Five Reasons to invest in a child insurance plan (ET)

Five reasons to invest in a child insurance plan

By Gargi Banerjee 

Think of the day that your child was born and you took him or her in your arms for the very first time. That is the time you realised that this tiny little bundle of joy you are holding in your arms is your responsibility. You will be nurturing, caring and making this tiny person into a human being who is worth her salt. And that indeed is no mean responsibility. 

As a parent, your primary duty is therefore to protect the future of your child, and a good way to start is to invest in a child insurance plan. A child insurance plan not only provides the security net you would want for your child, it gives you the benefits of investments as well. Here are five good reasons why you should consider child insurance plans, if you haven't secured your child's future yet. 

Taking care of education: 

Ask any parent about his primary concern about his child's future, and almost all will quip about the escalating cost of education in the times that we live in today. Putting your child through a good school will not come cheap. Over and above that as the years fly by, your child may decide to go in for higher studies that will cost the moon. If you plan well and invest in a child insurance plan that matures during such times, you financial burden will be relieved. 

A habit of saving 

As we mentioned earlier, child care plans come with the twin benefit of insurance and investment. Before buying a child care plan, go back to your financial plan and calculate the need for funds during the various stages of life. Calculate what you are saving for such as primary and secondary education, higher studies, marriage etc. Also take into consideration your other responsibilities such as a mortgage etc and zero in on a insurance scheme that is a perfect fit with your financial plan. While initially it may seem as a burden, paying periodical premiums will soon become a habit that will put you in good stead when your ward grows up. 

Protection against serious illness 

If there is a family history of some serious illness, you must purchase a child insurance plan at an early stage when your child is hale and hearty. In later years if your child, God forbid, were to fall prey to any such disease, the money invested in a child insurance plan will come in handy apart from your health insurance. 

Collateral for loans 

A child insurance plan is also widely accepted by all banks as a collateral if you want to take an education loan or personal loan for your child. This will greatly help your son or daughter when he or she requires a lump sum for higher studies. 

Death of parents 

One does not like to be morbid, but that having said you can never be too sure as where and when death awaits you. In case of your untimely demise, the insurer offers a waiver on the premium on a child insurance plan and the beneficiary (your child) receives a lump sum and is no longer required to make the premium payments. 

Thus as you can see, a child insurance policy is like a stitch in time, and like the say it can "save the nine" later and keeps your child's future financially secure.

Govt to create single industrial relations law (Livemint)

The move to merge three laws into one comes in an attempt to encourage compliance and improve the ease of doing business

The move follows the ministry’s recent proposal to merge four wage-related laws—the Minimum Wages Act, the Payment of Wages Act, the Payment of Bonus Act and the Equal Remuneration Act—into one. Photo: Priyanka Parashar/Mint

New Delhi: The Union labour ministry has drafted a new legislation that merges three central labour laws into one, in an attempt to encourage compliance and improve the ease of doing business.

The Labour Code on Industrial Relations Bill, 2015, proposes to combine Industrial Disputes Act, 1947, the Trade Unions Act, 1926, and the Industrial Employment (Standing Orders) Act, 1946. The ministry has written to all stakeholders, including trade unions and industry, seeking their response before finalizing the bill.

The bill shall “consolidate and amend the law relating to registration of trade unions, conditions of employment, investigation and settlement of disputes and the matters related therewith or incidental thereto,” said the draft of the bill sent to the stakeholders.

“It shall extend to the whole of India,” the draft bill said.

The move follows the ministry’s recent proposal to merge four wage-related laws—the Minimum Wages Act, the Payment of Wages Act, the Payment of Bonus Act and the Equal Remuneration Act—into one.

The initiative assumes significance in the backdrop of the government’s bid to consolidate and reduce the number of central laws, said a labour ministry official who declined to be named. “For two-and-a-half months, the ministry has been deliberating on the move and, finally, it’s ready to go for public deliberation,” the official added.

“Fewer laws mean better monitoring, easy compliance and benefit to both industries and workers,” the official said, indicating the labour ministry has been following the direction of Prime Minister Narendra Modi, who has stressed on improving business environment by removing bottlenecks.

D.L. Sachdeva, national secretary of the All India Trade Union Congress, said the central labour union has received intimation from the ministry in this regard. The ministry has also called a meeting on 6 May to discuss the topic in detail, he said.

Sachdeva said the proposed bill will cover three key aspects—the right to association, right to collective bargaining and right to collective service condition. “All central labour unions believe these three issues—the essence of the three bills—shall not be tampered with. Any new addition is fine, but it should not go against workers or promote casualization of workforce,” he said.

