Money world

India’s economy grew more than 8 percent for the fourth straight quarter, adding to pressure on inflation that has sparked public protests and undermined Prime Minister Manmohan Singh’s government.

Gross domestic product rose 8.2 percent in the three months ended Dec. 31 after an 8.9 percent expansion in the previous quarter, the Central Statistical Office said in a statement in New Delhi today. The median of 29 estimates in a Bloomberg News survey was for an 8.6 percent gain.

Finance Minister Pranab Mukherjee, scheduled to unveil the budget today, may cut the personal income tax and boost spending on food subsidies and rural jobs to buffer citizens against rising prices, Nomura Holdings Inc. and Goldman Sachs Group Inc. said. Asian nations including Hong Kong and Singapore are expanding benefits to people as the region faces inflationary pressures stoked by faster growth.

“Price pressures are climbing in India,” Sonal Varma, a Mumbai-based economist at Nomura, said before the release. “The government is worried and will unveil steps in the budget to protect the poor.”

The Bombay Stock Exchange’s Sensitive Index, which has declined about 14 percent since Jan. 1 and is the worst performer after Egypt and Tunisia this year, gained 0.7 percent as of 11:05 a.m. in Mumbai. The rupee was little changed, while the yield on the 8.08 percent bond due August 2022 dropped three basis points to 8.12 percent as of 11:00 a.m. in Mumbai.

Inflation Woes

The expansion of India’s $1.3 trillion economy last quarter makes it the fastest-growing major economy after China. China’s $5.88 trillion economy grew 9.8 percent in the same period.

India’s benchmark wholesale-price inflation rate averaged 9.4 percent in the nine months through December, the most in the past decade, the finance ministry said in a report on Feb. 25. The price gauge rose 8.23 percent in January.

Singh’s government faces five state elections this year and said last week that its “foremost” priority is to curb inflation, which reduces purchasing power in a nation where the World Bank estimates more than three-quarters of the people live on less than $2 a day.

Thousands of workers from across India led by trade unions marched toward the country’s parliament in New Delhi on Feb. 23, the fourth major rally in the capital in a year, protesting rising food prices, low wages and job insecurity.

Singh is also battling corruption allegations and on Feb. 22 agreed to a parliamentary probe into the sale of second- generation mobile-phone licenses, surrendering to three months of opposition demands that had derailed legislation and eroded investor confidence. The final parliament session of 2010 was the least productive in 25 years.

‘Relief Measures’

“From a political management perspective, we expect the government to announce some relief measures for urban poor,” said Chetan Ahya, Singapore-based economist at Morgan Stanley. “There is a possibility that the finance minister announces reduction in income tax burden for the lower income segment.”

Mukherjee may raise the income-tax exemption limit from 160,000 rupees ($3,537) in the financial year starting April 1, and increase spending on the government’s rural jobs program by 60 percent to 640 billion rupees, said Tushar Poddar, Mumbai- based economist at Goldman Sachs. He said food subsidies may be increased as well.

Poddar also expects the government to step up its outlay on infrastructure including roads and power. The finance ministry estimates that India produces about 10 percent less electricity than it needs, and roads, which handle 65 percent of the nation’s cargo, are plagued by single lanes and irregular surfaces, raising the cost of goods and services.

Singapore’s Plan

Singapore plans to spend S$6.6 billion ($5.2 billion) on benefits including tax cuts and rebates, the government said on Feb. 18. In Hong Kong, relief measures announced this month to help residents cope with inflation included an electricity subsidy and a waiver of property rates.

Mukherjee has room to maneuver in next year’s budget because less bonds are due for repayment and the government in May earned 677.2 billion rupees from the sale of third- generation phone licenses to companies including Vodafone Group Plc, more than the budgeted 350 billion rupees.

India may seek a record 500 billion rupees from the sale of stakes in state-run companies, said Anubhuti Sahay, an economist at Standard Chartered Plc in Mumbai. Proposed sales of stakes in Indian Oil Corp., the country’s biggest refiner, and Steel Authority of India Ltd., its second-largest producer of the alloy, may help raise about 104 billion rupees next fiscal year, according to data compiled by Bloomberg.

Companies including Maruti Suzuki India Ltd., the nation’s biggest carmaker, said an increase in government levies will hurt profit, already squeezed by rising input costs.

