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FPIs exit markets after economic package announcement.

FPIs exit markets after economic package announcement.

 

On 12th May 2020, Prime Minister Narendra Modi announced an economic package of ₹ 20 lakh crore under government’s Atma Nirbhar Bharat Abhiyan / Self-Reliant India. The national movement of Atma Nirbhar Bharat Abhiyan / Self-Reliant India initiated by Prime Minister Narendra Modi is to support India’s all small and local business. He emphasized on slogan viz. #VOCALFORLOCAL.

 

Scamper among FPIs:

Approximately 40% of FPI sales in cash and derivatives sectors were observed in second week of May. The data derived from stock exchange indicates some break up figures such as FPI’s sold stock worth ₹6,486 crore. Additionally, sales worth ₹2,869 crore and ₹737 crore were observed in index futures and stock futures respectively. These sales was executed in just 4 trading days in the second week of May 2020. The data further states that since the announcement of economic booster package of worth ₹20 lakh crore, FPIs buying activity has drastically declined.

 

Decline in NIFTY:

On 13th May 2020, Nifty observed its peak of 9,584 within the span of 2 days. Nifty abruptly fell by 534 points and on 15th May 2020 Nifty observed its low of 9,050. In the same time period, it has also been observed that there is a sudden decline in Nifty Bank. Nifty Bank dropped 1,440 points from 20,122 to 18,663.

If we compare between Indian stock market and global stock market, the sudden change is only observed in Indian stock market and not in global stock market. The Nifty and Nifty Bank indices are two of India’s largest traded derivatives, and both of these derivatives are struggling under pressure from FPI’s as they are selling their investment in a massive quantity since the announcement of economic booster package by Indian government. In second week of May 2020, the indices decreased by 5.6% and 7.15% respectively, compared to their respective highs.

 

Support from DII’s:

During the same period i.e. in the second week of May, there was no support from Domestic institutional investors (DIIs). Purchases from domestic institutional investors (DIIs) was also low, and they purchased stocks of only ₹1,896 crore in cash. There are several rules and restrictions on the companies who are doing business of mutual funds & insurance on derivative speculations. Therefore, they are virtually absent in the field of futures and options.

 

Massive sales by FPIs:

The media report noted that FPIs have been selling massively since the second week of May 2020 and have been slamming markets after the announcement of the financial package by Indian Government. In addition, the figures apart from second week of May 2020, the FPI’s net figures appear to be clearly positive, this is a bit misleading.

 

Loopholes while extracting data:

Exchanges will not adapt these facts when foreign companies sell shares and FPIs buy them This was the case on 7th May 2020, when a massive block of shares entered the market of Hindustan Unilever (HUL). Shares of HUL worth ₹26,300 crore were sold by international investors on 7th May 2020. The FPI’s bought a total worth ₹19,000 crore from the market in the same period, while DIIs bought stocks from the market in the same period worth ₹3,818 crore. Nearly all FPI’s and DIIs purchases were in HUL for that particular period.

When these ₹19,000 crore investments are removed from Hindustan Unilever shares, then FPI’s were net sellers in the cash and future segments. Sellers and major buyers of HUL were both international entities, but only those registered as FPIs are required to report their numbers to Securities and Exchange Board of India (SEBI) and stock exchanges viz. NSE & BSE. Meanwhile, net buying by DIIs in the month of May 2020 is just ₹1,056 crore after adjusting the activity of Hindustan Unilever.

 

 

Corporate bond funds: A mix of risks and returns.

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Fifth tranche of economic package covers MNREGA, Health and more.

Fifth tranche of economic package covers MNREGA, Health and more.

 

Finance Minister Nirmala Sitharaman, on May 17, 2020 announced the 5th and concluding tranche of the economic package. In order to make India “Atma Nirbhar”, the last tranche of the economic package emphasizes on land, labour, liquidity and laws. The focus is on 7 things including, Health and Education related sector, Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA), businesses and COVID-19, ease of doing business, decriminalization of Companies Act, Public Sector Enterprises- related points and State Governments and related resources.

The 1st tranche was announced on May 13, 2020 following the 2nd, 3rd and 4th tranche on May 14, 15 and 16. All the 5 tranches sums up the detailed guidelines and strategy of allocation of total fund as announced earlier by Prime Minister Narendra Modi. This pool of the Rs 20 lakh crore package, that amounts to 10 percent of our GDP aims to help Nation survive the economic crisis that has arisen due to cross country lockdowns laid to curtail spread of COVID-19.

 

Let’s have a look at the 7 points as aired on May 17, 2020:

Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA):

The government has planned to increase the budgeted estimate by Rs 40,000 crore. Previously, the budgeted estimate for the same was Rs 61,000 crore. This increase is estimated to generate 300 crore additional labour days of work. Also, this will aid in provision of work for the returning migrants.

 

Health and Education Sector:

Since public expenditure on health will increase, Government has planned to ramp up investments in building health and wellness centers both in rural and urban regions. Further, every district will have special blocks in hospitals for treatment of infectious diseases.