The bill, in its present form, has 107 sections in 13 chapters to deal with all industrial relations issues.

According to the draft bill, all workers employed in industries for more than a year will get three months of notice in case there is a plan for retrenchment, but it shall not apply to an “undertaking set up for the construction of buildings, bridges, roads, canals, dams or for other construction work”.

Sachdeva said while the three-month notice is in place, the relaxation for construction firms is controversial and shall “face opposition on any discretion given to any industry segment”.

A second government official, however, said the draft bill is not final and may undergo modifications after wider consultations.

Net neutrality: it is all about consumer interest (Livemint)

In the cacophony over net neutrality, the most clichéd, yet the most essential, principle has been all but lost: competition in a market ensures consumer interest.

The reality is that in a competitive market, violation of net neutrality might spark the digital revolution that India has been awaiting with baited breath. Photo: Hemant Mishra/Mint

Both the telecom companies and the Praetorian Guard-like defenders of net neutrality have resorted to fear-mongering to win public opinion. Of course, one could accuse the telcos of ending up with their noses a wee bit longer every time they claim that their zero-rating services are meant to serve consumer interest.

In their exhortations to the public to defend net neutrality at all costs, the defenders seem to treat it as an inviolable and standalone principle, instead of just another instrument that should be employed to further consumer interest — the one and the only litmus test that any idea must be based on.

The myths

To make an informed decision on net neutrality, it is imperative to demolish myths perpetuated by either side. I will begin with the telcos’ myth: OTT (over-the-top) services such as WhatsApp and Skype are cannibalising their revenues.

On the contrary, OTT services are driving the telcos’ revenues. A look at their finances shows that voice revenues plateaued after 2012. The growth in revenues has been propelled by data usage, as is evident in the quarterly financial results of Bharti Airtel Ltd and Idea Cellular Ltd released this week.

Now, it shouldn’t be very difficult to figure out what exactly is driving data use: the staid Wikipedia and Google searches, or the fancy OTT services that keeps the users hooked all day? To make a larger point, in the Internet ecosystem, neither the telcos nor any website/app can claim ownership of the customer. While it’s obvious why OTTs are dependent on telcos, it’s a certainty that if a company stops offering OTT services, it would lose a massive chunk of its customer base.

Meanwhile, the defenders have largely succeeded in creating the impression that net neutrality is a pre-requisite to the existence of Internet as we know it. The reality is that in a competitive market, violation of net neutrality might spark the digital revolution that India has been awaiting with baited breath.

The defenders have conveniently conflated two separate issues: price prioritisation (such as in Airtel Zero) and speed prioritisation (involving slower access to certain websites).

It serves their cause because the first, which is a much more nuanced topic, can be easily buried underneath the avalanche of noise created about the second, which is obviously detrimental to consumer interests. If a telco hands over a 3G pack to me, which gives only 2G access to certain websites, it’s shortchanging the consumer.

Price prioritisation isn’t evil

However, the first (price prioritisation) can’t be dismissed offhand on such simplistic arguments, which is why the US FCC (Federal Communications Commission) has kept it out of the net nuetrality debate, and it continues to thrive there. There are essentially two arguments against price prioritisation: it restricts access to the infiniteness of the Internet and it reduces the likelihood of another Google being created. While there is considerable weight in both arguments, let us look at the other side.

The fear that collaboration (notice that the word “cartelisation” is conspicuous by its absence) between telcos and Internet giants would stifle competition from startups stems from the fact that they don’t possess pockets as deep as their rivals’ and, hence, can’t lure customers to their competing social network.

But what if—and this is a big if—the fee being charged by the telcos isn’t extraordinary? What if it forms only a minuscule share of the startups’ investment? That would certainly mean that a huge market awaits them, which they could not have accessed otherwise.

This could spur a new generation of entrepreneurs in India. If websites/apps pay for the increased customer base of the telcos, this should further drive down data charges. Lower revenues would mean the consumers could afford to access even the unpaid parts of the Internet, thus eliminating the “limited exposure” drawback of price prioritisation.

Besides, free mobile Internet would also mean greater penetration, which is currently 20% of all mobile users, of which 3G is a very small part. This could bring about an economic boom.

There is only one way to remove the dependency on the “ifs” in the above paragraphs: fair and fierce competition. If that happens, even speed prioritisation, though strictly in the form of positive discrimination, could be in consumer interest. If, on a 2G pack, a website/app wants to allow access to its users at 3G speeds, why should that be a problem? Paying more to access better service is a fundamental market principle. Only in this case, it’s the website/app which is paying more, and the better service it avails of is the increased traffic.

But what if...