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A European Union plan to partially lift a ban on passengers carrying liquids onto planes has U.S. airport officials worried that it will create a security gap and may confuse passengers traveling to the United States.

Beginning April 29, the EU plans to allow airline passengers carrying wine, perfume and other liquids purchased at duty-free shops in airports outside Europe to take those items into airline cabins with them when they catch connecting flights at about two dozen European airports.

That means, for example, that travelers flying from Asia and Africa to European airports to connect to flights to the United States can keep liquids, aerosols and gels purchased in airport duty-free shops in their carry-on bags the entire way. The items will be screened at European airports before passengers board connecting flights.

Christopher Bidwell, Airports Council International-North America’s vice president for security and facilitation, said the effectiveness of the technologies European airports will use to screen liquids for explosives is unclear. There are several new technologies that European airports plan to use, he said, but none have undergone real world testing, only laboratory tests.

The Transportation Security Administration hasn’t said whether passengers arriving in the U.S. from Europe with liquids purchased outside the EU will be allowed to board domestic flights with those items, but that appears unlikely, Bidwell said in an interview on Friday unsecured personal loans.

He said he’s concerned passengers will become frustrated or angry if they’ve carried expensive items on board multiple flights for thousands of miles only to be told they have to dump them in order to board a domestic flight to reach their final destination.

“This issue points to why we have to focus on making aviation security more efficient,” said Geoff Freeman, executive vice president of the U.S. Travel Association, which represents hotels, restaurants and other businesses catering to travelers. “Traveling has become too much of a hassle, and that’s hampering our economic recovery.”

EU airports and some European airlines have also expressed concern about the plan.

TSA spokesman Nick Kimball provided a statement that said the agency is working with the EU on security matters. He declined to answer further questions.

Victoria Day, a spokeswoman for the Air Transport Association, which represents major U.S. airlines, said it hopes Europe and the U.S. will “harmonize requirements to appropriately accommodate security and passenger-processing considerations.”

The United States and the European Union restricted carry-on liquids, aerosols and gels to less than three ounces in 2006 after the British authorities uncovered a plot to bomb passenger planes bound for the United States using liquid explosives.

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America’s chief tax man was in nice-guy mode today, promising to loosen the screws on delinguent taxpayers.

IRS Commissioner Doug Shulman said the IRS will let taxpayers run up bigger tax bills before filing tax liens against their property.  More taxpayers will also be eligible for a the IRS “offers in compromise” program, in which the IRS sometimes settles for less than the taxpayer owes.

“I always encourage employees of the IRS to try to walk in the taxpayers’ shoes,” Schulman told reporters in a teleconference today.  He said the changes will help taxpayers get a “fresh start.”

Under the new guidelines, the IRS will usually not file tax liens until delinquent debt tops $10,000, up from $5,000 presently.

The tax collectors will also generally withdraw liens when taxpayers agree to a direct-debit intallment agreement with debts of $25,000 or less.  

A tax lien is a government claim against the taxpayer’s property.  It can effect credit reports, hurting a taxpayer’s ability to obtain loans and find jobs.

Taxpayers with incomes up to $100,000 will be allowed to submit offers in compromise.  The program will admit people who owe up to $50,000, up from the current $25,000 limit.

The IRS sometimes agrees to settle for lesser payments “once we determine that you can’t pay now and there is no prospect of you paying it in the future,” Shulman said.

Small businesses owing $25,000 or less can enter into installment payment agreements, up from the previous $10,000 limit.

Shulman said the changes will probably make no difference in the amount of taxes the government collects but might increase collections.

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Hong Kong’s economy bounced back strongly last year thanks to strong growth in mainland China and the rest of Asia, the city’s finance chief said Wednesday while warning that rising inflation and property prices could undermine the recovery.

Financial Secretary John Tsang also said the government would release more land for development in a bid to keep a lid on surging property prices that risk stirring widespread anger.

The compact city’s government is also looking at other measures including reclaiming land from the sea and using rock caverns to house sewage treatment works and other services in order to free up land for housing.

“Today, our economy has fully recovered,” Tsang said in his annual budget speech.

However, “the risk of rising inflation is mounting in Asia” and efforts to tamp down prices are the government’s “major task this year,” he said.

