Daily Financial News Analysis – 10th August’20 – Free PDF Download

FDI rule change

• Government has tweaked FDI rules.
• RBI will have greater say in administering all issues relating to foreign direct investment (FDI).
• More powers for RBI: It can interpret various rules and grant exemptions pertaining to FDI.
• The rule change applies only to foreign direct investment and not to foreign portfolio investment which is purchase of shares in the secondary market.
• This will cut down FDI processing time
• Until late last year, RBI used to be the sole regulator for FDI through the Foreign Exchange Management Act (FEMA).
• In October 2019, the government scrapped Fema and introduced a new law – Non-Debt Instrument (NDI) rules, which transferred all powers of administering the FDI regime to the finance ministry.
• The RBI continued to process all FDI applications but requests for exemption were always forwarded to the finance ministry.
• The ministry also had powers to interpret the rules.
• Lot of back and forth for permission and clarity will go.
• Another key change brought about in the circular is the discretion to allow applications which otherwise don’t meet the norms.

Defence Imports

• Defence Ministry on Sunday generated a list of 101 military items that will not be imported.
• This bar will be a big push for domestic producers.
• It is estimated that this move will generate orders worth ₹4 lakh crore for Indian companies within the next seven years.

• The list contains items on which an embargo on imports will be implemented between 2020 and 2024.
• Rajnath Singh said more equipment would be identified for an import embargo in due course and a coordinated mechanism for handholding of the industry by the defence services to meet requirements will be put in place.

Business in Slow Lane

• State-level economic indicators such as goods and service tax (GST) collections and electricity demand show
  1. Gujarat, Maharashtra, Karnataka and Tamil Nadu have seen a slowing of business activity in July from the month before
  2. Rajasthan, Madhya Pradesh, Uttar Pradesh and Uttarakhand have shown steady recovery from April, when the nationwide lockdown had the biggest economic impact.
• Local lockdowns are big and bad speed breakers
• States’ combined GST collection has slipped from Rs 74,602 crore in June to Rs 66,291 crore in July, with most states reporting a sharp fall.
• Most of the states that have seen a decline in GST collections have been forced to borrow more to meet spending needs.
• July power demand is usually lower than June due to the monsoon advancing across the mainland, but the decline seems to be sharper for many states this year.
• However, NR Bhanumurthy, vice chancellor of Dr BR Ambedkar School of Economics, Bengaluru, is optimistic.
• “By August, the economic activities should be at least at par with 2019-20,” he said. “Collections should be positive in some states.”

Slash Use of Urea

• PM Modi has urged farmers to significantly cut their use of urea to boost income and soil health.
• Modi released ₹17,000 crore to the bank accounts of 85 million farmers as the next instalment of the PM-Kisan scheme vai videoconferencing.
• With this, the scheme has provided over ₹90,000 crore in the hands of more than 100 million farmers since its launch in December 2018.
• India is a large importer of urea and experts have said excessive use of the subsidised nutrient damages the soil’s chemistry and degrades the environment.
• Government was constantly striving to prop up rural India with steps such as the ₹1 lakh crore agriculture infrastructure fund, for which he launched the financing facility on Sunday.
• Under the agriculture infrastructure fund, the first sanction of ₹1,000 crore was made to over 2,280 farmer societies only 30 days after the cabinet approved the scheme.

GeM

• The commerce and industry ministry launched GeM on August 9, 2016, in place of the Directorate General of Supplies and Disposal.
• It was aimed at creating an open and transparent procurement platform of commonly used goods and services for government departments, ministries and agencies.
• After goods and services, GeM will also add work contracts on the portal
• All procurement processes have been made public on the Government e-Marketplace (GeM) portal from July 1 to increase vendor participation and increase competitiveness, commerce and industry minister Piyush Goyal said on Sunday.
• The Indian Railways will soon integrate its procurement process with the GeM, Goyal added.
• The railways presently spend about ₹70,000 crore per annum on procurements.
• According to a World Bank report, there has been an average savings of 9.75% over more than 163,000 cases of procurement analysed on GeM during February 2019 to January 2020.
• GeM has processed almost 4.26 million orders worth ₹57,516 crore in Gross Merchandise Value for about 46,000 government buyers.
• The portal has about 2.07 million products in 7,238 categories.

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