Daily Financial News Analysis – 6th May’20

Table of Contents

CEA on big-bang stimulus

Chief economic adviser KV Subramanian said India’s gross domestic product (GDP) will contract in the first quarter, but is likely to grow 2% for the full financial year.
Stimulus is expected “soon”.
“From an epidemiological perspective and from the magnitude of the pandemic, the Spanish flu is a reasonable proxy to use… and because there was a V-shaped recovery, I think it is reasonable to say that we can expect the same,” Subramanian said.
Ratings agency ICRA said the economy could contract 1-2% in FY21.
“Q1 there will be a decline, Q2 I think should be better than Q1, given that we are opening up the lockdown gradually. Q3 and Q4 there should be acceleration,” Subramanian said.
Given the nature of the Covid-19 pandemic, there’s very little knowledge about the disease and therefore about its impact.
“The global financial crisis was a period of uncertainty, but that was all a completely economic phenomenon, so one could make estimations,” he said. “There is a lot of uncertainty, unknowns that we are dealing with.”
India cannot get carried away by the kind of numbers being floated and industry should be realistic, he said.

He pointed to the UK package, which included £350 billion of loans guaranteed by the government. “The actual cost of that loan guarantee is certainly not going to be £350 billion. It is going to be a fraction,” he said. “It’s going to be at most £35 billion. So now, if you add that £35 billion instead of £350 billion, the actual package is 3.7%.”
Similarly, for the US, the package is about 6.7% of GDP, he said.
He said the US has the ability to provide massive stimulus measures because the dollar is the global reserve currency.

Aarogya Setu app

Communications and information technology minister Ravi Shankar Prasad dismissed privacy and security concerns over the Aarogya Setu app.
Prasad said that it was completely safe and that all stored data would be deleted once the Covid-19 crisis was over.
He added that the information was fully encrypted and there was no need for people to panic about safety issues.
He pointed out that such apps were part of standard practices across the world as countries tackle the coronavirus outbreak.
Almost 90 million people have downloaded the app and only the data of those who have tested positive will be pushed to the servers.
“If the number of positive people is 45,000 or 46,000 right now, then the data of only these 46,000 people–provided they have downloaded the app–will go on to the server.”
On the app using GPS, the official said, “We really have no choice right now… We tried to use cell towers but that was in impractical solution.”
Some rights groups have said the use of GPS would allow the app to be used as a surveillance tool.

Getting there slowly

It’s almost back to business for consumer incentives in FMCG and grocery chains, online and brick and mortar.
Discounts, cashbacks, bank and digital wallet offers are reappearing.
And consumers may soon also see large apparel retailers, other big brands and ecommerce majors rolling out huge discounts across categories as soon as most markets and malls reopen.
Leading biscuit-maker Parle Products’ category head Mayank Shah said with supplies improving, discounts are returning.
Brands and retailers fear consumer spending will dip across categories over the next few months with salary cuts and fear of job losses disrupting shopper sentiments.
Arvind Fashions CEO J Suresh said most apparel retailers and brands may go on sale right from day one the market reopens.
“Ideally, we should have delayed it to July to allow some sales at full price, but with cash flow severely affected and summer collection unsold, sale will start early,” he said.

Export sops

India is likely to continue export incentives worth Rs 40,000 crore till next year as the government looks to cushion the impact of Covid-19 on the country’s outward shipments.
The commerce and industry ministry is considering a plan to extend the Merchandise Exports from India Scheme (MEIS) till March 31, 2021.
Under MEIS, the government provides duty benefits, depending on the product and the destination country.
The proposal was mentioned in a letter to development commissioners of special economic zones from the Department of Commerce.
Rewards under the scheme are payable as a percentage of the realised free-on-board value (of 2%, 3% and 5%) and the MEIS duty credit scrips can be transferred or used to pay duties including basic customs duty.
Exporters would need financial support from the government to stand on their feet again.
One specific recommendation of the industry was restoration of the 2% additional benefit of MEIS, which was withdrawn from January 1, 2020.
The reward rates under the scheme won’t be revised nor would they be expanded to cover more products such as gems and jewellery.
The scheme is being disputed at the World Trade Organization, with the US claiming India’s export subsidy programmes had hurt American workers.

Jobless

The world’s biggest lockdown forced 122 million people out of jobs in India last month.
Employment plunged in April after the government imposed a 40-day lockdown in a nation of 1.3 billion people, forcing businesses to shut and pushing up the jobless rate to 27.1% in the week ended May 3.
Daily wage workers and those employed by small businesses took a massive blow.
These include hawkers, roadside vendors, workers employed in the construction industry and many who eke out a living by pushing handcarts to rickshaws.
The estimates of India’s job losses are more than four times the 30 million Americans who’ve filed for unemployment benefits over six weeks.
The data could get worse in India with the lockdown extended in many areas, CMIE warned.
“Initially, a lockdown only hurts the most vulnerable labor that is informally employed in unorganized sectors,” Vyas said. “Gradually, it starts hitting the more secure jobs.
Startups have announced lay-offs and industry associations have warned of job losses.

Trade Unions to PM

The ten central trade unions: INTUC, AITUC, HMS, CITU, TUCC, SEWA, AICCTU, LPF, AIUTUC and UTUC.
They have jointly written to Prime Minister urging him a cash benefit of Rs 7,500 per month for every non-income tax paying household for 3 months.
Provide free ration to all working population who have lost their jobs during this period irrespective of the ration card.
Provide wage payment subsidy to MSMEs for at least three months to help them sustain their employees.
Relief in transportation charge for migrant workers.

WTO

WTO has asked its members if there is a need to consider new and practical e-commerce solutions to enable fast and secure cross border movement of goods and services to help economic recovery and job creation after the Covid-19 pandemic.
The organisation has also raised questions related to the assistance it can offer developing countries and LDCs to reduce the digital divide, aid MSMEs and promote economies that are more resilient to possible future crises or shocks.
“What can WTO members do to improve communications networks and services?”
The WTO Work Programme defines “electronic commerce” as the production, distribution, marketing, sale or delivery of goods and services by electronic means.
The pandemic has highlighted the glaring need to bridge the digital divide, both within and across countries, given the central role the digital economy has played during the crisis.
Pandemic has made it clear that e-commerce can be an important tool or solution for consumers.
It added that the global nature of Covid-19 and its impact on e-commerce may encourage strengthened international cooperation and the further development of policies for online purchases and supply.
As per the report, certain traditional obstacles have been accentuated and have continued to hamper greater participation in e-commerce activities by small producers, sellers and consumers in developing countries, particularly LDCs.
It also said that e-commerce for goods and services trade has been adversely impacted by the factors that have caused disruption in supply and demand overall and such disruptions have resulted in delivery delays or outright cancellation of orders.
Several other e-commerce-related challenges have arisen or been further amplified during this pandemic such as increasing prices to unreasonably high levels, product safety concerns, deceptive practices, and cybersecurity concerns.

Coronavirus fee

After Delhi, Andhra Pradesh and West Bengal raised the duty on alcohol citing the Covid crisis, liquor companies fear other states will follow suit, further damaging the category already impacted by the lockdown and a cutback in discretionary spends.
Delhi allowed liquor shops to reopen, resulting in long queues of tipplers.
In FY20, the states earned a total Rs 1.75 lakh crore from excise, and liquor accounted for 10-12% of the overall revenue.
More than 50% of the retail price goes to state and central governments by way of VAT and excise duty.