The Finance minister announced about the technology driven education via “Diksha”. The government is soon planning to launch PM e-VIDYA programme. This programme will provide digital and online access to education. Also, there will be one earmarked channel on television catering to students of class 1 to 12. Adding further, the substantial use of community radio and podcasts will be made. Special online content will be made available for visually and hearing impaired students.

Further, top 100 universities have been granted authorization to start online courses by May 30. Apart from this, an initiative under the name “Manodarpan” will be launched soon. This programme will help in extending socio-psychological support to students and families regarding mental and emotional well-being.

 

Insolvency and Bankruptcy Code (IBC):

Under this, the debts related to corona cirus pandemic will be excluded from defaults under IBC. No new proceeding for insolvency to be carried out for the next one year. Special provisions will be notified under section 240-A of IBC for MSMEs. In order to insulate MSMEs, the minimum threshold limit to initiate proceedings of insolvency has been raised to Rs 1 crore from previous limit of Rs 1 lakh.

 

Companies Act:

Announcement as to decriminalize the companies Act was made in order to reduce the burden of criminal courts and the National Company Law Tribunal (NCLT).

 

Ease of Doing Business:

Public companies can go for direct listing of securities in permitted foreign jurisdictions. Private companies will be considered as unlisted even if they have debentures in the stock exchanges.

 

Public sector enterprise policy:

Under this policy, the government thinks that it is high time that India sees private sector participation in all the sectors while public sector still plays important role. Therefore, the government has planned to broadly categorize sectors into strategic and others. In strategic sector there will be minimum one to four public sector enterprises in order to safe guard public interest and others will be privatized or merged Whereas in other sectors, public sector enterprise will be privatized. List of the same will soon be notified.

 

State Governments:

The Central Government is facing steep fall in revenues in the same manner State Governments are also facing huge revenue losses. Around Rs 46,038 crore was delegated as tax revenue from the Centre to State Governments. Adding to this, nearly Rs 12,000 crore was also distributed on timely basis. In spite the borrowing limits of states raised, states have only borrowed 14 percent of the authorized limit, 86 percent still remains unused as of date. Government has now raised the borrowing limit of Gross State Domestic Product (GSDP) from 3 percent to 5 percent. This will result in availability of additional borrowing amount of Rs 4.28 lakh crore for the states.

 

 

Market update 18th May 2020. SENSEX crashes 1,069 points on a volatile day.

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Fourth tranche includes structural reforms in various sectors

Fourth tranche includes structural reforms in various sectors

In the 4th tranche of the economic package, Finance Minister Nirmala Sitharaman basically focuses on various sectors aiming towards growth stimulation and job creation. This time the utmost focus has been on sectors like coal, minerals, defence, aviation, power distribution, space and atomic energy sector. All the 4 tranches sums up the detailed guidelines and strategy of allocation of total fund as announced earlier by Prime Minister Narendra Modi. This pool of Rs 20 lakh crore package, that amounts to 10 percent of our GDP aims to help the nation survive the economic crisis that has risen due to cross country lockdowns laid to curtail spread of COVID-19.

 

Details of previous tranches:

The 1st tranche was announced on May 13, 2020 following the 2nd and 3rd tranche on May 14 and 15 respectively. The announcements in 3 tranches summed up to Rs 10.73 lakh crore. Similarly, 4th tranche has been aired on May 16, 2020 providing further details regarding the balance amount of fund dispersal strategy.

The 20 lakh crore package includes the amounts of earlier announcements made in March. Like the fund of Rs 1.7 lakh crore to take care of provision of free food grain and cash to poor for three months period, and monetary policy announced by RBI amounting to Rs 5.6 lakh crore. The First 3 tranches focuses on MSMEs, NBFCs, relief measures for poor migrant workers, street vendors, small businesses and farmers and agricultural sector.

 

Major announcements and reform in policies:

Investment upgradation:

States will be ranked on investment attractiveness to compete for new investments for industrial upgradation and infrastructure facilities and expansion of its reach. Major sectors in radar are Coal, Minerals, Defence, Airspace, Power distribution, Space and Atomic Energy. Let us consider them one by one.

 

Coal:

Government removes its monopoly over coal and announces commercial mining of this black diamond. Emphasizing on reduction of imports and increasing “Atma Nirbharta”. She also announces that government will spend Rs. 50,000 crores to develop this sector and looks forward to transparent and healthy competition welcoming private sector participation. Adding further, she tells around 50 blocks of coal will be auctioned.

 

Minerals:

Similarly, she announces that the government is looking forward to enhance private investment in this sector. Open and transparent auctions will be held to offer around 500 mining blocks. In order to boost competition in Aluminium industry, joint auction will be arranged for Bauxite and coal ores.

 

Defence Production:

With the aim of reducing dependence and becoming Atma Nirbhar, Foreign Direct Investment (FDI) in manufacturing under automatic route has been raised to 74% as compared to 49% previously. For domestic production of imported spares, budget provisioning has been done. These steps are taken to enhance autonomy, accountability and improvise efficiency in this sector.

