dfa-7-dec

Daily Financial News Analysis – 7th Dec’20 – Free PDF Download

 

MPC

  • Friday’s decision by the Monetary Policy Committee (MPC) of the Reserve Bank of India to maintain status quo on benchmark interest rates and continue with an accommodative policy stance for “as long as necessary” has been widely welcomed as being ‘pro-growth’.
  • With the MPC noting that the signs of economic recovery were still far from broad-based, the panel asserted that it was incumbent on policymakers to support a durable rebound.
  • The MPC also flagged its expectation that inflation would continue to “remain elevated” through the coming months to average 6.3% through the second half of the current fiscal.
  • Seen in this light, the MPC’s decision shows that the RBI is clearly prioritising growth over price stability for now.
  • Recent increases in the prices of iron ore, steel and transportation fuels also add to the worries that cost pressures are continuing to accumulate at a time when the economy is still well under water.
  • The central bank now expects the economy to shrink by only 7.5% in the 12 months ending in March, a full 2 percentage points shallower than the 9.5% contraction it had projected in October.
  • The forecast is predicated on a return to growth of 0.1% in Q3 and 0.7% in Q4.
  • With the central bank prognosticating that, save some possible continued softening in the prices of cereals and transient easing of vegetable costs through the winter, other food prices would persistently remain at elevated levels, the MPC’s policy approach is clearly fraught with risks.
  • By laying the onus on supply disruptions, profiteering and taxes for the inflation spiral, the RBI is abdicating its primary mandate.

White Goods Set to Get Costlier

  • Prices of televisions, refrigerators, washing machines, air-conditioners and microwave ovens are set to rise by up to 20% this month due to a 15-40% increase in input costs.
  • Copper, zinc, aluminum, steel, plastic and foaming agents have become dearer, while ocean freight costs have risen 40-50%.
  • Prices of television panels are up 30-100% due to a global shortage, necessitating the increase.
  • Companies are aware that such a big price hike may dampen the pace of recovery in the next quarter, but said they can’t absorb the inflation in input costs.
  • Companies postponed price hikes since September in order to ensure the success of crucial festive season sales.

New Space Policy

  • India will draft a new space policy aimed at increasing private investments in the country’s space sector to build companies that are global in scale, Indian Space Research Organisation (Isro) chairman K Sivan.
  • The proposed regulations will be in addition to specific policies for launch vehicles, satellite navigation, human space mission and deep space exploration.
  • We want to create competition and get multiple companies in the space sector that can grow as global leaders
  • Over 23 Indian and overseas companies have approached ISRO since August seeking to harness assets built over six decades including rockets, satellites, ground stations and satellite imagery.
  • The nodal agency is looking to transfer critical technologies through its commercial arm — New Space India Ltd (NSIL) — to these companies at lower costs.
  • Last week, NSIL signed a pact to share technology as well as to allow testing facilities with Chennai-based startup Agnikul Cosmos to build a small rocket that can hurl 100 kg satellites to lowearth orbit.
  • Bengaluru-based Pixxel, which is building India’s first private fleet of earth observation satellites, will launch its first satellite atop the homegrown polar satellite launch vehicle (PSLV) in 2021.
  • India is adopting the model of the US space agency National Aeronautics and Space Administration (NASA), which allowed private firms such as SpaceX to get access to its technology and facilities to build reusable rockets that have carried humans to space this year.
  • NASA also allows startups to compete and build vehicles and solutions for its programmes, including deep space missions.
  • “Earlier, when IITs produced aero-space engineers, there was not a strong domestic industrial ecosystem to employ them. Today, with our historic reforms in the space sector, the last frontier before humanity has opened up to Indian talent,” Prime Minister Narendra Modi told a Pan IIT conference on Friday.
  • India has nearly 50 space startups in the sector and over 1,000 companies — both small and medium enterprises (SMEs) and large enterprises such as Larsen & Toubro, Godrej Aerospace, Tata Advanced Systems and Hindustan Aeronautics, which have been vendors to Isro, building systems and subsystems for the space programme.

Banks will have to Transform, Evolve to Keep Pace with the Digital

  • Traditional banks will have to transform and evolve to keep pace with the digital revolution underway in the country, minister of state for finance and corporate affairs Anurag Thakur.
  • Thakur asked the fintech industry to come up with solutions tailor-made to the Indian context while advocating artificial intelligence (AI) and data analytics as a tool to improve the risk assessment and management in the financial sector.
  • Digital payment platforms like UPI Bhim have already brought a rural revolution at the local kirana stores and for urban street vendors, he said, adding that it has also ushered in an era of transparency and timely payments.
  • With biometric-based authentication becoming the front line of digital security in the banking sector, Thakur asked fintech innovators to ensure the encryption of these systems remains foolproof and unbreachable.
  • If banks wanted to remain gatekeepers of funds, they would have to guarantee sound advice and secure and timely services, resulting in sincere trust from customers, according to Thakur.
  • Newcomers in the fintech space would pick and choose a few banking services that would be the most profitable, unlike traditional banks that offer the full menu of services, he said, adding that banks would have to evaluate their offerings in order to compete in this new era.
  • While people were willing to take the two-minute loans available through banking apps, they might not be so keen to invest in schemes simply on the advice of a chatbot or virtual manager, he said.
  • Another crucial factor for the future of the industry was the customer complaint redressal mechanism, the minister said.
  • Along with the ease of digital payments, people would also seek ease of redressal of complaints, he said.
  • According to the minister, banking jobs that were repetitive and rule-based would eventually be taken over by AI and virtual systems, but this would represent a replacement of jobs rather than a loss of jobs, he added.
  • Personalised offers and financial product promotions will be the future and preferred choice.
  • Personalised banking solutions will no longer be a luxury limited to the urban or wealthy.

 

 

 

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