dfa-20-mar

Daily Financial News Analysis – 20th Mar’20 – Free PDF Download

 

Covid-19 Fund for Saarc

  • Ministry of External Affairs: requests for material assistance received by India from the SAARC nations in the forms of masks, gloves and disinfectants have crossed $1 million.
  • While materials have already been sent to Bhutan and the Maldives, deliveries to other nations will start soon.
  • Special control rooms set up by the MEA are being further strengthened to enhance efficiency of the response to specific issues of specific countries.

  • Prime Minister Narendra Modi’s video conferencing with Saarc leaders, cooperation is being done in a coordinated manner.
  • A video conference with health professionals from SAARC countries to discuss the best practices is being planned in a week’s time.
  • Besides, a group of secretaries is engaged in daily monitoring of the situation.

Kerala package

  • Kerala confirmed a fresh 25th, Covid-19 patient
  • State announced an economic package of ₹20000 crore, to mitigate the state through the crisis, announced the state’s chief minister Pinarayi Vijayan.
  • The financial package is bigger than the relief package after history’s worst floods in 2018 and its devastating repeat in 2019, because the virus-impact is expected to be wider, said Vijayan.
  • Not only is the state the first in the country to offer such a package, it was also a record of sorts for Kerala itself.
  • The bulk of Kerala’s multi-crore package is basically frontloading the state’s FY21 spending to the next three months in many ways, anticipating a severe demand slowdown in the immediate period after the coronavirus outbreak, according to people familiar with the matter.
  • The state government expects the centre to chip in too at some point, if at least in increasing borrowing limits and changing central norms on using disaster relief funds, they said.
  • However, commercial activities are currently nearly partially paralysed over the virus scare in the state.
  • Two strong pillars of the economytourism and remittances which make up one-tenth of the state GDP each— have nearly come to a halt.
  • A third one, alcohol, which forms a significant part of the own revenue and still sells despite the virus— is also under attack as there is a growing uproar to ban it during the tough times.
  • The plan is made with an assumption that this crisis is going to linger on for about six months, and a slowdown would be inevitable.

MSMEs on verge of collapse

  • Nitin Gadkari expressed serious concern over non-payment of nearly Rs 6 lakh crore dues to micro and small industries by government and private undertakings.
  • The Centre is working on an action plan to ensure the payments within 3 months.
  • Gadkari also announced that the government will revamp khadi and village industries within three months and make it more export oriented.
  • Earlier funding under MSME was limited to only scheduled banks but now all banks, NBFCs and cooperative banks can lend to them.
  • The minister said all banks — scheduled, private, cooperative and NBFC — are now allowed to lend money to the MSME sector and all loans sanctioned and disbursed under various schemes will be monitored through a central portal in his ministry.
  • While 6 lakh industries have been restructured under the RBI-appointed UK Sinha committee on MSMEs, the minister said, a proposal to create a “Fund of Funds” of Rs 10,000 crore has been approved by the Finance Ministry and the Cabinet nod will be sought on it.
  • About credit flow in MSME, he said by February 2020, Rs 50,532 crore has been disbursed in 50,532 loans sanctioned.
  • In addition, the Finance Ministry has approved a proposal for a “Distressed Asset Fund” of Rs 10,000 crore and the Ministry will send it for the Cabinet nod, he added.
  • To promote MSMEs, the ministry has created a “Bank of Ideas” and a ranking system for states will be approved.
  • The MSME sector accounts for 33 per cent of the manufacturing output and 45 per cent of the total exports of the country.

Spend money to save the poor

  • Economy is going into a prolonged downswing, and chances of a 5% growth in FY21 are slim.
  • Unless the government steps in with some stimulus, even a 4.6-4.7% GDP growth looks like a tall ask.
  • While there is a clamour for a rate cut, that could prove less useful at this point because corporate credit risk is set to deteriorate sharply, and banks should be very cautious.
  • But, a fiscal stimulus of at least Rs 1-1.5 lakh crore is needed even if tax collections come in well below targets—they could fall short by 30-35%.
  • We need to keep the economy going, and this isn’t the time to worry about high fiscal deficits.
  • Rs 45,000 crore that the government is expected to mop up from the higher levies on auto fuels.
  • Brent crude trading at sub-$28/barrel
  • The government should not make the mistake of wasting away resources on large and highly profitable companies
  • No tax-breaks for India Inc, and no tweaking the rules to benefit investors in stocks, or mutual funds.
  • The funds should be channelled into smaller businesses, which could be given a line of credit and allowed a moratorium for tax payments, maybe even loan re-payments.
  • The government would do well to spend on projects—construction of infrastructure, roads—to ensure daily wage earners are able to make a living, and small farmers, too, could be helped.
  • Those most vulnerable to losing their incomes are workers in the informal or unorganised economy—waiters, truck and taxi drivers, salespersons, shop assistants, etc.
  • While the corona pandemic could end by early May, this category would, nonetheless, be the worst hit.
  • By protecting labour, the government has only frightened the corporate sector from hiring; easier hire-and-fire rules would encourage them to take on more people.
  • If we can bring down wage costs, we stand some chance of competing with peer economies.
  • Loan growth has trended down to near-two year lows, dropping to sub-6%, and this was before we realised what coronavirus can do to us.
  • There is some Rs 3 lakh crore of liquidity lying around, but banks don’t want to lend.
  • From a borrower’s point of view, the already small appetite could become smaller.
  • The collapse in demand—for goods and services—exacerbated by the epidemic, will see production being scaled down.
  • Given the uncertainty surrounding businesses, jobs, incomes, and even wealth, few individuals would want to leverage themselves at this point.
  • In times of severe supply chain disruptions, it is difficult to use working capital efficiently.
  • Capital is precious—because there is so little of it, and it is becoming costlier by the day—and so, must be put away.
  • If, as S&P says, global recession is here, and the global economy will grow at 1-1.5%, and Asia-Pac at less than 3% in 2020, India’s exports, which are already under-performing, will be badly hit.

 

 

 

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