 

Civil Aviation:

Limitations levied on usage of Indian Air Space will be uplifted, in order to make flying more efficient. This liberation will earn an annual benefit of around Rs. 1,000 crores for this sector. She also mentions vision of building world-class airports via Public Private Partnerships (PPP). Adding further, she said Government is taking efforts to make our country an international hub for repairs and maintenance and overhaul for aircrafts under authorization of the Airports Authority of India. Untill now 3 out of 6 airports have been authorized for the same on PPP basis.

 

Power:

In accordance with the newly laid tariff policies, Government opens doors for private players to enter into power distribution sector in the Union Territories. This is supposed to strengthen, stabilize and improvise efficiency in this sector.

 

Stimulating investments:

A revival scheme amounting to Rs 8,100 crores, has been launched to stimulate social infrastructure. This will boost private sector investment in social infrastructure.

 

Space:

Government welcomes private sector to become part of journey in space, launching rockets, satellite services and others. This will stimulate private participation in this sector. The finance minister also mentions that the government is trying to liberalize geo-spatial policy.

 

Atomic Energy:

Government wishes to see new startups in the nuclear sector. For stimulating this vision, government will set up incubation centres. These incubators are termed as Technology Development cum Incubation Centres. The welcoming the PPP model will help in establishing research reactors and making of medical isotopes.

Lastly, the above mentioned strategic plans and reforms are built with a vision of creating opportunities for businesses and at the same time generating employment and contributing to economic upswing.

 

 

Third tranche of economic package to support farmers along with governance reforms

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Third tranche of economic package to support farmers along with governance reforms

Third tranche of economic package to support farmers along with governance reforms

 

On 12th May 2020, Prime Minister Narendra Modi announced a Rs 20 lakh crore stimulus package to tackle the impact of COVID-19. This special economic package is equivalent to about 10 percent of India’s GDP. It includes all the previous packages announced by the government and the Reserve bank of India with new reforms and packages to make the country self-reliant. New governance includes supply chain mend for agriculture. Other factors include simple and clear laws, rational tax system, a strong financial system and capable human resources. However, the main focus of the packages are labour, land, liquidity and laws and sectors such as micro, small and medium enterprises, cottage industries and middle class working people.

On 13th and 14th May, the finance minister, Nirmala Sitharaman announced first and second the tranches of Rs 20 lakh crore package. First tranche includes funds for MSMEs, NBFCs, HFCs and MFIs while focus of second trance was migrant workers, street vendors, small farmers and the poor. She also announced that single ration card will be applied across the country and free ration will be given to those, who do not have ration card in the states they are currently residing. Announcement related to incentives for rental accommodation for migrant workers were also made.

 

Third tranche of 20 lakh crore announcement:

Total eleven measures were announced in the third tranche, to deal with the farm infrastructure, fisheries, agriculture and animal husbandry. However, some governance reforms were also included. Among these measures, eight measures are related to strengthening infrastructure and rest are related to governance and administrative reforms. Most of the announcement is related to the infrastructure because government wants to empower people and to make sure that India is assisted to stand up on its own through creation of skills and development in logistics sector.

During the last 2 months, the government has already announced relief packages for agriculture and dairy sector which includes Rs 74,300 crore purchase of MSP and under PM Kisan yojana and fasal bima yojana, Rs 18,700 crore and Rs 6,400 crore are transferred and claimed to farmers.

 

Animal husbandry:

Dairy sector is already facing losses and severe difficulty as demand for milk is reduced by 20-25% during the lock down. Around 560 lakh litres of milk per day is procured by overall co-operatives. Therefore, Rs 5,000 crore liquidity funds will be given to the farmers and around 2 crore farmers will be benefited. A new scheme will provide interest subvention at 2 percent per annum for 2020-21 and 2 percent for prompt service. The government has decided to give Rs 15,000 crore for overall dairy infrastructure.

Around 800 hectare of area is been allocated to develop the corridors of medical plant near River Ganga. Rs 4,000 crore is allocated for growing herbal and medical plants which will cover ten lakh hectares of land and provide income of nearly Rs 5,000 crore to farmers.

 

Marine and fisheries:

Under Pradhan Mantri Matsya Samapada yojana, Rs 20,000 crore will be given to fulfil the gap between value chains and for development of the marine and inland fisheries. This will give fish production of around 70 lakh tons and produce employment to 55 lakh people in next five years. Under national animal disease control programme, Rs 13,343 crore is given for vaccinations and for eradicating foot and mouth disease.

 

Schemes for micro food enterprises and bee-keepers:

Government has allocated Rs 10,000 crore fund for micro food enterprises which will benefit up to 2 lakh micro food enterprises and also promote PM’s vision “ vocal for local with global outreach”. For example, Telangana can have turmeric cluster and Bihar can have Makhana cluster. To increase the income of bee-keepers, government has implemented Rs 500 crore for development of infrastructure related to bee-keeping development and storage centers and other value added facilities such as post-harvest. Around 2 lakh beekeepers will be benefitted with this scheme.

