Daily Financial News Analysis – 16th Oct’20

Table of Contents

IMF on Indian Economy

World Economic Outlook: India’s economy could contract 10.3% in FY21
More direct funding support that includes the urban poor and migrant workers within its fold can help India speed up economic recovery.
IMF: monetisation of the deficit is not advisable
India’s new farm and labour laws are a step in the right direction and have the potential to strengthen the supply side and also help boost demand, along with some level of direct support.
India has deployed a fiscal package of around 7% of GDP, which is really sizable by comparison with its peers.
But has focussed more on liquidity measures such as loan and credit guarantees.
Only about 2% has taken the form of direct spending.
The Centre had offered direct cash transfers and free food to the rural poor after it imposed what is now regarded as the most severe lockdown anywhere beginning March 25.
Extend the duration of the scheme and also expand it to the urban poor or migrant workers
IMF on Atmanirbhar Bharat: it is important to keep in mind that if a country wants to be part of the global economy and to sell to the rest of the world, it will have to make sure to use goods from the rest of the world because a lot of exports are also imported.
It is hard to be very successful exporter or a productive exporter, without being able to access the global supply chain

The Centre will borrow the GST compensation shortfall of Rs 1.1 lakh crore, if all the states choose that option, and pass the amount on to them.
Dramatic shift in stand
This move should bring the opposition-ruled states round.
States had been apprehensive about borrowing directly from the markets.
RBI was also understood to have reservations about creating a special window for them.
The special mechanism under which the Centre carried out borrowing on behalf of states to lend onward to them was seen as a more feasible and effective solution.

Telcos have renewed their “legitimate” demand for the Trai to set a floor price for services.
This is among the most contentious issues that PD Vaghela will need to decide on.
Jio, Airtel, VI all are unanimous in their call for such a limit.
“Our demand on floor tariffs emanates from the financial health of the sector and, to make it viable, there is a requirement of laying down the floor tariff,” Kochhar said.
The regulator is said to be against fixing a floor mainly because it’s regarded as anti-consumer and hasn’t taken any further steps, such as holding openhouse discussions, even months after the operators submitted their views.
Some say the average revenue per user (ARPU) needs to improve to ₹200 in the short term, and then to ₹300.
Vodafone Idea’s ARPU in the quarter ended June 30 was ₹114 while that of Airtel was ₹157.
Jio, the only profitable carrier, posted ₹140 ARPU.
Vodafone Idea and Bharti Airtel — which had raised rates along with Jio by up to 40% last December — are hesitant about raising rates again without such a floor as they’re unsure if their Mukesh Ambani-owned rival will follow suit.

The government will seek an in-principle approval from the Cabinet Committee on Economic Affairs (CCEA) on lowering its 47.11% stake in IDBI Bank.
Once it gets nod of CCEA, structure of the sale will be determined.
LIC holds 51% share in IDBI Bank, is keen to sell its stake in the lender.
LIC had picked up a controlling stake in the bank when it had the highest non-performing assets and was under the Reserve Bank of India’s prompt corrective action framework.
However, the public insurer is not interested in running the bank.

India’s exports grew 5.99% year on year to $27.58 billion in September, after contracting for six months.
Rise is driven by growth in outbound shipment of engineering goods, petroleum products, pharmaceuticals and readymade garments.
Imports, however, declined 19.6%, leaving a trade deficit of $2.72 billion, down from $11.67 billion in September 2019 and $6.77 billion in August 2020.
Experts said the sustainability of exports recovery will depend on a number of factors including the extent of the second wave of Covid-19 and revival of non-oil, nongold imports.