Reserve Bank says economic activity to stay strong
The third wave of Covid-19 pandemic driven by the Omicron variant may turn out to be “more of a flash flood than a wave,” and the economy could rebound to pre-pandemic levels, the Reserve Bank of India said in its State of the Economy report. The latest infection surge has dented the recovery to a large extent, but that would be temporary, the central bank said.
Why it’s important: The India economy was slowing down even before the pandemic, which further worsened the situation. A rapidly spreading third wave has again provided a jolt as business activities were picking up after the second wave. The Reserve Bank, however, said overall economic activity in India is still strong, with upticks in several high-frequency indicators.
Banks raise lending rates as credit demand rises
Commercial banks have started increasing interest rates for term deposits in some maturities after several months to match a rise in the demand for credit. Two of the largest lenders, State Bank of India and HDFC Bank, have raised their deposit rates by up to 10 basis points in the past couple of weeks. One basis point is hundredth of a percentage point.
Why it’s important: Although experts feel it is too early for the interest rate cycle to turn, banks want to ensure that their lending capacity is not restricted by the availability of customer deposits when credit demand rises further. However, deposit flows are still higher than loan disbursals, indicating that smaller banks may not raise rates in a hurry.
Indian CEOs betting on a stronger economy this year
Chief executives of Indian companies are strongly optimistic about the prospects of a stronger economy in the 2022-23 financial year despite a variety of headwinds related to the Covid-19 pandemic, a PwC survey has found. As much as 99 percent of CEOs in India said economic growth will improve over the next 12 months, with 94 percent being optimistic about global economic growth improving as well in the next 12 months, as against 77 percent of global CEOs.
Why it’s important: 97 percent of Indian CEOs are confident about revenue growth not only in the near term but also over the next three years. Although there is widespread optimism, concerns due to the pandemic remain. Last year, 70 percent of Indian CEOs said the pandemic was a top threat to expansion. About 89 percent of them are also concerned about the health risks.
India’s e-commerce policy to have arm’s-length rulebook
A national e-commerce policy, which is being developed for close to three years, will ask online retailers to be fair and non-discriminatory while providing cashbacks or reward offers to consumers. No digital marketplace will have any control over the products sold on its platform. These companies will not be able to sell their products directly or indirectly to vendors registered on their platform and cannot mandate a vendor to sell products exclusively on their platform.
Why it’s important: The draft policy is another attempt by the government to regulate the country’s growing e-commerce sector, make marketplaces more accountable and provide a level playing field for traditional traders. Local trade lobbies have been protesting the deep discounts by foreign-funded online retailers and have cautioned against preferential treatment towards some sellers.
Apple, Samsung to locally make phones worth $5 billion
Mobile phone manufacturers Apple and Samsung will locally manufacture smartphones worth around $5billion (Rs 370 billion) in year 2021-22 under the government’s production-linked incentive scheme, exceeding the target set by the central government by over 50 percent. Of this, mobile phone exports under the scheme will account for around $2 billion in the fiscal year to March
Why it’s important: The PLI scheme of the government for cellphones promises incentives of nearly Rs 390 billion spread over five years. It is part of India’s increasing focus on expanding the manufacturing industry in the country.
Tech Mahindra buys European IT firm for Rs 26 billion
IT services firm Tech Mahindra has announced the acquisition of Com Tec Co IT for $310 million (Rs 26.25 billion). It will be the eighth acquisition for the company in 2021-22. CTC is an IT solutions and service provider serving the insurance and financial services industries with development centers in Latvia and Belarus in Europe.
Why it’s important: The buyout will enable Tech Mahindra to tap onto the huge potential in the insurance sector, expand its offerings to high-end digital engineering services for large multinational insurance, reinsurance, and financial services organizations and upscale its delivery presence near the European market.
Pandemic sees consumer confidence to plunge to its lowest ever
Consumer confidence has touched a historic low, with the coronavirus pandemic influencing the sentiment of Indian households across all income groups, according to the January bulletin of the Reserve Bank of India released on Monday. However, expectations about the future are relatively optimistic, the regulator said.
Why it’s important: The repeated restrictions imposed due to the Covid-19 pandemic have impacted household incomes the most, because of which they are wary of spending. The lack of demand could prove to be a strong headwind for India’s economic recovery.
Budget may encourage private investments in public infrastructure
The national budget scheduled to be presented in Parliament on 1 February may introduce several provisions to boost private sector participation in infrastructure projects. These may include strengthening the public-private partnership dispute resolution mechanism, uniform PPP institutional framework, easier terms for infrastructure companies accessing bond markets, and tax sops.
Why it’s important: The capital expenditure in the fiscal year 2022-23 by the central government could exceed Rs 6.5 trillion compared with the previous budget’s estimate of Rs 5.54 trillion. Although it is expected that the government will take the lead through increased public investment, it might also want the private sector to boost capital expenditure and capacity.
Draft law on cryptocurrencies likely to miss budget session
The central government may not introduce the much-awaited cryptocurrency bill in the budget session of Parliament because it wants to hold more discussions and build consensus on the regulatory framework. The government also wants to wait for the pilot launch of Reserve Bank of India’s digital currency, which is expected in a few months.
Why it’s important: Many Indians have started investing in cryptocurrencies in the recent past but there has been a lack of regulations. There is a consensus in government circles on treating cryptos as assets, but more work needs to be done on how to introduce taxes in the nascent but rapidly expanding sector.
Top court upholds company tribunal order to liquidate Devas Multimedia
The Supreme Court has dismissed an appeal by Devas Multimedia and its parent Devas Employees Mauritius against the orders of the National Company Law Tribunal and the National Company Law Appellate Tribunal that allowed the winding up of the company. In January last year, an NCLT bench had admitted a petition by the Indian Space Research Organization’s commercial arm Antrix Corporation, urging the tribunal to allow the winding up of Devas Multimedia for fraud. Subsequently, the NCLAT upheld the order of the NCLT.
Why it’s important: The winding-up controversy has now been put to rest. Since the appointment of the liquidator is confirmed, it will be interesting to note the fate of the US proceedings initiated by Devas against Antrix, which resulted in them going after various assets owned by Air India all over the world.
Disclaimer: Moneycontrol is a part of the Network18 group. Network18 is controlled by Independent Media Trust, of which Reliance Industries is the sole beneficiary.Morning Scan: All the big stories to get you started for the day - Moneycontrol.com
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