 

Agri-infrastructure:

For Agri-infrastructure, the government has allocated Rs 1 lakh crore so that farm gate infrastructure such as cold chain is strengthened and Rs 500 crore for operation greens has implemented, for better price realisation for farmers. Government will amend essential commodities act and allow market force to deregulate price. The government will intervene if any emergency situation arise such as drastic hike in price or any other crisis.

 

Reforms:

Government will formulate law for farmers so that they have adequate choices to sell produce at attractive prices and ensure that there is barrier free interstate trade. Framework for e-trading agriculture products will also be made. To ensure that farmers are engaged in fair and transparent deal with processors, aggregators, large retailers and exporters government will facilitate legal framework which will include risk mitigation measures.

 

 

Goods exports decline in April

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Goods exports decline in April

Goods exports decline in April

India’s export is reduced by 60.28 percent in the month of April, due to the lock down imposed by the government which is equivalent to $10.36 billion. However, in March country’s export was declined by 34.57 percent. On the other side, the country’s import is also affected. There was a 58.65 percent  decline in imports in April which amounted to $17.12 billion. However, India’s Imports have decreased by 28.72 percent from previous year making it $31.16 billion in March 2020. This is the lowest percent that India has seen since August of 2016. Overall trade deficit in April is $6.76 billion which was $15.33 billion in April 2019. This year’s trade deficit is lowest since May 2016 which was $6.27 billion.

 

Sector and commodities wise:

There is decline in 30 major import sectors such as gold, silver, coal, fertilizer, machinery, transport equipment and machinery. All these sector have reported negative growth in the month of April. Since the first day of the countrywide lock down, oil imports have seen a drop by 15 percent and non-oil purchases dropped to 33.78 percent. Imports of electronic items have dipped down by 29.09 percent. Lastly gold have plunged by 62.64 percent in March. In April, non-oil imports is reduced by 58.5 percent to $12.46 billion and Gold imports stood at $2.83 million which was $4 billion last year. However, other Oil imports was at $4.66 billion, which is 59.03 percent lesser than last year for the same period.

Commodities wise, export of rice declined by 28.28 percent, cereals export saw decline by 33.42%, tea exports fell by 33.74 percent, organic and inorganic material export reduced by 32.88 percent, ready-made garments fell by 34.91 percent and plastic and linoleum declined by 35.67 percent. Imports of commodities is also affected due to lock down, import of precious stone declined by 53.46 percent, electrical and non-electrical machinery fell by 31.72 percent, electric good import fell by 29.09 percent and coal, coke and briquettes declined by 23.54 percent.

However, gems and jewellery shipments fell by 98.74 percent, leather shipments fell by 93.28 percent, and petroleum products declined by 66.22 percent, chemical shipments fell by 42 percent and engineering goods declined by 64.76 percent. Only pharmaceutical and iron ore reported positive growth during last the 2 months.

 

Impact on foreign reserves:

One big reason for this surge in foreign exchange reserves is temporary closure of imports to India as this has blocked the outflow of foreign exchange reserves, keeping it intact. The reserves showed a surge of $113 million to $479.455 billion in mid-April. The forex reserves show an all-time high of $487.23 billion in early March, after it lofted by $5.69 billion. During FY20, the nation’s forex reserves ascended by nearly $62 billion. In the week of April 27, 2020, a significant part of the overall reserves which is the foreign currency assets (FCA), hiked by $1.752 billion to $443.316 billion.

 

Government measures:

Due to the lock down, major industrial units are closed. There is restriction for movement in the goods and various other issues such as job loss, 70-80 percent cancellations in orders and increasing non-performing assets is already been noticed. Therefore, government has announced various measures and packages to cope up this situation. For Agri-infrastructure, the government has allocated Rs 1 lakh crore so that farm gate infrastructure such as cold chain are strengthened and Rs 500 crore for operation greens has implemented, for better price realization for farmers.

Government will amend essential commodities act and allow market force to deregulate price. The government will intervene if any emergency situation arises such as drastic hike in price or any other crisis. These announcements will help government to achieve their target of $100 billion Agri exports.

 

 

Mutual funds make limited borrowing from RBI’s credit lines

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Disunion between goods may percolate to GST

Disunion between goods may percolate to GST

 

Actions under lock down:

COVID-19 has entirely changed the lifestyle of every human being. The emergence of this pandemic has incited the whole country to be under lockdown. This pandemic altered various activities like how we work, how we shop and notably physical communication with people. This pandemic enforced to maintain social distancing for a long stretch. Many businesses are impacted at an unparalleled scale which includes all the sectors of retail, wholesale, consumer markets and others.

Consumer are pilling stock of essential goods such as groceries, fruits & vegetables, packed food products, and hygiene products. As the country is under lockdown with several rules and regulation, the consumers are pilling the essential goods in massive quantities. In contrast, luxury goods and fashion merchandise observed an enormous decline in their sales in the past 2 months.

Due to plunging demand for discretionary goods, many sellers from this category are giving enormous discount like buy one get one, bulk discount, cash discounts, vouchers, coupons and many more. To clear up the spilled stock, many retail sellers from this category are also offering discounts on a large scale.

