Spain exits long and hard recession.

As flagged by Spain's central bank last week, the country exited recession after over two years in Q3, with GDP rising 0.1% on quarter vs -0.1% in Q2. Meanwhile, CPI has risen 0.1% on year this month, putting Spain close to deflation. "Growth seems to be due to the strength of the external sector, which is encouraging," said economist Ben May. "However, domestic demand is still contracting and against that backdrop it's hard to see a strong and sustained recovery."

The Reserve Bank of India (RBI) made another hike in the repo rate by 25 bps to 7.75% in its second quarter review of monetary policy for 2013-14. The repo rate is the rate at which the Central bank lends money to commercial banks. The Central bank also reduced the marginal standing facility (MSF) rate by 25 bps to 8.75%. The MSF rate is the rate at which the banks borrow funds overnight from the RBI against government securities. Further, it left the cash reserve ratio (CRR) unchanged at 4%.

The apex bank continues to maintain hawkish stance. The anticipated elevated levels of both wholesale and consumer price inflation in the months ahead prompted RBI to opt for a rate hike measure. But few things did bring respite. The initial signs of recovery and stability have been witnessed in the foreign exchange market. Steps towards curtailing current account deficit are gradually yielding results. This enabled RBI to roll back the tightening measures and enhance liquidity into the system. Hence, the MSF rate was cut down to 8.75%. With these measures, the MSF rate and the bank rate now stand recalibrated to 100 bps above the repo rate.

Going forward, the central bank continues to closely monitor inflation risks. At the same time, it remains cognizant of strengthening growth dynamics. However, curbing the rising inflationary spiral and containing the food price inflation will continue to pose challenges. 

Spanish retail sales grow for first time in over three years.

Spanish retail sales increased for the first time since June 2010 in September, growing 2.2% on year vs -4.8% in August and topping consensus of -0.6%. However, analysts are expressing caution, as sales were hit in the comparable period last year by a hike in sales tax. The IBEX 35 was +0.5% at the time of writing.

Chinese money market rates continue to rise despite PBOC action.

The People's Bank of China has injected 13B yuan ($2.13B) into the country's money markets via open market operations, resuming such action for the first time in two weeks. However, while the move may have been designed to ease fears that the PBOC was planning to dramatically tighten monetary policy, repo rates rose anyway. The one-week increased to a three-month high of 4.947% and the overnight to a four-month peak of 4.446%. The Shanghai Composite fell 0.2%.

Indian central bank raises key rate.

As expected, the Reserve Bank of India has increased its key lending rate to 7.75% from 7.5%, having raised the rate in September by a quarter-percentage point also. However, the RBI reduced the marginal standing facility rate to 8.75% from 9%. Prior to the decision, data showed that wholesale inflation climbed to 6.46% in September, above the bank's target of 5%. The RBI warned that inflation will remain high in the coming months.

World shares mixed ahead of FOMC meeting.

U.S. stock futures were flat-to-lower at the time of writing but European shares higher ahead of the first day of a two day FOMC meeting, when the Fed is expected to keep its bondbuying program at $85B a month. The Stoxx Europe 600 Banks index was -0.3% following earnings results from some heavyweights in the sector (see below).

Fed scrutinizes bank exposure to mReits.

The New York Fed has reportedly been taking a "deep dive" into banks' exposure to mortgage real estate investment trusts (mReits) (REM), which fund acquisitions of long-term mortgages with short-term repo borrowings and which have proliferated since the financial crisis. The fear is that a rapid increase in interest rates could force the mReits to quickly cut their holdings of mortgage-backed securities and spark a wider sell-off. MReit giants include Annaly (NLY) and American Capital (AGNC).

India's per capita power consumption least amongst BRICS

The government may want to pass on the blame for poor coal mining efficiency to Coal India. It can even accuse the private sector companies of misusing their coal block allocations meant for captive power plants. But the fact remains that high cost and irregular supply of power has forced Indian companies to rely on captive power supplies. And that is the reason companies have tried every means of laying their hands on captive coal blocks. It is not just industrial but also retail supply of power that has been in a shoddy state over the past decade. Despite the increase in power generation capacities the per capita consumption of electricity in India remains abysmally low. And if the ambitious ultra mega power projects (UMPPs) do not get access to cheap coal or become financially unviable, India's power problems are here to stay.

