Daily Financial News Analysis – 28th Feb’20

Table of Contents

India-New Zealand

New Zealand: there is no prospect of New Zealand flooding the Indian market with or without a trade agreement, seeking to allay New Delhi’s fears on dairy imports.
David Parker: New Zealand is keen to address India’s concerns on the Regional Comprehensive Economic Partnership (RCEP) trade agreement and its preference is to proceed with the pact with India in the trade grouping.
New Zealand is a member of RCEP and was pushing for opening up of India’s dairy sector, triggering fears of dumping of dairy products from milk-surplus countries Australia and New Zealand.

India’s major exports to the country are pharmaceutical products and textile madeups while imports are wood and its articles, wood charcoal, mineral fuels and fruits.
Opening up of the dairy sector was one of the key concern areas for India in the RCEP talks.
New Zealand said it will look forward to a bilateral trade agreement with India in case New Delhi does not join the regional trade pact.
In November last year, India opted out of the RCEP after negotiating the pact with 15 other Asia Pacific countries for seven years due to lack of reciprocity on its key demands on services market access, safeguards for import surge and circumvention of origin rules because of tariff differentials.

Foreign Investor Interest Not Dented

FM Sitharaman: recent communal violence in parts of Delhi and protests against the Citizenship Amendment Act (CAA) have not impacted sentiments of foreign investors.
“Recently I was in Saudi Arabia to attend G20 summit and investors showed willingness in investing more in the India… Many of them are planning to open their India investment office to facilitate the process,” she said.
The finance minister said several green shoots are visible in the economy.
She also credited the Reserve Bank of India for initiating steps to stimulate growth.
Sitharaman also stressed on the need for simplification of direct tax regime, removal of exemption, reduction of income tax rates, and decriminalisation of tax laws.
With regard to goods and services tax, the finance minister assured the delegates that the issue of delayed refund of CGST and IGST would be addressed on priority.

Land Records Ranking

Blue Dot Network

Speaking on Vivaad se Vishwas scheme to settle tax disputes, she said if any settlement is done no prosecution will be initiated.
Led by the US’s International Development Finance Corporation (DFC), the Blue Dot network was jointly launched by the US, Japan (Japanese Bank for International Cooperation) and Australia (Department of Foreign Affairs and Trade) in November 2019 on the sidelines of the 35th ASEAN Summit in Thailand.
Blue Dot Network: a proposal that will certify infrastructure and development projects
It is a means of countering China’s Belt and Road Initiative
It is meant to be a multi-stakeholder initiative that aims to bring governments, the private sector and civil society together to promote “high quality, trusted standards for global infrastructure development”.
The projects that are approved will get a “Blue Dot”, thereby setting universal standards of excellence, which will attract private capital to projects in developing and emerging economies.
BRI and Blue Dot — while the former involves direct financing, giving countries in need immediate short-term relief, the latter is not a direct financing initiative and therefore may not be what some developing countries need.
Blue Dot will require coordination among multiple stakeholders when it comes to grading projects.
From the US’s point of view, the Indo-Pacific region, which stretches from India’s west coast to the west coast of the US, is the most economically dynamic and populous part of the world.
Further, the US sees China’s infrastructure investments and trade strategies as reinforcing its geopolitical aspirations, including efforts to build and militarise outposts in the South China Sea, which as per the US, restricts the free movement of trade and undermines regional stability.
Following President Donald Trump’s high-profile State visit, India and the US need to formally launch project Blue Dot.
The BDN would reportedly bring together governments, the private sector and civil society to gainfully promote roads, ports, bridges et al, with a special emphasis on the Indo-Pacific region.
The certifying process would lay particular stress on viable funding arrangements, environmental soundness and high labour standards, so as to shore up quality infrastructural investments.
We, in India, probably have the highest number of infrastructure projects built in public-private partnership (PPP) mode in the last two decades.
And, yet, there is a huge and growing infrastructural deficit on the ground, and the vast bulk of projects that are essential requirement in, say, 2040 are not even on the drawing boards, leave alone being built.
The way forward is to standardise big-ticket project implementation with transparent arm’s-length finance and to carry out effective project delivery.
We need to modernise infrastructure finance.
The way ahead is to set up special purpose vehicles to garner all and sundry clearances for specific investments, and then to invite bids for project implementation.
BDN projects would be able to raise debt, including from abroad, at fine rates.
The bottomline is that BDN has the potential to make a world of difference, compared to China’s wholly non-transparent, top-down Belt and Road Initiative with unsustainable levels of debt.

How to Really Get Banks to Lend More

Finance minister Nirmala Sitharaman wants State-owned banks to lend more.
This is sound advice from the macroeconomic perspective of lubricating the stalled wheels of commerce and industry.
But does it make sense for these banks and bankers to push loans, when the demand for credit is low?
What is the incentive for them to make loans that could end up as non-performing assets (NPAs) and invite inquisition at the hands of investigative agencies?
As things stand, lending carries high risk and little reward.
How can a mistake be ascertained as genuine until it is probed?
It is that probe that bankers want to avoid.
The recent Supreme Court ruling against use of Section 339 of the Companies Act to freeze the assets of a former managing director of Punjab National Bank that had been defrauded by Nirav Modi’s companies.
Boston Consulting Group: The average staff cost at a public sector bank is higher than at its private sector counterpart.
But senior managers at private banks are compensated handsomely for taking risky banking decisions, unlike at State-owned banks.
It is not the ownership of banks that is at fault.
It is the structure of governance, incentives and accountability that needs to change.

Digital Payments

The opportunity to grow digital payments in India is enormous, with just about 10% of the total merchant community in the network.
Mastercard CEO Ajay Banga: tinkering with fees associated with electronic transactions could slow the adoption rather than promoting it.
There is no empirical evidence that either a low merchant discount rate (MDR) or the absence of it promotes digital transactions.
On the contrary, any such move takes away the incentive for intermediaries, who are vital for acquiring customers.