 

Effect in taxation:

The trend of consumer has wholly changed and consumption of essential goods on a large scale is observed. The consumption of non-essential goods have abruptly declined and this is likely to drain the taxation regime as well. As a result, tax concerns resulting in cost-saving steps, credit allocation, etc. will come into the new category of “must-haves” vis- a – vis routine enforcement and filing problems, which do not require considerable attention or time for management.

Accordingly, it will become crucial to examine these schemes from a Good and service tax (GST) perspective, i.e. if reversal of the input tax credit (ITC) is needed under GST on supplies produced under these schemes, particularly since issues are litigious. Moreover, GST impacts on marketing instruments such as vouchers, cash cards, discount coupons for example, timing of payment of taxes in the case of vouchers, whether those instruments qualify as actionable statements will also be important.

 

The chaos of perishable goods:

The perishable goods and goods with shelf life are impacted critically in this pandemic. If goods with a certain shelf life does not sell in a stipulated time period, then it turns to direct loss as the product turns into unusable. GST provides provision for reversal of Input tax credit (ITC) on destroyed goods. There is a provision in GST that if goods are destroyed or expired, then there will be credit reversal for such products. There is some dispute, as to whether ITC reversal is only needed for goods that have been completely written off from account books or even for goods that have been partially written off from account books.

 

The rise of a new online world:

Media reports noted, due to this pandemic they observed huge traffic in consumption of goods and services through e-commerce websites in the month of March and April 2020. Considering the ongoing situation and lasting effect of this pandemic, the retailers need to shift their business model to online up to some extent. Doing offline business may not fetch hefty gains, as maximum consumers will shift to online shopping as a precautionary method and to maintain social distancing. The maximum category of products like groceries, fruits & vegetables, hygiene products and many more will be consumed through online buying.

All the GST compliance related to online business will be properly managed by online businesses. The demand for consumer goods are at peak whereas manufacturers and retailers can’t make undue advantage by increasing price of essential goods and services as the government has kept all these activities under surveillance. They should be mindful of the anti-profit provisions pursuant to GST rules, which require the passing of any benefit obtained due to rate reduction or additional ITC to consumers by way of a commensurate price reduction.

 

Doing legal business:

It is significant for all businesses that they should follow all rules and regulation protocols and ensure legal practice in their business. Furthermore, businesses in consumer markets need to evaluate and enforce cash management steps such as deferred tax liability by deferred invoice issuance period, flexible vendor payment terms for reverse charge transactions, and timely refund filing. It will be hard to predict how events for the consumer business sector will unfold in the future. Nevertheless, some pro-activity review and introduction of tax reforms may help not only to save money but also to prevent needless tax conflicts and exposures.

 

 

Mutual funds make limited borrowing from RBI’s credit lines

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Mutual funds make limited borrowing from RBI's credit lines

Mutual funds make limited borrowing from RBI’s credit lines

 

Schemes closed by Franklin Templeton Mutual Funds:

Franklin Templeton Mutual Fund’s has decided to wind up their 6 debt schemes from 23rd April, 2020. The 6 schemes closed by Franklin Templeton Mutual Fund’s was worth ₹26,000 crore. The closure of these 6 schemes significantly reduced liquidity in the Indian bond market. Money of many retail investors and High Net worth Individuals (HNI’s) is blocked as there will be no option of liquidity available in their portfolios. Executives from Franklin Templeton Mutual Funds noted lock down outbreak of COVID-19 and the lock down imposed in state compelled them to take this decision. To control the uncertainty in the financial market, RBI launched new provisions to tackle this problem.

 

Reserve Bank of India launched special liquidity facility:

In late April 2020, Reserve Bank of India launched a special liquidity facility for mutual funds (SLF-MF). This special facility states a provision of total corpus of ₹50,000 crore is available and Mutual funds can borrow money through banks. The functioning will be, corpus of ₹50,000 crore is available and banks are allowed to borrow money from Reserve Bank of India for maximum 90 days. They can lend money to mutual fund firms by keeping collateral of their portfolio. Once the time span of 90 days elapses, the lender needs to pack back the money and take their collaterals. Further, banks will return money to the Central bank. Reserve Bank of India noted this facility can be availed by a bank only for lending back to Mutual funds.

 

Limited borrowing from RBI’s special liquidity facility:

The special liquidity facility provided by Reserve Bank of India (RBI) to mutual funds did not observe massive utilization. The utilization was only ₹2,430 crore from the total ₹50,000 crore window. Media reports noted, rather than lending money from bank, mutual fund’s preferred selling securities to bank and to their other parties. As mutual funds preferred to sell securities to the banks and other counter parties, this shown a spike in sales of debt papers of some NBFC’s.

 

Redemption of debt funds:

Media reports noted the special liquidity facility provided by Reserve Bank of India (RBI) to mutual funds has controlled the redemption of debt funds. In March 2020, various debt funds shown massive outflow. Due to this pandemic, a huge amount of redemption in debt funds is observed. In March 2020, there was a massive outflow in open-ended Debt funds of ₹1,94,915 crore. However, in the month of April 2020 the outflow continued, but inflow of ₹43,432 crore was executed.

