dfa-6-august

Daily Financial News Analysis – 6th August’20 – Free PDF Download

 

New FDI Rules

  • On April 18, India tightened its FDI policy for countries with which it shares a land border, putting investments from them on the approval route.
  • This change meant that any direct investment from Bangladesh, China, Pakistan, Nepal, Myanmar, Bhutan and Afghanistan required government clearance.
  • The restrictions also covered FDI routed via entities set up in other jurisdictions.
  • India may prescribe a low threshold for beneficial ownership under the foreign direct investment (FDI) policy.
  • Policymakers have deliberated both a 25% and a 10% limit but are veering around to the lower one.
  • A final call will be taken at the highest level of government.
  • The 10% limit is consistent with the definition of beneficial ownership in the Companies Act.
  • The Department for Promotion of Industry and Internal Trade (DPIIT) has already held inter-ministerial consultations as well as discussions with other stakeholders.
  • The lower limit will ensure that while small and financial investments will not face scrutiny, significant investments from China and other countries covered by the new regime will face checks.
  • The FDI policy, however, does not prescribe any investment threshold for such approval, implying that a project involving even small amounts would require approval.

RBI MPC

  • RBI governor Dr. Shaktikanta Das today said that the apex bank’s monetary policy committee has decided to unanimously leave the policy repo rate unchanged at 4 per cent.
  • RBI  will continue with the accommodative stance of monetary policy as long as necessary to revive growth, mitigate the impact of COVID-19, while ensuring that inflation remains within the target going  forward.
  • In an address after the conclusion of the three day MPC meeting today via video conferencing, Dr. Das said the Marginal Standing Facility (MSF) rate and the Bank rate remain unchanged at 4.25 per cent.
  • He said, the reverse repo rate stands unchanged at 3.35 per cent.
  • He said the MPC’s assessment is that the global economic activity has remained fragile and in retrenchment in the first half of 2020.
  • The MPC also observed that a renewed surge in COVID-19 infections in major economies in July has subdued some early signs of revival that had appeared in May and June.
  • The MPC is also of the view that the global financial markets, however, have been buoyant, with the return of risk-off sentimenting a disconnect from the underlying state of the real economy.
  • The RBI Governor said the headline CPI inflation, which was at 5.8 per cent in March 2020, was placed at 6.1 per cent in the provisional estimates for June 2020.
  • He said given the uncertainty surrounding the inflation outlook and extremely weak state of the economy in the midst of an unprecedented shock from the ongoing pandemic, the MPC decided to keep the policy rate on hold, while remaining watchful for a durable reduction in inflation to use available space to support the revival of the economy.

Services Sector

  • India’s services sector activity shrank for the fifth consecutive month in July.
  • Though pace of contraction is slower compared to June.
  • Covid-19 pandemic and lockdowns took a toll on service sector
  • July witnessed drops in new business and job cuts
  • The IHS Markit Services Business Activity Index was 34.2 in July against 33.7 in June.
  • Temporary company closures and weak demand
  • The Composite PMI Output Index signalled a further rapid contraction in private sector business activity in July as it fell from 37.8 in June to 37.2.

 

Social Security Scheme for Gig Workers

  • The labour ministry may soon include gig workers under the existing social security schemes of the government.
  • This will make GIG WORKERS eligible for pension and medical benefits.
  • Existing pension and health benefits available under the Employees’ Provident Fund Organisation, the Employees State Insurance Corporation and the Ayushman Bharat schemes
  • Shram Yogi Maandhan Scheme may be extended to provide them with pension benefits.
  • A dedicated gig worker fund will be set up under the existing schemes to provide the benefits.

 

 

 

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