dfa-13-oct

Daily Financial News Analysis – 13th Oct’20 – Free PDF Download

 

GST Council Meeting

  • In the last meeting, Mrs Sitharaman had assured that States’ Goods and Services Tax revenue shortfall this year either due to GST implementation or due to covid will be met completely.
  • She said, nobody is going to be denied compensation for losses.
  • The Finance Ministry had said, 21 States had opted to borrow 97 thousand crore rupees to meet the GST revenue shortfall.
  • However, other states did not choose any option and wanted the Centre to borrow and pay the shortfall.
  • The Goods and Services Tax (GST) Council meeting on Monday ended in stalemate but the Centre said it would go ahead and facilitate the ₹1.1 lakh crore borrowing option for the 21 states that have expressed their preference for this plan.
  • Some opposition-ruled states contended that this would be “illegal” and will challenge this in the Supreme Court, saying any decision on the borrowing options needed to be endorsed by the council, setting up a potential showdown with the Centre.
  • Nirmala Sitharaman: “There was no consensus”
  • The 21states — ruled by BJP and Tamil Nadu — had accepted the option of borrowing ₹1.1 lakh crore to bridge the deficit.
  • They are expected to ask the Centre to quickly implement the mechanism.
  • Thomas Isaac: “Option one involves deferment of compensation payment beyond 5 years for which a council decision is necessary as per AG’s opinion. No such decision has been made in the council.”
  • The minister representing Punjab echoed his view. “I would advise my chief minister and cabinet to approach the Supreme Court on the issue,” Punjab finance minister Manpreet Badal said, adding that the state had pressed for the establishment of a group of ministers (GoM) to resolve the issue in the council.

GILT MARKET

  • Retail and corporate investors are likely to have direct access to the government bond market.
  • RBI and Clearing Corporation of India (CCIL) are working to put in place a system that would pave the way for seamless trading of government securities (G-secs) by non-institutional traders and investors.
  • CCIL is the central counterparty in clearing and settlement for trades in government securities, foreign exchange and the money market.
  • The plan, expected to be rolled out in the next few months, has been discussed at recent meetings between senior RBI and CCIL officials.
  • Banks are offering low returns on deposit and given the condition of some banks, it’s possible some savers may choose to diversify and invest in G-secs
  • But to attract HNIs (high net worth individuals) and corporates in adequate numbers, the government and regulators will have to first ensure smooth movement of securities between demat accounts and SGL accounts.
  • Banks and primary dealers have subsidiary general ledger, or SGL, accounts with RBI to maintain their government securities
  • Gains from G-sec trades should not be taxed at the higher marginal income tax rate — instead it should attract capital gains tax.
  • Secondary trading in government securities happens on a screen-based electronic and anonymous order matching platform called NDS-OM, which is owned by RBI.
  • Besides banks and PDs, MFs and insurance companies can be members of NDS-OM.
  • While technically, general investors can approach banks to place orders on their behalf, the current proposal envisages a straight-through processing (STP) mechanism, which would be an automatic process involving electronic transfers with no manual intervention.
  • In India, only a few large companies invest in G-secs today.
  • The technology, however, exists to invite non-institutional players.
  • Authorities have tried to sell government bonds by opening counters in banks and post offices.
  • It didn’t work due to tax issues, lack of interest among most banks and comparatively low returns on G-secs.
  • With bank rates falling, one has to see to whether it would take off this time.

Supreme Court & RBI Face-Off

  • The government should step in to prevent a conflict between two important institutions of the nation.
  • RBI has reiterated its view to the court once again, arguing against blanket extension of the loan moratorium.
  • RBI explained that the policy of restructuring eligible loans does entail extension of the moratorium for up to two years.
  • The court would appear to be of a mind that businesses that have underperformed for reasons other than their own mismanagement deserve a fair chance to fight their way back to revival.
  • If the court orders a waiver, it would damage the banks’ health, undermine RBI’s regulatory authority and infringe on the executive’s right to formulate policy taking into account the totality of relevant concerns.
  • Government can inform the court of its fund of funds scheme already announced for micro, small and medium enterprises, to inject equity into troubled companies, and to formulate a separate but similar scheme for larger enterprises.
  • Troubled companies need capital that does not need to be serviced during their trouble.
  • A government-sponsored agency can provide such equity and recoup it once the companies have stabilised, giving promoters the first right to buy the equity.
  • If the government were to tell the court of a plan to do this, it would satisfy all parties and herald harmony, instead of conflict.