All rosy so far, but what if competition broke down? There exists a very realistic possibility of market failure, owing to cartelisation (discerning readers would notice the replacement of the word “collaboration” used earlier) between the telco and the website/app.

In such a scenario, all boons discussed above would turn into banes. The two parties would raise unsurpassable entry barriers by charging an exorbitant fee from a newcomer. The inability to pay such a fee would mean that any competition would die. Note that this would also require cartelisation among telcos since the newcomers could easily opt for another telco, if one was being unfair. This is precisely how telcos managed to annihilate VAS.

This is, however, not the only entry barrier available to telcos. Cross cartelisation between telco-telco and telco-website/app could also result in higher data charges for the consumer, who would then stick to only the free websites. In a widely circulated missive, Airtel likened zero-rating services to toll-free numbers. That’s simply not true. Firstly, there’s no one losing revenue if all calls are directed to the toll-free number. Secondly, why would you call the toll-free number if you had to talk to your dad? In the case of Internet, users simply “stumble upon” many sites. In case of high data charges, such experimentation would be a thing of the past.

Another dangerous possibility lurks. So far, talks of price prioritisation have only been in the realm of OTT. But what stops telcos from extending the definition of OTT to, say, blogs? After all, I could be putting the information I would ideally communicate over phone on my blog. That makes me an unsuspecting OTT. Considering there’s no dearth of rich bloggers, this is a sure shot recipe to stifle those countless faceless warriors of the Internet who’ve been screaming out silently against oppression and injustice.

Consumer interest is sacrosanct

As with any other industry, to ensure consumer interests in the telecom sector, competition is the key. Lack of competition, with or without net neutrality, is detrimental to consumer interests. It can’t be denied, though, that violation of net neutrality presents a huge opportunity of cartelisation. The Indian government has so far done a commendable job in the telecom sector, but this could be an entirely different animal to handle, since two big industries—telcos and Internet content providers—are coming together. Great caution and foresight are required. Depending on how effectively the government can ensure competition, violation of net neutrality could be a boon or a Faustian bargain.

Low rainfall may affect bank non-performing assets (Live Mint)

Non-performing loan ratio of agriculture loan portfolio could double for some banks

Indranil Bhoumik/Mint

The asset quality of India’s agricultural credit could be significantly affected by crop damage due to untimely hail and rain in March, according to India Ratings and Research.

The non-performing loan (NPL) ratio of the agriculture loan portfolio could double for some banks, though the reduction of overall return on average assets (RoA) may be relatively muted at 3-6 basis points (bps; one basis point is one-hundredth of a percentage point). March was the wettest month in India in 48 years. States affected, in varying degrees, include Rajasthan, Madhya Pradesh, Gujarat, Jammu and Kashmir, Uttar Pradesh and Maharashtra, which make up the majority of wheat producing states in the country. Industry experts indicate that wheat output is predicted to fall by 8% due to the rains, which will be the largest decline in production since 2002.

The unseasonal rains immediately followed one of the weakest and most deficient (12%) monsoons that the country had experienced in FY15, which has heightened its effect. The situation may worsen if this year’s monsoon is also below normal. The Indian Meteorological Department estimates a 33% chance of the FY16 monsoon being 90% or below of normal. Banks have recently been extending agricultural loans rather aggressively, on account of the governments’ promotion of agricultural loans, and also given lower credit demand in other sectors. Regional banks with a large rural presence in the affected regions are at a high risk.

Credit growth to agriculture may slow down: Agriculture loans grew 16% year-on-year (y-o-y) in FY15 on account of the governments’ promotion of agricultural loans, and also lower credit demand in other sectors. Bank credit growth for FY15 (12.6% y-o-y growth for total credit) was driven by the agricultural sector, which contributed 25% to the incremental growth in the system between FY14 and first 11 months of FY15.

While the Union budget for FY16 has targeted 6.3% y-o-y growth in banks’ credit to the agriculture sector, actual growth may slow down as banks grapple with continuing deterioration in farm loan asset quality. A final picture will likely emerge in June based on the progress of the monsoon.

If the agriculture lending slows down, banks may have to shift their loanable funds to alternatives such as the Rural Infrastructure Development Fund to meet their priority sector requirements. The switch from the higher yielding agricultural loans to the development fund may affect profitability even further.

Asset quality and profitability impact: We estimate that system-wide agricultural non-performing assets (NPAs) as a percentage of total agricultural advances will rise to 16.9% by the second half FY16 from 13% in FY14 as a direct result of unseasonal rains. Heavily exposed individual banks may also see their agriculture NPA levels growing more than double.