 

                                 Source: Ministry of Power 

 

            

German business confidence surprisingly dips.

The Ifo Institute's index of Germany's business climate has unexpectedly fallen for the first time in six months, slipping to 107.4 this month from 107.7 in September and missing consensus of 108. The current-situation reading and a measure of expectations also fell. However, economists said that Germany's steady economic recovery is still intact.

Chinese shares fall as PBOC tightening continues.

Chinese shares dropped for the fourth day in a row, slumping 1.45% as short-term money market rates continued to rise after the Bank of China again refrained from injecting liquidity into the market. The overnight rate touched 7.5% at one point and the benchmark seven-day hit 6.94%. Experts are divided over whether the PBOC's strategy is seasonal or whether it signals a longer-term attempt to keep inflation under control and tame the growth in credit.

U.K. Q3 GDP growth hits three-year high.

As expected, U.K. GDP grew at the fastest rate since 2010, increasing a preliminary 0.8% on quarter in Q3 vs 0.7% in Q2. The improvement was broad-based as agriculture, production, construction and services all expanded, with the latter sector now 0.6% above its pre-crisis peak. However, the U.K. economy is still 2.5% smaller than that level.

Twitter IPO to value company at up to $10.9B.

Twitter (TWTR) intends to raise $1.19-1.4B in its IPO by selling 70M shares at $17-$20 each, giving the company a market cap of $9.3B-$10.9B. It appears as if Twitter is trying to avoid a repeat of Facebook's (FB) listing by pricing its offering conservatively - the micro-blogging Web site's range is lower than prices reportedly offered in private trades.

Eurozone continues to recover slowly, PMI data indicates.

Eurozone manufacturing PMI inched up to 51.3 in October from 51.1 in September, and while the services and composite readings fell, they still indicated expansion. The readings imply that the eurozone economy grew at a quarterly rate of 0.2% at the start of Q4, "suggesting an on-going, albeit sluggish, recovery." The data also reflects "signs of economic recoveries becoming more entrenched in the periphery, as well as on-going expansion in Germany and stabilization in France."

Chinese repo rates jump as PBOC looks to fight inflation.

The People Bank of China has refrained from injecting liquidity into money markets for a third consecutive session, adding to concerns that it's clamping down on inflation, which hit 3.1% in September. The PBOC's lack of action has meant that 58B yuan ($9.53B) has drained from the country's interbank market this week. In reaction, China's seven-day repurchase rate - a benchmark for short-term funds - rose 65 basis points, the biggest rise since July 29, to 4.67%. Chinese stocks dropped 0.8%.

China's top banks triple debt writeoffs.

China's five largest banks wrote off 22.1B yuan ($3.65B) of debt in H1, triple the amount of a year earlier, as they prepared for what may be a new wave of defaults. "The banks and the regulators' interests are aligned in speeding up write-offs," says analyst Ma Kunpeng. "This prepares them for a rainy day." The news was among the factors that helped Chinese shares drop 1.25%.

BOE united in keeping policy on hold.

The Bank of England's Monetary Policy Committee voted unanimously to keep interest rates at 0.5% and against more quantitative easing at a meeting earlier this month. The BOE said that U.K. unemployment appears to be falling slightly faster than expected, while the recovery is stronger than anticipated.

Dutch lender faces $1B fine over Libor rigging.

Holland's Rabobank is reportedly facing a larger-than-expected fine of almost $1B over the alleged manipulation of Libor and other interbank lending rates. A settlement with U.S. and U.K. authorities, as well as with the Dutch central bank, could come next week. The penalty would be the second-largest for rate rigging, and while it is smaller than the $1.5B imposed on UBS (UBS), its size may concern other banks facing similar charges.

ECB to stress test top eurozone banks.

The European Central Bank plans to carry out comprehensive stress tests on 128 top eurozone banks over the next year as it aims to build confidence in the financial sector by improving transparency and implementing "corrective action" where needed. The central bank will ask banks to provision 8% of their risk-adjusted capital as a buffer against losses on loans and other parts of their portfolio. The STOXX Europe 600 Banks index was -1.9% at the time of writing.

