Daily Financial News Analysis – 3rd Mar’20

Table of Contents

Coca-Cola on Slowdown

Coca-Cola Co chairman James Quincey said the economic slowdown hadn’t affected growth in India.
India remains a “super-attractive market” for the beverages giant.
We are not overtly concerned about one quarter up or down in India.
Quincey said protests and riots in parts of India could disrupt consumption growth, but said he is hopeful the strife will be resolved democratically in the country.
“If there are disruptions in the functioning of any society, it’s always going to be some degree of a problem for all businesses. I think the scale (of the recent violence) was such that it was. India is a vibrant democracy and all of us hope things get resolved in an appropriately democratic fashion,” Quincey said in reply to ET’s question on the impact of unrest and whether its growth outlook will be revised.

Robust GST revenues

GST collections for February were at Rs 1.5 lakh crore.
Registering an increase of over 8.3% year on year.
But sluggish economic activity dragged down imports, leading to a dip in collections from Integrated GST that is charged on imports.
The unevenness between collections from domestic transactions and from imports suggests that better administration of the tax may have helped the rise in collections.
New changes such as e-invoicing and new returns slated for next month are expected to provide more stability.
This is fine, but structural reforms that include rationalising rates are critical to making GST revenues buoyant.
Industry has raised concerns over the blockage of input tax credit claiming that this could have led to higher collections.
The GST Council must ensure that manufacturers and exporters can claim tax credits on their input purchases on time.
The case to have fewer, lower GST rates and a simpler design is compelling.
All indirect taxes, including excise duty on electricity and petro-fuels, currently embedded in manufactured products that make them costly, should be brought under GST.
Clearly, the onus lies on revenue authorities to attentively pursue audit trails in the income and production chain to identify and plug revenue leakage.

Covid-19 and essential drugs

A government committee has identified various essential drugs that could run out as supplies of bulk raw materials from China have been disrupted because of Covid-19 outbreak.
A high-level government committee, which submitted its report to the Department of Pharmaceuticals (DoP) last week, reviewed 54 drugs and said that out of these, 34 have no alternative.
The panel had earlier asked India’s top research body, the Indian Council of Medical Research (ICMR), to review drugs totally dependent on China-made APIs and provide inputs on alternatives.
Amoxicillin
Moxifloxacin
Doxycycline
Rifampicin
APIs are key raw materials used to manufacture pharmaceutical formulations such as tablets, capsules and syrups.
India is dependent on China for a large number of APIs and intermediates required to manufacture pharmaceutical formulations.
“Considering the criticality in respect of these APIs and KSMs (key starting materials), the committee had requested ICMR to provide the inputs with respect to the alternative for these drugs,” added the report.
Traders dealing in bulk drugs or APIs in India have already started to increase prices sharply.

Setting up pharma R&D

The government plans to ring in regulatory changes to give more tax and other incentives to pharmaceutical companies that set up research and development (R&D) base in India.
The government has reached out to some of the top pharma companies and sought feedback on the kind of tax sops and other boosters for R&D investment in India.
Government could be giving out specific tax sops for specialised research in certain categories.
Industry experts said the cost of arriving at healthcare innovation and the efforts required are very high due to the unpredictability of the outcomes of clinical trials.
Some tax experts say the earlier exemption of 200% on a particular kind of R&D could be selectively allowed.
This also comes around the time several pharmaceutical companies have been moving their manufacturing base to the US due to the lower tax there.
In most cases several companies prefer holding their patents in some European countries due to several reasons, one of which is lower taxes.

Coronavirus impact on Oil

India’s crude import bill may decline by a massive $17 billion or 17% year-on-year in FY21.
If the Indian basket price remains subdued around the current level of $50/barrel through the next fiscal, in what could give a big relief to the country’s current account.
The price of the Indian crude oil basket, which stood at $64 per barrel in January, dropped to $55 in February.
FE analysis, the imports may fall to $84 billion in FY21, against $101 billion this fiscal, if the price of domestic crude basket averages $50 per barrel.
The Petroleum Planning and Analysis Cell has forecast crude oil import of 225 million tonne for FY20.
Of course, there are risks to these projections from any potential cut in output by Opec to bolster prices, or even easing measures by central banks around the world to blunt the impact of the coronavirus outbreak on already-faltering growth.
India imports close to 85% of its annual crude oil requirements, and its dependence on purchases from overseas has only risen in recent years.

Factory activity growth

India’s factory activity growth slowed in February from the previous month’s eight-year high.
Business sentiment faded on the back of concerns regarding the impact of the COVID-19 outbreak on exports and supply chains.
The Nikkei Manufacturing Purchasing Managers’ Index fell to 54.5 last month from January’s near eight-year high of 55.3.
Factories in India continued to benefit from strong order flows in February, from both the domestic and international markets.

OECD slashes India growth

The OECD slashed India’s growth forecast for 2020-21 by 110 basis points on Monday to 5.1% over adverse impacts of the coronavirus outbreak on confidence, financial markets, travel sector and supply chains.
The Organisation for Economic Cooperation and Development (OECD) said that the Covid-19 outbreak is plunging the world economy into its worst downturn since the global financial crisis, and urged governments and central banks to fight back to avoid an even steeper slump.
The global economy is set to grow only 2.4% this year, the lowest since 2009 and down from a forecast of 2.9% in November, the OECD said in an update of its outlook.
It projected that global economy could recover to 3.3% growth in 2021.
However, if the virus spreads throughout Asia, Europe and North America, global growth could drop as low as 1.5% this year, the OECD warned.

Unemployment

India’s unemployment rate rose to 7.78% in February, the highest since October 2019, and up from 7.16% in January.
According to data released by the Centre for Monitoring Indian Economy (CMIE), reflecting the impact of a slowdown in the economy.
India’s economy expanded at its slowest pace in more than six years in the last three months of 2019, with analysts predicting further deceleration as the global coronavirus outbreak stifles growth in Asia’s third-largest economy.

Spectrum dues

Voda Idea is likely to pay around Rs 3,000 crore as spectrum dues this week.
To avoid bank guarantees being invoked and possibly send a signal that the company has no intention of deliberately defaulting on its statutory liabilities.
Vodafone Idea has yet to pay the telecom department adjusted gross revenue (AGR) dues of around Rs 53,000 crore.
It has so far paid Rs 3,500 crore and is hoping for some relief, without which it has warned it may have to shut operations.