Daily Financial News Analysis – 8th June’20 – Free PDF Download

Build Consensus On Farm Reforms

• The reforms the central government seeks to bring about in India’s farm sector via the three Ordinances the Cabinet approved last week are welcome.
• However, some reservations remain, and the government would do well to address them.
• It is also relevant to note that these reforms will not, by themselves, quite make milk and honey flow in rural India and will need be supplemented with reforms to input pricing and significant public investment in farm infrastructure and its linkage to marketing.
• While the amendment to the Essential Commodities Act (ECA), removing cereals, pulses, onions, potatoes, oil and oilseeds from its ambit, is welcome.
• The Centre’s decision to retain the power to reintroduce these items under the Act if prices go up unreasonably is ill-advised.
• This prospect of the draconian provisions of the Act kicking in at the government’s will would make it difficult for commodity futures to work efficiently.
• When the Ordinance is converted into law, the government would do well to drop this condition.
• The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Ordinance 2020 seeks to free up farm trade across states and within states.
• This is most welcome, as farmers lack marketing freedom because the Agricultural Produce Marketing Committee (APMC) Acts of most states compel them to sell to a specified set of traders.
• However, while inter-state commerce is a subject in the Union list, intra-state trade lies within the ambit of the state government.
• Since the states stand to lose considerable sums of mandi tax derived from the APMC system, they are guaranteed to protest, cutting across political parties.
• Instituting a legal framework for contract farming, via the third Ordinance, is a good idea.
• However, these contracts are one-sided, with no real recourse for the buyer.
• Bihar has had no APMC for several years, but its farmers are not exactly in clover.
• Different states call for different kinds of additional inputs, marketing freedom being only a hygiene factor.
• Supplying these should be a priority, too.

FIIs

• In the past seven days, foreign funds invested nearly 40% of what they sold in entire March.
• RBI’s pump-priming and the gradual reopening of the economy stoked interest in riskier assets.
• Overseas funds bought ₹23,000 crore ($3 billion) in the past seven days compared with sales of ₹58,600 crore in March and ₹4,100 crore in April.
• The purchases were higher in India than in South Korea and Taiwan, which received $345.3 million and $853 million, respectively. Japan has seen outflow of $352 million. Since April, India has seen higher inflows compared to these markets.

Goods Carriage

• The number of trucks moving freight doubled to 2.2-2.5 million in May from the month ago.
• This reflects the gradual resumption of economic activity as lockdown curbs were eased.
• Capacity utilisation was 30-35% in May with transport of essential goods — including medicines and specific food items — at pre-Covid levels.
• However, fleet operators say that unless economic momentum gathers pace, many transporters may be forced to fold up in the next few months.
• Transport Corporation of India (TCI), India’s largest logistics provider, sees fleet utilisation rising to 50-70% by the end of June with more sectors opening up.
• Demand for essentials is being fully met and the supply chains for the segment have worked smoothly during the lockdown.
• Jasjit Sethi, CEO, TCI Supply Chain Solutions: all the components of GDP have started moving.
• With industries restarting and the kharif harvest underway, capacity utilisation is set to rise.
• While sentiment has improved, the pickup in activity is gradual and essentials goods still dominate.

MGNREGS

• The Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) has set new records on the number of persondays of work generated and households benefited under it in May, a month that saw largescale reverse migration from cities.
• As many as 417.7 million persondays of work, a 13% rise from a year earlier, was generated last month, according to government data.
• The number of households covered under the scheme shot up 31% on-year in the past month to 28 million.
• These are the highest ever for a month since the launch of the scheme 15 years ago.
• Uttar Pradesh, Chhattisgarh and Madhya Pradesh saw highest jump in job demand. These states have also seen a large influx of returning migrant workers.
• Experts said if the trend continued for long, it would cause an acceleration in inflation by pushing up wages in urban areas.
• Excessive supply of labour in rural areas will keep rural wages depressed while their shortage in urban areas will result in an increase in wage cost of these workers in cities.
• The government has enhanced the allocation for the scheme by ₹40,000 crore from the ₹61,500 crore sanctioned in Budget 2020-21, taking the total to more than ₹1 lakh crore — the highest since its rollout in 2005.
• It is estimated that more than 58,00,000 migrants have travelled to their native towns and villages since May 1 using the Shramik special trains.
• There would be several thousands more who would have travelled by buses and other means till the railways launched the dedicated services for migrant workers.

Jio Platforms

• Jio Platforms is set to raise ₹5,863.50 crore from Abu Dhabi Investment Authority (ADIA), the largest investment arm of the government of Abu Dhabi, by selling a 1.16% stake.
• ADIA is the seventh investor to pick up a stake in the Mukesh Ambani-led company in seven weeks.
• With the latest tranche, parent Reliance Industries stands to get ₹97,885.65 crore from the seven investors in exchange for 21.06% stake.

Homebuyers

• Homebuyers’ pan-India body, the Forum for People’s Collective Efforts (FPCE), has sought relief from Prime Minister Narendra Modi for homebuyers impacted by various extensions provided to developers that led to additional interest burden for homeowners.
• In the backdrop of Covid-19 related job losses and salary cuts, homebuyers are already stressed financially and the government hasn’t provided any relief in their instalments for the period of extensions granted to builders, according to FPCE.
• The government has advised all RERA authorities to extend project completion timelines by 6 months with additional 3 months at state’s discretion.
• While the Reserve Bank of India has granted a total 6 months’ moratorium for all term loans, the borrower is expected to pay additional interest for this period.
• This would only add to the burden of rent, EMIs, loss of compensation, delay, and now interest on suffering home buyers.
• In contrast, the builders would get a free hand to delay the project by 6 to 9 months more, without any liability of penalty, interest, compensation as envisaged under RERA, all through an illegal order.

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