set up National Mission for delivery of justice 33. 15% rise in planned expenditure 34. Fiscal deficit target of 5.5% in FY11 35. Excise on all non smoking tobacco raised 36. Televisions to be costlier 37. Mobile phones to become cheaper 38. Cement to be costlier 39. Refrigerators to be costlier 40. Jewellery to be more expensive 41. Monorail granted project import status 42. CDs to be cheaper 43. Excise duty on Compact Fluorescent Lamps halved to 4% 44. Customs duty on Gold and Platinum hiked 45. Service Tax rates unchanged 46. More services to be brought under tax net

Micro, Small and Medium Enterprises

Source: & Press Information Bureau Govt. of India

in the last few months have led to abroad consensus on the design of GSTand laid a robust foundation for itsintroduction. The TFC made its finalrecommendations on GST in its reportthat was tabled in Parliament onFebruary 25, 2010, just a day before the

release of the Union Budget. Thecomments of the central government onthe report are as yet awaited, but giventhe convergence of the views so far therecommendations of the TFC are likelyto receive the broad "buy in" of theCentre, although the states may have

different views on certain parameterssuch as the GST rates, its scope andcoverage, thresholds and on certainother operational aspects. Infurtherance of the central government'svisualization of GST, Budget 2010 hasrationalised the excise duty rate ongoods at 10 per cent, bringing it on parwith the service tax rate of 10 per cent,thus ensuring uniformity of taxationacross goods and services. As regardsthe indicative GST rate, it appearscertain that the federal or the centralGST rate will not, in any eventuality, bein excess of 10 per cent. Indeed, it islikely that the central GST rate could be8 per cent and that the 10 per cent ratewas only maintained as a short termresponse to the fiscal situation. Whatis somewhat disappointing is the lackof real action on the GST front. Whilethe intention of introduction of GST byApril 2011 is laudable, the absence of aclear roadmap for its implementation isa concern. It is hoped that the centralgovernment and the EmpoweredCommittee (EC) would now move faston this and announce clear cut timelinesafter their scheduled meeting in earlyApril this year, so as to ensure that GSTis a reality in April 2011.

Financial Consolidation:

A combination of higherexpenditure committed by Govt. of Indiaprior to the economic slowdown,counter-cyclical revenue andexpenditure measures instituted as partof the fiscal stimulus packages, and acyclical slowdown in growth of taxrevenues mirroring the economicscenario, led to a substantialdeterioration in Govt. of India's revenueand fiscal balances during 2008-09 and2009-10. The higher expenditurecommitted prior to the economic crisisincluded the Pay Commission relatedbenefits and the Debt Waiver toFarmers, which however also acted asstimulants for economic growth.Additionally, Govt. of India introduceda number of fiscal stimulus packages in

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2008-09 that entailed higherexpenditures and tax cuts to stem theslowdown in economic growth, butthese led to considerable departure fromthe targets set in the FiscalResponsibility and BudgetManagement Act, 2003 (FRBM) in 2008-09 and 2009-10.

The overall theme of the UnionBudget for 2010-11 was a shift in fiscal

Table: 3

Sector Proposals Impact Roads Increase in budget allocation for road projects by 13.5% from Rs. 175.20 billion

in FY2009-10 to Rs. 198.94 billion in FY2010-11. Incremental disbursement of Rs. 250 billion over the next three years by IIFCL under its takeout financing scheme Full exemption from import duty for specified machinery for road construction projects Increase in the rate of MAT to 18% from 15% Increase in excise duty for cement, petrol/diesel


Oil & Gas Restoration of basic customs duty of 5% on crude petroleum, 7.50% on petrol and diesel and 10% on other refined petroleum products Enhancement of central excise duty on petrol and diesel by Rs. 1/litre each. Post budget announcement of hike in petrol and diesel prices by Rs. 2.67/litre and Rs. 2.58/litre respectively. Payment of subsidy in cash to the OMCs rather than by way of oil bonds Increase in MAT from 15% to 18%


Infrastructure Increased spending on road projects by 14%. Increased spending on power projects by 34%. Increase in MAT, and non-extension of 80IA benefits and cess on coal are some negatives.


Telecom Central Excise duties increased from 8% to 10% Rate of Minimum Alternate Tax (MAT) increased from the current rate of 15% to 18% of book profits.

Marginally Negative

Construction Overall thrust on development of infrastructure Increase in MAT rate from 15% to 18% Increase in excise duty for cement, petrol/diesel Full exemption from import duty for specified machinery for road construction projects.


Real Estate The construction period for real estate builders to avail benefits under section 80-IB (10) has been extended to 5 years from 4 years. Rs.12.70 billion has allocated for Rajiv Awas Yojna for slum dwellers, up from Rs.1.50 billion, an increase of 700% with the aim of creating a slum free India. Rs 100 billion have been allocated for Indira Awas Yojana. Interest subvention scheme for home loans extended till March 2011.

Marginally Positive

Capital Goods

Increased allocation for power and infrastructure sector Reduction in excise duty from 8% to 4% on CFL and LED Concessional import duty at 5% on inputs for Photovoltaic & Solar Panels Waiver of excise duty on Photovoltaic & Solar Panels and on inputs required in Rotor Blades

Marginally Positive

Table: 2 Trends in Fiscal Indicators (as a percentage of GDP)

2006-07 2007-08 2008-09 (RE) 2009-10 (BE) Revenue Receipts 10.1% 11% 10.1% 10% Revenue Expenditures 12% 12% 14.4% 14.6% Revenue Balance -1.9% -1.1% -4.3% -4.6% Capital Receipts 0.0% 0.8% 0.0% 0.0% Capital Expenditures & Net Lending

1.5% 2.3% 1.6% 1.9%

Fiscal Deficit -3.3% -2.6% -5.9% -6.5%

Source: ICRA Estimates BE- Budget Estimate, RE- Revised Estimate

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Cement 2% Excise duty hike. Negative Pharma Weighted R&D deduction for in house R&D increased from 150% to 200%. Positive Auto 2% excise roll back across the board – largely expected and better than a feared

4% roll back Increase in excise duty to 22% + Rs 15,000 from earlier 20% + Rs 15,000 (on >4m cars) Thrust of infra should benefit commercial vehicle Manufacturers Realignment of direct tax slabs will help spur demand.


IT No mention of Section 10A/B will be allowed to expire. Full SEZ tax benefit extended for profits from FY06 by amendment of Sec 10 AA.


FMCG Increased allocation towards rural development, agricultural-centric and employment generation schemes Reduction in personal tax Increase in central excise duty from 8% to 10%; Duties for all tobacco products to be enhanced

Marginally Positive

Textiles Extension of existing interest subvention of 2 per cent for one more year for exports covering handlooms. Increase in excise duty on man-made fibres and yarns from 8 per cent to 10 per cent One-time grant of Rs.2 billion to the Government of TamilNadu towards the cost of installation of a zero liquid discharge system at Tirupur to sustain knitwear industry.


Banking RBI to consider giving banking licenses to Private Sector Companies / NBFCs GoI to recapitalise select Public Sector Banks by Rs 165 billion; additional capital to RRB Regulatory framework for the Financial sector to be strengthened: Apex level financial stability & Development council to be set up. Increase in interest subvention from 1% to 2% for the farmers who pay as per repayment schedule, extension of debt waiver and debt relief scheme for farmers extended by six months to June 30, 2010.


policy from stimulating growth tomaintaining the growth momentumwhile embarking on a renewed pathtowards fiscal consolidation. TheBudget has aimed to achieve these dualobjectives through a combination ofselective rollbacks in the tax cuts toboost revenue receipts and controlledgrowth of revenue expenditure, whilehigher disinvestment proceeds willprovide headroom for enhanced capitalexpenditure benefitting theinfrastructure sector. Estimates releasedby the Central Statistical Organisation(CSO) suggest that non-agriculturaleconomic growth was robust at 8.9%and 8% respectively in the secondquarter (Q2) and third quarter (Q3) of2009-10, signalling that the timing wasappropriate for Government of India(GoI) to shift its fiscal policy stance from

stimulating economic growth to fiscalconsolidation, while ensuring that thegrowth momentum is maintained.

The revenue deficit, which isestimated to have worsened to 5.3% in2009-10, from 4.5% in 2008-09, (Table:1)is budgeted to improve to 4% of GDP in2010-11 as a result of the estimated highgrowth of revenue receipts andcontrolled 6% growth of revenueexpenditure. While the fiscal deficit ofGoI is expected to worsen to 6.7% ofGDP in 2009-10 from 6% of GDP in 2008-09, led by the worsening revenue deficit,the Budget for 2010-11 has estimatedthat the fiscal deficit will improve to5.5% of GDP.

The Budget also announced therevised date for the migration to the GSTregime, which was keenly awaited, andreaffirmed the commitment to introduce

the Direct Tax Code (DTC) on April 1,2011. Given the impending introductionof the DTC, the change in the incometax slabs for individuals was somewhatunexpected, and will result in somerevenue loss to Govt. of India (GoI).Additionally, the surcharge on domesticcompanies has been reduced to 7.5%from the existing rate of 10%. However,the same would be offset to some extentby the increase in the rate of MinimumAlternative Tax (MAT) to 18% of bookprofits from the current rate of 15%.

Impact of Budget on Different Sectors:

The following table shows theimpact of budget proposals on differentsectors:


The budget as a policy document is

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Budget 2010 : GrowthStrategy for 2020Savitri Kumari*

T he market's rally post the budgetreflects a realistic andprogressive FY 2011 Union

Budget. The projected reduction infiscal deficit in FY 2011 indicates thatthe government is achieving fiscalconsolidation program which is positivefor earnings growth for next comingyears and the stock market.

The key risk factors in what seemsto be a very strong growth environmentare a combination of rising inflation andfragile risk appetite. Going forward, weexpect to see policy action on rates topre-empt demand side inflation.a) Yield curve flattening is likely more

certain - the government's marketnet borrowing is estimated to fall13% in FY 2011 - this is positive forbanks, especially public sectorbanks. Indeed, given theconservative estimates on thebudget the likelihood is that theborrowing program is lower thanexpected.

b) Consumption will likely stay strong- the increase in excise taxes is offsetby reduction in personal taxes.

c) The balance of governmentspending is shifting from 'non-plan'to 'plan' expenditure with benefitsto infrastructure and rural spending.We are positive on industrialsparticularly for the second half of2010.

d) Overall, change to earnings isinsignificant - the cut in corporatetax surcharge is neutralized by thechange in MAT, in my view. Costsare slightly higher on the back ofincreased fuel costs and excise duty.

e) Tax reforms are on track forimplementation in FY 2012. A new

company law, the food security billand possible energy sector reformsare likely in the coming months.Divestment target of Rs 400 billionshould be reassuring to the marketas a signal for further reform on topof Rs 250 billion to be achieved inFY 2010.The Budget has realigned the tax rate

slabs thus increasing disposableincome. Overall, from a consumerperspective the budget was positive ascar prices will go up by Rs 5,000-7,000and annual fuel bills will go up by Rs2,000-3,000 pa but overall disposableincome will increase by Rs 20,000-50,000pa.

There were no major misses in theFY 2011 Union Budget. The FY 2011Union Budget is in the right direction:growth inductive - focusing on fiscalconsolidation, gradual withdrawal offiscal stimulus, tax reforms, planneddivestments, social and inclusivegrowth and infrastructure development.A balanced and pragmatic budget. 7.5out of 10.

The Union Budget 2010-11 has beena pleasant surprise, putting to rest someof the pre-budget fears on high fiscaldeficit, stimulus withdrawal, a biggovernment borrowing plan, so on andso forth.

It was a zero expectations budgetfor the markets. Rather it can be called abudget from which the markets hadnegative expectations. This is probablywhat worked to its advantage asexemplified by the way the equitymarkets reacted.

The single most noteworthy pointthat can be taken from this budget isthe clear shift in focus from managingthe recovery to initialising reforms.

There is a clear direction on fiscal andmonetary reforms.

Initiating reforms is probably a betterway to boost long term growth ascompared to the short term measure ofgiving stimuli, once the economy hasstarted recovering.

The clear visibility on fiscalconsolidation and the calibratedwithdrawal of fiscal stimulus in specificareas is a decisive signal to the worldthat the Indian economy has startedrecovering from the shocks of the globalfinancial crisis and that the governmentis on the path of fiscal prudence.

One of the most importantstatements in the budget was the factthat no oil or fertiliser or food subsidybonds have been issued in 2009-10.Rather, government subsidy has beenextended in cash, thereby bringing allsubsidy related liabilities into fiscalaccounting.

In all likelihood, this policy will becontinued in 2010-11 as stated by theFinance Minister. We all lovetransparency, after all.

Before the budget, the financeminister had an unenviable task ofmanaging growth, controlling inflationand fiscal consolidation. His budgetspeech shows that he has beensuccessful.

Taking the bull by his horns, he hassought to tackle high food priceinflation by improving farmproductivity, reducing wastage andrejuvenating the distributioninfrastructure.

In managing growth, he has givensops for exporters, retained the servicetax at 10%, sought to increase theavailability of credit to the rural under-banked areas and hiked allocations forthe infrastructure sector.

On the fiscal consolidation front, hehas raised the Minimum Alternate Taxby 3%, hiked the excise duty by 2% andrestored the excise and customs dutyon crude petroleum as well as petroleumproducts.*Student of ICWAI

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What more, he has maintained thefiscal deficit target for 2010-11 at 5.5%of GDP as stated in his budget speechlast year and has given a clear roadmapfor reduction in fiscal deficit over thenext two years.

Though the extent and pace ofimplementation will unfold over a periodof time, it is the intent which hasimproved sentiments for the equitymarkets.

Fixing a timeline for rolling out theGoods & Services Tax (GST), Direct TaxCode (DTC), 3G spectrum auctions andUnique Identification Project (UID),shows that the government meansbusiness.

There was good news for the 'aamaadmi' too in the form of a widening ofthe tax slab eligible for lower rates oftaxation, though this was partly offsetby the restoration of excise duty onpetrol and diesel, something that willfurther increase the already high pricesof primary articles and essentialcommodities.

An individual taxpayer with ataxable income of Rs. 8 lacs p.a. or morenow stands to gain Rs. 50000-54000 astax saved because of the widening ofthe tax slab.

On the top of it comes a deductionon amounts invested in long terminfrastructure bonds subject to amaximum limit of Rs. 20000. This is overand above the Rs. 1 lac deductionavailable under section 80C.* Insurance sector reforms - hike in

FDI limit - no mention at all* Concrete steps for improving the

Public Distribution System -probably the UID will help, but stilla clearer roadmap could have beenprovided

* FDI in organised retail - no clarity* Petroleum pricing policy - it has been

deferred to some unknown timeframe

* Fertilizer pricing and subsidytransfer policy - again no fixedtimelinesThere are certain concerns too. First

the restoration of excise and customsduty on petroleum products will fuelinflation further. How will thegovernment tackle this if internationalprices of oil start rising?

Secondly, the Direct Tax Code, ifimplemented in its current unchangedform, will discourage savings andinvestments as it does not differentiatebetween income tax and capital gainstax and does not provide any benefitfor investments in strategicallyimportant areas such as equities andinfrastructure.

This can be disastrous for the highsavings and investment cult of theIndian economy which is crucial to itsfuture growth.

For the financial markets, the budgethas provided a ray of hope particularlywhen the global cues remain gloomy.

A combination of lower thanexpected fiscal deficit (at Rs. 3.81trillion), lower than expectedgovernment borrowing plan (at Rs. 3.45trillion), roadmap for fiscalconsolidation, no change in service taxrates, focus on infrastructure, exporters,banking and financial sector, tax reliefto individuals coupled with sometechnical factors such as the formationof big short positions in the markets aresome of the factors that led to the reliefrally in equity markets.

Similarly, for the debt markets thelower fiscal deficit and governmentborrowing plan has provided somerelief.

Going forward, though the budgetspeech seems to have set a bullishundertone for equity markets, there willbe some reality check over the next weekor so as investors read the finer printand understand the exact implicationsof the tax rate hikes on corporateearnings.

Future direction is likely to beguided more by global cues anddevelopments. And the globalenvironment remains far from certain.

The effective tax rate, he pointedout, was only 19.26 per cent when the

statutory rate was 33.66 per cent (2006-07). The Exchequer was losing chunksof revenue. What he would like is, byand large, an exemption free tax code,possibly with a lower tax rate.

The 3,01,736 companies in thesample, earned a total Rs.4,08,444 crorespretax profits but declared a taxableincome of only Rs.2,48,758 crores, thebalance being mainly exemptionsclaimed by the companies.

The ministry has estimated that thetotal revenue foregone by theExchequer due to tax exemptions tocorporate sector was Rs. 50,075 crores.Had the exemption free tax code beenstrictly applied the effective tax ratewould have been 31.6 per cent. That isreally what is tempting the minister toknock off tax exemptions.

There is however a catch. Thecomputation of the revenue foregoneis based on the assumption that theunderlying tax base will be unaffectedby the removal of tax exemptions. Thatwould be utterly unrealistic.

Take first, the incentives to exports.Almost every country indulges in suchincentives as long as they remain withinthe WTO regulations. If exportincentives are diluted the trade deficit,which will definitely cross $60 billionthis year, will jump up further.

Take again infrastructure. If the priceof electricity, for instance, is regulated,private investment can be attractiveonly if the undertakings receive taxbenefit. Allow companies to chargemarket price and no tax exemptionwould be justified

Therefore, when he raised theincome tax slabs and gave relief to thosewith salary more than Rs 3 lakhs, theeuphoria on the street was notunexpected. To the corporate sector,with one hand he gave a reduction ofsurcharge from 10% to 7.5% and tookaway with the other in the form ofenhancing the MAT from 15% to 18%.Reactions were mixed to this.

A government which is sworn to asocial welfare agenda was expected to

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be profligate with budgetary discipline.Against a target of 6.8%, fiscal deficitfor FY10 is expected to be 6.9%. Butthere is a resolution to limit it to 5.5%,4.8% and 4.2% in FY11 to FY13.

This is good signal to both local andglobal investor. With the governmentborrowing programme limited to Rs3,45,000 in FY11 there should beenough room left for the private sectorto access funds.

There is an ambitious and officialdisinvestment programme to raisearound Rs 40,000 crore and a 3G auctioncollection estimated at Rs 35,000 crore.Both of these are good initiatives. Theformer has a good line-up of state ownedenterprises which will give an exposureto minerals sector, a sector which doesnot have a fair representation in themarket. The latter should move thetelecom revolution in India to the nextgeneration.

