11-dfa-jan

Daily Financial News Analysis – 11th Jan’20 – Free PDF Download

 

MENA and India

  • The first phase of the US-Iran standoff appears to have been defused.
  • Collateral consequences on India’s economy
    1. BSE Sensex fell by nearly 2%, resulting in erosion of investments worth Rs 3 lakh crore, or nearly $42 billion
    2. Nearly 5% rise in crude prices pushed our annual import bill by nearly $5.7 billion.
    3. The 1% decline in the value of Indian rupee against the US dollar further raised our annual oil import bill by over Rs 112 billion, or $1.6 billion.
    4. A 2% surge in gold prices pushed cost of annual gold imports by over $660 million.

  • Loss of expatriate remittances from the Gulf.
  • Disruption in our exports to this region.
  • Withdrawal of investments from India.
  • Higher political risk premium on logistics and air travel.
  • déjà vu of 1990-91 Gulf War crisis
  • India, arguably, has become the world’s most exposed major economy to any turmoil in the Middle East and North Africa (MENA) region
  • Hydrocarbons: world’s third largest importer, depend on the region for over half of our total needs worth $112 billion (in 2018-19)
  • More than eight million expatriates in the Gulf region remit more than $40 billion annually
  • Commodity trade, which in FY19 stood at $188 billion, or 23% of our global commerce, with our exports at over $63 billion, or nearly a fifth of our global figure.
  • Indian automobiles, food products, textiles, jewellery, handicrafts, etc. have niche markets in the MENA.
  • Till recently, Maruti counted Algeria to be its top export market.
  • Thanks to strong Indian footprint in Dubai’s real estate, our investments in the UAE are actually higher than the UAE’s in India.
  • Also, Gulf preference for Indian professionals is well known.
  • We need to manage its course in a proactive manner that is effective and forward-looking.
  • The ongoing developments in the MENA region have both opportunities and challenges for us.
  • India would be the biggest contributor to the global growth in consumption for hydrocarbons during next two decades.
  • Over the long term horizon, the conflict raging in Syria, Iraq, Yemen, Libya, etc. are likely to wind down and these countries would be rebuilt – creating huge opportunities for Indian project exporters, provided G2G (government-to-government) funding is ensured.
  • India’s seven decades of experience in creating credible political and economic institutions in a multi-ethnic, inclusive developing society can be useful.
  • The pent-up demand for economic growth in most populated countries of the region, such as Iran, Egypt, Algeria and Sudan would be eventually released – creating vast opportunities for our stakeholders.

Interim dividend

  • Government plans to get interim dividend from RBI.
  • GoI is struggling to meet its expenditure commitments amid a steep revenue shortfall.
  • The fresh call comes just months after the Reserve Bank of India (RBI) approved a 1.76 trillion rupees ($24.8 billion) dividend payment to the federal government, including 1.48 trillion rupees for the current fiscal year.
  • The RBI largely earns profits through its trading of currencies and government bonds.
  • Part of these earnings are set aside by the RBI for its operational and contingency needs while the rest is transferred to the government in the form of dividend.
  • “We do not want to make an RBI interim dividend a regular thing, but this year can be treated as extraordinary,“ – official
  • A panel headed by former RBI governor Bimal Jalan was set up by the RBI in 2018 to recommend a formula for the sharing of its profits with government.
  • The panel, whose suggestions were accepted, approved a record dividend and has said an interim dividend could be paid only “under exceptional circumstances.”

IIP

  • Country’s factory output for November has turned positive after registering negative growth for two consecutive months.
  • The Index of Industrial Production (IIP) for the month of November grew by 1.8 per cent, signalling a reversal of the manufacturing and production slump witnessed over the last few months.
  • Manufacturing activity also registered a growth of 2.7 per cent against a contraction of 2.1 per cent in October.
  • Mining activity also registered a positive growth of 1.7 per cent in November, significantly rebounding from a contraction of eight per cent in October.
  • Growth of primary products expanded 0.3 per cent against a contraction of six per cent in October.
  • Production of capital goods in November saw a contraction of 8.6 per cent against a fall of 21.9 per cent in October.
  • Consumer durables fell 1.5 per cent in November against a fall of 18 per cent in October.
  • Marginal expansion is a good sign of the Indian economy as it is one of the first indicators of improving productivity.

National Energy Policy

  • The International Energy Agency on Friday suggested government adopt a long-term energy plan for the country with focus on rationalising the energy prices, building energy infrastructure needs, energy security and access to affordable energy even as the government strives to open up the sector for private players and move towards cleaner fuels across sectors.
  • IEA: India Report 2020
  • The draft National Energy Policy by NITI Aayog, currently under consultation, is an excellent framework and should be adopted swiftly to guide policy making, implementation and enforcement across central and state governments.
  • Under consideration since 2017 but hasn’t seen the light of the day because of several inter-ministerial differences.
  • According to IEA, India spent $25 billion in 2018 on subsidies for the consumption of fossil fuels, mostly supporting oil consumption in the form of LPG ($17 billion) and gas ($4 illion).
  • While the diesel subsidy ended in 2014-15, government is gradually increasing the prices of kerosene and cooking gas (LPG to phase out the subsidies, it noted.
  • IEA suggested India needs to improve the collection, consistency, transparency and availability of energy data across the energy system at central and state government levels.
  • According to IEA, energy research, development and deployment (RD&D) can be a strong enabler of India’s energy policy goals while also contributing to broader national priorities such as the “Make in India” manufacturing initiative.

National Energy Policy

  • IEA’s ‘India 2020 Energy Policy Review’
  • Various policy initiatives undertaken by the government will help India achieve a secure, affordable and sustainable energy future.
  • Kumar said India has taken significant steps in improving energy efficiency and cleaner transport with electric vehicles (EVs).
  • India has increased its focus on energy storage solutions, cleaner fuels and liberalisation of upstream sector.
  • Niti Aayog CEO Amitabh Kant: India has crossed 280 million households, implying 98 per cent households with access to clean cooking facility.
    1. Distribution of LPG under Pradhan Mantri Ujjwala Yojana
    2. Provision of piped natural gas connections through city gas distribution networks
  • Kant also noted that India is working hard to move towards its aspirations of transition in the energy sector.
  • The government has placed electricity and clean cooking access as its topmost priority and with continuous efforts, India has seen a remarkable development in this area.
  • Kant also said the blue revolution is ensuring better quality of life to citizens, especially rural women.

 

 

 

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