World stock markets fall.

Global equities were in the red at the time of writing, with fears of tightening by China's central bank hurting sentiment. Japanese shares dropped sharply after the yen strengthened against the dollar following a bad miss for U.S. employment data yesterday, which has prompted investors to rule out Fed tapering this year. Chinese shares were also hampered by debt write-offs at banks and fears that small-caps are overvalued.

Spain may have exited recession after over two years.

Spain's economy may have expanded for the first time in over two years in Q3, with the Bank of Spain estimating that the economy eked out quarterly growth of 0.1% following nine quarters of consecutive decline. With domestic demand falling 0.3%, strong exports helped pull Spain out of its protracted slump. The economy has been moribund since 2008, when a housing bubble burst, leaving millions out of work and thousands of companies bankrupt.

Equity markets wait on U.S. jobs report.

Global stocks were flat-to-mixed at the time of writing as investors await the delayed U.S. jobs report, which is due out later today. Economists estimate that nonfarm payrolls rose by 180,000 workers in September, up from 169,000 in August, although the unemployment rate is expected to have held steady at a near five-year low of 7.3%.

Growth in the Eurozone bounced back to the positive territory during the second quarter of this year. This is after the zone contracting for a year and a half. But as per Ms Christine Lagarde, Managing Director of the International Monetary Fund, governments should not take it easy; and that they should continue their focus on their commitments of increasing employment and backing the regional banks. A key issue according to her is the prevailing youth unemployment situation in the zone; and addressing of the same needs to be high on the agenda for the countries. While the process would take time given the implementations of policies and changes in economic reforms to bring people into or back into the job markets, with situations such as half the youth being unemployed in countries such as Greece and Spain, it would not be long before the law and order situation could go for a toss. 

Export growth slows in Japan.

Japanese exports increased 11.5% on year in September, slowing from 14.6% in August and missing consensus of 15.6%. Import growth rose slightly to 16.5% from 16% but also missed expectations of 20%. The big exports miss seems to suggest that "the positive effect of the weak yen may have run its course''.

Up against the debt-ceiling deadline of 17 October, the US Congress ended its 16-day government shutdown and extended the country's ability to borrow. However, the standoff hurt millions of people and was costly to businesses and the economy in general. Fitch placed the US credit rating on a negative watch, and Standard & Poor's reported that the overall economic slowdown lowered the country's fourth-quarter gross domestic product by an estimated 0.6%, or US $24 bn. Economic uncertainty is expected to persist, as the US government will be financed only until 15 January, 2014 with the debt ceiling issue to be revisited on 7 February, 2014. The US market ended the week up 1.1%.

The Eurozone showed more signs of having emerged from recession, with stronger-than-expected industrial production in August. Output grew 1.0% in August after a 1.0% drop in July. Economists had forecast a 0.8% growth in output for the month. Output grew in four of the region's five largest economies. However, industrial production declined 2.1% from a year earlier.

China's economy grew at its quickest pace this year, expanding by 7.8% in the third quarter from a year earlier. GDP growth accelerated slightly from the 7.7% and 7.5% pace of the first and second quarter, respectively. Economists expect China's economic growth to subside in the fourth quarter, as export data in September indicated a decline in global demand. Despite upbeat data, the Chinese markets ended the week down 1.5%.

BSE-Sensex was among the top gainers among the various global markets. The Indian stock market closed up 1.7% for the week gone by. The week for Indian markets started on the negative note. High inflation, doubts over US debt ceiling and the downward revision of GDP growth estimates by IMF and World Bank played on investors mind. But markets recovered over the course of the week after the US uncertainty ended and strong data from China came out. 

Global shares fall as debt-cap rally fades.

Global equities were mostly lower at the time of writing after Congress approved a deal to finance the U.S. government until January 15 and raise the debt limit so that the country can continue to increase its borrowing until February 7. Markets rose yesterday in anticipation of the agreement, but the short-term nature of the agreement has markets wary of another standoff in a few months.