Infrastructure spending has beenkept at almost 46% of the Plan outlay orover Rs 1.73 trillion. Roads and Powersector have received an enhancedoutlay of almost Rs 20,000 crore and Rs5,130 crore respectively.

Urban development has beenearmarked Rs 5,400 crore with housingand urban poverty alleviation gettingan allocation of Rs 1,000 crore and theRajiv Awas Yojana for Slum

Development and urban poor segmentseeing its amount hiked from Rs 150crore to Rs 1,270 crore. The spendingon the social sector has actually beenenhanced to over Rs 1.37 trillion.

Budget 2010 will make a lot ofindividual taxpayers happy on accountof the broad reduction in tax slabs. Butthere are some people who will beunhappy with the budget because ofsome changes and duties announcedby the Finance Minister. Let's go overthese:

1. Hike in petrol and diesel prices:The Budget has raised custom duty onpetrol and diesel by 7.5% each and raisedthe central excise duty on petrol anddiesel by Rs 1 per litre each.

Impact: Petrol and diesel prices areestimated to go up by about Rs 2.50 perlitre. (This estimated amount is for theDelhi area, but other markets will see arise of a similar magnitude.)

Clearly, transportation costs will goup for everyone, especially if we useour own vehicle.

2. Excise duty on large cars, SUVsand multi-utility vehicles: Excise dutyon these vehicles is being raised by 2%to 22%.

Impact: The price of these vehicleswill rise. If you were planning on takinga car loan, it's likely that the loan amountwill be higher, and that your down

payment will also be commensuratelyhigher. For example, if you were buyinga Scorpio or an Innova worth aroundRs 8 lakhs to Rs 10 lakhs (dependingupon the model), you are likely to pay ahigher price of about Rs 16,000 to Rs20,000.

3. Excise duty on cigarettes, cigarsand cigarillos: The Budget proposes achange in the structure of the exciseduty on these items, as well as anincrease in rates.

Impact: Cigarettes will cost more,and if you are a smoker you will have topay more for your favourite brand. Nowmight be a good time to considerreviving the perennially popular newyear resolution of giving up smoking.

4. Customs duty on precious metals- gold, platinum and silver: The Budgetproposes raising customs duty on goldand platinum from Rs 200 per 10 gramsto Rs 300 per 10 grams, and on silverfrom Rs 1,000 per kilo to Rs 1,500 perkilo.

Impact: Clearly, the overall cost ofthese precious metals will go up for endconsumers because the rise in theseduties will be passed on the end buyer.

On the other hand, according to thisbudget we think that stronger growthand improving pricing power representupside risks to earnings estimates.q

both brave and ambitious. It is alsounlikely to be popular among largesections of the polity. The ambition isbased on a very optimistic set of growthassumptions. Overall, however, thecorporate sector has reason to cheer thefinance minister's tax measures. Byrolling back partially, he kept theprospects for corporate profitabilitygrowth intact, and gave them enoughtime to adjust to the full rollback of dutyand tax cuts likely sometime next year.Despite very little changing, what isevident from this budget is that thefinance ministry has bet on high growthand good buoyancy of taxes, especially

on the indirect tax from the next year.While the ministry has assumed an 18%increase in overall tax revenues, it is alsoexpected that the excise duties to beraised by 30% and customs by 36%.However, the big challenge is inflation.The food inflation is the major concernfor the Govt. of India now. The fact isbased on the assumption that as longas the overall inflation stays below 8%,the consumer will continue to spendand therefore, the control of thesituation is a far reaching objective. Asecond and more careful reading of thebudget documents may very wellchange the positive feelings that have

been generated. For the sake of oureconomy we all can just hope that allassumptions or expectations won't bewrong.

Reference:1. ICRA Estimates, www.icra.in2. Press Information Bureau, Govt. of

India,3. www.indiabudget.nic.in4. "The Budget 2010-11 It's Impact on

Economic Outlook" by Sunil Bhandare,Advisor (Economic & GovernmentPolicy), TATA Strategic ManagementGroup.

5. Budget 2010-11 Speech of Mr. PranabMukherjee, Finance Minister, GOI.q

Contd. from Page 300

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Budget deficit, fiscal, revenue or primary have their own implications whencountries prepare and present their budgets. In some countries, the deficits havecontributed to growth and have also some times helped countries in tacklingrecession. In few others, it has caused havoc and tragedy to their economicsystems. In view of both positive and negative aspects relating to budget deficits,it is important how country leaders look at them in different situations andcircumstances. Deficit financing is also an art and a skill that country leaderswill have to possess if they have to steer their economy to creating an environmentof people welfare. An attempt has been made to look at the whole gamut ofbudget deficits, when annual estimated financial statements for the country as awhole is prepared by leaders of different countries.

Budget Deficit Demystified


Budget is the key instrument forexecution of government’seconomic and social policies. It

tries to meet public expectations andcompeting political interests. Deficitfinancing or budget deficits beingcomponents of a budget document areoften discussed as a part of publicfinance or public debt management,when the yearly revenues areinsufficient to address proposed orbudgeted annual public expenditure(Plan and Non-Plan). It is an estimatedshortfall in the proposed financials ofthe government for the year. Statisticsfrom public documents have been culledout to show the trend in revenues,expenditures and various deficits overthe years and the same are tabled at theend of the article.

Deficits are of three types, fiscaldeficit, revenue deficit and the primarydeficit. Each of these is definedvariously and has its own implicationsfor the economy. Also, different policiesare devised to tackle them, by thepolicymakers, in order to ensure afunctioning economy that does not hurtthe poor and the have-nots. It has wide

K. S. Ravi*Madhusudhan K.**

*B.Sc., FCA*B.Com., Final passed ICWAI

ranging political ramifications andconsciously they are nurtured to takecare of immediate needs in the economy.

It may be observed in the abovetable that all the deficits areconspicuously presented in thestatement. The annual rhetoric presentsthe statement without any change fromyear to year, subject however toqualification-notes at the bottom. Theanticipated or the expected statementis revised until actual results emerge forits comparability with the budgetedfigures. There is a revised estimate,followed by provisional figures andwhen all the figures have been correctlyand accurately obtained; actualfinancial figures are documented toclose the statement. The actual figuresare compared to find out as to how theeconomy has fared as against thebudget estimates.

Deficits defined:

It is important to understand theelements of deficit before we delve deepinto the subject. Although it isrudimentary in its approach, the termsare defined as hereunder.

Fiscal deficit: It is the differencebetween the total revenue and the totalexpenditure of the government. Anydeficit or shortfall indicates the

government’s borrowing programme. Italso includes recovery of loans on thereceipts side and capital expenditure onthe outflow side. Capital expenditure isincurred in creating long term assets forthe country and its citizens. The deficitis a combination of revenue deficit andcapital expenditure. Fiscal deficit or theoverall shortfall is normally financed byborrowing from the central bank,borrowing from market by issue oftreasury bills or bonds and as a lastresort by printing of currency.

Primary deficit: The primary deficitis a sub-set of the fiscal deficit. As statedabove, fiscal deficit is the differencebetween total revenue and totalexpenditure. Primary deficit on the otherhand, is obtained by deducting interestpayments, on loans borrowed by thegovernment, from fiscal deficit. This willindicate the extent to which the currentrevenues are servicing interestpayments on government debts. Also,if a greater portion of the currentrevenues service interest payment it isa matter of concern that adequaterevenues may not be available for socialprograms and development.

Revenue deficit: Any mismatchbetween revenue receipts and obligatedpayments which includes interestpayments and that which cannot bepostponed to a later date will result inrevenue deficit. Government will haveto adopt measures to not only meet theshortfall in current obligation but mayalso have to raise resources to meet thedevelopment programs and projects.

If on the other hand government isable to raise resources through normalmeans and the expenditure to beincurred is less than the revenue raised,the resultant effect is a surplus andgovernment will not have to resort todeficit financing. At this point oneshould remember that the budget is onlyan estimate based on the pastachievements, extrapolated into thefuture with certain policy decisions. The

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actual performance may turn out to bemore beneficial or adverse dependingon how an economy behaves due tounanticipated and extraneouscircumstances. The matter becomeseven more complex as local economiesare often tormented by happeningsacross the world on account ofglobalization or global integration.

History of deficits:

The world was not as complicatedas it is today. Governments did not takerisk to create a large deficit and the trendacross the developed economies duringthe 19th century or the early part of the20th century showed considerablestability. It was a fiscal deficit or a surplusthat could be managed without anysophisticated planning. The pace ofgrowth, development andindustrialization was predictable and theplanning process too was simple. Exceptfor countries that were ruled by foreigndominance, external economies had littleto say in the local economies ofcountries. But, the first and the secondworld wars opened up localgovernments to the vagaries of worldorder. In order to keep pace with warrelated expenditure, countries emptiedtheir coffers and financed shortfallsagainst future revenue in order to stayafloat. The situation provided somegood lessons to the governance that inthe post-war period, the productivitywent up to such an extent thatgovernments were able to service debtsduring peace-times. Having experiencedthis phenomenon, the habit ofborrowing to spend, in anticipation offuture revenues, has come to stayacross economies. But the repercussionis there for us to see, that peace-timebalanced approach to economy,prevalent in the early part of 20thcentury, has given way to a habitualpractice of deficit financing acrosseconomies. The trend has proceeded tosuch an extent that countries havereached the brink of getting into debttrap.

The next tragedy that causedeconomies on the globe to tremble wasin 1973 when the Organization of OilExporting Countries (OPEC) decided tocut back on supply of fossil fuel toseveral countries. This was on accountof the supposed support that they lentto Israel in a war against Syria andEgypt. This embargo had a devastatingeffect on several local economiesresulting in inflation, trade deficit andincrease in interest rates. Oil prices shotup decreasing the easy money andsurpluses in the hands of theindividuals. It proved counter-productive in generating productivesurpluses and employment, requiringgovernments to intervene. Revenuesearned had fallen and developmentprograms could not be taken up unlessdeficit financing was resorted to.

Features that contribute to budgetdeficits;

It is easy to decipher that in the pre-war environment, humanity did not seeany need for governments to providefor its inabilities. Joint families and largerfamilies provided the required socialsecurity net, either during old age orduring calamities. Hence, governmentsdid not see the need of spendingtowards social welfare of the people.People depended on the governmentonly for protection against war, physicalassault, theft, etc. Most of the othersocial requirements were either a familymatter or a community matter. Disciplineand morality had balancing effects oncommunities in a nation. Exposure tothe external world was limited andpeople lived slow paced ordinary lives.The world wars, fraught with violenceand uncertainty, made individualsdemand for safety and security of theirfamilies based on the sacrifices that theyhad made. Pension and health relateddemands forced political parties toprovide for welfare programs, which hasbecome the order of the day and theabsence of which will jeopardize its very

existence. This shift in approach ofpolitical parties to provide populouswelfare measures to its citizens isdistinctly visible in various legislationsbeing passed across nations. It may bein the form of subsidies, incentives,pensions, health care, insurance, debtwaivers, etc. This article has nointention of making judgments on themerits and de-merits of such programs,but it is sufficient here to understandthat they all contribute to budgetdeficits of a nation if there is insufficientrevenue to garner.

Not all budget deficits are harmful.If the object of borrowing is to buildcapacities, build -infrastructure andmaintain the existing national assets,then they will have the effect ofincreasing volumes and productivity.The higher revenues generated due toadded infrastructure, will not only wipeout the borrowings, but will also servicethe debt. Hence, the qualitative aspectdeficit financing has to be compared andcontrasted before passing anyjudgment.

There is per se no real correlationbetween deficit financing and growth.In fact, if only small and manageabledeficits are there, it provides anopportunity for growth in anticipationof demand for goods and services. But,if deficit financing goes beyond theanticipated control and countries areunable to service interest and debts orthat it creates severe inflation in theeconomy, as in Nigeria, it may jeopardizegrowth. Economies may grow or maynot grow irrespective of budget deficits.Growth is a complex phenomenon andaffected by many more parameters thanmerely by fiscal deficit. Americaneconomy has grown in spite of severefiscal deficits. But, the day the deficitsbecome non-manageable the impact isunbearable and the economy goes intoa tailspin. This is what we have seenhappening in some of the developedeconomies.

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Deficit and inflation:

Deficits are normally financed fromany of the following sources:

v Government Bonds and TreasuryBills

v Foreign Debt

v Disinvestment

v Monetization

If government is unable to curb thistendency or is unable to curtail deficitfinancing, going beyond manageablelimits, it will have a devastating effect

on the economy. When thesustainability is in question theeconomy faces adverse situations likeinflation, constant deficits on currentaccount, slow economic growth, etc.Therefore, balanced public financeindicates the macroeconomic health ofthe country.

If bonds are issued to local publicthen it crowds out private investmentas there will be a dearth of moneyavailable for private projects. Scarcityof funds will create a demand in theprivate sector thereby increasing

interest rates and investments will moveto take benefit of that. Also, when moreand more money is required bygovernment it has issue bonds at adiscount rate or it has to offer higherinterest rate, which forms the benchmarkfor interest rates in the private sector.

On the other hand if deficit financinginvites resources from outside thecountry, it will affect exchange rates andincrease foreign debt thereby depletingexchange reserves in the country. Flightof currency will have adverse impact onthe economy adding fuel to inflation.

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This is not new to us as many economieshave suffered on account of this.

Monetization or printing currencyadds to money circulation withoutproduction of real goods. Hence, thismethod of pump priming the economythrough deficit financing is not resortedto unless this is the last choice availableto the leaders.

Another important aspect to thisdiscussion is that the economy has tobe matured to absorb this deficitfinancing or else the money incirculation will create hyper-inflationwithout production of real goods. Thefinancial markets too have to be fullydeveloped to see the benefit of wellmanaged deficit financing.

Deficit financing and recession:

Indian economy has weathered withresilience the global recession. Stepswere taken to flush the economy withmoney to ensure that it has a stabilizingand a multiplier effect in the economy.John Maynard Keyens advocated thatduring recession government shouldadopt the policy of deficit spending.Increase in government spendingcreates liquidity in the system, createsmarket for produced goods, demandfructifies into increased employment,increases consumer spending anddrives growth. But when the growthstabilizes, the process of suckingliquidity in the system should start in agraduated manner so as not todestabilize the growing economy. Thisis what the Indian government andReserve Bank are attempting to do. Acareful and deft handling throughdeficit financing increases confidencein the public debt management wherebygrowth remains undisturbed and at thesame time ensuring that inflation will notcast it ugly shadow in the economy.Whether recession or not, a little bit ofinflation and a little bit of liquidity willaccelerate the economic process addingto growth and employment. But how

much is little has to be determined byparameters such as market maturity,level of growth, unemployment,governments capability of having avision for its people (without populistmeasures), etc., and it may vary fromcountry to country. Deficit financingduring recession really means bringingdown taxes are increasing expenditure.By any or both these acts, people areleft with money to spend, to save or tospend and save thereby creating ademand for goods and money forinvestment, and the surplus liquidity inthe economy can be gradually managedto be siphoned out, all other thingsbeing equal.

National emergencies like war, flood,drought and other natural calamities canhave recessionary tendencies in theeconomy. Here, the treatment requiredwill be different from what has beendiscussed above as the economyinstead of growth will be fighting for itssurvival. Also, it should be clear thatthose smaller recessions that may raiseits hood more often, have to be dealt intheir ordinary course and not byresorting to deficit financing.

Efforts in deficit reduction:

Countries are making all out effortsto decrease budget deficits and excessmoney circulation in the economy. Indiatoo has been talking rather boldly toreduce deficits. It is entering into adisinvestment phase, whereby it hopesto bring down the accumulated fiscaldeficit to manageable levels.Government cannot control theireconomies fully. They can only attemptto control volatility in the economy toensure a non-turbulent growth. Thisthey have either to do by increasingtaxes or cutting down expenditure. It isa human psychology that people do notwant to pay more taxes, but they maybe willing to accept reduced expenditurespend from the government. The pathis arduous and a painful one but people

will weather it with equanimity. May bethe government has to cut downsubsidies and populous welfareschemes and concentrate spending onpriorities. Japan, America and Europeancountries are all hectically workingtowards bringing down their deficits.

Unless serious efforts are made toreduce and manage budget deficits,country after country may fall into debttrap like the one that has happened asthe Greek economic crisis. Thecountry's budget deficit is • 300 billionand it owes $ 75.5 billion, $ 64 billion,and $43.2 billion to French, Swiss andGerman banks respectively. The PrimeMinister there has proposed publicexpenditure cuts and savings measuresto reduce the budget deficit from 12.7%of the GDP as against 3% allowed byEuro Zone Rules. This cut of 9.7% cut,he expects to achieve by 2011. TheGerman public, which has sufferedsevere austerity measures, is unwillingto accept any bailouts for a countrywhich has far exceeded the budgetdeficit limits. Whether Greece shouldadopt expansionary policies throughinvestment or should it adopt austeritymeasures, only time will have to tell thecourse of action that the GreeceGovernment will take.


There are very little choicesavailable to economies other thanbringing budget deficits down. Thematter cannot be carried any further asthere are enough lessons, whichindicate that economies can be leftdevastated to fend for themselves whendeficit financing becomes unsustainableor uncontrollable. In the long run,standard of living will deteriorate tosuch an extent that any intervention willtake a long time to wash out the effectof the past sins. Probably a generationmay have to sacrifice for ills of thegovernment and for which they are notresponsible.q

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Standards on Auditingand the Quality ReviewBoardAshok K Agarwal*

*M.Sc.; FICWA; Ph.D, Practicing CostAccountant (Delhi)

T he Government of India,Ministry of Corporate Affairsvide Gazette Notification

Number S.O. 1693 (E) dated 3rd October2007 has set up a Quality Review Boardto evaluate various services beingprovided by the members of theInstitute. In simple words, it translatesto the evaluation of quality of servicesbeing provided by the members of theInstitute. In order to undertake reviewof the services rendered by the membersof the Institute in practice, the Board,vide its letter number Tech/QRB/Review/2009/1, dated 14th December2009 has already intended to receiveinformation with regard to variousstatutory and nonstatutory servicesrendered by all the practicing memberseither in their individual capacity or asproprietorship firms or as partners ofpartnership firms.

