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Table of Contents
Private Sector’s Vital Role in India’s Journey to Developed Nation Status by 2047
Finance Minister Nirmala Sitharaman emphasized the crucial role of the private sector in India’s aspiration to become a developed nation by 2047. She expressed confidence in the health of the corporate and finance sectors and highlighted the government’s commitment to partnering with the private sector as a facilitator and enabler. Sitharaman projected India’s significant contribution to global growth and stressed the importance of enhancing manufacturing capabilities, promoting green energy, and leveraging government schemes to drive economic development.
Key Points:
Role of Private Sector in India’s Growth: – Private sector seen as a significant partner in developing India. – Government aims to partner with the private sector to achieve developed nation status by 2047.
India’s Economic Outlook: – India’s share in global growth projected to be near one-fifth. – IMF estimates India’s contribution to global growth at 18% from 2023 to 2028.
Importance of Manufacturing: – Enhancing manufacturing capabilities crucial for self-reliance and economic growth. – Focus on sophistication in product manufacturing.
Consumer Market Growth: – Indian consumer market projected to double by 2031.
Government Schemes: – PLI scheme transforming mobile and electronics sector. – 99% of mobiles sold in India now ‘Made in India’.
Green Energy: – Green energy sector projected to create 50 million new jobs and generate a one trillion economic impact by 2030. – Solar energy has demonstrated significant job creation potential.
Retail Sector Experiences 4% Growth in April, Led by QSR and Food Segment
Indian retailers experienced a 4% growth in sales in April 2024 compared to the same month in 2023, marking a decline from the 8% growth in March. Regional sales growth was consistent, with North, South, and West India recording 5% growth each, while East India saw a 2% increase. Despite positive economic indicators, the retail sector has yet to achieve double-digit growth due to cautious consumer spending on non-essential items. QSR, food & grocery, and jewelry led the growth in categories, while consumer electronics and furniture & furnishings also saw moderate growth.
Key Points:
Sales Growth: – Average growth of 4% in April 2024 compared to April 2023 – Sequential dip from 8% growth in March 2024
Regional Growth: – North, South, and West India: 5% growth each – East India: 2% growth
Consumer Spending: – Cautious spending on non-essential items – Splurging on capital purchases (vehicles, housing, travel)
Category Growth: – QSR and food & grocery: 7% growth each – Jewelry: 6% growth – Consumer electronics and furniture & furnishings: 5% growth each
Outlook: – Hope for increased growth post-election results in June
E-commerce Giants to Consider ONDC Participation Based on Business Viability
The Open Network for Digital Commerce (ONDC), a government-led initiative, is gaining traction among e-commerce players. Participation in ONDC is voluntary, and major companies like Amazon and Flipkart are considering joining based on economic factors. The network aims to democratize digital commerce by providing access to smaller sellers and fostering competition.
Key Points:
Participation in ONDC: – Participation in ONDC is voluntary for e-commerce companies. – Amazon and Flipkart are in discussions with the government regarding integration with ONDC.
ONDC Startup Mahotsav: – Over 125 startups, unicorns, and high-growth businesses signed Letters of Intent (LOIs) to collaborate with ONDC. – The event marked a collaboration between Startup India and ONDC.
ONDC’s Impact: – ONDC aims to democratize digital commerce and make it accessible to smaller players. – Five lakh sellers have onboarded ONDC, with 70% being small and medium-sized sellers. – ONDC facilitated 7.22 million transactions in April.
Government’s Expectations: – The government believes ONDC will drive innovation, foster competition, and enhance consumer choice. – The government hopes that ONDC will attract players of all sizes to the e-commerce marketplace.
India’s Policy Shift: Enhancing Iron Ore Quality through Beneficiation
India is developing an iron-ore beneficiation policy to upgrade low-grade ore for steel production. This policy aims to maximize the utilization of ore with lower iron content, reducing the cost of steel production. The Steel Ministry is collaborating with the Environment & Forests and Mines ministries to formulate the policy, which is expected to be released within the next three months.
Key Points:
- Iron-Ore Beneficiation Policy: India is developing a policy to upgrade low-grade iron ore.
- Maximizing Ore Utilization: The policy aims to increase the use of ore with less iron content in steel production.