In April 2020, it was observed that redemption in credit risk funds was ₹19,238.98 crore. Low duration fund also observed redemption of total ₹9,841.07 crore in the month of April. Further redemptions in various schemes like Ultra Short Duration fund, Money market fund, Short Duration fund amounted to ₹3,419.32 crore, ₹1,210.35 crore, ₹2,309.05 crore respectively.

 

Ease in NBFC’s sector:

The national movement of Atma Nirbhar Bharat Abhiyan / Self-Reliant India initiated by Prime Minister Narendra Modi is to support India’s all small and local businesses. Finance minister Nirmala Sitharaman announced economic booster package of ₹20 crore under government’s Atma Nirbhar Bharat Abhiyan / Self-Reliant India to fight against COVID-19. The economic booster package of ₹20 crore includes new provision to aid NBFC sector. Non-banking financial companies (NBFCs), Microfinance institutions (MFIs) and Housing finance companies (HFCs) will get liquidity support of ₹30,000 crore under liquidity scheme. Under this scheme, banks can invest in investment-grade debt papers issued by NBFCs through both primary and secondary market transactions. The investment up to ₹30,000 crore will be entirely guaranteed by the Government of India.

Additionally, NBFCs, MFIs, and HFCs will even get the assistance of ₹45,000 crore under partial guarantee scheme. This assistance provided by government is to provide liquidity support to the institutions whose credit rating is low. This will be applicable for all the unrated papers and the papers with ratings of AA and below issued by NBFCs, MFIs, and HFCs. This will enhance the liquidity support of all the institutions under NBFCs, MFIs, and HFCs. Under this scheme, the first 20% loss will be borne by the Indian government i.e. public sector banks resulting in a liquidity of ₹45,000 crore.

 

 

Bond markets hail G-sec auction

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Negative crude oil price leads to multiple legal battles

Negative crude oil price leads to multiple legal battles

 

In late April 2020. for the first time in history crude oil prices dropped below zero. To avoid storage cost sellers are paying buyers to take the consignments as oil demand has crashed globally.

This was the historic crash in prices of crude oil in US. Due to this. the oil contracts of April which are executed by the Multi-Commodity Exchange of India Ltd (MCX) are settling at negative ₹2,887 per barrel. This gave rise to multiple court cases in India.

 

Legal battles in India due to negative crude oil price:

Altogether, there are 5 cases floating across 3 jurisdictions in India. There are 3 cases in Bombay High Court and the rest two are from Rajasthan High Court and Delhi High Court.

 

The first lawsuit:

The first case is filed by PCS Securities Ltd, Motilal Oswal Financial Services Ltd, and Religare Securities. On 22nd April 2020, they jointly filed a lawsuit in Bombay high court against Multi-Commodity Exchange of India Ltd (MCX) and Securities and Exchange Board of India (SEBI). They appealed to the Bombay high court that, do the commodity exchanges in India including Multi-Commodity Exchange of India Ltd (MCX) have any provision to execute the trade of commodities in negative value? They further added, negative values cannot calculate any risk and margins for future contract using any software.

 

The Second lawsuit:

The second case is again filed by Motilal Oswal Financial Services Ltd on Dhanera Diamonds. Dhanera Diamonds is the trading client of Motilal Oswal Financial Services Ltd. This case was filed in Bombay High Court in which Motilal Oswal Financial Services Ltd appealed in court to secure the dues from Dhanera Diamonds. The dues amount to ₹80.74 crore. The outstanding dues was on its settlement obligations for trades in crude oil contracts from Dhanera Diamonds.

 

The Third lawsuit:

In retaliation, Dhanera Diamonds filed a case against Motilal Oswal Financial Services Ltd and Multi-Commodity Exchange of India Ltd (MCX) demanding ₹56 crore due. They appealed that commodity exchanges in India including Multi-Commodity Exchange of India Ltd (MCX) do not have any provision to execute the trade of commodities in negative value, so there is big question how these contracts are settled?

 

The Fourth lawsuit:

Ganganagar Commodity Limited filed a case against Multi-Commodity Exchange of India Ltd (MCX) in Rajasthan High Court. Ganganagar Commodity Limited laid the same allegation on Multi-Commodity Exchange of India Ltd (MCX) that how negative trading is executed when they do not have any facility to allow negative trading. The fifth lawsuit was filed at Delhi High Court which is similar to fourth lawsuit.

 

New laws can be implemented:

All these court cases are pending. When all these court cases close, this will not only settle the obligation but also set new supersede on contract law. The big question revolves around contract law is whether exceptions should be made to established norms and regulation for unexpected situations.