Fitch puts U.S. rating on negative watch.

Fitch placed the United States' AAA credit rating on Rating Watch Negative yesterday, citing "political brinkmanship and reduced financing flexibility" that could increase the risk of a U.S. default. Dow futures plunged on the news, but as noted above, they were back in the green early today.

Indian central bank chief expects Q4 pickup.

Raghuram Rajan, the head of the Reserve Bank of India, believes that his country's stuttering economy will pick up in Q4, due to the resumption of stalled projects and a good monsoon season. Around $115B worth of resource projects were halted due to a review of transparency and environmental policy, but about half of these have now been re-authorized. The monsoon will lead to a "bountiful harvest," with activities such as animal husbandry and poultry also strengthening.

Eurozone inflation falls to lowest since early 2010.

Eurozone CPI dropped to a 3 1/2 year low of 1.1% in September from 1.3% in August and fell even further away from the ECB's target of just under 2%. That could leave the bank room for further easing, and, goodness knows, even a spot of government-bond buying if it so wished.

U.K. inflation holds steady.

U.K. inflation was unchanged at 2.7% on year in September, slightly above forecasts of 2.6%. The largest upward contribution came from air fares, although this was offset by lower petrol and diesel prices. The reading is well above the Bank of England's target of 2%, although because of the high unemployment rate, the BOE is holding off from raising interest rates.

Senate leaders near deal but will Congress pass it?

European shares and U.S. stock futures were mostly higher at the time of writing as markets bought into optimistic noises that Senate leaders are close to a deal that would extend the U.S.'s borrowing authority until February 7, fund the government until January 15, and force Washington to hold budget talks. However, the agreement seems to contain few of the demands of the Tea Party Republicans, raising the question as to whether Congress will pass it.

Indian WPI surprisingly rises.

India's wholesale price index, one of the country's main inflation gauges, rose to +6.5% on year in September from +6.1% in August and came in above expectations for +6%. The increase comes amid stuttering economic growth, the weak rupee, which makes imports more expensive, and high food prices. With CPI inflation at 9.5%, the Reserve Bank of India raised interest rates to 7.5% last month.

China's exports surprisingly fall, CPI rises.

China's exports slipped 0.3% on year to $185.6B in September and badly missed consensus for growth of 6%. Although the drop has raised concerns about global demand and the staying power of China's recent economic recovery, analysts pointed out that the over-invoicing of exports may have inflated the numbers in September 2012. Meanwhile, inflation rose to a seven-month high of 3.2% on year, which was more than expected but within the government's annual target of 3.5%.

Non-residents are eligible for the benefit of 10% tax rate on long-term capital gains under the Proviso to s. 112. The AAR should avoid giving conflicting rulings

Cairn UK Holdings Ltd vs. DIT (Delhi High Court)

The assessee, a company based in Scotland, sold 4,36,00,000 equity shares of Cairn India Ltd to Petronas International, Malaysia, for consideration of US$ 241 Million. The sale was not through a stock exchange and resulted in long-term capital gain of US$ 85 Million in the hands of the assessee after applying the benefit under first proviso to s. 48. The assessee filed an application for advance ruling in which it claimed that the said capital gains was chargeable to tax at the rate of 10% as per the proviso to s. 112(1). However, the AAR (337 ITR 131), departing from its earlier view in Timken France SAS 294 ITR 513 (AAR), held that the expression “before giving effect to the 2nd proviso to s. 48” in the Proviso to s. 112(1) presupposes the existence of a case where computation of long-term capital gains could be made in accordance with the formula contained in the 2nd proviso in s. 48 (indexation) and that as non-residents were not eligible for indexation, the lower rate of tax specified in the Proviso to s. 112 was not available. On a writ petition by the assessee to challenge the AAR’s ruling, HELD by the High Court reversing the AAR:

It is not possible to decipher the exact legislative purpose behind the proviso to s. 112(1) in a categorical and unambiguous manner. However, if one squarely focuses on the words used in the proviso and interprets them without extracting or subtracting any phrase or word, a non-resident assessee is entitled to benefit of the said provision. The proviso to s. 112(1) does not state that an assessee, who avails benefits of the first proviso to s. 48, is not entitled to benefit of lower rate of tax @ 10%. The said benefit cannot be denied because the second proviso to s. 48 is not applicable. In case the Legislature wanted to deny the said benefit where the assessee had taken benefit of the first proviso to s. 48, it was easy and this would have been specifically stipulated. The fact that by this interpretation, a non-resident becomes entitled to double deductions by way of computation of gains in foreign currency under the first proviso to s. 48 and then the benefit of lower rate of tax under the proviso to s. 112(1) is no reason to interpret the proviso differently. Further, as the AAR had taken a view in Timkin France SAS which was followed in several cases over several years, it ought not to have taken an opposite view and brought about uncertainty in understanding the effect of the proviso to s. 112(1). There should be consistency and uniformity in interpretation of provisions as uncertainties can disable and harm governance of tax laws. The AAR should follow its’ earlier view, unless there are strong grounds and reasons to take a contrary view.

Most on FOMC continue to see taper this year.

Most members on the FOMC expect the tapering of the Fed's QE program to start this year, the minutes of the September 17-18 meeting show, with the decision not to reduce the bond-buying last month a "close call." FOMC members were aware that the non-taper would be a surprise to the markets. Ultimately - with a number on the committee viewing the latest job data as disappointing - the majority thought it "prudent" to hold steady.

Wal-Mart to end JV in India with Bharti.

Wal-Mart (WMT) is ending its Indian joint venture with Bharti Enterprises after six years. Wal-Mart will buy Bharti's 50% holding in Bharti Wal-Mart, which operates 20 wholesale stores, while Bharti will acquire compulsory convertible debentures that Wal-Mart holds in Bharti-owned Cedar Support Services. The move doesn't come as a total surprise given the speculation that Bharti wanted out. Wal-Mart has held back from further investment and store openings in India due to regulations.

Obama to nominate Yellen as Fed chief.

President Obama is due to officially nominate Janet Yellen as the first woman Chairperson of the Federal Reserve. The Senate will have to confirm the appointment of Yellen, who's known as a bit of a dove when it comes to monetary policy. Global equities were mostly positive at the time of writing as markets weighed the news against the continued deadlock in Washington over the federal budget and debt cap.

India has the worst current account balance.

Rising current account deficit (CAD) has become a chief headache for India in recent times. Indeed, rise in imports, falling exports and decline in the rupee have only made matters worse. So, it is hardly surprisingly that when compared to its peers, India's fared the worse as far as CAD is concerned in the second quarter of 2013. So far, the government has been focusing on short term measures such as placing curbs on gold imports and the like to prevent the gap from widening. But this is hardly going to help from a longer term perspective. For that, the focus will have to be on making exports more competitive and making the country more self reliant as far as energy needs are concerned.   

             
                                                     Data Source: The Economist

German trade surplus up as exports recover.

 Germany's trade surplus rose to €15.6B in August from €15B in July and topped consensus of €15.1B. Exports recovered to rise 1% on month from a fall of 0.8%, while imports increased 0.4% vs +0.3%. "Global trade remains off-color, which is putting the brakes on German exports, "The outlook for the coming months is much more promising. Important freight indicators have risen considerably."

It is not at all an overstatement when they say that debt is dangerous. The problem is that interest expenses are a fixed cost. You have to pay them irrespective of how the sales and profits are performing. This is the reason why too much debt in an adverse economic scenario can wreck havoc with a company's finances.

The woes of debt-laden Indian companies are getting worse. The quantum of debt for restructuring in India Inc has been growing at an alarming rate. Here are some worrying figures reported by Business Line. During April-September 2013, debt aggregating about Rs 645 bn was referred to the Corporate Debt Restructuring (CDR) Cell. This is a 63.5% jump from Rs 394.35 bn referred in the corresponding period of the previous fiscal. It must be noted that the quantum has increased despite tightening of the CDR norms.

What are the reasons for the financial problems of the highly indebted companies? Poor economic environment and regulatory hurdles rank as the key reasons. The outlook for the Indian economy continues to remain bleak at least over the medium term.    