Tsang said the strong economic recovery, as well as a weak U.S. dollar and rising global food and commodity prices would add to pressure for living costs to rise. Rising prices for food from mainland China as well as local rents are expected to have a “more noticeable effect” on inflation this year.

Tsang forecast inflation of 4.5 percent in 2011 while economic growth would ease to between 4 percent and 5 percent _ down from 6.8 percent last year.

In the following four years, GDP is forecast to expand 4 percent annually while inflation will average 3.5 per cent.

A property bubble poses a particular risk to the economy in 2011, Tsang said.

Hong Kong property prices have surged over the past year, driven by wealthy Chinese investors snapping up a limited supply of units and fueling fears of a bubble.

Low interest rates on plentiful mortgages have also helped fuel the boom. Because Hong Kong’s currency, the Hong Kong dollar, is pegged to the U.S. dollar, the southern Chinese financial center is also forced to adopt the same ultra-low interest rates the U.S. has been using to kickstart its economy.

And because the currency is pegged, it isn’t able to strengthen or weaken according to economic performance. Instead, prices of assets such as houses and apartments swing widely instead.

Tsang warned that the factors fueling the property boom could change.

“I have repeatedly reminded the public that an environment with abundant liquidity and ultra-low interest rates will not last forever. “

Tsang announced that 52 sites will be put up for sale in the year starting April 1 that will provide about 16,000 apartments, 70 percent more than the previous financial year.

Virtually all land in Hong Kong is owned by the government, which auctions it off to property developers.

Tsang said government engineers are examining the possibility of using of underground rock caverns for government facilities. Sewage treatment plants and service reservoirs could be relocated there so land could be used for housing.

The government will also examine locations outside of Hong Kong’s famed Victoria Harbor that could be used for land reclamation as it explores “new ways to increase the supply of land,” Tsang said.

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European Central Bank policy makers signaled they may support raising interest rates in coming months as the economy recovers and imports fuel price pressures.

With inflation above the ECB’s 2 percent ceiling and its benchmark rate at a record low of 1 percent, officials must gauge whether the resulting liquidity situation “is still appropriate,” Executive Board member Lorenzo Bini Smaghi said in Hong Kong today. “Clearly as the economy is better, maybe this assessment has to be revised.”

Separately, ECB council member Athanasios Orphanides told Dow Jones that inflation may stay above 2 percent “somewhat longer than we expected before” and the bank “must be ready to act as appropriate to safeguard price stability.”

The ECB may be laying the groundwork for a shift in policy bias next week, when it is due to publish its latest inflation forecasts. Business confidence in Germany, Europe’s largest economy, surged to a record this month and expansion in the euro region’s service and manufacturing industries accelerated to the fastest pace in more than four years, reports showed today.

ECB President Jean-Claude Trichet reiterated on Feb. 19 in Paris that inflation risks could move to “the upside.” The same day, Bundesbank President Axel Weber said inflation pressure is increasing and “clearly there are risks to the upside.”

Bets on September

The ECB may raise its key rate by a quarter-point to 1.25 percent as soon as September, Eonia forward contracts show.

ECB Executive Board member Juergen Stark and council members Weber and Mario Draghi are all due to speak at separate events later today. Policy makers will next decide on interest rates at a meeting in Frankfurt on March 3.

In December, the ECB predicted inflation will average 1.8 percent this year and 1.5 percent in 2012. The inflation rate jumped to 2.4 percent last month, the highest in more than two years.

“If the increases in inflation we observe are of a temporary nature and do not threaten price stability over the medium term, then that’s no cause for alarm,” Orphanides said in a text of the interview published by the Cypriot central bank, which he heads. “But there is no room for complacency. It will be valuable to study the upcoming ECB staff projections for inflation — not only for 2011, but also for 2012.”

Change in Tone

Orphanides was more relaxed about the price outlook in a Bloomberg interview just a month ago, saying on Jan. 14 that the ECB expected inflation to slow again and saw no need to change its policy stance.

“We have to see whether the inflation which is imported and which is coming through the energy and food prices is going to have an impact on domestic behavior, on wages, on expectations of people,” Bini Smaghi said. “You need to be credible and make sure you take the right decisions to ensure that inflation will remain under control.”