Our estimated profitability impact of these stressed agricultural loans indicate a 2-3 bps system-wide post-tax RoA depletion. A bank-wise analysis indicates the largest profitability impact on RoA at 6 bps. However, most of the affected banks are adequately supported by equity to cover these potential losses.

Stressed assets in Indian banks amounted to 10.6% of total credit at end-December 2014. We had earlier expected this to grow to 13% by end-March 2016. The untimely rains could increase this to 13.4%.

Rating impact unlikely: Affected banks are highly exposed to impacted areas through rural branch presence, and have historically had above-average NPAs stemming from agriculture. These include Bank of Baroda, Bank of Maharashtra, ICICI Bank, Jammu and Kashmir Bank, Oriental Bank of Commerce and Punjab National Bank. Delinquencies on account of affected crops could increase the overall NPL ratio of these banks by 60-100 percentage points. While this will keep credit costs elevated, they have sufficient pre-provision operating buffers to absorb the shock.

Impact to be felt in the second half of FY16: The impact on the system will lag by one or two crop seasons, depending on the crop affected. This is because NPA accounting guidelines by the Reserve Bank of India indicate that a loan to any agricultural plantation will be considered overdue after one crop cycle (for long duration crops) or two crop cycles (for short duration crops), extending bad loan recognition to beyond 90 days past due.

These guidelines, coupled with the fact that banks may choose to restructure these loans may delay recognition further.

Edited excerpts from a report by India Ratings & Research.

New rules benefit insurance nominees (Live Mint)

New rules benefit insurance nominees

If immediate family member is named beneficial nominee, the person will get the insurance money

Jayachandran/Mint

As a financial product, a life insurance policy is the most meaningful for your dependants as it promises to protect them financially in the event of your death. Therefore, when you buy a life insurance policy, it is important to mention a nominee who will be entitled to the insurance money in the event of the policyholder’s death during the policy term. However, till now, nominating someone didn’t necessarily mean that the nominee would be the ultimate beneficiary of the insurance money. “Previously, by law, the nominee in a life insurance was meant to receive the death benefit from the insurance company and distribute to the insured’s legal heirs. This created confusion because policyholders thought that the nominees they specified would be the eventual beneficiaries if they died,” said Kapil Mehta, executive director, SecureNow Insurance Brokers Pvt. Ltd.

But the new rules effected by the Insurance Laws (Amendment) Act, 2015, clearly make nominees, immediate family members such as spouse, parents and children, the beneficiary so that the insurance money can go to the intended recipient. In fact, the new rules have another nominee-friendly feature that you must know in detail, but first let’s start with understanding what a beneficial nominee means.

Immediate family is beneficial nominee

The amended Act has introduced the concept of a beneficial nominee. The nominee in this case is the person who ultimately benefits or owns the insurance money. According to the new rules, when a policyholder nominates parents, spouse or children, then the nominee or nominees will be beneficially entitled to the amount payable by the insurer. “In the new insurance law, if an immediate family member such as spouse is made the nominee, then the death benefit will be paid to that person and other legal heirs will not have a claim on the money. This is good because it makes the nomination process more meaningful and clear. A policyholder knows that the immediate family member nominated by him will get the benefit. This will be applicable for all insurances that have a maturity date after March 2015,” said Mehta.

That’s not all. The new rules give rights to the nominee to collect the insurance money even on maturity of the policy in the event of the policyholder’s death. “Before the amendment Act, a nominee had the right to collect the policy money only upon death of the life assured during the term of the policy, but not if a policyholder survived till maturity, but died before getting the maturity corpus. The nominee is entitled to receive the maturity benefits, and in case he happens to be the beneficial nominee, then other legal heirs can’t claim the maturity proceeds,” said C.L. Baradhwaj, senior vice-president, compliance, and chief risk officer, Bharti AXA Life Insurance Co. Ltd.

Rules of assignment

The other change relates to the assignment of an insurance policy. You may know that at the time of taking a loan from a bank, you can pledge your insurance policy as collateral security. The formal process to do this is called assignment. “Assignment is the process by which you transfer your rights to another person or entity. Assigning one’s life insurance policy to a bank is fairly common. In this case, the bank becomes the policy owner whereas the original policyholder continues to be the life assured on whose death the bank or the policy owner is entitled to receive the insurance money. This earlier meant that the original nominee would automatically stand cancelled upon assignment. It was then up to the bank or the creditor to pay the balance money to the nominee,” said Baradhwaj.

Now, when an assignment is done for the purpose of a loan, the original nominee remains. “The insurer will pay the bank the outstanding dues and pay the balance to the nominee directly. This makes the whole process easier for the nominee,” added Baradhwaj.