- Beneficiation Process: Beneficiation removes impurities from low-grade ore, adding to the cost of steel production.
- Collaboration with Ministries: The Steel Ministry is working with the Environment & Forests and Mines ministries to formulate the policy.
- Concessions from Environment Ministry: Discussions are ongoing to secure concessions from the Environment Ministry.
- Iron Ore Grades: Lump ore contains 65.53% iron content, while fines have 64% or less.
- Mines Ministry’s Push for Beneficiation: The Mines Ministry has previously advocated for beneficiation of low-grade iron ore.
- Draft Guidelines: The Mines Ministry had proposed draft guidelines mandating beneficiation for 80% of low-grade iron ore.
- Penal Action: The draft guidelines recommended penal action, including license cancellation, for non-compliance with beneficiation requirements.
Call for Next-Generation Capital Market Reforms: CEA Anantha Nageswaran
India’s Chief Economic Advisor, Anantha Nageswaran, emphasizes the need for comprehensive capital market reforms, particularly focusing on shaping the country’s future debt market. This requires a holistic understanding of investment needs and how they can be met through a combination of equity and debt. India’s upcoming inclusion in global bond indices will bring both patient and volatile capital inflows, necessitating careful management by the government and regulators.
Key Points:
1. Capital Market Reforms 2.0: – India needs to repeat the success of past capital market reforms by focusing on shaping the future debt market.
2. Bottoms-Up Exercise: – A comprehensive understanding of investment needs is crucial to determine the appropriate debt-to-equity ratio and the role of banks and capital markets in financing debt.
3. Debt Financing: – India needs to explore ways to make debt raising easier and address the wide gap in taxation between debt and equity.
4. Inclusion in Bond Indices: – India’s inclusion in global bond indices will bring both patient and volatile capital inflows, requiring careful management to balance stability and growth.
5. Zero Accident Policy: – A “zero accident policy” approach is risky for India’s high growth aspirations; a “minimal accident policy” approach would better serve its growth interests.
6. Capital Markets as Growth Engine: – Continued sustenance of capital markets is essential for India to finance growth and remain competitive.
ICICI Direct Outage Triggers Investor Fury: Demands for Compensation Amidst Losses
ICICI Direct experienced a significant outage on May 17, 2024, causing widespread frustration among investors. Despite initial assurances of a 10 a.m. resolution, the outage persisted, prompting angry investors to express their dissatisfaction on social media. The company apologized for the inconvenience but many investors reported ongoing issues and demanded compensation for their losses.
Key Points:
Outage Announcement: – ICICI Direct experienced a major outage on May 17, 2024. – The company initially announced that the website would be operational by 10 a.m.
Investor Frustration: – Angry investors took to social media to express their dissatisfaction. – Investors complained about missed trading opportunities and potential losses.
Company Response: – ICICI Direct apologized for the inconvenience and stated that the website would be available by 10 a.m. – The company later updated that the site and app were working fine.
Ongoing Issues: – Many investors reported ongoing issues despite the company’s announcement.
Compensation Demands: – Investors demanded compensation for their losses. – One investor stated, “Don’t apologize for the inconvenience, compensate our losses.”
India’s Semiconductor Manufacturing Ambitions
India aims to become a top semiconductor manufacturer within the next five to six years, according to Minister Ashwini Vaishnaw. The government has provided fiscal support to four semiconductor projects under its subsidy scheme, with several more in the pipeline. The minister emphasized the importance of manufacturing for India’s economic growth and the need to shift from import substitution to export-led growth.
Key Points:
India’s Semiconductor Ambitions: – India aims to become one of the top seven semiconductor manufacturers in the world by 2029 or 2030.
Semiconductor Subsidy Scheme: – India has extended fiscal support to four semiconductor projects so far. – Projects in the pipeline include Tower Semiconductor and Foxconn-HCL Tech.
Made in India Chips: – Global brands will soon use “made in India” chips in their products.
Manufacturing for Economic Growth: – Manufacturing is a pillar of India’s “Viksit Bharat” vision. – The Production Linked Incentive scheme aims to create high-quality jobs for young Indians.
Shift from Import Substitution to Export-Led Growth: – India needs to move away from import substitution and focus on export-led growth. – The entire world is India’s market. – India aims to become a trusted and reliable manufacturer that respects IPR and invests in technology upgradation.
