Daily Financial News Analysis – 25th Dec’19

Table of Contents

GST Slabs

A committee of officials from the Centre and the states on GST revenue augmentation.
Collapse the 5 goods and services tax (GST) slabs into 2 i.e. 10% and 20%
Address inverted duty structure distortions in order to simplify the system and combat a shortfall in collections.

These items are in the 5% and 12% slabs face an inverted duty structure
Which has led to refund outgo of as much as ₹20,000 crore on account of input tax credit.
The GST Council had, at its recent meeting, asked Modi to look into revenue augmentation measures.
According to the presentation, there could be a shortfall of ₹63,200 crore in GST collections in the current financial year
Also as much as ₹2 lakh crore by 2021.

Urea Subsidy Programme

Top officials of fertilser, food and agriculture ministries meeting.
Aim: to work out a new urea subisdy scheme that proposed to transfer the subsidy directly into the bank accounts of farmers.
The direct cash transfer aims to replace the existing direct benefit transfer system.
The government seeks to check any diversion in urea sales
Optimizing urea consumption
This move may result in annual saving of Rs 10,000 crore i.e. 15-20% of the government’s total urea subsidy bill.
Under DBT, the subsidy amount is paid to fertiliser companies after farmers buy urea at 1/3rd the price of the crop nutient from retailer.
Officails: it is very complicated to formulate a foolproof system
There is hardly any uniformity in the usage of urea in different parts of the country.
The Government needs to integrate farmers’ database with land holding size and soil health card to determine exact quantity of urea used per hectare.
The official said the roll out will take at least a year.

LOOK WEST POLICY

India and Oman signed a Maritime Transport Agreement.
During the visit of our foreign minister S Jaishankar to the Sultanate.
The pact – the first with any Gulf country – enables India to expand its footprint in the western Indian Ocean, the Persian Gulf and east Africa.

In a significant development that will have a far-reaching impact on stability in the Persian Gulf, Strait of Hormuz and India’s interests in the region.
Jaishankar met his counterparts from Oman and Iran for lunch in Muscat on Tuesday for what can be described as the first trilateral of sorts.
Oman is playing the role of mediator between the US and Iran and between Iran and the Gulf powers.
Iran, Oman and India are part of the Ashgabat Agreement connecting Indian Ocean with Eurasia.
Jaishankar travelled to Muscat from Tehran, where he held talks over Sunday and Monday to accelerate operations in Chabahar port.
Oman, India’s oldest strategic partner in the Gulf, seeks to emerge as a hub for India for eastern Africa and the Indian Ocean Region, furthering New Delhi’s Indo-Pacific strategy.

The two countries enjoy warm and cordial relations attributed to historical maritime trade linkages and close links of Oman’s royal family with India.
Oman has allowed India, including its navy, access to its Duqm port, about 550 km south of the capital Muscat.
The Port of Duqm SEZ, which is earmarked to be the Indian Ocean’s largest deep-sea port, is where an Indo-Oman joint venture, Sebacic Oman, is undertaking a $1.2 billion project to set up the largest sebacic acid plant in the Middle-East.

An agreement to develop Little India, an integrated tourism complex project in Duqm worth $748 million, has been signed between the two countries.
Oman’s sea ports and industrial hubs established along its 1,700 km coast on the Indian Ocean makes it an ideal home for international businesses.
“The Sultanate of Oman offers four sea ports and an equal number of industry free-zones, all facing the Indian Ocean, and Indian private and public sector companies are increasingly increasing their footfall in the country,” Oman’s ambassador to India, Sheikh Hamad Bin Saif Al Rawahi
Prime Minister Narinder Modi’s visit to Oman in 2018 initiated a new energy in bilateral relations, with enhanced cooperation in trade and investment, energy, defence, security, food security and regional issues, according to Al Rawahi.
The industrial zones at Oman’s Duqm offer a range of incentives, including 30-year corporate tax exemption, zero customs duty, 100% foreign ownership and full repatriation of profit.
India is among Oman’s top trading partners, with bilateral trade reaching $5 billion in 2018-19.
India was the second-largest importer of crude oil from Oman in 2018.
There are over 780,000 Indian citizens living in Oman, the second-largest expatriate community in the country.
Investment flows between Oman and India have increased and have been robust, as reflected in numerous joint ventures, established in both countries, with total investment estimated at $7.5 billion.
There are over 3,200 Indian enterprises and establishments in Oman and 400 flights a week between the two countries.

Loan stress rose in H1FY20

Stress in large accounts has been on the rise at both private and public sector banks in H1FY20.
RBI: flagged increasing concentration risk and worsening asset quality in retail loans.
Among sectors that remain stressed are power, NBFCs and real estate.
Loans classified as SMA 1 by state-owned lenders, or loans overdue between 30 and 60 days, rose to 1.6% as a share of gross advances in September from 1.3% in March.
The ratio for private sector banks rose to 1.9% in September from 1.8% in March.
SMA 2 accounts — or loans overdue between 60 and 90 days — rose to 2.2% in September from 0.7% in March for public sector banks.
For private banks the ratio rose to 1.2% in September from 0.5% in March.
The central bank said the retail loan space may be emerging as a new source of risk for lenders in an environment of subdued economic growth.
Lenders have been moving away from large industrial loans towards retail loans as the non-performing assets (NPA) ratios of the latter have traditionally been low.

IMF on India

India is in the midst of a significant economic slowdown.
IMF is asking for urgent steps to reverse slowdown while continuing with credible fiscal consolidation and cautioning against fiscal measures to support growth.
The report presented two scenarios with the second one pushing for significant reforms around three pillars to boost growth.

Ongoing cleanup of bank balance sheets should be complemented by a decisive strengthening of PSB governance and regulation and oversight of NBFCs
A medium-term fiscal consolidation path should be anchored by the Fiscal Responsibility and Budget Management Review Committee’s recommendation to reduce general government debt toward 60% of GDP
Unveil labour, land and productivity reforms.

It backed continuation of monetary easing, but cautioned against fiscal stimulus to boost growth.
Over the medium term, growth is projected to gradually rise to its medium-term potential of 7.3% on continued commitment
1. inflation targeting
2. gradual macro-financial and structural reforms
3. GST reforms
4. IBC
5. Liberlise FDI
6. Impove EoDB

Hypersonic weapons

President Vladimir Putin said today that Russia is the only country in the world that has hypersonic weapons.
Putin said that for the first time in history Russia has an edge in designing a new class of weapons unlike in the past when it was catching up with the United States.
He said that the first unit equipped with the Avangard hypersonic glide vehicle is set to go on duty this month.
Air-launched Kinzhal hypersonic missiles already have entered service.
Putin has said that the missile flies 10 times faster than the speed of sound, has a range of more than 2,000 kilometers (1,250 miles) and can carry a nuclear or a conventional warhead.

MSMEs

The government on Tuesday said it envisions micro, small and medium enterprises (MSMEs) to contribute USD 2 trillion to the country’s target of becoming USD 5 trillion economy by 2024.
Under the Prime Minister’s Employment Generation Programme (PMEGP), 65,312 new micro-enterprises have been set up, the MSME Ministry said in its year-end review for 2019.

FASTags

Within eight days of FASTag implementation, FASTag’s toll transaction has reached about 24 lakh on a daily basis.
The pan-India roll out of electronic toll collection on national highways (NHs) has resulted in issuance of 1.10 crore FASTags till date