Daily Financial News Analysis – 8th Apr’20

Table of Contents

Lockdown beyond April 14?

The Centre is looking at extending the lockdown beyond April 14 after many state governments and health experts suggested such a course of action on the ground that the coronavirus threat is still looming large.
The current speculation is that an extension of about two weeks until April-end is under consideration.

hydroxychloroquine

India relaxed a ban on exports of paracetamol and hydroxychloroquine (HCQ), both used in Covid-19 therapies, and placed them in the licensed category.
Doctors and scientists are divided over the efficacy of the drug, used to treat malaria and auto-immune diseases, in combating Covid-19.
The panel led by drug pricing regulator Shubhra Singh had been tasked with assessing the capability and the manufacturing capacity of domestic pharmaceutical companies.
Almost 30% of India’s pharmaceutical exports are to North America, 16% to Europe and 17% to Africa.

Shortage of Trucks and Labour

Daily wages and compensation of truck drivers, labour and even delivery front staff shot up 25-30% in the past fortnight.
The companies are facing the dual challenge of acute labour shortage because of migration and fear of the Covid-19, which are creating demand-supply imbalance, leading truckers and loaders to charge exorbitantly.

NBFCs

Several lenders are trying to convince the trade big daddy State Bank of India (SBI) to cover non-banking finance companies (NBFCs) under the moratorium announced by the regulator as part of the COVID-19 relief package.
The moratorium allows deferral of loan interest servicing and repayment for three months.
The Reserve Bank of India (RBI) notification and the subsequent FAQ from the industry lobby IBA does not specifically exclude NBFCs from the moratorium.
However, an internal SBI circular says that currently financial intermediaries, NBFCs, housing finance companies and micro-finance institutions will not be covered.
In the past few days, large banks, including some of the state-owned as well as private sector lenders, have reached out to SBI to put across the point that in the absence of a moratorium some of the small and medium NBFCs could run into serious cash-flow problem.
According to banking circles, it’s possible that SBI’s stance is based on discussions with the central bank and the ministry.
The LTRO announced by RBI covers a large part of the installments of NBFCs due over next three months… if the banks give such a facility to non-bank lenders their own liquidity could come under pressure,” said a government official.
The banking industry’s loan outstanding to NBFCs is about Rs 12 lakh crore (about 12 % of the total loans).
A large part lies in the books of SBI.
LTRO auction amounts to the sector which lends to MSMEs, infrastructure and real estate sectors that have been severely impacted by Covid-19 outbreak.

States could borrow

The central government has allowed 28 states to cumulatively borrow up to ₹3.2 lakh crore from the open market in the first nine months of this fiscal year.
This means the states could borrow the total amount in April itself if required, to meet their expenses related to the Covid-19 outbreak.
In a letter dated March 23, the finance ministry asked the Reserve Bank of India to make the necessary arrangements in consultation with the states to raise up to 50% of their net borrowing ceiling for fiscal 2021.
Maharashtra has been allowed to borrow ₹46,182 crore and Tamil Nadu, up to ₹28,880 crore. West Bengal can borrow up to ₹20,362 crore, Rajasthan up to ₹16,387 crore and Punjab as much as ₹9,098 crore.
The decision has come at a time when the states are facing a sharp decline in tax revenue owing to the lockdown.
While the RBI has increased the ways and means advances to states by 30%, the finance ministry has released ₹17,287.08 crore in revenue-deficit grants and state disaster response mitigation funds for FY21.
While both Maharashtra and West Bengal have sought packages worth ₹25,000 crore from the Centre, Maharashtra has also asked the central government to clear its dues of ₹16,654 crore and West Bengal has asked for arrears of ₹36,000 crore.
Among others, Punjab has asked the central government to release GST compensation worth ₹6,000 crore until March 31 and clear GST arrears of another ₹2,000 crore.
Tamil Nadu has sought a package of ₹4,000 crore along with other financial support.

EComm Moratorium

India along with South Africa has raised concerns over a proposal at the WTO seeking to expand the scope of global moratorium to include digitized and digitizable goods such as books, video games, software and music.
New Delhi has maintained that the globally agreed ecommerce moratorium has led to loss of revenue besides restricting use of tariffs as a trade policy and hence, should be done away with.
Introduced in 1998, the moratorium has been extended by the World Trade Organization (WTO) every two years.
It got temporarily extended for six months in December 2019 and a final decision to continue it or not is expected in June.