 

Effect of fall in crude oil price on Indian economy:

Even in the midst of chaos, falling crude oil prices can reduce India’s economic pain. India went under lock down due to COVID-19. This resulted in gradual slowdown of Indian economy, but on the contrary helped the government to accomplish their various annual target. India can raise oil-related taxes due to negative crude oil prices, which can help to offset other losses. The sudden fall in crude oil prices may help India to control inflation and boost tax revenues. Decrease in oil price can be beneficial for India as money paid will be less to buy oil from abroad as approximately 80% of crude oil requirements are imported in India. But some drawbacks are that India does not have adequate oil storage space.

India has an estimated over 15 million tons of oil assets. The maximum storage space available is just 5.33 million tonnes. The rest of the capacity is not prepared at this point. The current corona virus shutdown in India indicates that there is no substantial demand for oil from the industry. Indian refiners also have current stocks. Agriculture sector may enjoy the fall in price as the cost of fertilizers which are directly or indirectly related to oil may decline. Indian oil companies are unlikely to improve in near future.

 

 

Second tranche of economic package focuses on migrant workers, small farmers

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Second tranche of economic package focuses on migrant workers, small farmers

Second tranche of economic package focuses on migrant workers, small farmers

In relation with the earlier announcement made on May 12, 2020 by the Prime Minister, finance minister Nirmala Sitharaman provides microscopic view explaining sub divisions of ₹20 lakh crore package. It has been strategically designed to provide relief to various divisions of the country. The 1st tranche was announced on May 13, 2020 and on the following day, the 2nd tranche with aid money aggregating to ₹2.46 lakh crore.

 

Nirmala Sitharaman announcing stimulus:

The 2nd tranche of the cumulative ₹20 lakh crore package mainly focus on extending aid to the migrant workers, small farmers and poor section in the urban regions. With the aim of reviving the economy, 2nd tranche announces supply of free food grain, provision of concessional credit support and new affordable rental housing plan. A significant announcement bringing relief to two of the most vulnerable huge population is fully guaranteed loan for the MSMEs and farm support schemes for the small farmers.

Other major announcement made is the “one nation, one ration card” plan. It binds a quick shift to single ration card across the country. This will promise uninterrupted supply of ration to the poor in spite of their change in place of residence if any. Further, to stimulate investments of ₹70,000 crore, a new Credit Linked Subsidy Scheme, extending some relief in interest has been announced for the middle class section to build houses till March 31, 2021. Lower middle income group for the scheme comprises of individual with an annual income of ₹6 -18 lakh.

Interest subvention support of 2% has been extended on Mudra Shishu loans upto ₹50,000 costing ₹1,500 crores. This scheme is projected to benefit around 30 million people. This extension in scheme will further help in creating jobs and restoring demand for commodities like steel, cement and transportation industry and other incidental and auxiliary sector.  Credit guarantee of ₹3 lakh crore for micro, small and medium enterprises (MSME) has been announced under this scheme worth ₹5.94 lakh crore.

 

Empathizing with Migrants:

Finance minister Nirmala Sitharaman mentions the glimpse of migrant families including their children carrying baggage walking on feet is sorrowful.
The package will provide 2 lakh crore concessional credit for around 25 million farmers. Announcing further, a ₹30,000 crore refinance scheme for the small farmers will be sanctioned by National Bank for Agriculture & Rural Development (NABARD). ₹3,500 crore is budgeted to be spent on 80 million migrants who don’t hold any ration cards, providing 5 kg wheat/ rice per person along with 1 kg chana per family per month for 2 months.

By March 2021, all public distribution system (PDS) ration cards are said to be digitalized, enabling access to ration (out of the total family quota) to every member of the family residing in different part of India. By August 2020, 670 million beneficiaries making 83% of the PDS will enjoy national portability. Government along with private players will come together to provide new affordable rental housing to the migrant workers.

 

Other Benefits of this scheme:

Announcements made in the 2nd tranche will not have much impact on the fiscal deficit. It will only be ₹11,000 crore. This will bring the aggregate cost of add on incentives given to ₹66,500 crore, that is 0.34% of GDP. Migrants returning to their rural home towns are being precisely monitored and are being registered under the National Rural Employment Guarantee Act (NREGA).

The scheme has generated a total of 146.2 million man days of work, which is nearly 40% in excess in comparison to the same period in 2019. Further, emphasis on the steps undertaken to make amendments in labor laws and measures are taken to extend social security for the workers employed in unorganized sector.

Announcing ahead, the Government within a span of a month is about to launch a special scheme. The scheme will enable easy access of loan facility to street vendors. Under this scheme, they will be provided with an initial working capital of ₹10,000 or less per person. The above mentioned scheme is said to have a ₹5,000 crore budget.

 

Under supervision of State and UT Government:

Industry is showing a positive response towards the measures announced. Schemes are to be implemented under supervision of Governments of the respective state and Union Territory. It has been witnessed several times in the past that targeting the beneficiaries is the most difficult task and proper planning and proper implementation. If followed by proper execution, it can only lead to success of the government’s vision of revival of the economy.

