Daily Financial News Analysis – 22nd Apr’20

Table of Contents

Special Restructuring Proposal

The Indian Banks’ Association (IBA) is finalising a special restructuring proposal to be offered to companies impacted by the Covid-19-induced disruption.
The proposal will allow banks to extend loan tenures without classifying them as nonperforming assets (NPAs).
Bankers feel companies hit by the lockdown will need at least a year to recover.
March to May moratorium announced by the RBI is not adequate.
The draft restructuring proposal could be sent to the RBI for approval.
Both present as well as future cash flows of many companies have been hit due to this crisis.
Even if you take a firm to bankrupcty court, you will not find any buyers.
Current RBI norms specify that a loan account undergoing restructuring without a change in ownership cannot be classified as ‘standard’.
Keeping these accounts standard would also allow banks to save on costs by way of extra provisions.
Misuse of previous restructuring frameworks by promoters has made the RBI wary of approving any such rejig with existing promoters at the helm.
Bankers are mindful that any proposal has to have strong checks and balances to ensure it is not misused.
Bankers may also rope in rating agencies and auditors to ensure only companies that need it benefit from it.
Bankers argue that an extended loan moratorium and keeping loans as standard will help banks save on capital, and thus lend more.

GDP data revamp for states

In June 2018, Statistics & Programme Implementation Ministry constituted a committed under the leadership of Ravindra H Dholakia.
This committee was tasked with reviewing the methodology of estimation of sub-national accounts and giving its recommendations.
It has suggested a complete revamp of how states collect and compile data for state-level gross domestic product (GDP) and other estimates.
It suggested that goods and services tax (GST) be used for estimating incomes and other statistics at the state level.
It also said that states should compile their own index of industrial production (IIP) instead of relying on the all-India IIP data in order to come up with more accurate estimates.
The committee emphasised the need for a dynamic and sector-specific business register.
It said the databases of the Ministry of Corporate Affairs (MCA), GST and the Central Bureau of Direct Taxes can be used for more accuracy in estimations.

Baddi Drug Units

Asia’s largest pharmaceutical hub
Fifty pharmaceutical manufacturing facilities have shuttered their operations, while others are operating at significantly reduced capacities after the region was declared a containment zone, raising concerns about the shortage of supply of medicines in the country.
“Major pharma units including Wockhardt, USV Pharma, Sun Pharmaceuticals are among the 50 units that shut operations on April 12,” Navneet Marwaha, state drug controller of HP
Pharma units are not operating at more than 40%.
There have been media reports that the state government has given special permission for pharma manufacturing to restart in the region.
Many of the units are SMEs, making arrangement for lodging and boarding from outside Solan district and from Haryana and Punjab are not feasible.

Welcome to India from China

PMO, Niti Aayog and DPIIT are firming up a plan to offer incentives to attract companies looking to shift manufacturing activities out of China.
The benefits will be on the lines of those given to manufacture of electronic and medical devices.
These may include production-linked incentives such as capital expenditure benefits.
India has set up dedicated groups to directly interact with firms that may want to diversify out of China.
Last year’s corporate tax rate cut and these additional sops.
The DPIIT already has a list of states that have large land banks and are willing to offer quick approvals for interested companies.
“A number of countries are now keen that their industry diversifies manufacturing… There is going to be a shift,” the official said, adding that India has changed its policies considerably to emerge as an attractive alternative destination.

FDI policy

Refuting China’s accusation that India’s revised foreign direct investment (FDI) policy is discriminatory, officials have said that the revision neither restricts market access nor national treatment— the two tenets of global trade-—and is not violative of any rules of the World Trade Organization (WTO).
India, on Saturday, made its prior approval mandatory for direct or indirect foreign investments from countries that share a land border with it to curb “opportunistic takeovers” of domestic firms following the Covid-19 pandemic, a move which will restrict FDI from China.
Terming this move “discriminatory”, China on Monday said these “additional barriers… violate WTO’s principle of nondiscrimination, and go against the general trend of liberalisation and facilitation of trade and investment”.
Officials have rejected China’s claims on all the three counts of goods, services and investment.
Dismissing the claim on General Agreement on Tariffs and Trade (GATT) count, the official said the new norms do not directly affect goods, and also ruled out any link with the General Agreement on Trade in Services (GATS), explaining that the revised policy is not related to market access or national treatment restriction.
The principle of national treatment prohibits discrimination between imported and domestically produced goods and services with respect to internal taxation or other government regulation.
Market access for goods means the conditions, tariff and non-tariff measures agreed by members for the entry of specific goods into their markets.
On the investment front, the measure does not fall within the Illustrative List of the Agreement on Trade-Related Investment Measures (TRIMS), which details the measures that are inconsistent with the obligation of national treatment.
Similarly, since India-China and India-Nepal Bilateral Investment Treaties (BIT) have been terminated, they only apply to investment already made into India prior to the termination.
Therefore, to the extent no retrospective action is taken to negate existing investments, there is no violation of the respective BITs.
Incidentally, India is not only country to have tightened its FDI policies.
While Australia has said all foreign investment proposals will be assessed by a review board during the coronavirus crisis to prevent a sale of distressed corporate assets, Germany too has reportedly made the policy stricter to protect its companies.

Port congestion

India’s exports shrank almost 35% in March
JNPT is preparing a contingency plan to clear congestion.
While temperature-sensitive cargo such as food and pharmaceuticals are fast moving, exporters have complained that exports are getting adversely impacted since raw materials are lying at ports.
JNPT expects around 67 vessels to come by April 30.
Almost 90-92% of the imports that happened this time last year, are happening at the port in the last 4-5 days.

G20 vows ‘sufficient’ global food supplies amid virus

G20 agriculture ministers pledged to ensure “sufficient” global food supplies amid the coronavirus pandemic.
UN warned the number of people facing acute hunger globally could nearly double.
“We will work together to help ensure that sufficient, safe, affordable, and nutritious food continues to be available and accessible to all people, including the poorest, the most vulnerable, and displaced people,” said the ministers from the 20 most advanced economies.
The ministers stressed it was important that coronavirus restrictions do not create “unnecessary barriers” to trade and food supply chains.