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BUSINESS AND ECONOMY - July 2019

Jul 2019

Jul 26, 2019

India may Build Tesla-scale Storage Plants for Batteries

  •  India is putting the final shape on a plan to build at least four Tesla-style giga factories to manufacture batteries with an investment of around $4 billion, as the country prepares to switch to electric vehicles to curb pollution and cut its dependence on foreign oil.
  • Aimed at securing India's energy needs, the plan to set up these factories of 10 gigawatt hours (GWh) each is being helmed by federal policy think tank NITI Aayog and looks to accomplish what Tesla has done at its Gigafactory in Nevada, US.
  • The focus on battery storage manufacturing will enable India to develop an electric vehicle ecosystem including manufacturing and R&D, an opportunity the country missed while developing the solar industry.
  • As part of the plan, the government may offer a raft of incentives to manufacturers such as concessional financing options with around 3% foreign exchange hedge on overseas loans and a fixed 3% interest subvention on loans availed in Indian rupees. In addition, a reduction in minimum alternative tax (MAT) may be offered.
  • Apart from electric vehicles, such battery storages will cater to the consumer electronics industry and electricity grids, given the intermittent nature of electricity from clean energy sources such as solar and wind.
  • According to a conservative scenario envisaged by NITI Aayog, India will need six such gigawatt-scale facilities (of 10 GWh each) by 2025 and 12 by 2030. While this doesn't include the export market potential, the base scenario envisions 11 such giga factories by 2025 and 24 by 2030.
  • To put this into perspective, each GWh (1,000 megawatt hour) of battery capacity is sufficient to power 1 million homes for an hour and around 30,000 electric cars.
  • The programme aims to be technology-agnostic, meaning it will be left to the market to determine which technology is best suited for the country, depending on demand and price.

Jul 25, 2019

Govt Plans $10bn Global Bond Sale

  •   India is considering an option to raise $10 billion in one go from its first overseas bond sale as early as October 2019. 
  • The government would prefer to sell yen or euro-denominated debt so as to offer lower yields.
  • A dollar bond isn't ruled out given there would be more liquidity, while it could also decide to sell the debt in multiple sales over a longer period.
  •  India is banking on the novelty of a debut offering at a time when investors are desperate for returns as the world's pile of negative-yielding debt grows to a record $13.4 trillion. 
  • While Saudi Arabia and Argentina have raised more money in recent years from international bond sales as emerging markets return in popularity, Prime Minister Narendra Modi's government will be working to a tight timeline.

ICRA Downgrades Yes Bank's Bonds

  •  Credit rating agency Icra Ltd downgraded ratings on Yes Bank's Rs. 32,911.7 crore bond programme, citing an increase in stressed assets and lack of debt resolutions. The rating on bonds aggregating Rs.22,111.7 crore were downgraded by one notch, while that on Rs. 10,800 crore of additional tier I (AT-I) bonds were downgraded by two notches.
  • The outlook on the ratings remained negative as Yes Bank saw a sizeable increase in gross bad loans and BB and below rated exposures along with weakened capital cushions.
  • The rating for these AT-I bonds (BBB+) is three notches lower than the rating for the Basel III compliant tier II bonds (A+) of Yes Bank as these instruments have loss-absorption features that make them riskier, said the credit rating agency.
  • The coupon payments are non-cumulative and discretionary and the bank has full discretion at all times to the cancel the coupon payments.
  • The cancellation of discretionary payments shall not be an event of default. Coupons can be paid out of the current year's profits.
  • However, if the current year's profit is not sufficient or if the payment of the coupon is likely to result in a loss, the coupon payment can be made through reserves and surpluses created through the appropriation of profits, (including statutory reserves)
  • The coupon payment is subject to the bank meeting the minimum regulatory requirements for common equity tier I (CET-I), tier I and total capital ratios (including capital conservation buffer, at all times as prescribed by the Reserve Bank of India (RBI).
  • These AT-I bonds are expected to absorb losses through a write-down mechanism at the objective pre-specified trigger point fixed at the bank's CET-I ratio as prescribed by the RBI, 5.5% till March 2020, and thereafter 6.125% of the total risk weighted assets of the bank or when the point of non-viability trigger is breached in the RBI's opinion.
  • The rating downgrades also factor in the further weakening in Yes Bank's core equity (CET-I) capital cushions with the growth in RWAs and elevated provisioning leading to subdued profitability.
  • The CET-I declined to 8% as on June 30, 2019 against the minimum regulatory requirement of 7.375% for March 31, 2019 and 8% for March 31, 2020.