International Auditing andAssurance Standards Board (IAASB),an independent standard-setting bodywithin the International Federation ofAccountants (IFAC) has so far finalised36 International Standards on Auditing(ISAs) and International Standard onQuality Control (ISQC). The objectiveof the IAASB is to serve the publicinterest by setting high quality auditingand assurance standards and byfacilitating the convergence ofinternational and national standards,thereby enhancing the quality anduniformity of practice throughout theworld and strengthening publicconfidence in the global auditing andassurance profession.

independent auditor, and explains thenature and scope of an audit designedto enable the independent auditor tomeet those objectives. It also explainsthe scope, authority and structure ofthe ISAs, and includes requirementsestablishing the general responsibilitiesof the independent auditor applicablein all audits, including the obligation tocomply with the ISAs.

ISA 210, Agreeing the Terms of AuditEngagements

This ISA deals with the auditor'sresponsibilities in agreeing the terms ofthe audit engagement with managementand, where appropriate, those chargedwith governance.

ISA 220, Quality Control for an Auditof Financial Statements

This ISA deals with the specificresponsibilities of the auditor regardingquality control procedures for an auditof Financial Statements. It alsoaddresses, where applicable, theresponsibilities of the engagementquality control reviewer. This ISA is tobe read in conjunction with relevantethical requirements.

ISA 230, Audit Documentation

This ISA deals with the auditor'sresponsibility to prepare auditdocumentation for an audit of FinancialStatements. The Appendix lists otherISAs that contain specificdocumentation requirements andguidance. The specific documentationrequirements of other ISAs do not limitthe application of this ISA. Law orregulation may establish additionaldocumentation requirements.

ISA 240, The Auditor'sResponsibilities Relating to Fraud inan Audit of Financial Statements

This ISA deals with the auditor'sresponsibilities relating to fraud in anaudit of Financial Statements.Specifically, it expands on how ISA 315and ISA 330 are to be applied in relationto risks of material misstatement due tofraud.

In India, the Auditing andAssurance Standards Board,constituted by the Institute of CharteredAccountants of India has issuedStandards on Auditing (SA) andStandard on Quality Control (SQC) inaccordance with ISAs and ISQC.

The Cost Audit AssuranceStandard Board, constituted by theInstitute of Cost and WorksAccountants of India is expected toissue guidelines for its members inpractice by setting high quality auditingand assurance standards and byfacilitating the convergence ofinternational and national standards,thereby enhancing the quality anduniformity of practice and strengtheningconfidence of Quality Review Board. Inthe mean time, a lead can be taken byrecommending adoption of 'ISAs andISQC' by all the practicing members ofthe Institute. The ISAs have a uniformstructure, in which information ispresented in separate sections:Introduction, Objective, Definitions,Requirements, and Application andOther Explanatory Material.

A list of all the 36 ISAs and ISQC is setforth below:

ISA 200, Overall Objectives of theIndependent Auditor and the Conductof an Audit in Accordance withInternational Standards on Auditing

This International Standard onAuditing (ISA) deals with theindependent auditor's overallresponsibilities when conducting anaudit of Financial Statements inaccordance with ISAs. Specifically, itsets out the overall objectives of the

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ISA 250, Consideration of Laws andRegulations in an Audit of FinancialStatements

This ISA deals with the auditor'sresponsibility to consider laws andregulations in an audit of FinancialStatements. This ISA does not apply toother assurance engagements in whichthe auditor is specifically engaged totest and report separately oncompliance with specific laws orregulations.

ISA 260, Communication with ThoseCharged with Governance

This ISA deals with the auditor'sresponsibility to communicate withthose charged with governance in anaudit of Financial Statements. Althoughthis ISA applies irrespective of anentity's governance structure or size,particular considerations apply whereall of those charged with governanceare involved in managing an entity, andfor listed entities. This ISA does notestablish requirements regarding theauditor's communication with anentity's management or owners unlessthey are also charged with a governancerole.

ISA 265, Communicating Deficienciesin Internal Control to Those Chargedwith Governance and Management

This ISA deals with the auditor'sresponsibility to communicateappropriately to those charged withgovernance and managementdeficiencies in internal control that theauditor has identified in an audit ofFinancial Statements. This ISA does notimpose additional responsibilities on theauditor regarding obtaining anunderstanding of internal control anddesigning and performing tests ofcontrols over and above therequirements of ISA 315 and ISA 330.ISA 260 establishes furtherrequirements and provides guidanceregarding the auditor's responsibility tocommunicate with those charged withgovernance in relation to the audit.

ISA 300, Planning an Audit ofFinancial Statements

This ISA deals with the auditor'sresponsibility to plan an audit ofFinancial Statements. This ISA iswritten in the context of recurring audits.Additional considerations in an initialaudit engagement are separatelyidentified.

ISA 315, Identifying and Assessing theRisks of Material Misstatementthrough Understanding the Entity andIts Environment

This ISA deals with the auditor'sresponsibility to identify and assess therisks of material misstatement in theFinancial Statements, throughunderstanding the entity and itsenvironment, including the entity'sinternal control.

ISA 320, Materiality in Planning andPerforming an Audit

This ISA deals with the auditor'sresponsibility to apply the concept ofmateriality in planning and performingan audit of Financial Statements. ISA450 explains how materiality is appliedin evaluating the effect of identifiedmisstatements on the audit and ofuncorrected misstatements, if any, onthe Financial Statements.

ISA 330, The Auditor's Responses toAssessed Risks

This ISA deals with the auditor'sresponsibility to design and implementresponses to the risks of materialmisstatement identified and assessedby the auditor in accordance with ISA315 in an audit of Financial Statements.

ISA 402, Audit ConsiderationsRelating to an Entity Using a ServiceOrganization

This ISA deals with the userauditor's responsibility to obtainsufficient appropriate audit evidencewhen a user entity uses the services ofone or more service organizations.

ISA 450, Evaluation of MisstatementsIdentified during the Audit

This ISA deals with the auditor'sresponsibility to evaluate the effect ofidentified misstatements on the auditand of uncorrected misstatements, if

any, on the Financial Statements. ISA700 deals with the auditor'sresponsibility, in forming an opinion onthe Financial Statements, to concludewhether reasonable assurance has beenobtained about whether the FinancialStatements as a whole are free frommaterial misstatement. The auditor'sconclusion required by ISA 700 takesinto account the auditor's evaluation ofuncorrected misstatements, if any, onthe Financial Statements, in accordancewith this ISA. ISA 320 deals with theauditor's responsibility to apply theconcept of materiality appropriately inplanning and performing an audit ofFinancial Statements.

ISA 500, Audit EvidenceThis ISA explains what constitutes

audit evidence in an audit of FinancialStatements, and deals with the auditor'sresponsibility to design and performaudit procedures to obtain sufficientappropriate audit evidence to be ableto draw reasonable conclusions onwhich to base the auditor's opinion.This ISA is applicable to all the auditevidence obtained during the course ofthe audit. Other ISAs deal with specificaspects of the audit (for example, ISA315), the audit evidence to be obtainedin relation to a particular topic (forexample, ISA 570), specific proceduresto obtain audit evidence (for example,ISA 520), and the evaluation of whethersufficient appropriate audit evidencehas been obtained (ISA 200 and ISA330).

ISA 501, Audit Evidence-SpecificConsiderations for Selected Items

This ISA deals with specificconsiderations by the auditor inobtaining sufficient appropriate auditevidence in accordance with ISA 330,ISA 500 and other relevant ISAs, withrespect to certain aspects of inventory,litigation and claims involving the entity,and segment information in an audit ofFinancial Statements.

ISA 505, External Confirmations

This ISA deals with the auditor's useof external confirmation procedures to

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obtain audit evidence in accordancewith the requirements of ISA 330 andISA 500. It does not address inquiriesregarding litigation and claims, whichare dealt with in ISA 501.

ISA 510, Initial Audit Engagements-Opening Balances

This ISA deals with the auditor'sresponsibilities relating to openingbalances in an initial audit engagement.In addition to Financial Statementsamounts, opening balances includematters requiring disclosure that existedat the beginning of the period, such ascontingencies and commitments. Whenthe Financial Statements includecomparative Financial/Cost information,the requirements and guidance in ISA710 also apply. ISA 300 includesadditional requirements and guidanceregarding activities prior to starting aninitial audit.

ISA 520, Analytical ProceduresThis ISA deals with the auditor's use

of analytical procedures as substantiveprocedures ("substantive analyticalprocedures"). It also deals with theauditor's responsibility to performanalytical procedures near the end ofthe audit that assist the auditor whenforming an overall conclusion on theFinancial Statements. ISA 315 dealswith the use of analytical proceduresas risk assessment procedures. ISA 330includes requirements and guidanceregarding the nature, timing and extentof audit procedures in response toassessed risks; these audit proceduresmay include substantive analyticalprocedures.

ISA 530, Audit Sampling

This ISA applies when the auditorhas decided to use audit sampling inperforming audit procedures. It dealswith the auditor's use of statistical andnonstatistical sampling when designingand selecting the audit sample,performing tests of controls and testsof details, and evaluating the resultsfrom the sample. This ISA complementsISA 500, which deals with the auditor'sresponsibility to design and perform

audit procedures to obtain sufficientappropriate audit evidence to be ableto draw reasonable conclusions onwhich to base the auditor's opinion. ISA500 provides guidance on the meansavailable to the auditor for selectingitems for testing, of which auditsampling is one means.

ISA 540, Auditing AccountingEstimates, Including Fair ValueAccounting Estimates, and RelatedDisclosures

This ISA deals with the auditor'sresponsibilities relating to accountingestimates, including fair valueaccounting estimates, and relateddisclosures in an audit of FinancialStatements. Specifically, it expands onhow ISA 315 and ISA 330 and otherrelevant ISAs are to be applied inrelation to accounting estimates. It alsoincludes requirements and guidance onmisstatements of individual accountingestimates, and indicators of possiblemanagement bias.

ISA 550, Related PartiesThis ISA deals with the auditor's

responsibilities relating to related partyrelationships and transactions in anaudit of Financial Statements.Specifically, it expands on how ISA 315,ISA 330, and ISA 240 are to be appliedin relation to risks of materialmisstatement associated with relatedparty relationships and transactions.

ISA 560, Subsequent EventsThis ISA deals with the auditor's

responsibilities relating to subsequentevents in an audit of FinancialStatements.

ISA 570, Going ConcernThis ISA deals with the auditor's

responsibilities in the audit of FinancialStatements relating to management'suse of the going concern assumptionin the preparation of the FinancialStatements.

ISA 580, Written RepresentationsThis ISA deals with the auditor's

responsibility to obtain writtenrepresentations from management and,

where appropriate, those charged withgovernance in an audit of FinancialStatements.

ISA 600, Special Considerations-Audits of Group Financial Statements(Including the Work of ComponentAuditors)

The ISA apply to group audits. ThisISA deals with special considerationsthat apply to group audits, in particularthose that involve component auditors.An auditor may find this ISA, adaptedas necessary in the circumstances,useful when that auditor involves otherauditors in the audit of FinancialStatements that are not group FinancialStatements. For example, an auditor mayinvolve another auditor to observe theinventory count or inspect physicalfixed assets at a remote location.

ISA 610, Using the Work of InternalAuditors

This ISA deals with the externalauditor's responsibilities relating to thework of internal auditors when theexternal auditor has determined, inaccordance with ISA 315, that theinternal audit function is likely to berelevant to the audit. This ISA does notdeal with instances when individualinternal auditors provide directassistance to the external auditor incarrying out audit procedures.

ISA 620, Using the Work of anAuditor's Expert

This ISA deals with the auditor'sresponsibilities relating to the work ofan individual or organization in a fieldof expertise other than accounting orauditing, when that work is used toassist the auditor in obtaining sufficientappropriate audit evidence. This ISAdoes not deal with: (a) Situations wherethe engagement team includes amember, or consults an individual ororganization, with expertise in aspecialized area of accounting orauditing, which are dealt with in ISA220; or (b) The auditor's use of the workof an individual or organizationpossessing expertise in a field other thanaccounting or auditing, whose work in

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that field is used by the entity to assistthe entity in preparing the FinancialStatements (a management's expert),which is dealt with in ISA 500.

ISA 700, Forming an Opinion andReporting on Financial Statements

This ISA deals with the auditor'sresponsibility to form an opinion on theFinancial Statements. It also deals withthe form and content of the auditor'sreport issued as a result of an audit ofFinancial Statements. ISA 705 and ISA706 deal with how the form and contentof the auditor's report are affected whenthe auditor expresses a modifiedopinion or includes an Emphasis ofMatter paragraph or an Other Matterparagraph in the auditor's report.

ISA 705, Modifications to the Opinionin the Independent Auditor's Report

This ISA deals with the auditor'sresponsibility to issue an appropriatereport in circumstances when, informing an opinion in accordance withISA 700, the auditor concludes that amodification to the auditor's opinion onthe Financial Statements is necessary.

ISA 706, Emphasis of MatterParagraphs and Other MatterParagraphs in the IndependentAuditor's Report

This ISA deals with additionalcommunication in the auditor's reportwhen the auditor considers it necessaryto: (a) Draw users' attention to a matteror matters presented or disclosed in theFinancial Statements that are of suchimportance that they are fundamentalto users' understanding of the FinancialStatements; or (b) Draw users' attentionto any matter or matters other than thosepresented or disclosed in the FinancialStatements that are relevant to users'understanding of the audit, the auditor'sresponsibilities or the auditor's report.

ISA 710, Comparative Information-Corresponding Figures andComparative Financial Statements

This ISA deals with the auditor'sresponsibilities relating to comparative

information in an audit of FinancialStatements. When the FinancialStatements of the prior period have beenaudited by a predecessor auditor or werenot audited, the requirements andguidance in ISA 510 regarding openingbalances also apply.

ISA 720, The Auditor'sResponsibilities Relating to OtherInformation in Documents ContainingAudited Financial Statements

This ISA deals with the auditor'sresponsibilities relating to otherinformation in documents containingaudited Financial Statements and theauditor's report thereon. In the absenceof any separate requirement in theparticular circumstances of theengagement, the auditor's opinion doesnot cover other information and theauditor has no specific responsibilityfor determining whether or not otherinformation is properly stated. However,the auditor reads the other informationbecause the credibility of the auditedFinancial Statements may beundermined by material inconsistenciesbetween the audited FinancialStatements and other information.

ISA 800, Special Considerations-Audits of Financial StatementsPrepared in Accordance with SpecialPurpose Frameworks

The ISAs in the 100-700 series applyto an audit of Financial Statements. ThisISA deals with special considerationsin the application of those ISAs to anaudit of Financial Statements preparedin accordance with a special purposeframework. This ISA is written in thecontext of a complete set of FinancialStatements prepared in accordance witha special purpose framework. ISA 805deals with special considerationsrelevant to an audit of a single FinancialStatements or of a specific element,account or item of a FinancialStatements. This ISA does not overridethe requirements of the other ISAs; nordoes it purport to deal with all specialconsiderations that may be relevant inthe circumstances of the engagement.

ISA 805, Special Considerations-Audits of Single Financial Statementsand Specific Elements, Accounts orItems of a Financial Statements

The ISAs in the 100-700 series applyto an audit of Financial Statements andare to be adapted as necessary in thecircumstances when applied to auditsof other historical Financial/Costinformation. This ISA deals with specialconsiderations in the application ofthose ISAs to an audit of a singleFinancial Statements or of a specificelement, account or item of a FinancialStatements. The single FinancialStatements or the specific element,account or item of a FinancialStatements may be prepared inaccordance with a general or specialpurpose framework. If prepared inaccordance with a special purposeframework, ISA 800 also applies to theaudit.

ISA 810, Engagements to Report onSummary Financial Statements

This ISA deals with the auditor'sresponsibilities relating to anengagement to report on summaryFinancial Statements derived fromFinancial Statements audited inaccordance with ISAs by that sameauditor.

International Standard on QualityControl (ISQC) 1, Quality Controls forFirms that Perform Audits and Reviewsof Financial Statements, and OtherAssurance and Related ServicesEngagements

This ISQC deals with a firm'sresponsibilities for its system of qualitycontrol for audits and reviews ofFinancial Statements, and otherassurance and related servicesengagements. This ISQC is to be readin conjunction with relevant ethicalrequirements. Other pronouncements ofthe IAASB set out additional standardsand guidance on the responsibilities offirm personnel regarding quality controlprocedures for specific types ofengagements. ISA 220, for example,deals with quality control proceduresfor audits of Financial Statements.q

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Key Business andFinancial Matrices for ITServices CompaniesAloke Ghosh*

F or all finance professionalstracking the performancemetrices for an IT Services

Company has always been achallenging and interesting activity. Aswith any other Industry, the quarter onquarter progress of an IT ServicesCompany is tracked by the financial andbusiness metrices it achieves. In the caseof a listed company the metrices areparamount, and the management,employees, shareholders and analystscommunity keep on comparingthemselves with the leading and similarcompanies in the Industry to determinewhere the company stands in terms ofits performance. Some of the keymetrices which are looked upon withinterest are as follows:

1. Onsite: Off-shore effort ratio: Thisratio depicts the number ofassociates working overseas eitherin the Company developmentcentres or client sites to the ratio ofassociates working out fromCompany development centres inIndia. The current trend is to movemore and more work offshore as itproves beneficial for both thestakeholders. For the Customer, therate per associate for work donedecreases to a third or less of whatthey would have paid onsite. For theServices Company, though therevenue decreases, the margin

improves due to the cost arbitrageof working out from India.

There are cases where the customersthemselves have redefinedoutsourcing and offshoring frombeing a tactical methodology forreducing operational costs into astrategic tool for businesstransformation. They have enshrinedthat 90% of all outsourced work mustbe delivered from offshore. Incollaboration with the servicescompany they have executed theshifting of onsite work to offshoreleading to quick economic benefit forboth companies.

*Commonly Existing ratio: - Offshoreeffort ratio : Onsite effort ratio : 70: 30

1% movement of work from onsitelocation to off-shore location improvesprofitability by 0.4%

2. Utilisation ratio: Depicts thebillability of the associates on thegiven project. The performance andprofitability of the companyimproves with more associatesworking on billable projects ratherthan being on training or sitting inbench in anticipation of futureprojects. However it has to beremembered that the companywould need to retain a few of itsbillable resources in it's reserve totrain them and make them preparedwhen new projects come up. Acritical measurement tool for ITServices Company is to ensure thattheir delivery utilization level doesnot go below the industry average

as it would impact adversely theprofitability of the company.

*Commonly Existing ratio : 70-75%(excluding trainees)

3. Attrition ratio : The level of attritionin the company or associatesleaving the company for otheralternative jobs is a ratio which isvery keenly followed from quarteron quarter. The ratio depicts thenumber of employees who have leftduring a defined period to theaverage number of employees on thepayroll during such period. Highattrition level impacts proficientexecution of existing projectsbesides impacting the availability oftrained and skilled resources.Attrition ratio varies from companyto company however an attritionlevel of atleast 10% of the workforceis faced by most companies.