Greece sees light at the end of the long dark tunnel.

 Greece's government has forecast that the economy will rebound to grow by 0.6% in 2014 vs a contraction of 4% in 2013, boosted by a recovery in investment, exports and tourism. Athens also expects a small primary budget surplus this year and one of 1.6% of GDP next year. Greece even hopes it can return to bond markets in H2 2014. If the growth prediction is correct, Greece would emerge from six years of deep recession.

India's Apollo Tires wants to pay less for Cooper.

Apollo Tires wants to lower the price of its $2.5B purchase of Cooper Tire & Rubber (CTB), due to "significant and unanticipated costs" that are "well beyond" those it thought it would have to pay. Apollo said yesterday that Cooper has agreed to a price cut, although the latter said it hasn't agreed to any such thing. The deal has been hit by labor issues in the U.S. and China.

Japan Airlines orders $9.5B worth of A350s in blow to Boeing.

Japan Airlines (JAL) has announced its first ever booking for Airbus (EADSF.PK) planes, saying it will buy 31 A350 jets in a deal worth $9.5B at list prices. It's a blow to Boeing's (BA) dominance in Japan, which had been the biggest market for the 787, a rival to the A350. JAL has suffered more than most from the constant technical problems to have afflicted the Dreamliner.

Stocks fall as Boehner ties budget, debt cap to cutting deficit.

Global equities and oil were lower at the time of writing after John Boehner yesterday said he won't introduce legislation to finance the government or raise the debt ceiling until the Democrats agree to "a serious conversation" about cutting the deficit. He also said the U.S. is on "the path" to a debt default, a stance that is in contrast to reports last week saying he wouldn't let such an event occur.

If U.S. shutdown persists, there may be reason for Indian Investors to cheer.

The US government has shutdown since its leaders were unable to reach an agreement on the broader fiscal policy. This has not really unnerved the Indian investors as evidenced by the Indian share markets which have continued to rally since the shutdown. But if the shutdown persists, there may be reason for Indian investors to cheer more. At least this is what an article in the Wall Street Journal is saying. The reason for this is the Fed's QE policy. If the US shutdown gets prolonged, then the US Fed may find it difficult to taper off its QE plan. In that event, the flood of cheap money that has invaded our markets would continue for the time being. This means that our capital markets as well as our currency may find some sort of a support.

If we recall that when the US Fed had just hinted on a possible taper off, both the markets as well as the Rupee had come crashing down. Therefore any delay or postponement of the actual taper off is something that would provide relief to investors. However, the question is not whether the US government continues its impasse or whether the QE is prolonged or tapered off. The question is, why are our markets addicted to the money flood like to a drug? Why do we need an outside drug to provide stability to our currency and markets? Why is the economy itself unable to provide the same stability? The answer to this lies with the government who seems to be more interested in winning the next elections. Rather than do some actual work to make our economy stronger and th us more stable.

BOJ leaves massive stimulus unchanged.

As expected, the Bank of Japan has maintained its target of expanding the monetary base by ¥60-70T ($720B) a year. The BOJ again said the economy is "recovering moderately," noting that corporate capex has been rising as profits have improved. However, the BOJ is concerned by risks from overseas. The decision came just days after the government said it will raise sales tax to 8% from 5% in April despite fears that the move will hurt the economy.

Despite the flood of cheap money in overseas markets, the past few months have been rather difficult for cash strapped companies in India. Ones with high levels of debt on their balance sheet have been literally scouting for funds at every nook and corner. The high demand for working capital and short term loans has meant that banks have raised their credit deposit ratio. Typically, out of every Rs 100 of deposits, the bank can lend Rs 73. This is after keeping aside Rs 23 and Rs 4 respectively for SLR (statutory liquidity ratio) and CRR (cash reserve ratio).

However, as per Economic Times, the outstanding credit deposit ratio is currently 78%. Moreover the incremental credit deposit ratio is 83%. This means a substantial part of the lending is from high cost borrowing rather than cheaper CASA (current and savings accounts). Effectively banks themselves will have to frequently re-price their short term lending at higher rates to keep their margins (NIMs) stable. Without that banks will have to compromise on their own profitability and asset quality. All said, the cost of funding for cash strapped companies is set to go higher. And investors would do well to give such companies a miss. 

