Daily Financial News Analysis – 24th June’20

Table of Contents

14 Green Shoots of Revival

The government heralded the “early green shoots of economic revival” in May and June, pointing to higher electricity and fuel consumption, greater movement of goods and an increase in financial transactions.
The finance ministry listed as many as 14 separate indicators across manufacturing, services, finance and agriculture to back this up in a statement entitled ‘Increase in Economic Activity-Improvement in Economic Indicators’ issued on Tuesday, which saw the BSE Sensex breaching the 35,000-point mark for the first time since March 11, closing at 35,430, up 1.5%.
It reiterated the government’s commitment to structural reforms and supportive social welfare measures, adding that these will help build on the “green shoots.”
Prompt and calibrated policy measures by the government and Reserve Bank of India (RBI) will reinvigorate the economy at the earliest with minimal damage, the ministry said.
India’s economy is expected to contract by as much as 7% in FY21, according to some estimates, with the first quarter seeing a sharp decline.
GDP grew at its slowest pace in 11 years at 4.2% in FY20.
Industry experts said Unlock 1.0 has made a difference.
The sequential improvement in indicators such as e-way bills, electronic toll collection and financial transactions via NPCI (National Payments Corporation of India) indicate that Unlock 1.0 is proving to be successful in reviving the economy from the impact of the lockdown. – CII director general Chandrajit Banerjee
Independent experts said there were signs of recovery but activity remained well below pre-lockdown levels.
The finance ministry said purchasing managers’ indices (PMI) for manufacturing and services showed that contraction had slowed in May compared with April.
Electricity consumption contracted 24% in April, 15.2% in May and 12.5% in the first three weeks of June.
- By the third week of June, contraction was down to 6.2%.
The total assessable value of eway bills more than doubled in May 2020 to ₹8.98 lakh crore from ₹3.9 lakh crore in April, but is still lower than the year earlier and pre-lockdown levels.
- The value of e-way bills generated up to June 19 was ₹7.7 lakh crore for the month.
The finance ministry also expects a boost from agriculture, given the expectations of timely rain.
India is expected to get 103% of its normal rainfall in the ongoing monsoon season.
The government had procured a record 38.2 million metric tonnes of wheat as of June 16. The effort benefited 4.2 million farmers who were paid ₹73,500 crore in total.
Kharif crop sowing saw a 39% increase to 13.13 million hectares as of June 19 from the year earlier. This corresponded with an almost 98% surge in fertiliser sales in May over last year at 4 million tonnes, the finance ministry said.

Great Wall Against China

Indian customs could carry out 100% checks of Chinese import consignments at ports on the back of heightened security concerns following tensions at the border.
The move, possibly aimed at discouraging Chinese imports, could lead to delays in the release of consignments.
Chennai is one of the first ports to opt for such closer scrutiny of Chinese imports, they said, adding that this is likely to be extended to all key ports.
Industry insiders said Chennai port is a key gateway for telecom parts and equipment for many Chinese companies operating in the country.
It is also a major port for the import of auto components from China.
100% physical examination means delay in clearances.
The government declared that it hadn’t ordered ports to halt shipments from China but acknowledged that some containers could be held up.
Currently, 70% of total imports pass through the green channel once the bill of entry is filed.
This happens online with little or no difficulty; only 30% is examined.
Physical examination includes matching description to bill of entry, whether the goods are correctly valued — as these could be undervalued — and whether they are eligible for exemption of duty.
The latest moves will delay clearance, particularly due to low staffing on account of Covid-19. In many cases, goods will have to be unpacked in the presence of importers for checking.
India-China bilateral trade was $87.1 billion in FY19 — India exported goods worth $16.8 billion while imports added up to $70.3 billion, for a trade deficit of $53.6 billion.
Efforts to reduce this deficit have not yielded results.

Work Visa

India will seek a separate discussion on the suspension of work visas, ordered by US President Donald Trump.
The contentious order, widely criticised by global technology leaders, disallows grant of fresh visas until December 31, jeopardising the prospects of thousands of skilled workers worldwide with Indian engineers likely to be the most affected.
Washington’s move is likely to put around 20,000 Indian H-1B applicants at a disadvantage this year.
Global technology leaders, including Apple’s Tim Cook and Alphabet CEO Sundar Pichai, who moved to the US as a graduate student, flayed Trump’s move, pointing out that it would hurt innovation and delay the recovery of the US economy.

Purchasing Power Parity

India has retained its position as the third-largest economy in the world in terms of purchasing power parity (PPP), behind the US and China, the Ministry of Statistics & Programme Implementation (MoSPI) said on Tuesday.
India accounts for 6.7% or $8,051 billion, out of the world’s total of $119,547 billion of global Gross Domestic Product (GDP) in terms of PPP compared to 16.4% in case of China and 16.3% for the US, World Bank data for reference year 2017 show.
The findings are part of the World Bank new PPPs for reference year 2017, under the International Comparison Programme that adjust for differences in the cost of living across economies of the World.
Globally 176 economies participated in the 2017 cycle of ICP.
The next ICP comparison will for reference year 2021.