In the last few years besides theregular retention methodology ofpromotions, increase in salaries , stockoptions and job redefinementcompanies are also adopting innovativemethods of retention. One suchcompany had launched a careerdevelopment programme for itsemployees by using resources such astraining programs, knowledgerepositories and guidance bycounselors appointed exclusively tofacilitate their career growth anddevelopment. This programme had anextremely strong positive impact on itsemployees.

4. Time & material : Fixed fee Projects:Analysts prefer companies whichexecute more fixed priced projects.This is primarily because it showsthe maturity of the IT ServicesCompany in the value chain.Execution of fixed priced projectsshowcases the project execution aswell as management skills. Thecompany has to be mature enough

*CFO of CMS and SYSTIME GlobalSolutions Ltd.

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to ensure that the Project milestonesare achieved on time so that thecustomer requirement is met inaddition to the company attainingit's revenue and profitabilityobjectives. Time and Materialprojects are more of supplyingresources as per customersrequirement where projectsexecution mechanism is more or lesscontrolled by the customer.

*Commonly Existing ratio : Time&material projects : Fixed fee Projects :70: 30

5. Head: Tail ratio: This depicts theHead (Senior Programme Manager)to the ratio of Middle Management(Project Lead) to the ratio ofprogrammers existing in a project(primarily the offshore teamcomposition should be consideredfor calculating the same). Managingthe IT projects with the right mix ofemployees is not only importantfrom the project execution purposebut is critical as well for the projectprofitability. In the normal course,the customer is going to pay marketdetermined prices hence it becomesimportant to execute the projectthrough the correct mix ofmanagement and programmers sothat the cost of resources remainsrationalized and the company makesplanned profit.

*Commonly Existing ratio : Head totail ratio: 1:3:7

6. SG&A as a % of Revenue: Thisratio is another very important profitlever. This depicts the Selling ,General and Administrative costs ofthe company as a percentage of itsrevenue. It is pertinent to note herethat a lot of the selling costs for thecompany is spent overseas. SinceSG&A touches every part of theenterprise, finding a way to lowerSG&A costs goes a long way

towards cutting overall spend.Infact a number of high performingcompanies have taken SG&A costcontrol to heart , consistentlydecreasing such spend.

*Commonly existing ratio : 15%-20%of Revenue

7. Contribution%, PAT% : If all theabove is executed well it would endin the right ratios for the Companyin terms of bottom-line. Contributionpercentage would depict the marginafter deducting the costs directlyassociated with the associatesworking on the project. PAT depictsprofit after tax.

*Commonly existing ratio: Contri-bution% : 45-50% and PAT % : 20-25%

8. Foreign exchange gain or loss: 95%or more revenue in this industry iscovered by overseas exports. Hencegain or loss on foreign exchangethrough forward cover or otherwiseis very critical for the company.

9. Revenue/person: This is calculatedby dividing the Global revenueearned by the company by thenumber of employees in thecompany. Revenue per person is theend result of the followingcombination of input factors:

a) Onsite-off-shore effort ratio : As theonsite billing rates are atleast 3 timesthe offshore rates , more onsite workwould lead to a higher revenue ratio.

b) Billing rates : The revenue ratiowould move higher with higherbilling rates received fromcustomers.

c) Utilisation of associates : Higher theutilization ratio or higher the numberof associates being billed tocustomers as compared to the oneson bench the higher would be therevenue ratio.

Commonly existing figure: US$ 45000-50000 per person per year.

10. Debtor days : Like any otherindustry customer payment cycle isan important tracking mechanism forthe company. An overly burdeneddebtor days does not reflect well,and besides effecting cash flow,could also reveal poor projectexecution skills for the Company aspayments may have been held updue to customer not providingproject completion certificateagainst projects.

Commonly existing ratio: 60 days

11. Geography and CustomerConcentration : As in any otherindustry, it becomes very importantfor the IT services company to trackthe Geography and customerconcentration of the business. Thecritical metrices being Geographyspread and revenue generated fromthe top ten customers. In the currentbusiness scenario US still continuesto be the most important Geographyand in a lot of cases the businessgenerated from the top 10 customersvaries from 45% -55% of the totalbusiness.

12. Project profitability : A sucessfulmanagement of projects would bedepicted by the end result, which isthe profit it generates. Trackingproject profitability and ensuringthat it is within budget is an extremelyimportant criterion which needs tobe tracked.

13. Delivery:Non-Delivery headcount:As the revenue in the business isgenerated from billable associates,it is critical to ensure that the non-billable resources (or Corporatestaff) required to support thebusiness is kept within control. In alot of well managed companies theratio of non- delivery headcount tototal headcount has been restrictedto a maximum of 10%.q

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Smart Cards for Banking forRural Masses - Technology,Security and CostsS. Mukhopadhyay*

*G.M., State Bank of India, CorporateCentre, Rural Business Group.

Banking involves banker customerrelationship in a way that thebanker can

l enroll a customer with demographicand identity details.

l accept customer mandate forservices or products (out of thebank's offerings) that the customerwishes to avail.

l accept, safe keep, account forcustomer's money/ valuables.

l get customer instruction ondisposal of customer's funds (likein remittances, delivery of trustfunds, etc. to a simple cashwithdrawal by self/ third party) withreasonable certainty.

l keep records pertaining to customeraccount for use for customer/regulator/ legal authorities or fordisposal in absence/ incapacitation/death of customer.

2. The underlying requirements thenlead to a need for, among other things,l keeping records of customer details

and accounts for transactions, incontrol of bank's system.

l identifying the customer foraccepting instructions to act on herfunds.Both of the above, for ensuing

adequate trust in a banking system,needs to be beyond repudiation andrevocation. Also facts of recordingtransactions or verifying authority bybanker should be possible to berecorded permanently and irrevocablyfor two things :-

l the person performing thetransaction is identifiable and hadthe authority to undertake it.

l the customer could be verifiedagainst his recorded identity in anyprocess that would, on usualdiligence, lead to same results if theverification is re-performed by adifferent person or at a later time.

Both these processes need beauditable, recorded and repeatable.

3. The above underlying grossphilosophies (of banking or , so to say,all financial activities) are practiced inrules and processes of book keeping,processes of authorization/ verification,and also, audit - which gets over timefurther standardized through tradebodies/ audit bodies/ regulators etc.The manual banking practices in ourcountry have adequate checks andbalances embodying such concepts.

4. To help speed up record retrieval,avoid manual mistakes of entries andcontra entry items to be undertaken atmultiple accounting stages, ease bulkjob like ledger balancing / interestapplication to a large number ofaccounts, summary/ report creationsetc., the manual methods of recordkeeping and accounting have moved tomechanized platform. Withimprovement of technology theplatform has moved from aids likeFACIT machines to Automated LedgerPosting Machines, to Standalonebranch level back office mechanization,to Standalone branch level Total BranchComputerization (TBC) to todays CoreBanking System (CBS) where allbranches of a bank are actually on a

single solution system and networkedwith multilayered technology (hardware/software) implementation for suchsolutions. This CBS eases inter-officetransfers/ customer accountaggregation and MIS consolidationsfurther. Most banks are in differentlevels of achievement in this journey.

5. Whether the computerization is ona branch (TBS) level or whole bankconnected level (CBS), a customertherefore basically will today face abanking person for a cash/ transfertransaction, with a machine (connectedto bank's network - Local or national)who will need to

l recall customer account from thecomputer

l verify customer against, may be, astored signature (or checkcustomer's fingerprint on paperagainst recorded one and photo -involving manual retrieval offer -and be satisfied)

l make entries of transaction in andcontrolled by IT System of the Bank

l return customer a proof (stamped &signed voucher counterfoil/machine output receipt/ certificate/statement etc.)

These needs presence of a bankbranch where such systems, computers,connectivities are available, plus abilityof the person operating to verify thecustomer's signature/ fingerprint. Thebank's system will keep all records andaudit trail of the activity undertaken -which can be verified as necessary.

6. There is a felt need for expandingbanking services to places remote froma bank branch. The population to becovered will therefore be present in"unbanked" customer category orgeography. So, the electronicconnectivity may be poor or even, notavailable; however, banks may not findit viable to open a branch there. Thecustomers also will be less aware/ lesseducated and amounts of moniestransacted will be small. However,

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people will deal mostly in cash. Thecountry wide present thought to expandFinancial Inclusion (FI) is to addressthis. FI involves, as a starting premise,a bank deposit account and thereafterremittances, loans and others.

7. To do the above, one of theemerging solution has been through'Smart Cards' and a 'hand held device' -where the customer will be providedwith a smart card and bank'srepresentative will make transactions ona handheld device, in conjunction withsuch customer smart card.

Smart Card :

A smart card is a small electronic"chip". It is, for convenience of use,housed in a plastic card (like the goldencoloured metallic piece we use ascellphone SIM put in a plastic card whenfirst provided by the cell company. Thatsmall metallic golden looking piece -known as SIM for cell phone - is a smartchip). Some cards expose the chip sothat we can see the chip from outside.These cards need to be inserted in areading device so that the card readerhead of the device comes in contact withthe chip and then data exchange canhappen. These are called "contact"cards. Some cards hide the smart chipinside plastic faces of the card so thatthe chip is not visible. These are"contact less" cards where an"antenna" is provided along with thechip inside the card, and byelectromagnetic radiation, signals areexchanged between the chip and a cardreader (in the hand held device). Thecard here has to be brought near thedevice for transaction. Different optionsfor such exchanges exist. One suchtechnology "Near Fieldcommunication" limits the exchangewithin 10 cms so that unaware robbingof data from a card by a reader at adistance is precluded. Differenttechnical implementations inside thechip are possible. Basically it will havea Read Only Memory (ROM), amicroprocessor, an Erasable Expandable

Programmable Read Only Memory(EEPROM), contact points for datasignal input/ output , as also contactpoints for power supply and "earth"The ROM will be provided with thespecific components of the "operatingSystem (OS)" that makes it start onpower-on, receive/ collect/ send dataetc. Depending on the technology theEEPROM is organized in different ways.In some system (Java Card) small piecesof applications in Java can be kept inthe card there, in some others, differentuser systems can write their OS, Filestructure etc. (Global Open Platform)there. The data put out by this card canbe read by "compatible" smart cardreader which is housed in the Hand HeldDevice (may also be housed in acellphone/ ATM or other contraptionthat can exchange with the Card Readerin terms of message formatcompatibility).

Leaving the details apart, the cardcan "read" some data input to it, andalso store it if the exchange is through acompatible device. Incidentally theCard and the Device having the readercan both the numbered/ identified undersome scheme and also the "message"/"data" that are received/ sent betweenthem can carry such identifications.Many schemes of authentication and/or encryption exist of varyingcomplexities and implementationdemands. This means that only"authorised" devices can read/ writefrom a card and vice-versa.

"Hand held Device" :

Device - Technically the smart cardchip has to exchange with card reader (a smart card reader is different from amagnetic strip reader in an ATM or acredit card reader normally seen) - butboth ATM and the Credit Card readingdevice- often called a "Point of Sole"(POS) device - can be fitted with a smartcard reader. As a normal Credit/ DebitCard reader device - the desired deviceneed be small in size for portability, havebuttons to enter alphanumeric data, a

display screen, a card reader, usualpower supply and communicationability to transmit the transaction databetween the Bank system and itself toand fro . Obviously it needs electronicstorage, memory, microprocessor and"Operating System (OS)". Again thereexists more than one such "solutions".Sometimes the usual credit card POS aretweaked to incorporate the smart cardetc. and sometimes companies havedesigned and developed dedicatedmachines for the purpose and even,some have put in add-on readers andprogram in certain type of cellphonesto enable it up as a device. Thecommunication with the 'backend' ofbank is through a telephone line (PSTN),or wireless like a cellphone (GSM), orover internet over wireless (GPRS).There will have to be a specific'application' program on the Device toinvolve the activities, offer menus,perform transactions etc. As discussedearlier , it is possible to effect variousways of 'authorising' the operator of thedevice as also the transacting card tothe Device for transactions.

Add on Devices :

Finger Print Scanner/ Reader Device(FPD) - Banking practices needcustomer authentication. Customersignature record may not be for the'Device' operator who often is anemployee of a 'franchisee' outlet or'contract based agent' etc. Also manyremote customers may not becomfortable/ able to sign. So, thoughnot a technical compulsion for theDevice and Card to exchange, a fingerprint verification of customer (as also'Device operator') is built into thetransaction cycle as per banks' process.Essentially this is a physically verysmall device that reads the customerfinger on presentation and creates thesame or a 'compressed' or 'encrypted'version of the same. The similarlycreated electronic image/ compressedor encrypted version of that is 'stored'in the Card during 'customer enrollment'.

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The card is put in the 'reader' of theDevice while the live finger is put onFPD. The FPD gets the live finger andthe stored version and compares (by asuitable program) and returns a'success'/ 'failure' result. There are manymethods of the Finger Print imageencryption and comparison, mostlyproprietory to each technologyprovider. (Incidentally the card systemsand 'Devices' are also similarly havingversatile technologies - mostlyproprietory)

l The FPD is, in some systems builtinto the Deice as a component,sometimes housed together with theDevice and connected and fixedpermanently and sometimesstandalone, exchanging data withthe device wirelessly.

l Slip Printer - Often a small printer isattached/ built into the Device andthe software prints a transaction sliphere on transactions. Mostlythermal paper printers (requires noprint ribbon, but print on paper fadeswith time) are used.

l Additional devices for CustomerEnrollment -

l If the field level outlet does customerenrollment, often PC/Laptop areused for Customer detailsdemographic data entry in field apartfrom FPD for fingerprint capture.

l For customers photo capture adigital camera is used often. Somecellphone implementations havestarted this with the built-in cameraof the cell; some Laptop basedimplementations use webcam of thecomputer to do it.

There are practices of simplifyingthe method from taking enrollment formsto data centre (physically/ phototransmission from Cellphone/ hand helddevice/ web cam to data entry centrealso and a mix of these practices) - uptofull entry in the field on the hand helddevice also.

Binding it altogether :

Banking process and softwareremains behind the field presence. ThePOS Devices interact with an"intermediate server" that keeps POSdata, card data, transaction data andcommunication control. This"Intermediate System" talks to thebank's system. Banks may have aseparate system for this or use their ownCBS. Programs reside on POS for fieldlevel transaction menu and in"Intermediate server" for control andaggregation of the field level 'POS'machines and interact with the bankingsystem. In a fully outsourced model, abanking application is put (may not beof the bank but of the technologyprovider of the 'intermediate server') onthe intermediate server and transaction,account maintenance is done here. In abank based version while this may ormay not be done, essentially alltransactions and messages are to bepushed from this 'intermediate' (withtechnical provider mostly) to the bank'ssystem that can be in Core Banking/other main banking system or astandalone system at bank. Theconnectivity can be by leased line/virtual (i.e. VPN etc.). The dataexchanges (intermediate to bank andthe reverse) can be immediate andinstantaneous (on-line real time) or inlots, time to time (batch processing).Various processes and systems withmany banks/ technology companies areon this architecture, details of elements/methods at stages (at and between PoS,card, intermediate and Banking system)vary - giving varieties of models.

8. Technology Summary :

I. Front end -

(a) Transaction Device - (POS/ POT) -has smart card reader, Finger print

scanner, Alphanumeric keypad fordata entry, navigation key (up/down/ enter etc.), Smart card reader,memory, processor, storage,communication facility, display,power supply, Operating system,software for its menu options towork and a slip printer

(b) Customer Enabler - Smart card -contact or contactless withprocessor, storage, memory.

(c) Operator Enabler - Operator Card(like customer card). The operatoris agent of Business Correspondent(BC). BC maintains an account withbank.

II. Front end Operation. -

PoS program stored in POS.Operator logs in with his finger print orPIN verification technically - mostlywith his card. Menu options show onPOS. Customer gets verified with hiscard and fingerprint. Option foroperation related (deposit/ withdrawal/balance enquiry etc. - whateverprovided) by operator and details(amount etc. as required) entered. Insome systems the entered details areplayed back (local language possible)for customer to listen, be assured andconfirm (by 'entering'/ 'selecting' somevalue/ option in the menu provided forconfirmation). If 'off line' transactionsis selected, the details stored in thecustomer card is checked by theprogram and action taken i.e. forwithdrawal. If balance is sufficient itwill debit i.e. note the reduced balancein the customer card, note thetransaction in the POS, displayresponse showing transaction success,new balance etc., print transaction slipfor customer (1 or 2 as provided inprogram). At this point the BC (the fieldagent of BC) hands over the cash to thecustomer. This cash is own cash of the



Intermediate Server

Bank System

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BC field agent. When the transactionhits the banking system, eventually, thetransaction that will be booked is - Debitthe customer and Credit the BC. So, forall cash handed over by BC or his agent,BC's account in the bank is creditedwhen it hits the Bank. For deposit bycustomer at the POS the transaction isjust the opposite i.e. credit the customerand debit the BC. The transactionstored in the POS will be sentelectronically to the 'intermediate server'at the back-end in 'batches' or at 'day-end' as decided/ opted and then thistransaction will be posted in theintermediate server system in thecustomer account. If the bank has setup individual accounts in their bankingsystem then the 'intermediate server' willpass these details to bank for postingin individual accounts at 'day-end' or in'batches', else the bank takes a reportfrom the 'intermediate system' and makesa summary entry.

For an 'online' transaction the card -POS- intermediate server (-bank ifdesired and system) data flow isimmediate so that the data stored in cardand intermediate (and bank system) arealways aligned.

III. Intermediate System - Server,Communication and program.Intermediate Server maintains cardbase, customer demographics,customer account systems, day'stransactions, and controls formessage exchange to front (POS)and back (Bank). Mostly kept insome data centre. Lost card, lostPOS, access control of POS, etc.are managed from here.

IV. Card Manufacture is a completelydifferent process for which othervendors are there normally.

V. Banking System - Usual bankingsystem - mostly Core BankingSystem these days. For intermediateand Banking systems to talk, a'gateway' or 'switch' being a serverwith message exchange and control(firewall, etc.) are put in between.

VI. Back end process -

(a) Gateway or Switch - Managesaccess control, message flowroutine management and controlbetween banking system andintermediate servers.

(b) Banking system - The usual bankingsystem of the bank. The smart cardaccounts can be in this or can be inthe intermediate for which onesummary account is mentioned inthis system.