India Up on Innovation Index

  •  India moved up five places to 52nd in the world's most innovative countries 2019 ranking, in what is the biggest jump by a large economy this year, according to the Global Innovation Index (GII).
  • The GII ranks 129 world economies on 80 innovation indicators such as intellectual property filing rates, mobile app creation, education spending, and scientific and technical publications.
  • India, which was ranked 81 in 2015, has steadily improved its ranking in the last four years. It went up to the 66th spot in the 2016 and improved its ranking by six positions in 2017.
  • Switzerland retained the first rank as the world's most innovative country, followed by Sweden, the United States, the Netherlands, the United Kingdom, Finland, Denmark, Singapore, Germany and Israel.
  • At 14, China is the only middleincome economy to be ranked in top 30.
  • Three Indian cities -- Bengaluru, Mumbai and New Delhi -are among the world's top 100 science and technology clusters, according to the report.
  • India maintained its top place in Central and Southern Asia, improving its position in labour productivity growth, knowledge and technology outputs, and intellectual property related variables, among other parameters.
  • In Central and South Asia, Iran ranked 61 and Kazakhstan 79. Pakistan was ranked at 105.
  • India moved up to the 4th position in GII rankings among lower-middle-income economies, and outperformed on innovation relative to its GDP per capita for nine years in a row.
  • However, India lagged in indicators such as logistics performance and women employed with advanced degrees. The largest drops are found in logistics performance, females employed with advanced degrees, and printing and other media.

HPE to Invest in India

  •  Hewlett Packard Enterprise Co. (HPE) plans to invest $500 million in India over the next five years, increase its workforce by 20% over the next 3-5 years, and start manufacturing in India by the end of this year. 
  • Specifically, HPE will hire new engineering talent with expertise in artificial intelligence and networking.
  • The company will also begin construction of a high-tech extension to its Mahadevapura Campus in Bengaluru that will house over 10,000 employees, as well as state-of-the-art R&D facilities. 
  • HPE also plans to commence manufacturing in India. The company is scheduled to start manufacturing Aruba's (Aruba is a unit of HPE) portfolio of mobility and internet of things solutions in India before the end of 2019.

Cabinet Clears Sugar reserve proposal

  •  The Cabinet has cleared a proposal to create an emergency sugar reserve of four million tonnes and also decided to keep the price millers have to pay sugarcane farmers unchanged at Rs 275 per quintal (100 kg), steps aimed at maintaining favourable demand-supply conditions of the sweetener in the country.
  • India is the world's second largest sugar producer, next only to Brazil, and also its largest consumer.
  • About 90% of the country's annual sugar consumption goes into commercial use, such as packaged foods. Household consumption accounts for only 10%.
  • The price at which mill owners buy raw cane from farmers, called "fair and remunerative price", is federally determined, based on a recommendation by the Commission on Agricultural Costs and Prices (CACP).
  • Additionally, sugar-producing states declare bonuses above this price, which influence cane output and the retail prices of sugar, which tends to inflate mill-end prices of the commodity.
  • The price of Rs 275 a quintal is applicable on a 10% recovery rate.
  • The recovery rate of sugar denotes the amount of sugar extracted from each 100 kg of raw cane. It varies from state to state, depending on agro-climatic conditions, cane varieties and also the technology of mills.
  • If the amount of sugar recovered from each 100 kg of cane exceeds 10%, then a farmer will have to be paid an additional premium of Rs 2.75 per quintal for every 0.1% increase
  • According to a CACP official, in order to incentivise efficiency in terms of higher sugar recoveries, the federally determined price payable to farmers is linked to a basic recovery rate of sugar, with a premium payable to farmers for higher sugar recovery.
  • The cabinet committee on economic affairs, chaired by Prime Minister Narendra Modi, also decided to create a stockpile of four million tonnes of sugar for one year at a cost of Rs 1,674 crore. In 2018, the government had created a similar stockpile of three million tonnes.
  • Mills would be paid on a quarterly basis and the amount would be directly credited into farmers' accounts on behalf of mills against cane price dues, according to the Cabinet's decision.

