Daily Financial News Analysis – 8th May’20 – Free PDF Download

Overstay and Tax

• Any individual who stays in India for 182 days or more in a financial year or 60 days or more in a financial year and at least 365 days in the past four financial years is a tax resident of India.
• His or her global income becomes taxable in India as well.
• The period of overstay in India due to the lockdown could be exempted.
• OCED drafts global tax rules and it has prescribed a formula.
• India could provide relief to individuals who have technically become resident in the country.
• The Finance Act 2020 amended the Income Tax Act, saying Indian citizens or persons of Indian origin who have India-sourced income exceeding ₹15 lakh will be regarded as Indian tax residents in a financial year if their stay is 120 days or more and at least 365 days in the past four financial years.
• CII and other lobby groups have approached the CBDT on the issue.
• The Delhi High Court in a recent ruling directed the government to exclude “forced stay in India” when determining tax residential status in India.

Franklin Templeton

• Sebi has “advised” Franklin Templeton Mutual Fund to focus on returning the money.
• Due to winding up of the six debt schemes to its investors.
• About ₹26,000 crore of investor money has been blocked in these six Franklin debt schemes.
• “Despite the regulations being clear, some mutual fund schemes seem to have chosen to have high concentrations of high-risk, unlisted, opaque, bespoke, structured debt securities with low credit ratings and seem to have chosen not to rebalance their portfolios even during the almost 12 months available to them so far,” said the release.

Costly Labour

• India Inc + MSMEs are grappling with surging labour costs.
• Problem is already evident in sectors such as construction, consumer goods and ecommerce, and may hit the major manufacturing sectors once these resume full-scale operations after the lockdown ends.
• Wages for ecommerce delivery and warehouse staff have increased 50-100%.
• Flipkart and Amazon are shouldering wage increases of 75-100% while Grofers said it was paying 25-50% more.
• The e-grocer is continuing to pay hazard pay (hardship allowance) and higher wages.
• These wages are expected to persist through the summer.
• Organised sector labour laws make businesses look for unorganised labour, and the latter is given bare minimum facilities.
• The lockdown shattered their fragile life infrastructure.
• We need flexible labour rules that encourage employers to give more facilities to more workers, and hire more.
• We have a small labour aristocracy and a large pool of exploited labour.

Automotive

• Sector is suffering an estimated turnover loss of more than ₹55,000 crore.
• The bleeding automotive retail chain is crawling back to work.
• About 20% of the auto retail network, or 3,500 outlets, opened for business this week, with one-third staff to comply with social-distancing norms.
• As of Wednesday evening, some 50,000-60,000 employees were back at work, industry insiders said.
• But with continuing curbs on people movement in many places, and due to weak consumer sentiment amid the Covid-19 pandemic and its impact on jobs, salaries and businesses, most showrooms had few visitors so far.
• Outlets are following the guidelines of government and vehicle makers on safety, with a focus on social distancing and sanitised environment, they said.

Festive Output

• Companies across apparels, shoes, refrigerators, air-conditioners and smartphones are cutting manufacturing orders and sourcing of components for this year’s festive season by up to 40% year on year as they expect much of current stock to remain unsold till then, company executives said.
• Production cuts will be most in premium product portfolio as companies expect consumers to curb discretionary spending.
• They have lost three months of active trading due to the lockdown.
• Xiaomi, the country’s largest smartphone brand, said Diwali will help the smartphone market resume normalcy.

Wheat

• The government is likely to meet its wheat procurement target of 40 million tonnes (MT) with the purchase crossing 21 million tonnes.
• “Despite delayed procurement exercise, which started late by 15 days on April 15, we have been able to procure more than half the target. We will achieve the target as the procurement is scheduled to continue till June 30, which maybe extended if needed,” said a senior food ministry official.
• Due to unseasonal rains, some of the wheat stocks in these states were affected.
• The government relaxed the quality norms to help farmers sell grains even those which were not meeting the specifications.
• This has saved farmers from any distress.
• Rice procurement particularly in southern states is also going on smoothly with government agencies procuring 4.49 MT of rice for the central pool.
• Maximum procurement has happened in Telangana where there has been a quantum jump in the production due to commissioning of large irrigation projects.
• The Centre has been able to distribute 7 MT foodgrains, which is 58% of the allocation for three months under the Pradhan Mantri Garib Kalyan Ann Yojana (PMGKAY).

Road

• The government is looking at unveiling sector-specific relief measures for industries hit hard by the Covid-19 outbreak.
• Road project contractors are likely to get an extension of project execution timelines, compensation for loss of business, and speedier payments to boost their liquidity flow.
• Toll road operators will also be compensated for loss of business on account of fall in traffic and toll exemption.

Three Challenges for India

• Health: The curve has flattened due to India’s early lockdown decision.
• As we relax restrictions gradually, the risk of cases rising remains.
• Until a vaccine is found, some form of social distancing has to continue, even after stringent lockdowns end.
• Supply chain: Companies have their raw material sourcing, production and distribution centres spread across the country.
• Factories will have to contend with raw material challenges, labour shortages, closed dealerships and test the practicalities of working under a social distancing paradigm.
• Retail footfalls will remain low as individuals prioritise safety, resulting in weaker demand.
• Economic: India’s existing triple balance-sheet crisis — of corporates, banks and shadow banks — is potentially morphing into a quadruple one: of households.
• As corporate profits are hit and bankruptcies rise, there will be an inevitable impact on wages, jobs and consumption.
• This, in turn, can snowball into renewed stress for the banking sector.

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