9. Costs :

As we have seen, the technologicalinfrastructure and distributionmanpower (BC) ecosystem required todo this activity is quite huge. Thecomponent costs vary with technology,volume and business model (own thebackend or share a common hiredbackend, etc.)

As to components-presently thesmart cards depending on technologyand size, varies from above Rs.40/- toRs.150/-, (bulk orders reduce cost), thePOS machines are in the ranges ofRs.20000/- -30000/-. For the'intermediate server' or 'banking system'costs as we know are huge andincremental costing (like 'pertransaction' or 'per card' cost) has nodependability unless a huge base ofmillions of users are achieved. Thebanking system of a moderate size bank,costing an initial investment of sayRs.300 crores and recurring spends ofRs.30 crores a year will be fit for a givenclient base and geographical expanse,say 1 crore customer and 150 districtsin 10 states (all figures imaginary).However, if the customer number wasonly 20 lacs but banking software,branch network and other physicalreach were the same, the above costswould have been nearly the same. Theper customer cost in two of these caseswill widely vary. However, addinganother 1 crore customer will not needthe same investment again. Theinfrastructure costs move in slabsactually and averaging helps only afterhigh numbers are achieved. While costof POS and smart card are commodity

cost from manufacturing industry (ofcourse quite high value-addedcommodities they are !) and mostly paidso, the infrastructure and servicing costof the technology back end and bankingback ends have not surfaced clearly.Practices of paying a per month fixedcost per account (say Rs.5/-) were triedin the industry in some cases. Someprojections of actual incremental settingup cost to have a BC point with a givennumber of customers (say 1000) with agiven transaction level (say 2 per month,Rs.300 per transaction) were attemptedand estimates moved between Rs.5000/- per month to Rs.3000/- depending onif amortization of cost of POS over 3-5years is included or not. A clear modelis not in place.

10. Benefits : The smart card basedoutreach has huge benefits.

For Customer :

(i) Cost and time of travelling to bankbranch (which is away) is avoided.

(ii) Transactions cannot be done(specifically withdrawals) withouthis physical presence ( due tofingerprint verification bytechnology to enable thetransaction).

For Bank :

(i) Can reach small customer (for futurebusiness growth or societalreasons) without elaboratebranch setup/ staff deployment.

(ii) Create a new delivery infrastructurethat is technologically capable of ex-branch outreach for customerconvenience.

For Society :

(i) Creation of a new avenue for citizen, Business to citizen servicedelivery.

(ii) Creation of capacities andemployments in remote locations(the BC network)

(iii) Spreading of Financial awarenessand capability in disadvantagedpopulation.

Contd. on Page 321

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Limited LiabilityPartnership - A NewDimension of Business

Nabina Saha*

*Lecturer in Commerce, BankuraSammilani College, W.B.

Limited Liability Partnership (LLP) is s new business concept which will tryto minimise the gap between partnership business and limited liabilitycompanies formed by the companies act. There exists different steps forincorporation of LLP and these steps are quite simple. LLP combines theadvantages of partnership business and company but still it has somedifferences with partnership business and company. Different countries asUK, USA, Australia, Singapore, Japan have already accepted this limitedliability partnership concept.In India the need for LLP legislation gained momentum with the submissionof 2nd Naresh Chandra Committee's report on 2nd July, 2005.The LimitedLiability Partnership Act 2008 was published in the Indian official Gazetteon January 9, 2009 and has been notified with effect from 31st March2009. The concept of LLP is very promising for Indian business environment.

Introduction :

Partnership is the relationbetween persons who haveagreed to share the profits of

a business carried on by all or any ofthem acting for all. The main limitationof partnership is the unlimited liabilityof partners for the debts and liabilitiesof the firm i.e. if property ofpartnership firm is insufficient to meetliabilities, personal property of anypartner can be attached to pay thedebts of the firm. To remove thismain limitation of partnership theconcept of limited liability partnershiphas been introduced. A limited liabilitypartnership (LLP) is a partnership inwhich some or all partners (dependingon the jurisdiction) have limitedliability. So, it contains elements ofpartnership and corporation. LLP is alegal entity separate from its partners,can own assets in its name, sue andbe sued. Partners of LLP can managethe business directly and partners arenot liable for another partner'smisconduct. It must have perpetual

succession and it should always befor profitable business. The rightsand duties of partners in LLP will bedecided by the agreement betweenpartners and partners can devise theagreement as per their choice.Arguments for LLP:

LLP is a new concept which willtry to meet up the gap betweenpartnership business and limitedliability companies governed by thecompanies act. LLP will help smalland medium enterprises andprofessional firms of companysecretaries, chartered accountants conduct their business/professionsmoothly and increase their globalcompetitiveness. A LLP is

advantageous because ofcomparatively lower cost of formation,lesser compliance requirements, easyto manage and run and dissolve, andwithout the need for minimumcontribution of capital. Partners arenot liable for the acts of othermembers, also there is no requirementof minimum alternate tax ( as of date).

Incorporation of LLP :The process for incorporating a

LLP is simple. The steps requiredare-l Decide on the partners and

designated partners.l Obtain Designated Partner

Identification Number (DPIN) anda digital signature certificate.

l Decide on the name of the LLPand check whether it is available.

l Draft the LLP agreement.l File the LLP agreement,

incorporation documents andobtain the certificate ofincorporation.

Comparison between the LLP,partnership firm and a company :

LLP combines the advantages ofease of running a partnership andseparate legal entity status and limitedliability aspect of a company but LLPhas some differences with partnershipfirm and company. The differencesare as follows :l In case of company & LLP, the

requirement of compulsoryregistration with ROC is there butin case of partnership firm,registration is not compulsory.


Process to Start LLP

Acquire DPIN Register DPIN, DSC Check nameAcquire DSC with LLP Availability

DownloadFile Electronically Track status

ReceiveLLP Forms Certificate after

LLP Ready to function

u u u

u u u u

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the management accountant, April, 2010 319

l The word "limited' and "privatelimited" must be attached at theend of the name of public limitedcompany and private limitedcompany respectively and thename of LLP end with "LLP""Limited Liability Partnership" butin case of partnership firm nosuch guidelines are there.

l Private limited company shouldhave a minimum paid up capitalof Rs 1 lakh and public limitedcompany should have a minimumcapital of Rs 5 lakhs but norequirement of such capitalcontribution is there in case ofpartnership firm and LLP.

l Both company and LLP have aseparate legal entity butpartnership firm does not haveany such separate legal entity.

l In case of company the liabilityof each shareholder is limited tothe extent of unpaid capital butthe liability of each partner incase of partnership business isunlimited and in case of LLP theliability of each partner is limitedto the extent of the contributionto the LLP.

l Minimum number of shareholdersin case of private limited companyis 2. Maximum number ofshareholders in case of privatelimited company is 50 andmaximum number of partners incase of partnership firm is 20 butLLP does not have any of suchmaximum number of partners.

l Foreign nationals can beshareholders of company andforeign nationals can be alsoPartners of LLP but foreignnationals can not form partnershipfirm.

l The income of a company is taxedat 30% + surcharge + cess andthe income of a Partnership firmis taxed at 30% + surcharge +cess but how the income of LLPto be taxed has not yet beennotified.

l In case of a company, quarterlyBoard of Directors meeting andannual shareholders meeting ismandatory. But, no suchrequirement is there in case ofLLP and partnership firm.

l In case of a company, annualaccounts and annual returns ofcompany should file with ROC andin case of LLP annual statementof accounts and solvency andannual return has to be filed withROC but in case of partnershipno return to be filed with theregistrar of firms.

l In case of company andpartnership firms auditing iscompulsory but in case of LLPauditing is required if thecontribution is above Rs 25 lakhsor if annual turnover is above 40lakhs.

International experiences of LLPs :LLPs are very popular form of

business in different countriesthroughout the world. In Canada, theprovinces of Ontario, Manitoba andAlbert and the territory of Nunavuthave permitted LLPs for lawyers. InBC, the partnership amendment Act,2004 (Bill 35) permitted LLPs forlawyers and other professionals aswell businesses.

In China, LLPs are known asspecial general partnership and itsorganizational form is restricted toknowledge - based professions andtechnical service industries. Thestructure of these LLPs shields co-partners from liabilities due to thewillful misconduct or gross negligenceof one partner or a group of partners.In Germany, the German Partnerschaftsgesellschaft or Part G is anassociation of non - commercialprofessionals, working together. It cansue and be sued, own property andact under the partnership's name. Thepartners are jointly and severallyliable for all the partnership's debts,except when only some partner'smisconduct causes damages to anotherparty. The Partners chaftsgesellschaft

does not need any corporate orbusiness tax, only its partner'srespective income is taxed. In Japan,LLPs were introduced in 2006.Japanese LLPs may be formed forany purpose (the purpose must beclearly stated in the partnershipagreement) and have full limitedliability. All partners in these LLPsmust take an active part in thebusiness but Japanese LLPs may notbe used by lawyers or accountants,as these professions are required todo business through an unlimitedentity. These LLPs are treated aspass-through entities for tax purposes.

In Singapore, LLPs are formedunder the LLPs Act 2005. Thislegislation draws on both the US andUK models of LLP. For tax purposethese LLPs are treated like a generalpartnership and so the partners ratherthan the partnership are subject totax.

In the United Kingdom LLPs aregoverned by the Limited LiabilityPartnership Act (in England andWales and Scotland) and the LimitedLiability Partnership Act (NorthernIreland) 2002 in Northern Ireland. AUK LLP is a corporate body whichhas a continuing legal existenceindependent of its members. A UKLLP's members have a collectiveresponsibility, to the extent that theymay agree in a "LLP agreement", butno individual responsibility for eachother's action. In relation to tax, a UKLLP is similar to partnership i.e. itpays no UK tax but its membershave to pay tax in relation to theincome or gains they receive throughthe LLP. I

In the United States eachindividual state has its own lawgoverning their formation. LLPsemerged in the early 1990s; whileonly two states allowed LLPs inl992,over forty had adopted LLP statutesby the time LLPs were added to theUniform Partnership Act in 1996.Although LLP may be found in manybusiness fields, it is an especially

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320 the management accountant, April, 2010

popular form of organization amongprofessionals, particularly lawyers,accountants, and architects. Eachindividual state of United States hasits own law governing their formation.The profits of an LLP of UnitedStates are allocated among thepartners for tax purposes, avoidingthe problem of "double taxation" oftenfound in corporations.LLPs in India :For a long period the issue of LimitedLiability Partnership has been a matterof discussion. In India the conceptof LLP and its importance foundmention in the report of NareshChandra Committee (2003) set up onregulation of private companies. But,the need for introduction of LLPlegislation gained momentum when the2nd Naresh Chandra Committeesubmitted its report on 23rd July 2005and made the following observations:"In increasing litigious marketenvironment, prospect of being amember of a partnership firm withunlimited liability is, to say the least,risky and unattractive. Indeed thechief reason why the firms ofprofessionals, such as accountants,have not grown in size to successfullymeet the challenge of the internationalcompetition. This makes an LLP amost attractive vehicle for partnershipamong professionals such as lawyersand accountants". According tocommittee's view, the scope of LLPsshould be made available to firmsproviding professional services, asopposed to trading firms, and/ormanufacturing firms for the reason itwill help to evaluate its advantagesand risks; and based on suchevaluation and experience, the LLPcould be considered for extension tosmall scale industries. Recently the JJIrani Expert Committee on companylaw (2005) under the chairmanship ofJJ Irani and appointed by the CentralGovernment recommended theintroduction of a LLP law. In itsreport the committee recommended asfollows "Limited Liability Partnerships

should be facilitated through aseparate enactment. Companies Actneed not prescribe limitations on thenumber of members of other kind oforganizations". While Naresh ChandraCommittee preferred the applicationof the LLP to the service industry,Irani Committee recommended thatthe small enterprise should also beincluded in the scope of LLP.

Limited Liability Partnership Billwas tabled in Rajya Sabha on 15thDecember 2006. The Bill, introducedby the Minister of Company Affairs,will bring the Indian partnership lawframework more in line withinternational practices and this billwill provide an effective alternatecorporate business vehicle toprofessionals and enterprises toinstitutionalize their activities andgraduate to the next level. The LLPBill, 2006 is broadly based on UKand Singapore LLP Acts. The CentralGovernment has retained the powerto make rules for carrying out theprovision of the Act. The Bill isdivided into XIV chapters having 73sections and four schedules.

The Limited Liability PartnershipAct 2008 was published in the officialGazette of India on January 9, 2009and has been notified with effectfrom 31st March 2009. The Act hasbeen notified with limited sectionsonly. The Lok Sabha (Lower House)granted its assent to the Bill onDecember 12, 2008 which was alreadypassed by the Rajya Sabha (UpperHouse) in October 2008. The rulesunder the act have been framed andare made effective from 01.04.2009.

The sailent features of the LLPAct, 2008 are as follows :l The LLP is an alternative

corporate business vehicle thatwould give the benefits of limitedliability but allows its membersthe flexibility of organizing theirinternal structure as a partnershipbased on an agreement.

l The LLP Act does not restrict thebenefit of LLP structure to certain

classes of professionals only andwould be available for use by anyenterprise which fulfills therequirements of the Act.

l LLP has a separate legal entity.The liability of the partners wouldbe limited to their agreedcontribution in the LLP. No partnerwould be liable on account of theindependent or unauthorizedactions of other partners.

l LLP shall be a body corporateand a legal entity separate fromits partners. It will have perpetualsuccession. Indian Partnership Act1932 shall not be applicable toLLPs and there shall not be anyupper limit on number of partnersin an LLP. LLP Act makes amandatory statement where oneof the partners to the LLP shouldbe an Indian.

l Provisions have been made forcorporate actions like mergers,amalgamations etc. Whileprovisions in respect of windingup and dissolutions of LLPs havebeen made, detailed provisions inthis regard would be provided byway of rules under the Act.

l The Act provides the conversionof existing partnership firm, privatelimited company and unlistedpublic company into a LLP byregistering the same with theRegistrar of Companies (ROC).

l Nothing contained in thePartnership Act 1932 shall effectan LLP.

l The Registrar of Companies (ROC)shall register and control LLPs.

l The governance of LLPs shall bein electronic mode based onsuccessful model of the presentMinistry of Corporate AffairsPortal.

l Some private players also offeronline LLP registration service.

Conclusion:Dynamism is the main

characteristic of life. Being a livingprocess business always changes its

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the management accountant, April, 2010 321

form and according to that theorythe new concept Limited LiabilityPartnership business has beenintroduced. This business entityallows individual partners to berestricted from the joint liability ofpartners in a. partnership firm. So,this is really a great relief to thepartners, particularly professionals likecompany secretaries, charteredaccountants, cost accountants,lawyers and other professionals.Different countries like UK, USA,Australia, Singapore, Japan hasalready accepted this Limited LiabilityPartnership concept. The introductionof LLPs in India is a good beginningtowards a long journey. In my opinionthis Limited Liability Partnershipconcept is really very good andpromising for Indian businessenvironment.

References :1. Ray, James C (attorney) "The Most

Valuable Business Forums You'll EverNeed" (3rd Ed.) Page 13. 2001 sphinxpublishing, USA.

2. Ministry of Economy, Trade andIndustry, 40 LLP Questions andAnswers (in Japanese).

3. A separate legal entity from partnerswithin the meaning of Anglo -American Law.

4. Addendum to the prefatory Note,Uniform Partnership Act (1997).

5. Official Gazette of India.

6. Ministry of company Affairs (2005),"Concept Paper on Limited LiabilityPartnerships" 5/2005 dated November2005.

7. Ministry of company Affairs (2005),Concept Paper on Company LawReforms Dr. J. J. Committee on

Company Law, May.

8. Ministry of Finance and companyAffairs (2003), "Naresh ChandraCommittee - Secor Regulation ofPrivate Companies and Partnership"Academic Foundation, EconomicIndia, 87 - 96.

9. Jhaveri Shreyas & Sithapathy Vinita,"Limited liability Partnership : Aninsight "Chartered Accountant Vol 55No 3 September 2006.

10. "Online Incorporation of LLP, LimitedLiability Partnership", by NetzCapital Accessed on24th May 2009.

11. h t t p : / / w w w. i n d i a n m b a . c o m /Faculty_Column/FC626/fc626.html/accessed on 26.02.2010

12. accessed on 26.02.2010.q

For Industry :

New/expanded market fortechnology companies (Smart card,POS,Software and backendsystems) Communication channelusage. The data exchanges fromPOS to backends, often the POSbeing implemented involving aCellphone or even otherwise,creates network traffic for cell phonecompanies.

11. Prevention of frauds :

(i) Fingerprint technology being wellestablished, actual fingerprintverification in field duringtransaction is reasonably good. So,impersonation/ wrongful customeridentification is very stronglycontrolled by technology. However,fingerprint qualities of toilingmasses may be not very good i.e.the distinctive features may not bevery sharp/ pronounced. So, thefingerprint capture quality bothduring enrolment and verificationneed be high; also, threshold foraccepting a 'match' is preferably tobe kept high (there are few technicalparameters) in the software- which

also will mean that a genuine personcan get 'rejected' - leading tocustomer dissatisfaction. However,easing of these standards will leadto a 'wrong' person to get matchedwhich will then fail to prevent frauds.

(ii) The 'card', the 'POS' are mutuallyauthenticated and the 'POS' isauthenticated by the IntermediateServer by the software as a practice.This means some rouge installationsor unauthorized outlets/ cardscannot operate in the ecosystem.Fraud can happen from this angle ifthe implementing software agencydo not implement these mutualauthentication principle at the saidstages.

(iii) The exchange of data includingfingerprint data between card, POS,Intermediate Server are usuallyencrypted so that the recipienthaving the correct decryptionalgorithm and key can only use/act on such data. This preventsfraud of ingenuine message beingintroduced from outside ormessages getting 'intercepted' whilein open and then being altered.

Compromising on this practice ofencryption of messages and neverbringing the encryption key in theopen, will loosen the guard againstfraud.

(iv)While the technology is reasonablysecure, "offline" transaction byperson(s) / outlet with physicalmisrepresentation/ duping illiterateor ill-informed customers can be apossibility outside the system. Thesystems and processes and checksand oversight on actual activitiescan help prevent such situations -which are not controllable bytechnology programs completely.