 

 

Government announces first tranche of economic package

Equity Right

Government announces first tranche of economic package

Government announces first tranche of economic package

To go by the struggle caused due to COVID-19, Finance Minister Nirmala Sitharaman has announced an economic package of ₹ 20 lakh crore under government’s Atma Nirbhar Bharat Abhiyan / Self-Reliant India. Government noted Lockdown 4.0 will be implemented, with all the new rules and regulation which are applicable state wise and will be completely different from the previous lockdowns. The national movement of Atma Nirbhar Bharat Abhiyan / Self-Reliant India initiated by Prime Minister Narendra Modi is to support India’s small and local business. He emphasized on slogan viz. #VOCALFORLOCAL.

 

Aid to Non-Banking Financial Companies (NBFCs) in this economic booster package:

Non-banking financial companies (NBFCs), Microfinance institutions (MFIs) and Housing finance companies (HFCs) will get liquidity support of ₹30,000 crore under liquidity scheme. Under this scheme, banks can invest in investment-grade debt papers issued by NBFCs, HFCs and MFIs through both primary and secondary market transactions. The investment up to ₹30,000 crore will be entirely guaranteed by Government of India.

Additionally, NBFCs, MFIs, and HFCs will even get the assistance of ₹45,000 crore under partial guarantee scheme. This assistance provided by the government is to provide liquidity support to institutions whose credit rating is low. This will be applicable to all unrated papers and the papers with ratings of AA and below issued by NBFCs, MFIs, and HFCs. This will enhance the liquidity support of all the institutions under NBFCs, MFIs, and HFCs. Under this scheme, the first 20% loss will be borne by Indian government i.e. public sector banks resulting in a liquidity of ₹45,000 crore.

 

Aid to Micro, Small and Medium Enterprises (MSMEs) in this economic booster package:

New rules and regulation introduced in MSMEs is to enhance the growth of small businesses are as follows:

1) Government of India introduced the new definition for Micro, Small and Medium Enterprises (MSMEs) which includes increase in investment limits, new additional criteria of turnover, manufacturing and service sector will be considered same and introduced some new amendments to law. New definition states micro units, small units and medium can invest up to ₹1 crore and turnover below ₹5 crore, ₹10 crore and turnover below ₹50 crore, ₹20 crore and turnover below ₹100 crore, respectively.

2) Government introduced the provision of Collateral-free Automatic Loans of ₹3 lakh crore. This provision will help 45 lakh MSMEs in India. MSMEs can avail loan from banks, and NBFC’s. The eligibility criteria of granting loan is MSMEs with ₹25 crore outstanding credit & turnover of ₹100 crore are eligible to take advantage of this provision. They can avail the scheme before October 31st 2020. However, interest will be charged on the loan granted, but 100% guarantee will be ensured by Banks & NBFCs.

3) MSMEs which are undergoing through massive losses and NPAs, provision of Subordinate Debt worth ₹ 20,000 crore will be offered by the government. Approximately 2 lakh small companies will be aided through this provision. Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) will get assistance of ₹4,000 crore from government in return CGTMSE will provide partial credit guarantee support to banks.

4) Government will set up Fund of Funds (FoF) amounting ₹10,000 crore. This will help MSMEs for equity funding and in their potential growth and viability. Set up Fund of Funds (FoF) will be functioned by Mother Funds and some daughter funds. Daughter fund level will help Fund of Funds (FoF) to provide assistance of ₹50,000 crore MSME’s to get listed on stock exchanges and also for their expansion.

5) To support movement of VOCAL FOR LOCAL government will not pass global tender worth ₹200 crore. This step will immensely help in the growth of MSME’s.

6) Government noted all the dues of Micro, Small and Medium Enterprises (MSMEs) will be cleared in the upcoming 45 days.

 

 

Aid to Employee Provident Funds (EPF’s) in this economic booster package:

Government of India stated they will extend their support under Employees Provident Fund scheme by 3 months i.e. for the month of June, July, and August 2020. This provision will cover 3.67 lakh institutions and help approximately 71 lakh employees by providing liquidity relief of ₹2,500 crore.

Relief of ₹6,750 crore will be observed by a reduction in Employees Provident Funds (EPF) contribution for business and workers. This provision will cover 6.5 lakh institutions covered under Employees Provident Fund Organization (EPFO) and approximately 4.3 crore employees are benefited. However, state run Public sector undertakings (PSU’s) will continue to pay 12% as employer contribution.

 

Aid to contractors in this economic booster package:

Railways, Ministry of Road Transport and Highways, and various central agency will get leeway up to 6 months in construction work, all contacts which have obligations to complete in a stipulated time period. Bank guarantees are partially released to ease cash flows.

 

• Aid to Real Estate sector in this economic booster package:

Extension of 6 months will be provided in a timeline of all Real Estate Regulatory Authority (RERA) projects. All the registration and completion dates of projects under RERA will be covered in this provision.

 

Aid in Tax Reforms in this economic booster package:

There will be a reduction of 25% in TDS/TCS on all the transactions executed by individuals and businesses. This provision will help to provide liquidity support of ₹50,000 crore. This reduction will be effective from 14th May 2020 to 31st March 2021. Due date of income tax return (ITR) filings is extended to 30th November 2020.

 

 

 

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