Jul 24, 2019

RBI Launches Medium-term Strategy Plan

  •  RBI governor Shaktikanta Das launched Utkarsh 2022, the central banks' medium term strategy framework, in line with evolving macro-economic environment, said an official release.
  • The framework has been unveiled to achieve excellence in the performance of RBI's mandates and strengthening the trust of citizens and other institutions.
  • The RBI said its management attaches high importance to 'Utkarsh 2022' and will periodically monitor its implementation and progress through a sub-committee of the central board.
  • A formal strategic management framework was launched in April 2015 to re-articulate the core purpose, values and vision statement of the RBI so as to delineate its strategic objectives in contemporary terms to provide a framework and backdrop within and against which its policies would be formulated.
  • The vision statements will guide the RBI during the medium-term period (2019-22).

IMF Cuts India's Growth Forecast to 7%

  •  The International Monetary Fund (IMF) further cut its annual growth forecast for India, as it expects weaker domestic demand to limit an economic recovery.
  • The economy is now expected to expand 7% in the year ending March 31, 2020, 0.3 percentage point slower than IMF's April projection.
  • The broad-based slowdown in consumption and investment demand in India was partly a reflection of the uncertainties associated with the just concluded general elections in India, as well as tightening of borrowing conditions for small and medium enterprises.
  • Gross domestic product (GDP) growth in India in the March quarter slowed more than expected to 5.8% from 6.6% in the December quarter.
  • This was the slowest quarterly GDP growth in five years. Annual GDP growth slowed to 6.8% in the year ended March 31 from 7.2% in the previous year.
  • Since June 2019, Reserve Bank of India (RBI), the Economic Survey of the finance ministry, and the Asian Development Bank have cut their growth outlook for India to 7%.
  • IMF also revised downward its growth projections for China as well as for the world by 10bps each to 6.2% and 3.2%, respectively for 2019.

Snapdeal Raises Fresh Funding

  •  Snapdeal and Piramal Group executive director Anand Piramal has made an investment in the e-commerce company.
  • The investment has been made by Piramal in his personal capacity. 
  • However, details of the investment and the valuation of Snapdeal post the transaction were not disclosed.
  • Anand's investment comes as a significant endorsement for Snapdeal and the transformation the company has undergone over the last couple of years.

Sodexo Invests in Zeta

  •  Sodexo, the voucher-based employee benefits firm, has made a strategic investment in Zeta, a financial technology startup for employee tax benefits and gifting space.
  • Started by serial entrepreneur Bhavin Turakhia, this would be the first institutional funding coming into the company and would value the startup at $300 million (Rs 2,068 crore).
  • Zeta did not disclose the size of the funding. 

Due Date for Filing I-T Returns Extended

  •  The government extended the due date for filing income tax returns by individuals for financial year 2018-19 by a month till August 31, 2019.
  • Individuals, including salaried taxpayers, and entities were earlier required to file their income tax returns for fiscal 2018-19 by July 31, 2019.

Jul 23, 2019

SAIL Enters into MoU with Government e-Markeplace

  •  Steel Authority of India Limited (SAIL) has signed a Memorandum of Understanding (MoU) with Government e-Marketplace (GeM), Department of Commerce, Ministry of Commerce and Industry, Government of India for procurement of goods and services on GeM portal.

IL&FS Group Unit Defaults on NCD Interest Payment

  •   IL&FS Transportation Networks, a group company of the troubled Infrastructure Leasing & Financial Services Ltd (IL&FS) group, has defaulted on payments of Rs. 26.02 crore due on interest of non-convertible debentures (NCDs) because of insufficient funds.
  • The interest due and payable on July 21, 2019 was not paid to the debenture holders due to insufficient funds.
  • Meanwhile, IL&FS said it has received approval from the National Company Law Appellate Tribunal for the proposed sale of its balance 51% stake in seven wind energy subsidiaries to Orix Corp. of Japan.
  • The wind energy units are held under IL&FS Wind Energy Ltd.