12. In Fine :

The technologies have evolved wellin this area but the business viability,large scale adoption, societal/Governmental funds support forbuilding up the ecosystem of both thetechnology and the operating humanchain/ business entities, are visiblylacking. Without this last piece, thetechnology alone is not expected tomake a reasonable service to thesociety.q

Contd. from Page 317

Recent Developments in Finance

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322 the management accountant, April, 2010


Kona Expressway, Santragachi, Howrah - 711 403, W.B.Phone : 91-33-39884444

On 23rd, 24th & 25th April, 2010


(Set up in the year 1944-founder member of IFAC, CAPA & SAFA)


The Institute of Cost and Works Accountants of India

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the management accountant, April, 2010 323

M ain Sponsorship:


num bers o f de legates at free o f cost.


assoc ia tion w ith E IR C IC WA I K olkata, your nam e w il l

com m unication undertaken by E IR C IC WA I Ko lkata.

T he com pany w ill be a llow ed to set up p rom otiona l

a n d w o u l d h a v e t h e o p t i o n o f p l a c i n g s u i t a b l e

the speakers and pa rtic ipan ts of the sem inar con ference.

A ll the stationery used in com m un ica tion and inv itation

IC WA I K olkata.

T he w elcom e banner at the m a in entrance of the institu te

partners along w ith E IR C IC WA I Ko lkata .

A co-branded banner w ith E IR C IC WA I K olkata w ill be

con fe rence.

S ix m on th ly inse rtion o f you r com pany adve rtisem en t

K o lka ta and one back cover insert ion in souven ir.

R s. 6 ,00 ,000 /-

T he com pany w ill be a llow ed to send 10 (Ten) num bers


p ro fessiona ls, facu lty and S tudents after the con ference.

B ackdrop banners (3 in no) w ill be put up at the location.

T he event w il l be m en tioned as C o rpo ra te lunch hosted


published by EIR C O F IC WA I and one inside back cover

M em ento Sponsorship


o f de legates a t free o f cost.

B anner (1 In N o.) w ill be put up in the C onvention Venue.

O ne fu l l page co lou r inse rtion in the Souven ir.

R s. 2 ,00 ,000 /-T he com pany w ill be a llow ed to send 5 (F ive) num bers



C onference K it


o f de legates a t free o f cost.B anner (1 in N o.) w ill be pu t up in the C onvention Venue.O ne Full page (B lack & W hite) insertion on the S ouvenir.N am e o f the advertiser w il l be d isp layed in the K it.

R s. 1 ,00 ,000 /-T he com pany w il l be allow ed to send 3 (T h ree) num bers




o f de legates a t free o f cost.

R s. 35 ,000 /-T he com pany w ill be al low ed to send 1 (O ne) num ber o f


P atro n s :S ri K u na l B anerjee

D r. S an j ib an B an d y o pad h yay a

C h airm an :J t. Sec re ta ry : S r i A D Wad hw a & S ri Pa llab B h a ttach ary a

M em b ers :Sri M anubhai K . Desai-Chairm an-W IR C of IC WA I

1 . S r i. Jay ti lak B isw as 1 0 . S ri . V. S . D a teySri. S rin ivash S in gh

4 . S r i. P S B h attacha ry a 1 3 . S ri . D V Jo sh i

6 . S r i. S o ilesh B ha ttach ary a 1 5 . D r. R av i M is ra

8 . S ri . R S S harm a 1 7 . S ri. I N C h atte rjee


R s. 15 ,00 ,000 /-

T he co m pany w il l be a l low ed to send 20 (Tw en ty )

A s the t it le sponso r and partner o f the con fe rence in

f ig u re p ro m in e n tly in a l l th e p u b lic i ty a n d m ed ia


stal l(s) in the cam pus fo r the dura tion o f the con ference

com plim en tary inserts in the w elcom e k it w e w ill g ive to


w ill contain your com pany logo along w ith that o f E IR C


w ill ca rry the nam e o f you r com pany as the co rpo rate


used as the backd rop fo r the cen te r-stage du ring the


in the m on th ly jo u rn a l pu b l ished b y E IR C IC WA I

L unch / C onven tion D inner Sponsorship (Per Session )


o f de legates a t free o f cost.

A co rpo rate lunch is p lanned fo r speakers, de lega tes,



by you r com pany in the P rog ram schedu le .

Tw o in se rt io n in the E IR C N E W S m on th ly jou rn al

insert ion in the souven ir.

R s. 5 ,00 ,000 /-

T he com pany w il l be a llow ed to send 8 (E igh t) num bers



Technical Paper


o f de legates a t free o f cost.B anner (1 in N o.) w ill be pu t up in the C onvention Venue.O ne Full page (B lack & W hite) insertion on the S ouvenir.

R s. 2 ,00 ,000 /-T he com pany w ill be a llow ed to send 5 (F ive) num bers




H igh Tea


o f de legates a t free o f cost.B anner (1 in N o.) w ill be pu t up in the C onvention Venue.

R s. 50 ,000 /-T he com pany w ill be al low ed to send 2 (Tw o) num bers

Special S tationary


delegate at free o f cost.

Pa tron - in -C h ie f : S r i. G . N Ven ka tram an - P res id ent o f IC WA IS ri B . M . Sh a rm a - Vice - P res id en t o f IC WA I

S ri S om n a th M u k h er jee

S ri Su resh M o han tyS ri M an as K r. T h aku r

T reasu rer : Sr i K a li K in k ar Sa rk a rSr i S an jay G upta - C hairm an - N IR C o f IC WA I

Sri AV N S N agesw ara-C hairm an-SIR C of IC WA I


2 . S r i. C h and an C h ow d hu ry 1 1 .3 . S r i. P G N an d i 12 . S r i. A sh is B h attacha rya

5 . S ri. H a rij ibo n B an erjee 1 4 . S ri. D C B a jaj

7 . S r i. A sh im M u kh erjee 1 6. S r i. D r. Su b h ash C h . D as

9 . S r i. R a jiv M eh ro tra 1 8 . Sr i. P ravak a r M o h anty

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324 the management accountant, April, 2010


Chairman :Sri. A D Wadhwa Chairman :Ms. TanmayaS Pradhan

Members : Sri. Ashish Members : Sri. K K SarkarBhattacharyaSri. Sudipti BanerjeeSri. Ashish ChattapadhyayaSri. P K SikdarSri. Mrityunjay Acharjee


Chairman :Sri. Debashis Saha Chairman :Sri. K K SarkarMembers :Sri. Saswata Members :Sri. Debashis Saha



Dasgupta BhattacharyaMembers : Sri. K K Sarkar Members : Sri. A D Wadhwa



Chairman : Dr. Sanjiban BandyopadhyayaMembers : Sri Somnath Mukherjee

Sri Pallab BhattacharyaMs. Tanmaya S Pradhan

PARTICIPATION REGISTRATION FORMToMr. MANAS KUMAR THAKURChairman51 st National Cost ConventionEastern India Regional CouncilThe Institute of Cost and Works Accountants of India84, Harish Mukherjee RoadKolkata-700025Dear Sir,We are pleased to inform you that we are interested in: [Tick which is applicable]a) Sponsoring the programme to be held on 23rd , 24th & 25th April, 201 0 at Fortune Park Panchwati, Kolkata, Kona

Expressway, Santragachi, Howrah-711 403, West Bengal[Main Sponsorship / Lunch or Convention Dinner Sponsorship / Memento Sponsorship/ Technical Paper /Conference Kit/High Tea/Tea/Special Stationary/Display Banner]

b) Insertion of an advertisement in the souvenir [Special Page/Back Cover / Back Cover (Inside)/Front Cover (lnside)/lnside full-page (Colour/Inside full-page (Black & White / Inside half page (Black & White)/! nside Quarter Page(Black & White)]

Bank Draft/Cheque No .................................................................................................................... Dated .....................................Drawn on ............................................................................................................................................................................................Rupees ................................................................................................................................................................................................Towards advertisement/sponsorship/dalegate fees.Name of the Organization: ................................................................................................................................................................Address: .............. . ................................................................................................................................................................................................................................................................................................................................................................................................Contact no.:.........................................................................................................................................................................................E-mail id:...............................................................................................................................................................................................c) To enroll the following person(s) as delegates for the 51 st National Cost Convention. Delegate Details:1) Name:...........................................................................................................................................................................................

Designation:..................................................................................................................................... o Veg o Non-Veg2) Name:...........................................................................................................................................................................................

Designation:...................................................................................................................................... o Veg o Non-Veg3) Name:..................................................................................................................................

Designation:.......................................................................................................................................o Veg o Non-Veg[Attach more pages if no. of persons is more than three(3)]Bank Draft/Cheque should be drawn in favour of ‘51 st National Cost Convention of ICWAI’payable at Kolkata.

Signature with seal

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the management accountant, April, 2010 325

E SSAY C O M PE T IT IO NWe a re happy to announce that the essay com petit ion ’C ost M anagem ent - K ey to surv ival in cu rren t g loba l m e ltdow n ’ hasreceived a very good response , w hich w ou ld no t have been possib le bu t fo r the en thusias tic part ic ipa tion o f our m em bersand studen ts . We thank a ll con tr ibu to rs for the ir in terest. T he w inne rs’ nam es w il l be announced shortly and the aw ards w il lbe p resen ted in the fo rthcom ing N ationa l Aw ard in E xcellence in C ost M anagem ent to be he ld in M arch 2010 a t N ew D elh i.

B uoyed by the hearten ing response of the essay com petition, w e propose to ho ld anothe r essay com petition.

T he top ic fo r m em bers is


and the top ic fo r studen ts is


T he com pe tition is open fo r a ll Ind ian N ationa ls.

In the G enera l catego ry, G rad C WA s, m em bers and s tuden ts o f IC WA I above 25 yea rs are el ig ib le to pa rtic ipate.

In the Studen ts catego ry, on ly studen ts o f IC WA I in the age g roup 17 - 25 yea rs a re el ig ib le to part ic ipate.

F irst p r ize : R s.20 ,000/-, Second P rize: R s.15 ,000 /- and T h ird p r ize : R s.10,000 /- in each ca tegory.

Term s an d cond itions

1. E n tr ies m ay be subm itted by ind iv idua ls o r jo in tly to D eputy D irecto r (R esearch & Journa l), IC WA I, 12 Sudder S tree t,Kolkata-700016.

2. E ssay can be coau thored by studen t o f IC WA I o r m em ber o f IC WA I o r G rad C WA only.

3. E ssay shou ld be in E ng lish on ly.

4. T he essay shou ld be accom pan ied by a declara tion by the part ic ipant of the essay to con firm tha t it is o rig ina l and tha tit has no t been published ea rlier. W hereve r requ ired, re ference m ust be quo ted . T h is condit ion is m andato ry.

5. Partic ipan ts a re requ ired to c learly fu rn ish their nam e, age, status- studen t/ m em ber, add ress, em a il, phone num ber andone pho tog raph a long w ith the essay.

6. Pa rtic ipan ts shall be responsib le fo r ensu ring that a l l the in fo rm ation supp lied by them regard ing them se lves is true,co rrec t and com p lete. T hey shall keep the Institute in fo rm ed of any change in in fo rm a tion about them ti ll the com petitionis ove r.

7. E n tr ies shou ld no t exceed 5000 w o rds.

8. T he m atter shou ld be type w ritten on one s ide of the page in 1.5 space. E ach page shou ld be s igned by the partic ipant/s.

9. L ast da te of subm iss ion is 15 th A pr il, 2010 .10. E ntr ies received after the last da te w ill no t be considered.

11. E n tr ies rece ived sha ll be the p rope rty o f IC WA I and m ay be used freely.

12. IC WA I shall not be l iab le for any loss o r dam age of any na tu re incu rred by the pa rt ic ipan t as a result o f the ir pa rt ic ipationin the com petition . Pa rtic ipan ts sha ll indem n ify IC WA I against any dam ages how soeve r a ris ing from the ir part ic ipa tionin the com petit ion .

13. P art ic ipan ts sha ll com ply w ith all nationa l and in terna tional law s pe rta in ing to In te l lectual P rope rty R igh ts .

14. A ny o r a ll o f the term s o f com pe tit ion m ay be changed by IC WA I at any tim e w ithou t prio r notice .

15. IC WA I reserves the r igh t to stop o r suspend the com pe tition w ithou t assign ing any reasons.

16. T he aw ard w inne rs w il l be in tim ated by em ail/ post.

17. In case of any d ispute o r d ifference o f op in ion , the decision of IC WA I w ill be final.

18. P rizes w il l be g iven a t a func tion o rganized by IC WA I. T he w inners w il l be p rovided second c lass A C retu rn tra in fare o ra ir ticket a t the d isc retion o f IC WA I. Lodg ing and boa rd ing w il l a lso be p rov ided as per Institu te ’s ru les.

has already been announced on page 266. Theawards will be presented, details of which will be intimated individually and also hosted on Institute’s website.

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326 the management accountant, April, 2010

The Institute of Cost and Works Accountants of IndiaEXAMINATION TIME TABLE & PROGRAMME - JUNE 2010

1. Application Forms for Foundation Course, Intermediate and Final Examinations are available from Institute's Headquarters at 12, SudderStreet, Kolkata, Regional Councils and Chapters of the Institute on payment of Rs. 30/- per form. In case of overseas candidates, forms areavailable at Institute's Headquarters only on payment of US $ 10 per form.2. Last date for receipt of Examination Application Forms without late fees is 10th April, 2010 and with late fees of Rs. 200/- is20 th April, 2010.3. Examination fees to be paid through Bank Demand Draft of requisite fees drawn in favour of the Institute and payable at Kolkata.4. Students may submit their Examination Application Forms along with the fees at ICWAI, 12 Sudder Street, Kolkata -700016 or RegionalOffices or Chapter Offices. Any query can be sent to Sr. Director (Exam.) at H. Q.5. For June 2010 term of Examinations questions on the subjects - "Business Taxation" and "Strategic Tax Management" forSyllabus 2002 & "Applied Direct Taxation", "Applied Indirect Taxation" and "Indirect & Direct - Tax Management" will be setconsidering the Finance (No.2)Act, 2009 involving Assessment Year : 2010-2011.6. Examination Centres : Agartala, Ahmedabad, Allahabad, Asansol, Aurangabad, Bangalore, Baroda, Bhilai, Bhopal, Bhubaneswar, Bilaspur,Bokaro, Berhampur(Ganjam), Calicut, Chandigarh, Chennai, Coimbatore, Cuttack, Dehradun, Delhi, Dhanbad, Durgapur, Ernakulam, Faridabad,Ghaziabad, Guwahati, Hardwar, Howrah, Hyderabad, Indore, Jaipur, Jabbalpur, Jalandhar, Jammu, Jamshedpur, Jodhpur, Kalyan, Kannur,Kanpur, Kolhapur, Kolkata, Kota, Kottayam, Lucknow, Ludhiana, Madurai, Mangalore, Mumbai, Mysore, Nagpur, Naihati, Nasik, Neyveli,Noida, Panaji (Goa), Patiala, Patna, Pondicherry, Pune, Rajahmundry, Ranchi, Rourkela, Salem, Shillong, Surat, Thrissur, Tiruchirapalli,Tirunelveli, Trivandrum, Udaipur, Vellore, Vijayawada, Vindhyanagar, Waltair and Overseas Centres at Dubai and Muscat.7. A candidate who is completing all conditions will only be allowed to appear for examination.8. Probable date of publication of result : Foundation - 2nd August 2010 and Inter & Final - 22nd August 2010.

C. BoseSr. Director (Examination)


Day, Date Final Intermediate Intermediate–2008 Final – 2008 Foundation& Time 9.30 A.M. to 2.00 P.M. to 9.30 A.M. to 2.00 P.M. to 2.00 P.M. to

12.30 P.M. 5.00 P.M. 12.30 P.M. 5.00 P.M. 5.00 P.M.

Friday, Operations and Project Cost and Management Financial Accounting Capital Market Analysis ___11th June, 2010 Management and Control Accounting & Corporate Laws

Saturday, Advanced Financial Information Systems ___ Financial Management ___12th June, 2010 Management and and Technology & International Finance

International Finance

Sunday, Strategic Management Business Laws and Commercial and Industrial Management Accounting – ___13th June, 2010 and Marketing Communication Skill Laws and Auditing Strategic Management

Monday, Strategic Tax Business Taxation Applied Direct Taxation Indirect & Direct – ___14th June, 2010 Management Tax Management

Tuesday, Management Accounting – Management Accounting-Cost & Management Management Accounting – Organization and15th June, 2010 Decision Making Performance Management Accounting Enterprise Performance Management Fundamentals


Wednesday, Management Accounting- Advanced Financial ___ Advanced Financial Accounting16th June, 2010 Financial Strategy and Accounting Accounting & Reporting


Thursday, Cost Audit and Auditing Operation Management Cost Audit & Economics and17th June, 2010 Management Audit and Information Systems Operational Audit Business Fundamentals

Friday, Valuations Management Quantitative Applied Indirect Taxation Business Valuation Business Mathematics &18th June, 2010 and Case Study Methods Management Statistics Fundamentals

Stage (s) Final Examination Intermediate Examination Foundation Course Examination

One Stage (Inland Centres) Rs.800/- Rs.700/- Rs.700/-(Overseas Centres) US $ 100 US $ 90 US $ 60

Two Stages (Inland Centres) Rs.1600/- Rs.1400/-(Overseas Centres) US $ 100 US $ 90


Examination Notification - ICWAI

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Day & Date Time Foundation Course (Entry Level) Part - 1Tuesday, 15th June 2010 02.00 P.M. to 05.00 P.M. Organisation and Management FundamentalsWednesday, 16th June 2010 02.00 P.M. to 05.00 P.M. AccountingThursday, 17th June 2010 02.00 P.M. to 05.00 P.M. Economics and Business FundamentalsFriday, 18th June 2010 02.00 P.M. to 05.00 P.M. Business Mathematics and Statistics Fundamentals

Day & Date Time Competency Level Part - IIFriday, 11th June 2010 09.30 A.M. to 12.30 P.M. Financial AccountingSaturday, 12th June 2010 09.30 A.M. to 12.30 P.M. Applied Statutory Compliance

Examination Fees

Inland Centres Foundation Course (Entry Level) Part - 1 Rs. 700/-Competency Level Part - II Rs. 700/-

1. Application Forms for CAT Examination will be available from Directorate of CAT at "ICWAI Bhawan", 3, InstitutionalArea, Lodi Road, New Delhi - 110003. Cost of form Rs.30/- per form.

2. Last date of receipt of Examination Application Forms without late fee is 10th April 2010 and with late fee ofRs.100/- is 20th April, 2010.

3. Examination Fees to be paid through Bank Draft of requisite fees drawn in favour of "ICWAI A/C CAT" payable at NewDelhi.

