Daily Financial News Analysis – 2nd Mar’20

Table of Contents

Climate change and new challenges

Edward Lorenz, American meteorologist butterfly effect coined the phrase in the early 1960s.
It is a fitting metaphor to explain a “plague” that is currently destroying vegetation and livelihoods in East Africa, the Arabian peninsula, Iran, Pakistan and India.
Several countries in Africa and Asia have been dealing with “the curse of good rains“: Massive swarms—called “plagues“—of the desert locust.

Swarms as large as 2,400 sq. km, comprising 200 billion insects, have already damaged over 70,000 hectares of crops in Kenya and around 30,000 hectares in Ethiopia, according to the Food and Agriculture Organization.
Last month, Pakistan declared a national emergency over locusts.
In India, several districts in Gujarat and Rajasthan have been affected, and the latter has announced a compensation of ₹13,500 per hectare to affected farmers.

While locust swarms continue to plague African countries, for now, the outbreak has tapered down in India with swarms headed back towards Sindh and Balochistan.
But that’s not end of the affair.
The expectation is that the locusts will be back in June, by which time their numbers would have grown fivefold.
The brown-coloured desert locust usually lives as a solitary creature in desert and bush lands.
However, when several of them gather in close proximity, they undergo a dramatic physical transformation, change colour to black and bright yellow, become gregarious, and start moving around in swarms.
Locusts lay their eggs a few inches under the soil in the presence of moisture, which hatch faster under higher temperatures.
They can fly over 100km per day.
Each locust can eat its own body weight—around 2-3 grams—every day, which means that a swarm can consume hundreds of tonnes of vegetation that it encounters every day.
Over the past two years, though, abnormal weather conditions intersected with the region’s geopolitics to create the ongoing infestation.
First, in 2018, two cyclones a few months apart delivered rain to the Rub al Khali, the remote desert called the “Empty Quarter” of the Arabian peninsula.

The resulting ephemeral lakes created new breeding grounds for the desert locust in a poorly monitored region.
Insecticide spraying operations were not conducted because of the war in Yemen.
The breeding continued before the swarms crossed the Gulf into Iran and the Red Sea to Ethiopia and Somalia in the Horn of Africa.
Here, too, conflict and political unrest limited control operations, leading to further breeding.
Then, in December 2019, another cyclonic storm hit the Horn of Africa, creating conditions for yet more breeding.
Today, the situation is dire in Somalia, Ethiopia and Kenya, and is worsening in Uganda and Tanzania.

Despite political tensions, Indian and Pakistani locust control officials met almost once a month over the second half of 2019 to exchange information, if not coordinate control efforts.
So far, India’s surveillance, preparedness and response have been competent and effective.
The national Locust Warning Organization was set up in 1939 and is well connected to international institutions created to manage locust risks.
It publishes weekly bulletins, and even has a Twitter handle.
Bulletins show when locusts were detected, the location, extent and tonnage of insecticide sprayed and the risk of future infestation.
Climate change, with higher temperatures and changes in the Indian Ocean Dipole, could worsen the locust problem for India in coming years.
The Union government is procuring additional spraying equipment and planning helicopter and drone-based control operations should the need arise.

States slash Capex

State governments have applied the brakes on capital expenditure (capex).
Reason: Hit by subdued tax revenue
An analysis by FE of the finances of 20 state governments — all big states except Bihar and Assam — showed that while the first nine months of last fiscal saw a year-on-year growth of 18% in their combined budgetary capex to Rs 2.2 lakh crore, there was an over 1% annual decline in such expenditure in the corresponding period of the current financial year.

This would be a drag on the country’s GDP growth.
What is more worrisome for the states is the likely decline in the Centre’s tax transfers in the final months of the current fiscal.

AGR crisis

Universal Service Obligation Fund (USOF) where 50% of the funds, Rs 52,000 crore, are lying unutilised.
However, to utilise this fund for any purpose other than providing for rural telephony projects, the government would first need to amend the USOF Act, which could be done when Parliament resumes for the Budget session.
Since the private operators have provided more than sufficient connectivity in rural areas they can be relieved of the burden of contributing to the USOF and the balance fund can be used for easing their burden of payment of AGR dues.
Of the total 1151.44 million mobile subscribers in the country, 507.46 million are rural users.
Of this, BSNL has only 37.45 million rural subscribers.
In contrast, Bharti Airtel has 144 million, Vodafone Idea 173 million and Reliance Jio 151 million rural subscribers.
To put things into perspective, the USO money gets transferred to the Consolidated Fund of India and funds are allocated for rural telephony only when such projects are approved by the government.

GST revenue Feb 2020

The government has collected Rs 1.05 lakh crore as GST revenue in February, up 8 per cent over the same month last year.
The collection from Goods and Services Tax (GST) in February was, however, lower than the Rs 1.10 lakh crore collected in January 2020.
“The total revenue earned by Central Government and the State Governments after regular settlement in the month of February, 2020 is Rs 43,155 crore for CGST and Rs 43,901 crore for the SGST,” the statement added.

Wi-Fi on Flights

The Aviation Ministry has allowed flyers to access internet through Wi-Fi on aircraft.
However, the devices ought to be on airplane mode.
Currently, the facility is only available for defence personnel.
The notification does not say when the rules will come into affect.
The facility is likely to help airlines collect more revenue.

New slabs make I-T structure more equitable

The new income slabs announced in the budget are more equitable and have been devised after a careful study of the rate structure in several countries, revenue secretary Ajay Bhushan Pandey said.
The study showed that fewer income tax slabs can lead to inequity, hitting low income taxpayers more.
The number of slabs will increase to seven from four earlier.
The new regime, which is available to those who forego all exemptions and deductions, is optional.

Medical Devices Bill

Government think tank Niti Aayog and the health ministry have arrived at a consensus on the Medical Devices Bill.
Final draft of the Medical Devices (Safety, Effectiveness and Innovation) Bill, 2019, proposes that medical devices should be regulated by a separate division under the Central Drugs Standard Control Organisation (CDSCO).
The division that will monitor medical devices will be headed by a technical expert, and there will be no separate regulator, as conceptualised by the Aayog earlier.
Besides, the regulation of the devices will be under a separate Act and not under the Drugs and Cosmetics Act, 1940, as was being pushed by the health ministry.
This follows several rounds of discussions over the last few months to resolve the impasse created by the Aayog and the ministry pushing their own prescriptions.
A consensus was arrived at after the PMO intervened, given the urgency to push domestic manufacturing of medical devices in a big way to bring down costs as well as reduce imports.
Currently, only 23 categories of medical devices are regulated in India under the Drugs and Cosmetics Act.