Treasury takes final actions to avoid hitting debt ceiling.

The government has started to implement the final extraordinary measures that will enable the U.S. to avoid breaching the country's $16.7T borrowing cap. The government has until October 17 before those measures are exhausted, at which point it will have just $30B left, well below net expenditures on certain days. As indicated above, the prospects of Congress agreeing on a deal to raise the ceiling aren't looking particularly good at the moment.

Shutdown hits equities as deadlock in Washington continues.

European shares and U.S. stock futures were mostly lower at the time of writing as investors started to get more than a tad concerned that the government shutdown in America might drag on for longer than expected, especially with the first day of the closure ending with no agreement over the federal budget in sight. What the impasse means for raising the debt ceiling is also a worry. Gold was higher, oil lower and 10-year Treasury yields almost unchanged.

Eurozone unemployment remains high at 12%

The eurozone jobless rate held steady at 12% in August and came in slightly below consensus of 12.1%. The lowest rate was in Austria (4.9%) and the highest in Spain (26.2%).

Chinese official PMI misses estimates.

China's official PMI, which focuses on larger state-owned enterprises, edged up to 51.1 in September from 51 in August but missed consensus of 51.5. The tepid growth in the print follows disappointing HSBC PMI data, which concentrates on smaller privately owned firms, and adds to concerns that China's economic recovery might not be all that. Chinese markets are closed for a week's holiday, so any reaction will be fairly delayed.

Japan confirms hike in sales tax to 8%, stimulus package

As widely expected, Japan will go through with a plan to raise sales tax in April to 8% from 5%, a move that is set to raise ¥8T. To offset the economic impact of the hike, Prime Minister Shinzo Abe has unveiled a ¥5T ($51B) stimulus package that will include spending on public works and tax breaks to encourage companies to boost capital expenditures and wages. Still, the VAT rise is Japan's first serious attempt in 15 years to rein in its massive public debt.

S. 40(a)(ia) TDS: Amendment by Finance Act 2010 permitting TDS payment till due date of ROI is retrospective. Bharati Shipyard 132 ITD 53 (Mum)(SB) disapproved

CIT vs. Rajinder Kumar/ Naresh Kumar (Delhi High Court) 

In 2007-2008 the assessee made professional payments for which TDS had not been paid by 31.3.2007 though it was paid before the due date for filing the return of income. The AO& CIT(A) disallowed the expenditure u/s 40(a)(ia) though the Tribunal deleted it by relying on Virgin Creations (Cal) which held that the proviso to s. 40(a)(ia) amended by the Finance Act 2010 has retrospective effect. On appeal by the department to the High Court HELD dismissing the appeal:

The intention behind s. 40(a)(ia) is to ensure that TDS is deducted and paid. The object of introduction of s. 40(a)(ia) is to ensure that TDS provisions are scrupulously implemented without default in order to augment recoveries. It is not to penalise an assessee when payment has been made within the time stated. Failure to deduct TDS or deposit TDS results in loss of revenue and may deprive the Government of the tax due and payable. The provision should be interpreted in a fair, just and equitable manner. It should not be interpreted in a manner which results in injustice and creates tax liabilities when TDS has been deposited/ paid and the respondent who is following cash system of accountancy has made actual payment to the third party for services rendered. Also, s. 40(a)(ia), prior to the insertion of the proviso by the Finance Act 2010, was not free from interpretative difficulties and problems. The amended provisions are clear and free from any ambiguity and doubt and will help curtail litigation. The amended provision clearly support the view that the expression “said due date” used in clause A of proviso to the un-amended section refers to the time specified in s. 139(1) of the Act. The amended s. 40(a)(ia) expands and further liberalises the statue when it stipulates that deductions made in the first eleven months of the previous year but paid before the due date of filing of the return, will constitute sufficient compliance. Consequently, the proviso to s. 40(a)(ia) must be treated as retrospective in operation (Virgin Creations referred/ followed; Bharati Shipyard 132 ITD 53 (Mum)(SB) disapproved)