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Vodafone Asked to Pay $554.

1 Million in Indian Tax Case
NEW DELHI –India's top court Monday asked Vodafone International Holdings B.V., a unit of U.K.'s Vodafone Group PLC., to pay 25 billion rupees ($554.1 million) within three-weeks time and set Feb. 24 as the final date for an appeal hearing. The appeal is against a lower court ruling that permitted a tax claim on the company's 2007 acquisition of a majority stake in Hutchison Essar Ltd. India's tax department had sent Vodafone International a tax demand of 112.18 billion rupees ($2.52 billion), including interest. Vodafone has said it "strongly disagrees" with the tax calculation. The court registry payment of 25 billion rupees that was announced Monday, will be paid back to Vodafone if the company wins the court case. A three-judge panel asked the income tax department to provide a guarantee that it would bear the applicable interest on the 25 billion rupees deposited by Vodafone if the company wins the appeal. The court, headed by Chief Justice S.H. Kapadia, also asked Vodafone International to provide a bank guarantee worth 85 billion rupees with a state-run bank in the next eight weeks. India's tax department says Vodafone International failed to withhold tax when it paid $11.2 billion to buy Hong Kong-based Hutchison Whampoa Ltd.'s 67% stake in Hutchison Essar. Hutchison Essar was renamed Vodafone Essar after the stake transfer. Tax department officials couldn't be immediately reached for comment. Vodafone has since claimed that the Indian government is not entitled to tax the transaction since it was agreed outside India by two foreign companies. Meanwhile, Vodafone said in a statement that it has been in talks with the Dutch government which probably appealed to an India-Netherlands tax treaty to resolve the dispute. "The Dutch government's intervention is a standard mechanism which can be invoked between countries to review tax matters," Vodafone said Monday, responding to local media reports. During its address in court Monday, company lawyers reiterated that the deal wasn't taxable in India.

India's Central Board of Direct Taxes had calculated capital gains of 374.14 billion rupees on the transaction. The tax on the gains was calculated at 79 billion rupees as of Feb. 11, 2007, the board said.

India Economic Summit: The Rural Conundrum One thing that is obvious to all is that fixing . “Implementing India” — hosted in Delhi this week by the World Economic Forum and the Confederation of Indian Industry. additional secretary and financial adviser at the Ministry of Rural Development. as was on full display at the first session Monday on rural India at the India Economic Summit — subject. He conceded that the government isn’t getting a good return on its investment in rural India and is looking to this model to give it much better bang for the buck.” Yes. right? Except Ben Verwaayen. then get out of the way to allow entrepreneurs to innovate. uphill task. he said. Mr. Arvind Mayaram. offered one interesting-sounding example of a partnership program between government and industry where government essentially hands over development and management of civic infrastructure to private companies in a 10year management concession. chairman of the State Bank of India. or Europe. Bhatt. Sounds great. but what opportunity exactly? .India is a complex.sorry. O.5 times to population of the U. CEO of Alcatel-Lucent. much easier said than done. As we all know. 2. Verwaayen came up with perhaps the best effort to reconcile all this when everyone agrees that fixing and developing rural India is a massive issue for the future of India yet fruitful efforts are few and far between: “The size of the problem is so big that it can’t be a problem. took issue with the idea that government was spearheading the solution when it didn’t let telecom companies share spectrum that would improve rural Indians’ ability to be connected to the broader doubt important but not something that many rural Indians would be interested in debating at the expense of concrete steps to improve livelihoods. Otherwise why would there be hundreds of millions of Indians living in abject poverty in a nation that has a fast-growing economy and is held up as a world power? The problem is that it is often easier to find the faults rather than the solutions.P. it has to be an opportunity. live in rural areas where 300 million are poor. define the issue. When asked by moderator Nik Gowing of the BBC to come out with specific ideas that would improve lives in rural areas. At which point the session rather devolved into a discussion about the meaning of connectivity . fell back on reciting the well-known statistics that define the problem but not the solution: 700 million people. implementing . The proper role of government was also in dispute but the general opinion seemed to be that government needs to set the stage.S.

