Daily Financial News Analysis – 11th May’20

Table of Contents

Stimulus 2.0

Government reviews the state of the economy with the third phase of the lockdown ending on May 17.
The government is likely to unveil a much-awaited second stimulus package.

The government has already raised its borrowing target for the current year to ₹12 lakh crore from ₹7.8 lakh crore estimated in the budget.
First Package: Rs 1.7 lakh crore which covered cash support to the poor and free ration and cooking gas.
Cancelled orders, delayed payments and working capital issues have made it difficult for MSMEs to pay salaries to workers and also resume operations.

Unwind the lockdown

Food Processing Minister Harsimrat Kaur Badal
1. India needs to unwind the lockdown
2. Delineate Covid hotpots and red zones only at the micro level
3. Encourage people to go out and work with a new normal for operations with caution
4. Right balance between saving lives and livelihood.
The food processing sector stands out as one with a glimmer of hope in the near term as essential supplies have continued and the demand for hygienically packed food would rise further.
India also had a lot to gain from growing mistrust of Beijing.
Lockdown should continue?
1. “No, I don’t think so, for the simple reason, supply chains will have to continue. Total lockdown brought sales to a total halt, which stopped circulation of funds. Companies do not have funds to buy raw materials, and of course the crops don’t stop for anyone.”
Those with export hubs in China are considering alternatives such as India, which will make us the “food bowl” of the world.
Badal said food processing companies have global business opportunities. “A lot of the industry has been approached directly. Foreign countries are looking for things they earlier took from China.”
iPhone maker examining the possibility of shifting nearly a fifth of its production capacity from China to India.
It can scale up its local manufacturing revenues, through its contract manufacturers, to around $40 billion over the next five years.

Apple

iPhone maker could become India’s largest exporter.
“We expect Apple to produce up to $40 billion worth of smartphones, mostly for exports through its contract manufacturers Wistron and Foxconn, availing the benefits under the production-linked incentive (PLI) scheme.”
The scheme shall extend an incentive of 4% to 6% on incremental sales (over base year) of goods manufactured in India and covered under target segments, to eligible companies, for a period of five (5) years subsequent to the base year as defined.

Rejoin Factories or Face Action

Factories and other establishments in some states may be allowed to cut salaries and initiate disciplinary action against workers who don’t report back to work within a stipulated period once the Covid-19 lockdown is lifted.
Labour department officials in states such as Gujarat, Madhya Pradesh, Karnataka and Uttar Pradesh are issuing such an advisory to factories in their states is being considered at the top levels to bring workers back.
The idea is to dissuade migrant workers from going back or to return as soon as possible if they’ve left.

Pharma

The government has begun examining ways to shore up foreign investments, including a fast-track mechanism to clear applications of companies especially in the pharmaceutical sector that are looking at India with the US pushing its companies to relocate from China.
DPIIT plans to put in place a database of all foreign direct investment (FDI) applications, queries from investors and the problems they have faced, so as to generate confidence in global investors that India’s response is quick.
It has asked experts and law firms to identify drawbacks and misuse of the country’s FDI policy to plug loopholes, and how the beneficial-ownership definition is missing from the FDI law.
India allows 100% FDI in greenfield, or new, pharma projects under the automatic route.
India, allows FDI up to 100% under the automatic route for manufacturing medical devices.
For brownfield pharma, or investments in existing companies, up to 74% FDI is allowed under the automatic route and approval is required beyond that.
FDI in brownfield pharmaceuticals, under both automatic and government approval routes, is subject to compliance of conditions such as maintaining the production level of the drugs on the National List of Essential Medicines, consumables and their supply to the domestic market at the time of induction of FDI, and on R&D expenses.
The government is also concerned that very little FDI came in the insurance sector since the limit was raised to 49%.
India recently mandated prior clearance for investments from countries with which it shares a land border.