Microsoft to Pay $25 mn Fine to Settle US anti-bribery Charges

  •  Microsoft Corp. agreed on Monday to pay about $25.3 million, including a criminal fine, to settle US charges it made improper payments that were used to bribe government officials in Hungary and other countries.
  • The US department of justice said Microsoft Hungary will pay the $8.75 million criminal fine, as part of a three-year non-prosecution agreement in which it "admits, accepts and acknowledges" responsibility for employees' misconduct.
  • Microsoft also agreed to pay nearly $16.6 million to settle related civil charges by the US Securities and Exchange Commission (SEC) over its activities in Hungary, Saudi Arabia, Thailand and Turkey, without admitting wrongdoing.
  • Both settlements resolved charges that Microsoft violated the federal Foreign Corrupt Practices Act, after the Redmond, Washington-based company failed to properly account for the improper payments in its records.
  • Prosecutors said the Hungarian scheme generated at least $14.6 million of improper profit for Microsoft between 2013 and 2015, in connection with the sale of software licenses to Hungarian government agencies.
  • Executives and employees at Microsoft Hungary, which is based in Budapest, were accused of falsely telling Microsoft that steep discounts were needed to complete the transactions.

JPMorgan Shuts One Indian NBFC

  •  US-based financial services firm JPMorgan is shutting its NBFC JPMorgan Advisors India and has surrendered its licence.
  •  The RBI said 45 firms have surrendered their NBFC licences so far in 2019. JPMorgan Advisors India was one of them, the list showed.
  • To be sure, JPMorgan is not exiting its NBFC business since it also operates JPMorgan Securities India Pvt. Ltd.

Interministerial Panel Favours Banning Private Cryptocurrencies

  •  A government panel on virtual currencies has recommended that the government enact a law to ban private cryptocurrencies such as bitcoin in India and impose fines of up to Rs.50 crore, along with imprisonment of up to 10 years for dealing in such currencies.
  • The high-level interministerial committee, headed by finance secretary Subhash Chandra Garg, has proposed a draft law, "Banning of Crypto-currency & Regulation of Official Digital Currency Bill, 2019".
  • Central banks cannot regulate the money supply in the economy if non-official virtual currencies are widely used, as these are decentralized.
  • This restricts their ability to stabilize the economy. In addition, cross-border transactions with non-official virtual currencies can violate limits on the inflow and outflow of money, particularly as such transactions happen irreversibly.
  • This compromises another important lever of monetary policy.

BHEL Expands Footprint in Nuclear Business

  •  Bharat Heavy Electricals Limited (BHEL) has secured a prestigious order for erection work of reactor side equipment of 2x1000 MWe (Units 3 and 4) Kudankulam Nuclear Power Project in Tamil Nadu, being set up under foreign cooperation (Russia).
  • Valued at Rs 486 crore, the order has been placed by Nuclear Power Corporation of India Ltd (NPCIL).
  • This is the first time BHEL is lending its capabilities for erection of reactor side equipment manufactured by another supplier.

Antitrust Review of 'Big Four' Auditing Firms

  •  The government wants the country's antitrust body to assess whether the so-called "Big Four" auditing firms and their affiliates are hurting competition in any manner.
  • The Competition Commission of India (CCI) needs to conduct a survey or an investigation to assess whether the Big Four that include PwC, EY, Deloitte and KPMG are abusing their dominant position in the Indian audit market.
  • India's ministry of corporate affairs, which holds that view, is yet to send any formal request to the CCI to probe the matter.
  • The Big Four do auditing work for almost 60% of the top 500 companies that trade on India's National Stock Exchange (NSE), according to corporate data tracker NSE Infobase.
  • The deliberations around an antitrust review come at a time when the Big Four are facing increased scrutiny in India.
  • In 2018, all the local units of PwC were barred from auditing any listed companies for two years in India after a probe into a decade-old accounting fraud.
  • An EY firm was also barred in June 2019 from conducting certain statutory audit assignments until April 2020.