Bini Smaghi told daily newsletter Bloomberg Brief: Economics last week that as the economy recovers and global inflation pressures mount, “the degree of accommodation of monetary policy has to be monitored and, if needed, corrected.”

Those comments drove the euro up a cent against the dollar as traders increased bets on higher interest rates. The euro was at $1.3663 at 4 p.m. in Frankfurt.

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President Barack Obama says better education in math and science is critical to pushing the U.S. forward in the global competition for innovation and jobs, and he wants the private sector to get involved in making it happen.

Obama recorded his weekly radio and Internet address during a visit this week to Intel Corp. outside of Portland, Ore. He praised the company Saturday for making a 10-year, $200 million commitment to promote math and science education _ and held it up as an example of how corporate America can make money at the same time it builds the country.

“Companies like Intel are proving that we can compete _ that instead of just being a nation that buys what’s made overseas, we can make things in America and sell them around the globe,” Obama said. “Winning this competition depends on the ingenuity and creativity of our private sector. . But it’s also going to depend on what we do as a nation to make America the best place on earth to do business.”

Obama’s West Coast swing, which also included a dinner with big names in California’s Silicon Valley including Apple’s Steve Jobs and Facebook’s Mark Zuckerberg, was part of his push to promote a budget proposal that increases spending in targeted areas like education, research and development and high-speed Internet, while cutting in other areas business

When you and your spouse exchanged wedding vows, you promised eternal love

U.K. consumer confidence fell in January as rising taxes and soaring inflation put pressure on household budgets, Nationwide Building Society said.

An index of sentiment dropped 7 points to 47, almost erasing the 8-point gain in December, the customer-owned lender said in a report issued in London today. A measure of whether now is a good time to spend dropped 20 points to 70, the lowest since November 2008.

Prime Minister David Cameron’s government raised value- added tax last month as part of the biggest fiscal squeeze since World War II. Meanwhile, economic growth shrank in the fourth quarter as bad weather hampered activity, and inflation soared to a 26-month high of 4 percent last month.

“Consumer perceptions are likely to have been dented by the rise in VAT and the upward pressure on inflation,” Robert Gardner, chief economist at Swindon, England-based Nationwide, said in the report. “This will have put further pressure on household budgets.”

A gauge of consumers’ future expectations fell 10 points to 63 and an index of their view of the present situation slipped 2 points to 23, according to the report. TNS-RI interviewed 1,000 people for Nationwide between Dec. 20 and Jan. 23.

The decline in the confidence gauge “shows an understanding by households that the U.K.’s economic recovery is likely to remain choppy,” Gardner said. “It may be some months before we see significant positive movements.”

Consumers remained pessimistic about the U.K. housing market in January, expecting the value of their home to fall by 1.1 percent over the next six months, compared with a prediction of 0.9 percent in December, Nationwide said.

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President Obama on Monday will propose a 2012 federal budget that the White House says will cut deficits by $1.1 trillion over 10 years.

The president’s request calls for a mix of strategic spending to boost U.S. competitiveness and selective belt-tightening intended as a "down payment" on serious deficit reduction, according to his budget director Jacob Lew, who spoke on CNN’s "State of the Union."

Full details on the budget will be released on Monday morning.

So it’s not clear yet where all of the estimated $1.1 trillion in deficit reduction will come from, or exactly how significant a swipe it makes at long-term deficit reduction.

But one chunk — $400 billion in savings — would result from the president’s call for a five-year freeze on non-security discretionary spending.

Non-security discretionary spending only makes up about 10% of all federal spending. Deficit hawks lament that both the White House and Republicans have focused all of their attention in this area rather than address the country’s big debt drivers — spending on the entitlement programs and defense.

Nevertheless, this piece of the president’s budget is certain to generate some of the biggest outcry since it includes cuts to programs that Democrats fiercely defend, such as heating assistance to low-income people.

Lew said it was a "very difficult" budget. "We have to make tough trade-offs."

Even where the president will propose investments in areas he deems important, such as education, there would also be cutbacks, Lew said.

For instance, Obama’s budget will boost the Pell Grant program to ensure that 9 million students will be able to afford college, Lew said. But to pay for those proposals, Obama will call for eliminating the grants for summer school and limit their use to the regular school year.