While the official consumer inflation rate was 4. A resolute drive to slow growth of the money supply will stop the hemorrhaging of household savings due to inflation. and borrowers of medium.Have a concrete idea that you think will improve lives in rural India? Please leave it in the long-term corporate loans. Given that households currently have more than 11 trillion yuan ($1. the rate paid on demand deposits did not budge. a 10% rise in food prices is having a huge impact on poorer households. But the social impact may be almost as severe. suffer negative returns on their savings. More action is needed. banks are earning large margins. depositors are paid artificially low rates because the government prevents banks from setting their own deposit rates. poorer households now face inflation that is twice the overall rate because their consumption basket is dominated by food items. deposits in a one-year time deposit earn -2%. . especially poorer ones with money mainly in demand deposits. Household savings have also been eroded by government policies to control deposit interest rates. As an added bonus. for a real return of about -4%.4% for October. households.25-percentage point lending-rate hike. an annual inflation rate of 4% this year would in effect see the transfer of over 400 billion yuan ($60 billion) from these households to banks and corporate borrowers. many households are seeing flat or negative increases in purchasing power. are borrowing at an inflation-adjusted rate of about 2%. Inflation Threatens China's Growth China is seeing the highest price increases in over two years. though rates on demand deposits have not budged at all.7 trillion) in demand deposits. and this has officials worried. which tend to be state-owned or statedominated firms. Even net of inflation. The government has responded with a small interest-rate increase and some hikes of the reserve requirement. Savings in demand-deposit accounts today yield negative returns after adjusting for inflation. it may also wean China off of its heavy dependence on investment-driven growth. In times of inflation. According to research by a Chinese government think tank. So even though wage gains seem robust. Meanwhile. The recent bout of inflation may seem mild in comparison to the double-digit price rises in the 1980s and '90s. The domestic media is filled with stories of hoarding by both producers and consumers. Even without inflation. After the recent 0. which have seen the most rapid price increases. both dominated by the state.

allowing private firms to dominate sectors previously monopolized by state-owned firms. however. the sudden slowdown in credit expansion will cause illiquidity in some investment projects and slowed real-estate construction. Repeating that process will not be painless. Nonperforming loan ratios may rise as cash-starved projects become unable to meet interest payments. however. a key ingredient of future inflation fighting will be to slow down substantially the expansion of money supply. regulators would also need to monitor closely the expansion of trust products and the inflow of hot money. The pressure from negative earnings on savings has driven richer households to speculate in the real estate and stock markets. In the mid. In the medium term. but past experience has shown that resolute macroeconomic retrenchment can put China on a healthier path for growth." as outlined by the Party plenum last month. . Although inflation might have been boosted by some recent supply shocks. China's top leadership. the policy will pay benefits. A combination of interest rate hikes. especially the spectacular explosion of lending last year. Given that nominal wages for a large number of households remain relatively flat. the Chinese government has successfully stifled inflationary pressure via the imposition of a resolute credit ceiling on banks. Rising inflation has further incentivized all households to begin stockpiling food and commodities such as gold. In the past. Today. the rapid expansion of the money supply in recent years. if sufficiently widespread. cash-starved local authorities became much more open to privatization.This erosion of poor households' purchasing power goes directly against the goal of "raising the income of medium and low income urban and rural residents. To be sure. a credit ceiling. Macroeconomic retrenchment credibly commits the government to both low inflation and a less investment-intensive growth path by cutting off liquidity from a large number of projects. a freeze in trust product issuance and aggressive sterilization of foreign exchange inflows can halt inflationary expectations and stop the erosion of household savings. The People's Bank of China and the China Banking Regulatory Commission have all the tools necessary to fight inflation. Food late-1990s. Thus. can further increase inflationary pressure. is the root cause. Local authorities will learn that they can no longer pursue growth based mainly on adding new investment projects financed by bank loans and bond issuance. The competition that resulted was good for the economy. continual inflation alone will drive many into destitution. needs to make clear its collective determination to fight inflation in order to give these measures credibility.