Jul 22, 2019

Kohli to Launch Innerwear Range Under 'one8'

  •  Cricket captain Virat Kohli is set launch a men's innerwear range under his 'one8' brand in association with Artimas Fashions, a subsidiary of Lux Industries.
  • Kohli is the highest-paid sports celebrity in the country.
  • He has a Rs.110-crore deal with German sports and athleisure brand Puma for one8-branded apparel, footwear and accessories.

World Bank to Support AP with over $1 billion

  •  The World Bank, which has dropped a loan proposal for Amaravati project, said it continues to support Andhra Pradesh with over a billion USD programme that covers health, agriculture, energy and disaster management sectors.
  • This includes a new 328 million USD support to the state's health sector, signed with the Andhra Pradesh government on June 27, 2019.7.22.
  • The World Bank's statement comes in the backdrop of its dropping a 300 million USD loan proposal for the Amaravati Sustainable Infrastructure and Institutional Development Project.
  • The World Bank's Board of Executive Directors has been informed that the proposed project is no longer under preparation following the government's decision.

Xiaomi May Discontinue Poco Brand

  •  Xiaomi may well be looking at killing its sub-brand Poco, say analysts, with one of the top executives responsible for its development quitting amid the Chinese handset maker's renewed push on the mid-to-premium price segment through another subbrand,
  • Redmi. This price segment was previously catered through the Poco sub-brand.
  • Poco was launched to give highend chosen few specs at mid-range prices, with clear compromises on design language.
  • It was launched as an upgrade option for large Xiaomi base without breaking bank required to buy a flagship phone. It saw a mixed response
  • But now, with this aggressive pricing of K series by Xiaomi with its absolute flagship specs, hardware, and design, the reason for the existence of Poco as a brand is in doubt.

GST Council to decide on tax cut on EVs

  •  The GST Council, chaired by finance minister Nirmala Sitharaman, will meet on July 25, 2019 and decide on lowering tax rates for electric vehicles.
  • The 36th meeting of the Council, which will happen through video conferencing, is also likely to decide the valuation of goods and services in solar power generating systems and wind turbine projects for the purposes of levying GST.
  • The Council, which has state finance ministers as members, in its meeting last month, had referred the issue relating to GST concessions on electric vehicle and chargers and hiring of e-vehicles, to an officers committee.
  • The recommendations of the committee is likely to be placed before the Council on July 25, 2019.7.22.
  • To push domestic manufacturing of e-vehicles, the Centre proposed to the Council to slash GST rates to 5% from 12%. GST rate for petrol and diesel cars and hybrid vehicles is already at the highest bracket of 28% plus cess.
  • The Council will also consider tax structure for solar power projects. The Delhi high court had in May asked the GST council to take a relook at the taxation structure following industry petition.
  • The government had earlier this year said that for the purpose of taxing solar power projects, 70% of contract value would be treated as goods—taxable at 5%, and balance 30% as services—taxable at 18%.
  • Further, the Council may also look at taxation of lotteries. 

Suzlon gets bad loan tag from Union Bank of India

  •   State-run Union Bank of India has tagged Suzlon Energy Ltd as a bad loan and more banks are expected to follow suit as the stressed wind turbine maker has struggled to repay its lenders.
  • In the quarter ended June 30, Union Bank has updated the status of the account as non-performing in the central bank's Central Repository of Information on Large Credits database.
  • Under the Reserve Bank of India's asset classification guidelines, banks have to set aside 15% of their outstanding loans to a non-performing account as provisions.
  • To be sure, banks have to set aside money for every loan they make, but the quantum is just 0.4% till it remains standard.
  • Loans are classified into three major categories: standard, substandard and doubtful, depending on their repayment trends.
  • Emails sent to Suzlon, Union Bank of India and State Bank of India, the leader of the lenders' consortium to Suzlon, remained unanswered till the time of going to press.
  • The Pune-based company, led by founder Tulsi Tanti, reported a total debt of Rs. 11,141 crore as of 31 March, 2019.
  • This isn't the first time Suzlon has defaulted on bonds. In 2012, it defaulted on payments of $221 billion, forcing the firm into corporate debt restructuring.  
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