He will also propose that interest on federal loans for graduate students accrue during school; currently, the interest tab doesn’t start running until after graduation.

The changes would save $9 billion in the first year, Lew told CNN’s Candy Crowley.

Lew defended the administration from turning its back on its own fiscal commission, which in December proposed $4 trillion in cuts. He listed three items that will appear in the budget that echo recommendations from the commission: a call for corporate tax reform, changes to rein in malpractice lawsuits against doctors and a freeze in pay on federal workers.

Nevertheless, such proposals will not save a significant amount of money relative to the deficits set to accrue. And from all indications, the president’s budget will not address key elements needed to control long-term spending in the major entitlement programs: Medicare, Medicaid and Social Security.

Obama’s budget request is essentially a blueprint of his fiscal policy priorities — the programs he would like to fund or cut, the new investments he would make and how he would pay for it all.

Congress can accept, reject or modify the president’s budget. And Republicans may well reject much of it out of hand, since its cuts are not nearly as deep as many conservatives have been demanding.

Obama’s proposal is only the first step in a convoluted process that involves no less than 40 congressional committees, 24 subcommittees, countless hearings and a number of floor votes in the House and Senate.

If all goes well, a formal federal budget for government agencies will be in place by Oct. 1, the start of the 2012 fiscal year. Because Congress never passed a budget for fiscal year 2011, the government has been running on funding from a so-called continuing resolution, which expires on March 4. 

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Greece’s economy has been rescued from the “abyss” as austerity measures aimed at restoring order to public finances “are being implemented as planned,” the European Union and International Monetary Fund said.

“While there have been some delays and shortfalls, it should not undermine the fact that the program is broadly on track,” Poul Thomsen, head of the IMF’s Greece mission, told a news conference in Athens today. “We are ready for the second phase of the program, having successfully pulled the economy from an abyss.”

Greece’s fiscal health still requires a “broad base of structural reforms” to underpin a sustainable recovery, he said. The second phase will focus on a tax overhaul and state- asset sales that may raise as much as 50 billion euros ($68 billion) by 2015 to pay down debt, while further salary cuts and levy increases have been ruled out for the medium term, Servaas Deroose, a European Commission economist, told the briefing.

Thomsen and Deroose were in Athens for a quarterly review of Greece’s progress under a 110 billion-euro EU-IMF bailout it received last May to avert default. Approval of Greece’s efforts will ensure payment of the plan’s next installment of 15 billion euros in March. Deroose said he’s “confident” the funds will be disbursed.

Shares Advance

Shares in state-controlled banks shot up after the remarks by Deroose, who said an estimated 15 billion euros may be raised in 2011 and 2012 by selling commercial real estate and stakes in companies, both listed and unlisted. Hellenic Postbank SA gained 10.5 percent, Attica Bank SA rose 9.7 percent and Agricultural Bank of Greece SA added 13.2 percent at 4:45 p.m. in Athens. The government will complete the sale of the 110-year-old Postbank in 2011, according to a commission report released in December pay day advance.

Greece has vowed to trim the budget gap to 7.4 percent of gross domestic product in 2011 from 9.4 percent in 2010. The EU and the IMF said today the 2010 deficit was about 9.5 percent. Fallout from Greece’s crisis led to a surge in bond yields of distressed euro-area nations as investors shunned their debt.

The yield on Greece’s 10-year bond remained at a euro-area high of 11.15 percent today. The extra yield that investors demand to hold the 10-year security instead of German bunds was at 824 basis points compared with 811 basis points yesterday and a record 973.6 basis points on Jan. 7.

Austerity Moves

Prime Minister George Papandreou’s wage and pension cuts and sales-tax increases in return for the emergency loans from the EU and the IMF have contributed to a slump in demand, with Greece’s economy shrinking an estimated 4.2 percent last year. EU and IMF officials today stuck to forecasts for a 3 percent contraction this year.

Finance Minister George Papaconstantinou said earlier this month he was confident a comprehensive package from the EU would stem borrowing costs and allow Greece to return to international markets for financing this year. The country is banking on lower lending rates on the EU-IMF loans, as well as an extension of the maturities, to help assuage market fears of a Greek default.

Greece may return to markets no later than early next year, Thomsen said today, adding that external conditions aren’t “as favorable as expected.”

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