In fact, you don’t even have to assign the policy fully as the new rules allow for partial assignment. So, say, a person has a life insurance policy of Rs.50 lakh and she decides to assign the policy to the bank to the tune of Rs.20 lakh because that’s the amount of loan she took from the bank. In case of her death, the insurer would pay the bank the outstanding dues up to Rs.20 lakh and the balance to the nominee.

Although the concept sounds similar, assignment is not the same as taking a term plan purely for the purpose of covering a loan. In insurance parlance, these term plans are known as credit life policies. In this case, you buy insurance under a group policy in which the bank is automatically the policyholder and you the life assured. Usually, the insurance cover or the sum assured in this case decreases as the outstanding loan amount decreases. On death of the policyholder, the insurer pays the bank the outstanding dues and the remaining goes to the nominee. For the purpose of assignment, you can assign any of your insurance policies as long as the sum assured is equal to or greater than the loan amount.

Assignment is not restricted to taking a loan. “Earlier, you could assign a policy for any purpose. But now the rules give insurers the power to reject assignment if it leads to trading of insurance or goes against the interest of the policyholder or the public. The industry is yet to frame the rules on this,” said Baradhwaj. Do note that if you assign the policy for other purpose other than taking a loan, the nomination stands cancelled. The new rules are directed towards not only protecting the policyholder’s interest, but also nominee’s.

What went wrong with TCS, Wipro & others as they struggled to grow revenues? (ET)

Indian IT in FY15: What went wrong with TCS, Wipro & others as they struggled to grow revenues?

By Anirban Sen & Jochelle Mendonca, ET Bureau | 27 Apr, 2015, 05.49AM IST

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Read more at:
http://economictimes.indiatimes.com/articleshow/47063729.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

BizQuizShethra # 15

BizQuizShethra # 15
29. Which automobile brand is named after the Spanish word for `grace’?
Ans: Mercedes; It was named after the daughter of Emil Jellinek, an Austrian businessman who promised to buy a fleet of cars if they were named after his daughter whose name `Mercedes' translated to `grace' in Spanish.

30. Which Indian company identifies itself with the Italian mindset of precision engineering? 

Ans: PRICOL- Premier Instruments and Controls.

Learning Facilitator

Prof. M. Subramanian

10 health insurance myths assumed to be true (ET)

10 health insurance myths assumed to be true

By Khyati Dharamsi 

Finance Minister Arun Jaitley has doled out a tax goodie for health insurance seekers. The amount of deduction that can be claimed for health insurance premia has been increased to Rs 25,000 for individuals and Rs 30,000 for senior citizens. However, the government is far from extending the health insurance benefits to all the citizens and hence out-of-pocket expenses for medical treatment by Indians stand at 86% as against 20.9% borne by US citizens, according to a World Health Organization Report. This is the result of not opting for health insurance. 

But before you seek a fresh cover or assess your existing coverage, shatter the glass of myths that you look at health insurance through. 

Myth 1: My employer mediclaim would take care of my needs 

Truth: If you are one of the many beneficiaries of the corporate group health scheme don't write off the need for another individual health insurance. In an effort to reduce steep premium employers are rationalizing the cover. Some of the steps taken include, excluding parents, dependents, partial payment of premium, co-payment (bearing a part of bill from pocket) or offering medical insurance only for those who pay the premium on their own. 

Also, buying a cover at the time of retirement would prove expensive and may be unavailable in case of adverse health issues. Those who hop jobs should beware of the period between jobs, when no cover would be available. 

Myth 2: I smoke and hence won't be offered a health cover 

Truth: As per a survey conducted by a health insurance company 49% of those who smoked or consumed alcohol were in a dilemma whether they would be offered health insurance. Though such a set of people would be prone to health hazards, the good news is that insurance companies extend medical insurance to them. As the risk associated is high, smokers and alcohol consumers would need to pay a higher premium and also undergo a stringent health examination before being offered a health insurance policy. 

Myth 3: I am fit, I don't need health insurance 

Truth: Though you may be taking care of your health, unforeseen circumstances such as accidents and illnesses such as dengue, malaria can hit anyone. Footing a hospital bill isn't as easy as before. A two-day hospitalization can force you to pull out savings worth Rs 60,000-1 lakh or more depending on the severity. 

Myth 4: I will get paid only if I am hospitalised 

Truth: Though there are caps in terms of minimum hours of hospitalization, the advent of technology has led to a situation where one need not get hospitalized even as s/he undergoes a surgery. Take for instance cataract operations, which hitherto needed the patient to be hospitalized. Now the patient can be home within a few hours after the cataract surgery. Such treatments, also called as day care procedures, are covered under the health insurance umbrella, even though no hospitalization is involved. 