Schemes to boost demand

  • FinMin Nirmala Sitharaman announced major schemes to boost demands in the country by nearly Rs 73000 crore.
  • Ms. Sitharaman informed that the new proposals aim at giving a thrust of around 36 thousand crore rupees to the consumer demands by the Leave Travel Concession LTC Voucher and Festival advance scheme.
  • Additionally she said, 37 thousand crore rupees will be infused in the capital expenditure by the Centre and the State Governments.
  • Minister informed that in lieu of the LTC for the 2018-21 block term, payments will be made to the government employees for their 10 day Leave encashment and eligible travel fare.
  • She informed, the employees opting for the scheme will have to submit GST invoices for purchase of goods or services amounting to three times the value of travel fare in addition to the value of LTC encashment amount.
  • She said, the amount has to be spent for goods or services attracting GST of 12 per cent or more from a GST registered vendor.
  • The Finance Minister informed that the new proposal is likely to cost nearly 5 thousand 675 crore rupees to the Central Government.
  • She said, if the proposals are uniformly implemented by the State governments, an overall additional consumer demand to the tune of 28 thousand crore rupees will be generated.
  • Under the special festival advance scheme, Ms. Sitharaman said , an interest free advance of 10 thousand rupees will be made available to all government employees.
  • She said, considering 50 per cent states as well adopt the scheme, it is likely to infuse nearly 8 thousand crore rupees in the demand sector.
  • In her announcement towards special assistance for states for utilisation under capital expenditure, the Finance Minister informed that special interest free loans with a 50 year repayment term and amounting to 12 thousand crore rupees will be disbursed.
  • Under the assistance scheme, 2 thousand 500 crore rupees will be given to the North Eastern States and Northern States Himachal Pradesh and Uttarakhand.
  • Seven thousand 500 crore rupees will be given to other states in proportion to their share in Finance Commission devolution.
  • The Minister also announced that an additional amount of 25 thousand crore rupees will be provided by the Centre through capital expenditure on roads, defence infrastructure, water supply, urban development and domestically produced capital equipment.

Good news job-seekers

  • The momentum in the job market may have lost some pace in September but the good news is that 93% of the 1.76 lakh positions filled were permanent ones.
  • Full-time hirings numbered 1.64 lakh compared with 1.5 lakh in June, according to data from Xpheno.
  • Employment levels have now moved back all the way to 75% of pre-Covid levels, according to Nicolas Dumoulin
  • The main reason for this is that with companies re-aligning themselves with the new normal, there has been a need for new talent.
  • Also, companies have understood the current conditions will continue for some time.
  • Employers who were earlier considering more non-permanent roles, part-time assignments, internships, contractual and also remote-working roles, seem to be more open now to full-time positions.
  • Companies in the field of education technology, financial technology, healthcare technology, IT product companies which are leveraging technology, FMCG, pharma and life sciences and logistics, are recruiting.
  • The expected festive season demand is also driving firms that provide essential services and logistics to hire for sales and supply chain roles.
  • E-retailers are hiring staff to man their warehouses and also delivery boys.
  • Consequently the demand for IT professionals has been increasing.
  • In addition, there is an increasing requirement for legal professionals, with positions being filled up now that there’s more confidence in the economy.
  • Over 34% of openings in September were entry-level opportunities, 30% were for-middle to junior roles and 14% for the mid-senior category.
  • A large fall in counts were seen in senior level openings.
  • Sectors such as aviation, hospitality and entertainment, however, are seeing no hiring at all.

 

 

 

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