dfa-28-july

Daily Financial News Analysis – 28th July’20 – Free PDF Download

 

Banks can’t Fund Infra Plans

  • Niti Aayog: India will need about $4.5 trillion in infrastructure investment by 2030.
  • Shaktikanta Das: India will have to find new ways of funding infrastructure projects, as banks will not be able to do so.
  • Main reason: Indian banks are struggling with bad loans
  • Non-performing assets relating to infrastructure lending by banks have remained at elevated levels.
  • National Investment and Infrastructure Fund is a major strategic policy response in finding new ways to finance infrastructure projects.
  • Das suggested expressways and railway lines connecting the four corners of the country as kind of mega projects that could act as a catalyst for economic growth.
  • Both public and private investment will be key to financing infrastructure investment.
  • Das argued, citing statistics, that India had progressed significantly in the creation of physical infrastructure over the past few years.
  • Road construction has increased from 17 km per day in FY16 to about 29 km per day in the last two years.
  • India is the third-largest domestic market for civil aviation in the world with 142 airports.
  • On airport connectivity, India ranked fourth among 141 countries in the Global Competitiveness Report of the World Economic Forum.
  • In telecommunications, the overall tele-density at the end of February was 87.7% while internet and broadband penetration in India have increased at a rapid pace.

Reforms Needed

  • NK Singh: The government is in discussions with the 15th Finance Commission on the issue of bank recapitalisation and will decide on the requirements of the sector for a five-year period.
  • India will see a sharp V-shaped recovery in the third and fourth quarter of this financial year.
  • GDP growth for the fiscal will be in negative territory.
  • Recapitalisation is not a panacea for the banking sector and much deeper reforms are needed.
  • Post-1991, one sector that has remained comparatively closed has been the banking and insurance sector.
  • Banking reforms are the “centrepiece of economic revival and the catalyst for economic change.
  • Singh said liberalising the banking and insurance sectors should be a high priority for the government.
  • Without outright privatisation, the government should think of ways to improve the quality and predictability of financial intermediation.
  • While the commission was tasked with recommending a fiscal consolidation road map to the government for the next five years, Singh said this was not a year to be concerned with consolidation.
  • The challenge facing the government is to balance three objectives of managing the pandemic, managing the economic revival process and buttressing defence capability while being “straitjacketed” by not wanting to abandon the norms of overall macroeconomic stability.
  • Singh said the global economic depression will continue to cast a shadow on growth prospects next fiscal.
  • ICRA revising it downwards to minus 9.5%

Single Window for Industrial Clearances

  • Piyush Goyal: The government will soon set up a single-window system for industrial clearances.
  • Land bank is being created to make it easy for investors to identify sites for setting up factories.
  • All state governments and central ministries will be taken on board for the single-window clearance system.
  • Conducive environment will be created for foreign investment in the health and education sectors.
  • India attracted a record $49.97 billion in foreign direct investment (FDI) in FY20, up 13% from the previous year.
  • Between April and July this year, the FDI inflow was over $20 billion.
  • Goyal said a balance would have to be worked out between the interests of labour and investors.
  • Government had identified 20 industrial sectors to focus upon.
  • Govt is encouraging use of technology saying a jump in production in the country will lead to creation of more jobs.
  • The minister was speaking with representatives of sovereign wealth funds and foreign pension funds on investment in the country’s infrastructure sector.
  • Goyal said “investors will be given full support in terms of policies, processes, regulations and everything will be transparent, open and equitable”.
  • On further easing and speeding up of the process of approvals for industry and investments, Goyal referred to the recent decisions of the Cabinet to set up an Empowered Group of Secretaries to take decisions on various schemes and projects.

Low-Quality Products

  • Ram Vilas Paswan: India will restrict imports of many low-quality products by March 2021.
  • The commerce ministry has asked BIS to formulate standards in accordance with international standards under 371 tariff lines, which account for 26% of total imports.
  • So far, India has formulated 368 mandatory standards and 239 more are under process.
  • BIS is working with customs department at major ports and blocking the substandard imported products at the point of entry itself by testing the samples.

Loan moratorium

  • RBI may allow banks to offer moratorium to stressed sectors such as aviation, hospitality etc.
  • HDFC chairman Deepak Parekh on Monday asked Reserve Bank of India governor Shaktikanta Das not to extend the moratorium on term loans beyond August.
  • Parekh said extending the moratorium will hurt non-banking finance companies as many customers who have the ability to repay are deferring payments.
  • RBI has been conducting an impact assessment of sectors and borrower segments by collating data on repayments and cash flows of borrowers since the lockdown was announced in March to get a better understanding of the challenges faced by borrowers.
  • Parekh also suggested that the RBI should look at buying corporate bond papers like other central banks.
  • RBI, in its financial stability report released last week, had projected non-performing assets to rise to 20-year high to 12.5% of total advances by March 2021.

 

 

 

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