Today there are standalone health insurance companies and few others who even cover doctor consultations charges, dental treatment and Ayurvedic as well as Unani treatment costs under the health insurance policy. 

Myth 5: I can buy health cover now and get the important surgery done to cover it 

Truth: There are clauses under the insurance policy which restrict you from making a claim during the first 30-90 days. Select ailments also have a waiting period for instance hysterectomy. Also, if you hide details from the insurer before purchasing a cover and later it is discovered that the disease was existing prior to policy term, the insurer may even reject your claim. It is always advisable to disclose correct details. Pre-existing diseases have a waiting period of 2-3 years. 

Myth 6: Network hospitals, day care procedures: More the merrier 

Truth: Are you swayed by these lines highlighted in the health insurance policy brochure - "We have 4000 empanelled hospitals," "Our hospital network is 5,500 strong." Well the numbers never matter as much as the hospitals. Chances are that the list would change and the proximate hospital would not be a part of the network. 

Similarly, if you have been weighing the merits of a policy based on how many day care procedures are covered, then your assessment may be going wrong. The longer the list of day care procedures mentioned in a health plan brochure, the more particular and restricted would be the claims accepted. So, a Cataract surgery covered, is better than a plan which covers eye surgeries such as "incision of the cornea". 

Long tenure of chairman impacts board independence (Live Mint)

A long-serving chairman is more likely to dictate his terms owing to the ‘camaraderie and personal equations’ shared with the board members.

Mumbai: Larsen and Toubro Ltd, Housing Development Finance Corp. Ltd(HDFC), and ITC Ltd are the bluest of Indian blue chips. They are also among the few Indian companies that have no clear promoter entity and are run by professionally managed boards. There is another similarity between the three—each has a long serving chairman who has become synonymous with the company, a fact that has invited criticism from several corporate governance experts.

Although these chairmen own limited equity in the firms, they hold considerable sway over decisions even after stepping down from their executive roles, said experts.

For instance, A.M. Naik, 72, has been the chairman of L&T since 2003, has extended his tenure as chairman twice and holds 0.16% stake in India’s largest engineering firm.

To be sure, Naik has earned the top slot by rising through the ranks after starting as a junior engineer. The company credits him with making L&T one of the most admired firms in the country today.

“The chairman has more than 45 years’ experience in the company. He understands each and every business and activity of the firm. Some of the businesses have been incubated by him. Hence, he is also looked upon for guidance by the board on the subject matter,” an L&T spokesperson said in an email response to a query by Mint.

The spokesperson further said if there is a difference of opinion between the chairman and other board members, the chairman “ensures that all board decisions are arrived only after unanimous concurrence has occurred and the issues are thoroughly debated and presented with facts and figures”.

Deepak Parekh, 70, has been serving as the chairman of HDFC for nearly 22 years. He holds a meagre 0.14% stake. And, Y.C. Deveshwar, chairman of Kolkata-based ITC has been heading the firm for 19 years now and just holds 0.02% stake in the company.

Keki Mistry, vice-chairman and chief executive at HDFC, said that during any discussion if conflicting views are expressed by the board members, they are given a “patient hearing” by all present and detailed presentations are made on critical topics.

“The corporation appreciates and recognizes the importance of leveraging on the expertise of such an experienced and diverse board. It is ensured that the board is provided with all the information and the documents with regard to agenda items, which helps the directors to take informed decisions,” said Mistry.

Experts are not convinced. Most get to have the last word, says Shriram Subramanian, founder and managing director of InGovern Research Services Pvt. Ltd, an independent proxy advisory and corporate governance research firm.

“Over a period of time, there is a conspiracy of silence where directors do not voice their opinions freely and end up in group think with the views articulated by the powerful chairman. The decision making power becomes concentrated in a few hands, and the other board members do not express their views independently.” said Subramanian.

The composition of the board and how often it changes also makes a difference. The trend in this regard has been divergent among these companies.

Mint analysis also shows that in the last nine years, ITC’s board has been revamped the most while HDFC’s board composition has remained almost the same.

According to a spokesman for ITC, the company’s board comprises 50% independent directors, with more than two-thirds of the board comprising non-executive directors.

“All major agenda items for the board are backed by comprehensive background information to enable the board to take informed decisions,” the spokesman added in an emailed response to Mint.

In the absence of a board revamp over long periods, a long-serving chairman is more likely to dictate his terms owing to the “camaraderie and personal equations” shared with the board members, said Subramanian.

P.C. Narayan, visiting faculty for finance and control area at Indian Institute of Management, Bangalore, however, says that successful chairpersons know from experience that filling the board with people who agree to everything they say will perhaps not do the company much good in the long term and will be viewed negatively by analysts and financial markets.