4. Students will send their Examination Application Forms along with the fees to Directorate of CAT at "ICWAI Bhawan",3, Institutional Area, Lodi Road, New Delhi - 110003.

5. Examination Centres : Agartala, Ahmedabad, Allahabad, Asansol, Aurangabad, Bangalore, Baroda, Bhilai, Bhopal,Bhubaneswar, Bilaspur, Bokaro, Berhampur (Ganjam), Calicut, Chandigarh, Chennai, Coimbatore, Cuttack, Dehradun,Delhi, Dhanbad, Durgapur, Ernakulam, Faridabad, Ghaziabad, Guwahati, Hardwar, Howrah, Hyderabad, Indore, Jaipur,Jabbalpur, Jalandhar, Jammu, Jamshedpur, Jodhpur, Kalyan, Kannur, Kanpur, Kolhapur, Kolkata, Kota, Kottyam, Lucknow,Ludhiana, Madurai, Mangalore, Mumbai, Mysore, Nagpur, Naihati, Nasik, Neyveli, Noida, Panaji (Goa), Patiala, Patna,Pondicherry, Pune, Rajahmundry, Ranchi, Rourkela, Salem, Shillong, Surat, Thrissur, Tiruchirapalli, Tirunelveli, Trivandrum,Udaipur, Vellore, Vijayawada, Vindhyanagar, Waltair.

6. A candidate who is fulfilling all conditions will only be allowed to appear for examination.7. Probable date of publication of result : Foundation Course (Entry Level) Part - 1 is 2nd August, 2010 and Competency

Level Part - II is 22nd August, 2010.C. Bose

Sr. Director (Examination)


The Examination Committee of the Council of ICWAI at its 268th meeting decided to open new examinationcenters at

(a) Jabalpur (Center Code 127) (b) Kannur-Kerala (Center Code 223) and (c) Noida (Center Code 425)with effect from June 2010 term of examination.

While selling the existing Examination Application forms the Chapters and Regions are requested to informthe students accordingly.

C. BoseSr. Director (Examination)

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328 the management accountant, April, 2010

CUSTOMSGovernment of India, Ministry of Finance, (Department of Revenue), New Delhi, the 11th March, 2010Notification No. 32/2010-CustomsG.S.R. 184(E). - In exercise of the powers conferred by sub-section (1) of section 25 of the Customs Act, 1962 (52 of 1962), theCentral Government, being satisfied that it is necessary in the public interest so to do, hereby makes the following furtheramendments, in the notification of the Government of India in the Ministry of Finance (Department of Revenue), No.39/96-Customs, dated the 23rd July, 1996, G.S.R. 291(E), dated the 23rd July, 1996, namely:-In the said notification, in the TABLE, against S.No.18, in column (3), -i. for the words and letters "duly certified by the Senior Manager" the words and letters "duly certified by the Senior

Manager or the Assistant Director" shall be substituted.ii. in the Explanation, for the words, letters and figures, "the 28th day of March 2010", the words, letters and figures, "the 1st

day of January, 2019" shall be substituted.[F. No. 354/76/2006-TRU](Prashant Kumar), Under Secretary to the Government of IndiaNote:- The principal notification No.39/96-Customs dated the 23rd July, 1996 was published in the Gazette of India, Extraordinary,Part-II, Section 3, Sub-section (i) vide number G.S.R. 291 (E), dated the 23rd July,1996 and last amended vide notificationNo.54/2009-Customs dated the 22nd May, 2009 , published vide number G.S.R. 355(E), dated the 22nd May, 2009.

GOVERNMENT OF INDIA, MINISTRY OF FINANCE , (DEPARTMENT OF REVENUE), New Delhi, the 12th March,2010Notification No. 33/2010-CustomsG.S.R. (E).- In exercise of the powers conferred by sub-section (1) of section 25 of the Customs Act, 1962 (52 of 1962), theCentral Government, on being satisfied that it is necessary in the public interest so to do, hereby makes the following furtheramendments in the notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 21/2002-Customs, dated the 1st March, 2002 which was published in the Gazette of India, Extraordinary, vide number G.S.R.118 (E),dated the 1st March, 2002, namely:-In the said notification, in the Table,-(i) for S. No 3 and the entries relating thereto, the following shall be substituted, namely:-

(ii) after S.No. 3AA and the entries relating thereto, the following S.No. and the entries shall be inserted, namely:-

S. No.

Chapter or Heading No. or sub-heading No.

Description of goods Standard rate

Additional duty rate

Condition No.

(1) (2) (3) (4) (5) (6)

“3. 0402 10 or 0402 21 00

Goods upto an aggregate of thirty thousand metric tonnes of total imports of such goods in a financial year.

Nil - 1”.

S. No. Chapter or Heading No. or sub-heading No.

Description of goods Standard rate

Additional duty rate

Condition No.

(1) (2) (3) (4) (5) (6)

“3AB. 0405 White Butter, Butter oil, Anhydrous Milk Fat upto an aggregate of fifteen thousand metric tonnes of total imports of such goods in a financial year.

Nil - 1.”

Legal Updates

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(Prashant Kumar),Under Secretary to the Government of India

Note: The principal notification No.21/2002-Customs, dated the 1st March, 2002 was published in the Gazette of India,Extraordinary, vide number G.S.R. 118(E), dated the 1st March, 2002 and was last amended vide notification No. 21/2010-Customs, dated the 27th February, 2010 published vide number G.S.R.134(E), dated the 27th February, 2010.

CENTRAL EXCISEGOVERNMENT OF INDIA, MINISTRY OF FINANCE, (DEPARTMENT OF REVENUE)(CENTRAL BOARD OF EXCISE AND CUSTOMS)Notification No 12 /2010 Central Excise (N.T.), New Delhi, the16 March, 2010.G.S.R. (E) - In exercise of the powers conferred by sub-section (1B) of section 35B of the Central Excise Act, 1944 (1 of 1944),the Central Board of Excise and Customs hereby makes the following further amendment in the notification of the Governmentof India, Ministry of Finance (Department of Revenue) No. 24/2005-Central Excise (N.T.) published in the Gazette of India,Extraordinary, Part II, Section 3, Sub-section (i) ,vide, number G.S.R. 304(E), dated the 13th May, 2005, namely:-In the said notification, in the Table, against serial number 14, in column (2), in item number (2) for the word "Cochin" , theword "Bangalore" shall be substituted ;.

[F.No.390/39/07-JC]MOHAN LAL

Under Secretary(Judicial Cell)

VARIOUS BUDGET RELATED CIRCULARS ON CUSTOMS, CENTRAL EXCISE , SERVICE TAX , ETC. AVAILABLE ONWEBSITE ""SEBISanjay Purao, Deputy General Manager, Corporation Finance Department, Division of Issues and ListingSEBI/CFD/DIL/LA/1/2010/05/03 March 5, 2010The Managing Director / Executive Director / Administrator of All Stock ExchangesDear Sirs,Sub: Disclosure of details of the allottees in the Qualified Institutional Placements (QIP) made by issuer company1.0 It has been decided that the details of allottees and the corresponding pre and post QIP issue shareholding in the issuercompany may be disclosed on the website of the stock exchanges. Accordingly, this circular is issued in exercise of powersconferred by sub-section (1) of Section 11 of the Securities and Exchange Board of India Act, 1992, to protect the interest ofinvestors in securities and to promote the development of, and to regulate the securities market.2.0 All the Stock Exchanges are advised to :2.1 Ensure that the details of those allottes in QIP who have been allotted more than 5% of the securities offered in the QIP,viz names of the allottees and number of securities allotted to each of them, pre and post issue shareholding pattern of theissuer in the format specified in clause 35 of the Equity Listing Agreement shall be made available on the website of stockexchanges along with the final placement document.2.2 communicate to SEBI the status of implementation of the requirements of this circular in the next Monthly DevelopmentReport.3.0 Applicability3.1 The aforesaid instruction shall come into force with immediate effect.4.0 This circular is available on SEBI website at under the categories "Legal Framework" and "Issues andListing".Yours faithfully,Sanjay Purao

SEBI/IMD/CIR No 18 / 198647 /2010, March 15 ,2010Sub: Circular for Mutual FundsAVAILABLE ON SEBI WEBSITE Cir-04/2010, March 17, 2010

Legal Updates

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330 the management accountant, April, 2010

Sub: Master Circular on Oversight of Members (Stock Brokers/Trading Members/Clearing Members of any Segment ofStock Exchanges and Clearing Corporations)AVAILABLE ON SEBI WEBSITE ""RESERVE BANK OF INDIARBI/2009-10/347 DBOD.BP.BC.No. 79 /21.04.018/2009-10 March 15, 2010Subject; Additional Disclosures by banks in Notes to AccountsAVAILABLE ON RBI WEBSITE ""

RBI/2009-10/343IDMD.PDRD.No. 3843 / 03.64.00/2009-10 March 9, 2010All Standalone Primary DealersDear SirInvestment Portfolio of Primary Dealers - Extension of HTM Category for PDsPlease refer to the circular RBI / 2009-10 / 136 - IDMD.PDRD.No. 1050 / 03.64.00 / 2009-10 dated August 31, 2009 allowing thestandalone Primary Dealers (PDs) to categorize a portion of their Government securities portfolio in the Held to Maturity(HTM) category, subject to certain conditions, till March 31, 2010. The above guidelines have been reviewed and it has beendecided to permit the PDs to continue holding of Government securities in HTM category until further advice. All otherconditions specified in the circular referred to above will continue to apply.2. Banks undertaking PD activities departmentally may continue to follow the extant guidelines applicable to banks in regardto the classification and valuation of the investment portfolio issued by our Department of Banking Operations andDevelopment.Yours faithfully(K.V.Rajan)Chief General Manager

RBI/2009-10/342RPCD.CO.RF.BC.No.60/07.37.02/2009-10 March 5, 2010All State and District Central Co-operative BanksDear Sir,Repayment of Gold LoanState and Central Co-operative Banks grant loans for various purposes against the security of gold /gold ornaments as partof their lending policy. As per extant instructions (c.f. our circular RPCD.RF.BC.No.69/07.37.02/2002-03 dated January 31,2003), banks charge interest at monthly rests on loans and advances granted for purposes other than agricultural and alliedactivities.2. On a review, it has been decided to permit bullet repayment of gold loans up to Rupees one lakh as an additional option.State and Central Co-operative Banks are, therefore, permitted to lay down policies with the approval of their Board forsanction of gold loan with bullet repayment option subject to the following guidelines:(i) The amount of gold loan sanctioned should not exceed Rs. 1.00 lakh at any point of time.(ii) The period of loan shall not exceed 12 months from the date of sanction.(iii) Interest will be charged to the account at monthly rests, but will become due for payment along with repayment ofprincipal only at the end of 12 months from the date of sanction.(iv) The bank should prescribe a minimum margin to be maintained in case of such loans and accordingly, fix the loan limittaking into account the market value of the security (gold / gold ornament), expected price fluctuations, interest that willaccrue during the tenure of the loan, etc.(v) Such loans shall be governed by the extant income recognition, asset classification and provisioning norms which shallbe applicable once the principal and interest become overdue.(vi) The account would also be classified as NPA (sub standard category) even before the due date of repayment, if theprescribed margin is not maintained.3. It is clarified that crop loans sanctioned against the collateral security of gold/gold ornaments shall continue to begoverned by the extant income recognition, asset classification and provisioning norms for such loans.Yours faithfully,(R.C.Sarangi)Chief General Manager

Legal Updates

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RBI/2009-10/337RPCD.RRB.No.BC. 61/ 03.05.34/2009-10 March 4, 2010All Regional Rural BanksDear Sir,Provisioning Requirement for Standard AssetsPlease refer to paragraph 2 of our circular RPCD.RRB.No.BC.97/03.05.34/2000-01 dated June 11, 2001 regarding provisioningrequirements for 'standard assets'.2. In this connection, a reference is invited to paragraph 158 of the Second Quarter Review of Monetary Policy for the year2009-10 announced on October 27, 2009 (copy enclosed). It was proposed to increase the provisioning requirement foradvances to the Commercial Real Estate (CRE) sector classified as 'standard assets' to 1.00 per cent with a view to buildingcushion against likely non-performing assets (NPAs). Accordingly, it has been decided to increase the provisioning requirementfor advances to the CRE Sector classified as 'standard asset' to 1%. As regards other standard assets, it has been decidedthat while the provisioning requirements for direct advances to agriculture and SME sectors would remain unchanged at0.25%, the same for all other loans and advances would be 0.40%.3. The standard asset provisioning requirements for all categories, after the above changes, are summarised below.

4. Please acknowledge receipt to our Regional Office concerned.Yours faithfully(R.C.Sarangi)Chief General Manager

RBI/2009-10/339UBD (PCB) BPD.Cir.No. 48 / 13.01.000 / 2009-10 March 4, 2010Chief Executive OfficerAll Primary (Urban) Cooperative BanksDear Sir,Payment of Interest on Savings Bank Account on Daily Product BasisPlease refer to our circular UBD (PCB) BPD.Cir.No. 7 / 13.01.000 / 2009-10 dated September 1, 2009 advising banks to put inplace requisite infrastructure so that transition to the revised procedure of calculating interest on balances in savings bankaccounts on a daily product basis could be implemented smoothly.2. We advise that payment of interest on savings bank accounts may be made by banks on a daily product basis with effectfrom April 1, 2010.Yours faithfully,(A.K. Khound) Chief General Manager-in-Charge

RBI/2009-10/36A.P. (DIR Series) Circular No.36 February 24, 2010ToAll Category - I Authorised Dealer BanksMadam / Sir,Overseas Investment Application - Online Reporting of Overseas Direct Investment in Form ODIAVAILABLE ON RBI WEBSITE ""

Sr.No. Category of standard asset Rate of provisioning

(a) Direct advances to Agriculture and SME sectors 0.25 %

(b) Commercial Real Estate (CRE) sector 1.00%

(c) All other loans and advances not included in (a) and (b) above 0.40%

Legal Updates

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332 the management accountant, April, 2010




FOR GROWTH OF SME SECTOROn Wednesday the 19th May, 2010 from 9-00 a.m. to 6-00 p.m.

At Bhaidas Sabhagrih, Road No.1, Near Mithibai College,Juhu Scheme, Vile Parle (W), Mumbai - 400 056


Delegate Fees: Rs. 1,500/-, for self sponsored Practicing Cost Accountants - Rs. 1,000/-For Students of ICWAI, ICSI, ICAI and CIMA - Rs. 750/-

CEP HOURS - 4 (FOUR)For delegate registration form and other details please visit our Website:


Contact:WIRC of ICWAI, 4th Floor, Rohit Chambers, Janmabhoomi Marg, Mumbai - 400 001.

Phone: 022-22043416 / 22841138 emails: [email protected] / [email protected]


The Management Accountant - May, 2010 will be a special issue on‘COST AND STRATEGIC MANAGEMENT FOR GROWTH OF SME SECTOR’.Articles, views and opinions on the topic are solicited from readers to make it a special issue to read andpreserve. Those interested may send in their write-ups by e-mail to [email protected], followed by hardcopy to the Research & Journal Department, 12 Sudder Street, Kolkata-700016 to reach by 15th April, 2010.


The Management Accountant - June, 2010 will be a special issue on‘ROLE OF COST AND MANAGEMENT ACCOUNTANTS UNDER DIRECT TAX CODE’.Articles, views and opinions on the topic are solicited from readers to make it a special issue to read andpreserve. Those interested may send in their write-ups by e-mail to [email protected], followed by hardcopy to the Research & Journal Department, 12 Sudder Street, Kolkata-700016 to reach by 15th May, 2010.

Chartered Institute ofManagement Accountants

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Kolkata, the 5th March, 2010


11-CWR (421-424)/2010 : In pursuance of sub-Regulation (3) of Regulation 11 of the Cost and Works Accountants Regulations,1959, it is hereby notified that the Certificates of Practice granted to :

1. Shri Pranab Kumar Chatterjee, BCOM(HONS),FICWA,Mathpara, Nildanga, Gopinathpur, Bankura - 722101, (MembershipNo. 23674) is cancelled from 4th December, 2009 to 30th June, 2010 at his own request,

2. Shri Ranjit Jha, BSC(HONS),AICWA, Deep Apartment, G-4, HA-20, Sachindra Lal Sarani, Aswininagar, Baguiati,Kolkata - 700059, (Membership No. 28326) is cancelled from 2nd February, 2010 to 30th June, 2010 at her own request,

3. Shri S. Balaji, BCOM,AICWA, 616, Mahamayatala Road, Flat No. 204, Block - F, 2nd Floor, Basundhara Apartments,Tentultala, Kolkata - 700084, (Membership NO. 23501) is cancelled from 10th January, 2010 to 30th June, 2010 at his ownrequest,

4. Shri Appa Rao Kella, BCOM,ACS,FICWA, C/o. Murali Associates, 1st Floor, Ramanuja Plaza Opp Hotel Vasali, VthCross, Malleswaram, Bangalore - 560003, (Membership No. 18312) is cancelled from 14th August, 2009 to 30th June, 2010at his own request.

(G.N. Venkataraman) President

Kolkata, the 5th March, 2010N O T I F I C A T I O N

16-CWR(8755-8762/2010: In pursuance of Regulation 16 of the Cost and Works Accountants Regulations, 1959, it is herebynotified that in exercise of powers conferred by sub-section (1) (b) of Section 20 of the Cost and Works Accountants Act,1959, the Council of the Institute of Cost and Works Accountants of India has removed from the Register of Members, thename of :

1. Shri Arjun Dev Malhotra, MCOM,AICWA, KG - 10, Kavi Nagar, Ghaziabad - 201002, (Membership No. 694) with effectfrom 6th October, 2009 at his own request,

2. Shri A. Jagannathan, BCOM,FCA,AICWA, 64-33 99TH Street, Apt. 5J, Rego Park, New York, NY 11374, U.S.A.(Membership No. 1261) with effect from 7th August, 2009 at his own request,

3. Shri Vasudeo Sadashiv Pise, BCOM,AICWA, avp Management Consultants, Shri Sai Shri Niwas, B20, Panini Society,Araneswar, Pune - 411009, (Membership No. 2008) with effect from 14th September, 2009 at his own request,

4. Shri Anand Bihari Lal, BA,FICWA, Flat No. B-10, Sona Apartments, 9, Aundh Road, Khadki, Pune - 411020, (MembershipNo. 2798) with effect from 31st August, 2009, at his own request.