Narayan adds that good chairpersons know when to hang up their boots and hence their long tenure should not be a cause of much worry. “Good chairpersons and CEOs are very introspective about their own performance at the helm of the company and know when to step aside and hand over the reins, in many ways like good sportsmen who know when to retire from the sport that they have excelled in,” he said.

Every year, one-third of the board members retire and typically over a period of three years, the board composition can be changed entirely. In most of the cases, however, members opt for a re-appointment.

Even as these firms have done well through several ups and downs of the economic cycles and the companies attribute their success to their long-serving chiefs, there is an urgent need for succession planning, says Amit Tandon, founder and managing director of Institutional Investor Advisory Services India Ltd, a proxy advisory firm.

“Although companies—L&T and ITC—have delivered strong performance (and shareholder returns), companies need fresh ideas and need to rejuvenate and reinvent themselves: markets change, fatigue sets in, so fresh thinking and a fresh pair of legs usually help,” said Tandon.

Setting a retirement age and enforcing it is also advised. “Personally, I am agnostic to what this age should be—65, 70 or 75 or whatever. This policy brings clarity to investors not just to existing employees (including whole-time directors) regarding what to expect a few years down the road. We have seen how smoothly this works,” said Tandon, citing the example of Tata group’s well-articulated retirement policy that saw Ratan Tata step down from Tata Sons Ltd when he turned 75.

Tandon also said that having a board with multiple influential directors will prevent concentration of power with a single person.

Nevertheless, Narayan feels that leadership at Indian firms has been defined by performance.

“India’s corporate history is replete with evidence where chairpersons or CEOs have lasted a very long time and have taken the company from strength to strength and other cases where the incumbent quit or was asked to leave after a very short tenure at the helm,” said Narayan, adding that by and large, a reasonably well functioning corporate system has a way of ejecting those who do not deliver.

Sebi proposes hike in foreign investment limit for venture capital funds (Live Mint)

Sebi says the Indian connection will generate indirect benefits for the country by bringing in foreign capital resources, technology upgradation, skill enhancement and new employment. Photo: Mint

Mumbai: Markets regulator Securities and Exchange Board of India (Sebi) on Friday proposed to enhance the investment limit for venture capital funds (VCFs) from 10% to 25% in offshore venture capital undertakings with an Indian connection.

Sebi, in a consultation paper, said that it has received representations from the industry on this issue.

“Many Indian entrepreneurs have been setting up their headquarters outside India with back-end operations and/or research and developments being undertaken in India. Therefore, there is a need to allow higher overseas investment by VCFs more than existing 10% limit. The representations also state that such investments would provide opportunities to the funds to generate better returns globally, getting exposure to the international markets practices,” said Sebi’s consultative paper.

The paper said since such investments are required to have an Indian connection, it will generate indirect benefits to India by bringing in foreign capital resources, technology upgradation, skill enhancement, new employment and so on.

Sebi has sought public comments on the proposal by 7 May.

What India should learn from China (Live Mint)

Illustration: Jayachandran/Mint

If Sun Tzu were alive and had a Twitter account, he would probably be telling the world how proud he is of his country. The Chinese military strategist has several reasons to revel in the rise of his homeland; not least of which is how well his descendents have read and adhered to the Art of War.

Sun Tzu wrote in his famous book that the supreme art of war is to subdue the enemy without fighting. Today, China’s foreign policy is doing exactly that and there is much that India should be concerned about, but also learn from.

Earlier this week, China and Pakistan announced a $45 billion investment plan within the China-Pakistan Economic Corridor (CPEC) project. CPEC aims to connect Xinjiang in China’s northwest to Gwadar port in southwest Pakistan. When completed, the more than 3,000km road will give Pakistan’s sober economic fortunes a much-needed boost. For China, this investment is akin to killing several birds with one stone. This has been the case with previous Chinese foreign investments as well. Slowly, a pattern seems to be emerging. India should take note of how China is tackling five core issues.

Strategic interests: By design, for a long time now China has been encircling India by investing in mega-infrastructure projects in the subcontinent. Now, one may say there is nothing new here and the string of pearls strategy has been around for a while. But that is how encirclement works, slowly and surely. Gwadar port in Pakistan and the Hambantota port in Sri Lanka have both been developed with substantial Chinese involvement and funding. In Nepal, China intends building a 540km high-speed rail link from Tibet passing through a tunnel under Mount Everest. This rail link will come right up to the India-Nepal border.