5. Shri Radhesh Chandra Pal, BA,FICWA, B-1/1260, Vasant Kunj, New Delhi 110070, (Membership No. 3207) with effectfrom 5th August, 2009, at his own request.

6. Shri Ved Prakash Gupta, MA,ACS,FICWA, 100-D, Sukhdev Vihar, Pkt. ̀ A', D.D.A. Flats, New Delhi 110025, (MembershipNo. 3820) with effect from 2nd September, 2009, at his own request,

7. Shri Dilip Kumar Saha, MCOM,AICWA,F 21/7, Karunamoyee Housing Estate, Sector - II, Phase - II, Salt Lake City,Kolkata - 700091, (Membership No. 4641) with effect from 7th August, 2009, at his own request,

8. Shri Sharad W. Athaley, BSC, FICWA, 408A, Lokmat Bhavan, J.L.N. Marg, Wardha Road, Ramdaspeth, Nagpur - 440012,(Membership No. 6890) with effect from 1st April, 2009, at his own request.

(G.N. Venkataraman)President

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Kolkata, the 5th March, 2010


16-CWR (8732-8754)/2010: In pursuance of Regulation 16 of the Cost and Works Accountants Regulations, 1959, it is herebynotified that in exercise of powers conferred by sub-section (1) (a) of Section 20 of the Cost and Works Accountants Act,1959, the Council of the Institute of Cost and Works Accountants of India has removed from the Register of Members, thenames of :

1. Shri Sasadhar Raha,BA,FCMA,FICWA, 41/2B, Sarat Bose Road, Kolkata - 700020, (Membership No. 467) with effectfrom September, 2002,

2. Shri Samuel Biswas, BSC(HONS),AICWA, C/o. Shri Tarun Biswas, Joka - 743512, (Membership No. 190), with effect from1999,

3. Shri Rama Pada Mondal, BCOM,MA,FCS,FICWA, 29, New South park, Kazipara, Baghajatin, Kolkata -700092,(Membership No. 484) with effect from 18th February, 2009,

4. Dr. Pan Mal Surana, MCOM,LLB,FICWA, 1-D, Shangri'la Apts., 61, Jatin Das Road,Kolkata - 700029, (Membership No.795) with effect from 10th 28th February, 2007,

5. Shri Swaminathan Pattabiraman,BCOM,AICWA, B-51, Godrej Sherwood, Wakdewadi, Pune-Bombay Road,Shivaji Nagar,Pune 411005, (Membership No. 845) with effect from March, 2005,

6. Shri Y.L.N. Achar, BSC,FICWA, B/22, Shrinagar Co.-op. Hsg. Society, P.L. Lokhande Marg, Chembur, Mumbai -400089,(Membership No. 1254) with effect from 19th March, 2005,

7. Shri M. S. Sampath, BCOM,FCA,AICWA, 47, Kasturi Ranjan Iyengar Road, Alwarpet, Chennai - 600018, (MembershipNo. 1272) with effect from 25th January, 2000,

8. Shri Asoke Kumar Chakraborty, BSC,FICWA, Flat No. B2, Sai Sadan, D/126, Ramgarh, Kolkata - 700047, (MembershipNo. 1502) with effect from 18th May, 2009,

9. Shri S. N. Gupta, BCOM,AICWA, Jt. Director (F&A), 128, Vivaka Nand Puri, Old Rohtak Road, Azad Marg, Delhi -110007, (Membership No. 1718) with effect from 2000,

10. Shri R. Hariharan,BCOM,AICWA, 12, Teachers Colony, Royapettah, Chennai - 600014, (Membership No. 2650) witheffect from April, 1993,

11. Shri Mushunuri Venkatarao,MSC,FICWA, Advisor, Castwel Industries, Nagpur - 440028, (Membership No. 2812) witheffect from 23rd July, 2009,

12. Shri Vijay Kumar Gupta, AICWA, C-4-B/131, Janakpuri, New Delhi - 110058, (Membership No. 2887) with effect from 30thDecember, 2009,

13. Shri K. N. Govindaraju, BE(MECH),AICWA, H1 19, Periyar Nagar, Erode - 638001, (Membership No. 3446) with effectfrom 21st December, 2006,

14. Shri Asim Kumar Basu Sarbadhikary, BSC,AICWA,Dy. Chief Finance Manager, Coal India Ltd., Dankuni Coal Complex,Dankuni - 711224, (Membership No. 4011) with effect from 1st August, 2009,

15. Shri Girishkant J. Dholakia, BA,AICWA, Tathastu Rudranagar No. 2, Plot No. 28, Opp. Sadguru Nagar, Kalawad Road,Rajkot - 360005, (Membership No. 4166) with effect from 27th July, 2009,

16. Shri Hrushikesh Padhiari , BSC,AICWA, Finance Manager, National Alluminium Co. Ltd., Smelter Divn., Nalco Nagar -759145, (Membership No. 4330) with effect from 25th October, 2007,

17. Shri H. Ghosh,BCOM,AICWA, 44, Sil Thakur Bari Road, Kolkata - 700038 (Membership No. 4434) with effect from 10thOctober, 2000,

18. Shri Nikhilesh Mathur, BSC,AICWA, Kakku E&P Control Pvt. Ltd., Shed No. 1, Industrial Estate, Bhilai - 490026,(Membership No. 4814) with effect from 31st August, 2009,

19. Shri R. Ramkumar, BCOM(HONS),FCS,FICWA, Co. Secretary & DGM - Accounts, Kalyani Forge Ltd., Koegaon Bhima,Tal: Shirur, Pune - 412207, (Membership No. 4957) with effect from 8th June, 2009,

20. Shri Mansukh Chatrabhuj Lodha, BSC,LLB,AICWA, 1, Takshashila Apartment, Behind L.I.C. Office, Camp Road, Malegaon- 423203, (Membership No. 6374) with effect from 13th January, 2010,

21. Shri Jagdish Chandra Dhupar, MCOM,AICWA, G-B, Ekling Colony, Hiran Magri, Set No. 3, Udaipur - 313002, (MembershipNo. 19627) with effect from 21st June, 2006,

22. Shri P.R. Gopinath, MCOM,AICWA, 31/15, T.P. Koil 1st Lane, Triplicane, Chennai - 600005, (Membership No. 25714) witheffect from 4th October, 2007,

23. Shri Satyendra Nath Ghose, BSC,ACMA,FCIS,FCS,FICWA, 15, Rajani Sen Road, Kolkata - 700026, (Membership No.544) with effect from 24th December, 2009on account of death.

(G.N. Venkataraman)President

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T he F und has been crea ted to p rov ide :

1 . O utright g ran t o f p resc ribed am ount to the benefic iary in the even t of death o f a m em ber o f the Fund .

2 . F inancia l assis tance o f p rescr ibed am ount repayable in p rescribed m anner by the m em bers o f the Fund in caseo f financ ia l d istress due to p rolonged illness o r tem porary loss o f em ploym ent, i llness o f spouse /dependentch ild ren o f m em ber o f the F und; and education o f dependent ch ild ren of deceased m em ber o f the Fund.

B eneficia ry m eans m em ber o f the F und inc lud ing dependent spouse/dependent child ren/paren ts/dependen t m inorb rothe rs and sisters o f the m em ber o f the Fund .


A n A ssociate / F ellow M em ber hav ing pa id up to da te m em bersh ip fees to the Institu te can becom e a L ife M em bero f the F und on app lication be ing m ade in the prescr ibed app lica tion form a long w ith a rem ittance o f R s.500/- (onetim e paym ent) by a D em and D raft favouring ’ IC WA I M em bers B enevo len t Fund ’ payab le a t Ko lka ta. T he app licationform can be co llected from the headquarte rs o f the Insti tu te at Ko lkata or dow nloaded from the w ebsite o f theIn st i tu te w w w.ic w a . S o ft c op y o f th e app l ica tio n fo rm can a lso be sen t o n re qu is i t ion m a de to e -m a i l:m em bership.kb@ icw ai.o rg .

For the pu rpose o f ob ta in ing bene fit from the Fund, a m em ber should ensure to pay h is up to da te A ssocia te/F ellow

m em bership fees to the Inst itu te and h is nam e should con tinue to ex ist in the R egister o f M em bers o f the Institu te .


PAY M E N T O F M E M B E R S H IP F E E SM em bers o f the Insti tu te w ho are hav ing ou tstand ing m em bersh ip dues have been com m unica ted indiv idua lly to paythe ir dues. In addition, the ir due posit ion is a lso up loaded on Institu te ’s w ebsite w w w.icw a i.o rg under the op tionM em bers-> M em ber D e tai ls-> Search D e ta ils & C heck D ues. A ll m em bers having ou tstand ing dues a re requested topay the sam e im m ed iately.

Further, the A nnual M em bersh ip Fee fo r 2010-2011 fo r A ssoc iate and F ellow M em bers o f the Institu te sha ll becom edue and payab le on 1st A pri l, 2010 at the fo llow ing ra tes :

A ssocia te A nnual M em bersh ip Fee : R s.500 /- (R s.125/- fo r m em bers ent itled to pay a t reduced ra te)

Fe llow A nnual M em bersh ip Fee : R s.1000 /- (R s.250/- for m em bers en tit led to pay at reduced rate )

A ll m em bers are requested to pay the ir respective m em bersh ip fees along w ith arrears, if any, im m ed iate ly for duesupto 2009-2010 and no t late r than 30 th Sep tem ber, 2010 fo r dues as on 1st A pri l, 2010 .

T he fees m ay be paid by C ash /D em and D ra ft/Pay O rder/C heque at the H eadquarters/R eg ional C ouncils/C hapte rs o fthe Institu te . T he D em and D ra ft/Pay O rder/C heque should be d raw n in favour o f "T he IC WA of Ind ia" and payab leat Ko lkata. In case o f ou tstat ion cheque not payab le a t Ko lka ta, R s.30/- is to be added tow ards B ank C harges. In caseo f paym ent m ade at the R eg ional C ouncils/C hap te rs o f the Institu te , the position w i ll be updated upon rece ip t o f therem ittance at the H eadquarters.


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336 the management accountant, April, 2010



M em bers are requested to check their status from the option M em b ers->M em ber D etails->Search D eta ils &C heck D ues on Institute’s w ebsite w w w.icw and inform us the fo llow ing:

1 . In case o f any change in the p ro fession a l add ress an d o ther p ar t icu lars, the sam e is to be in tim ated through a signed hard copy p referab ly in the fo rm at (Fo rm at “A ” – P lease see A n nexure I ) g iven below to :

A dd itiona l D irec tor-cum -Jo in t Secretary M em bersh ip D epartm en t T he Institu te o f C ost and Works A ccoun tan ts o f Ind ia 12, Sudder S treet Ko lkata – 700 016 . T he sig ned intim ation m ay also be sent by fax to n o. 033-22521723 . O therw ise, a scann ed file o f the signed in tim ation m ay be sen t to e-m ail

2 . If the jou rna l m ailing ad d ress is desired to be changed as per the p ro fessiona l address, the in tim ation in (Fo rm at “A ” ” – P lease see A n nexure I ) is a lso to be m ade to:

A dd itiona l D irec tor-cum -Jo in t Secretary M em bersh ip D epartm en t T he Institu te o f C ost and Works A ccoun tan ts o f Ind ia 12, Sudder S treet Ko lkata – 700 016 . T he sig ned intim ation m ay also be sent by fax to n o. 033-22521723 . O therw ise, a scann ed file o f the signed in tim ation m ay be sen t to e-m ail

3 . In case o f any change in the jou rna l m a ilin g address on ly , the sam e is to be in tim ated through a signed hard copy o r by e-m ail p re ferab ly in the fo rm at (Fo rm at “B ” ” – P lease see A nn exu re I) g iven be low to :

D eputy D irec tor (R esearch & Journa l) T he Institu te o f C ost and Works A ccoun tan ts o f Ind ia 12, Sudder S treet Ko lkata – 700 016 . e-m ail: research@ icw ai.o rg / rn j.arpan@ icw ai.o rg

e-m ail: m em bersh ip .kb@ icw

e-m ail: m em b ersh ip .kb@ icw

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the management accountant, April, 2010 337

A nnexu re I

Form at "A "



M E M B E R S H IP N O . :


A D D R E S S :








P IN C O D E :

P H O N E N O . (O F F IC E ) :

P H O N E N O . (R E S ID E N C E ) :

P H O N E N O . (M O B IL E ) :

E -M A IL :



Form a t "B "


N A M E IN F U L L :

M E M B E R S H IP N O . :


A D D R E S S :









P IN C O D E :

P H O N E N O . (O F F IC E ) :

P H O N E N O . (R E S ID E N C E ) :

P H O N E N O . (M O B IL E) :

E -M A IL :



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338 the management accountant, April, 2010

For A tten t ion of P ract ising M em b ers


T he m em b ers o f the In sti tu te ho ld in g C erti fica te o f P rac tice hav ing va lid ity up to 30 th June , 201 0 a re reques ted tocom p ly w ith the fo llow ing g u ide lines fo r renew al o f th eir C e rt i fica te o f P rac tice :

1 . A pp lica tion fo r renew al o f C e rti fica te o f P rac tice u p to 30 th Ju ne , 2011 has to b e m ade in the p rescr ibed Fo rm ‘D ’du ly f il led in and sign ed o n bo th sid es to ge the r w ith R en ew a l C er tif icate o f P ractice fee fo r R s. 5 00 /- and a l l o th erdu es to th e Ins ti tu te on acco un t o f annu a l m em bersh ip fees an d en trance fees . T he annu a l m em bersh ip fee fo rA sso c ia te an d F e llow M em be rs a re R s. 5 00 /- an d R s. 1 00 0 /- respec tive ly. T he en tran ce fee fo r A ssoc ia te andF e llow M em b ers a re R s. 60 0 /- an d R s. 5 00 /- resp ec tively payab le a t a t im e at the t im e o f app lica tion fo r adm ission .T he fees m ay b e pa id by D em an d D ra ft/P ay O rde r/C h eq ue payab le a t K o lk ata if rem itted b y po st to the H eadqu a rte rso f th e Ins ti tu te . In case rem ittance is m ad e th roug h an o u tsta tion chequ e , R s.30 /- is to be inc lud ed tow ards ban kcha rg es. T h e fees m ay a lso b e pa id d irec tly by cash a t the H eadqua r te rs o r by C ash / D em and D ra ft/Pay O rde r/C h eque at the R eg ion a l C o unc ils o r C hap ters o f th e Ins ti tu te .

2 . I t m ay p lease be no ted tha t und e r S ec tio n 6 o f the C os t and Wo rks A ccou n tan ts A c t, 19 59 , the annua l m em bersh ipfee and R en ew a l C erti fica te o f P rac tice fee fa l l d ue o n 1s t A p ri l each y ea r.

3 . S pec ia l a tten tion is inv ited to the fac t tha t the va lid ity o f a C erti f ica te o f P rac tice exp ires o n 3 0 th Jun e each yea run less it is renew ed o n o r b efo re th e da te o f ex p iry in te rm s o f R egu la tion 10 o f the C ost and Works A ccou n tan tsR egu la tion , 19 59 . T he re fo re , a m em b er s ign in g any d ocum en t as a p rac tis ing C os t A ccoun tan t w ithou t hav ingh is C erti fica te o f P rac tice renew ed on o r b efo re the d ue da te , m akes the s igned d ocum en t inva lid .

4 . I t m a y p le as e b e no ted th a t m ere pa y m en t o f fe es a lo n e w i l l n o t b e su ff ic ie n t fo r ren ew a l o f C e r ti f ic a te o fP rac tice . A pp lica tion in p resc rib ed F o rm ‘D ’ d u ly f il led in an d s ig ned on b o th sid es is ab so lu te n ecessary. S o ftc o p y o f F o rm ‘D ’ c a n b e d ow n lo a d e d f ro m In s t i tu te ’s w e b s i te w w w . ic w a i .o rg u n d e r th e o p t io n M e m b e rs -> D ow n lo a d -> F o rm s .

5 . It is a lso essen tial to fu rn ish a ce rt i fica te fro m the em p loye r in the fo l low ing fo rm o r in a fo rm as n ea r the re to aspo ss ib le i f th e p rac tis in g m em ber h as unde r taken any em ploym en t o r the re has been a chan ge in em p loym en t:

"S h ri … … … … … … … … … … … … … … … … … … .is em p loy e das (d es ign a tio n )… … … … … … … … … … … … … … (n am e o fO rgan isa tion )… … … … … … … … … … … … … … .a nd he is pe rm i tted ,no tw iths tand ing any th in g co n tain ed in the te rm s o f h is em p loy m en t,to engage h im se lf in th e p rac tice o f p ro fession o f C os t A ccoun tan cyin h is spa re tim e in add it ion to h is regu la r sa la ried em p loy m en t w ith us .

S igna tu re o f E m p loye rsun de r sea l o f O rgan isa tion "

6 . In o rde r to enhance p ro fessio na l com pe tence and evo lve a sys tem a tic m ech an ism to upd ate k now ledge o fm em bers in p rac tice , a sch em e o f C on tin u ing E du cation Pro g ram m e (C E P ) w as in trod uced in the yea r 200 3 .

A rev is io n o f the sa id schem e h as b een m ade by th e C o unc il o f the IC WA I in 200 9 as fo llow s :

( i) T he m em ber shou ld u nde rg o m in im um m and ato ry tra in ing o f 10 hou rs pe r yea r w.e .f . 2 009 -10 .

( ii) T he ce rt i fica te o f a ttendan ce fo r tra in in g w il l have to be en clo sed w ith the app lica tion fo r ren ew al o f C er tif icateo f P rac tice .

T he de ta i led rev ised g u ide lines in th is connec tion a re ava ilab le on Ins ti tu te ’s w ebs ite w w w.icw a i.o rg und e r theop tion M em bers-> G u id e lines /P rocedu res -> Fo r M and a to ry Tra in ing Fo r a l l M em b ers o f IC WA I und er C on tin u ingE d u ca tio n P ro g ram m e.

T he requ irem en t spec ified above d oes no t ap p ly to a m em b er in p rac tice w h o h as atta ined th e age o f 6 5 y ea rs ason 1s t Ju ly, 201 0 .

H ence , a l l p rac tis ing m em bers a re requ ested to send the ir app lica tion fo r renew a l a lo ng w ith o ther requ irem en tsa s in d ic a te d h e re in a b ov e im m e d ia te ly, in a ny c a se so a s to re ac h th e In s ti tu te H e a d q u a r te rs n o t la te r th a n1 5 th Ju n e , 2 0 1 0 .