Economy: In the first quarter of 2015, China grew at its slowest quarterly pace in six years. How can the country keep its growth engine whirring? An answer is provided by analyst Jacob Stokes in Foreign Affairs magazine: “As Beijing tries to cool an overheated domestic infrastructure sector without creating massive unemployment, plans that channel investment-led growth beyond China will be key (China’s Road Rules, Foreign Affairs, 19 April).” China’s foreign investments are geared towards addressing its domestic economic woes.

Internal stability: It is no coincidence that China is investing in projects in its northwest (Xinjiang) and south (Tibet). Both Xinjiang and Tibet are centres of ethnic unrest. They are also underdeveloped. By boosting investment in these regions, China hopes to boost growth and employment. It hopes that in the long run this can help in minimizing domestic strife.

Funding: The Asian Infrastructure Investment Bank (AIIB) proposed by China is garnering immense popularity. As of last week, AIIB had 57 members, with most major economies except the US, Japan and Canada becoming a part of the venture. AIIB’s purpose is to provide funding for Asian infrastructure projects. It is a no-brainer that funding for China’s projects in its neighbourhood will be drawn from AIIB. The New Development Bank formed by the BRICS countries (Brazil, Russia, India, China and South Africa) is likely to share in this objective.

Energy: Every economy needs oil to fuel its growth. Despite having the world’s third largest coal reserves, China imports coal, oil and gas. Why? Because it maintains a strategic petroleum reserve which is essentially an emergency oil store to deal with supply shocks. China can afford to do this because it has formed strategic partnerships with almost all oil and gas exporting countries. The country is also estimated to have the world’s largest recoverable shale gas reserves, reserves that it has as yet kept unexploited, no doubt for future use.

China’s rise since 1979 has not been a series of happy accidents. It has been the result of immense planning and foresight. The country’s foreign policy has been geared to meet its security, strategic and economic needs in a masterful way. If India is to have any hope of standing up to its powerful neighbour, it needs to take note and formulate its foreign policy similarly. Else, as Sun Tzu warned, the war will be lost without a fight.

Three things you didn't know about insurance and taxation (ET)

Three things you didn't know about insurance and taxation

By Khyati Dharamsi

Story starts here:

Sangeeta Yadav was in a fix, while declaring the proofs of investments to her employer. During the past financial year she made timely investments. But she hadn't provisioned for the enhanced limit of Rs 1,50,000 for 80C deductions (Rs 1 lakh earlier) announced in the Budget 2014, on July 10, 2014.

Flipping through her investments folder, she found receipts worth Rs 23,450 for payment of interest charges and delayed premium toward a lapsed insurance policy. These payments were due for the year 2012-13. But she had forgotten to pay the premium in the hustle of shifting jobs.

Can this late premium payment be claimed for deduction under the Section 80C? Will she be able to get the benefit of the amount paid toward interest? Chartered accountants say that premium payment made to restore lapsed policies too can be claimed for deduction under Section 80C. Not just the amount paid toward premium the money paid as interest too can be claimed by Yadav for tax saving in lieu of investments in life insurance.

This is because Section 80 (C) of the Income Tax Act1961, under which deduction for insurance is claimed, states that amount paid "to keep the policy in force" can be claimed. The penalty paid too is an effort to avoid termination of the insurance contract and hence can be claimed for deduction.

Thankfully Yadav had sincerely paid premium on her policy for the initial three years.

She cheered after hearing the affirmation from her accounts department, as she now wouldn't have to save more to claim the additional deduction. Yadav entered the additional amount in the form to declare the investments during the year.

But had her premium been high she would have had a problem. Anyone claiming two years' insurance premium in one year can claim only to the extent of Rs 1.5 lakh.

Also, in no case your insurance premium should exceed 20% of the sum insured as mentioned in Section 80 (C)."

"The 20% norm was brought to prevent single premium policies from coming under the net. Government wants to encourage regular savings every year,"

At the investing stage Yadav was concerned only about the tax benefit during the investment stage. These deductions claimed during the investment stage can be reversed and needs to keep an eye on such conditions.

If Yadav stopped paying premium for any traditional life insurance or pension plans within two years of issuance then the premium claimed as tax benefit under Section 80C would be reversed. The restriction is five years for unit-linked insurance plans.

There could have been situations wherein the maturity amount from the insurance policy, which is usually tax free under Section 10, could have been taxed.

If Yadav had failed to pay a minimum of five premiums under a unit-linked policy ( two years for traditional plans) and surrendered it, then the taxation would have been different. In such a situation, the surrender value would have been added to her income and taxed according to her tax slab.

She should also ensure that the premium paid each year for policies issued after April 1, 2012 is 10% of the sum assured (20% for policies issued before March 31, 2012). If the premium exceeds this limit then maturities received on policies would be taxable.