Banks’ Enthusiasm Surpasses RBI’s Expectations in VRR Auction, Bidding ₹1.95 Lakh Crore
Banks actively participated in the Reserve Bank of India’s variable rate repo (VRR) auction on Friday, seeking liquidity amid a tight banking system. The central bank received bids for ₹1,95,115 crore, exceeding the notified amount of ₹1.25-lakh crore. The RBI accepted bids worth ₹1,25,009 crore at a weighted average rate (WAR) of 6.68%. This auction was conducted to address the liquidity deficit created by the maturity of previous VRR auctions.
Key Points:
1. High Demand for Liquidity: – Banks bid enthusiastically for liquidity at the VRR auction, with bids exceeding the notified amount.
2. Liquidity Deficit: – The auction was conducted to address the liquidity deficit in the banking system, as evidenced by the high demand for funds.
3. Weighted Average Rate: – The RBI accepted bids at a WAR of 6.68%, indicating a slight increase in borrowing costs for banks.
4. Maturity of Previous Auctions: – The auction was held to replace liquidity infused through previous VRR auctions that matured on Friday.
5. Surplus Liquidity: – Despite the liquidity deficit, banks are also parking excess funds in the RBI’s standing deposit facility.
UCBs Warned by RBI Against Excessive Corporate Exposure
The Reserve Bank of India (RBI) has cautioned Urban Co-operative Banks (UCBs) against excessive corporate exposures and emphasized the importance of risk management, compliance, and internal audit. The RBI has also highlighted the need for zero tolerance for poor corporate governance practices and the systematic addressing of risk limit breaches.
Key Points:
1. Avoidance of Excessive Corporate Exposures: – UCBs should avoid acquiring large corporate exposures beyond their capacity. – Concentration risk in advances or funding sources can have detrimental consequences.
2. Monitoring of Existing Large Exposures: – Existing large exposures need to be closely monitored.
3. Zero Tolerance for Poor Corporate Governance: – Loans to directors or their relatives are not tolerated.
4. Meticulous Monitoring of Risk Limits: – Frequent breaches in risk limits pose significant dangers to financial stability. – Breaches should be addressed systematically, investigated, and corrected.
5. Adaptation to Changing Environment: – UCBs must adapt to cyber threats, regulatory changes, economic uncertainties, and technological advancements.
6. Importance of Risk Management, Compliance, and Internal Audit: – These functions work together to identify, assess, and mitigate risks.
7. RBI Onsite Examinations: – Examinations provide insights into the overall health of banks. – Internal assurance functions and external audits may miss issues identified by RBI.
8. Compliance with Risk Assessment Report (RAR) and Risk Mitigation Plans (RMP): – RAR observations and RMPs should be addressed promptly. – Pending compliance paragraphs reflect a lack of attention and may invite supervisory action.
IRDAI Mandates Insurers to Establish Board-Approved Commission Policies for Agents
The Insurance Regulatory and Development Authority of India (IRDA) has mandated all insurers to establish board-approved policies on commission structures for insurance agents. These policies aim to ensure fairness, transparency, and reasonable compensation for intermediaries while promoting good distribution practices and protecting policyholder interests.
Key Points:
Objectives and Principles: – Commission structures should promote fair competition, align incentives with customer needs, and encourage efficient distribution.
Fairness and Reasonableness: – Commissions should be commensurate with the efforts required to acquire and sustain business, ensuring fair compensation for intermediaries regardless of size or bargaining power.
Good Distribution Practices: – Commission structures should encourage intermediaries to enhance customer satisfaction, build stronger relationships, increase market share, and comply with regulatory requirements.
Regular Review: – Policies should include a review process to assess effectiveness, efficiency, and impact on premium rates, benefit payouts, and penetration.
Governance and Oversight: – Insurers should establish governance and oversight mechanisms to ensure intermediaries adhere to high standards of behavior and ethical practices.
Protection of Policyholders: – Commission structures should prioritize policyholder interests and promote fair and transparent practices that encourage insurance penetration.
IFC Provides $500 Million to HDFC Bank for Microloan Expansion
IFC has provided $500 million in financing to HDFC Bank to expand microloans to underserved women borrowers in India. This funding will support lending for income generation, promoting financial inclusion and socio-economic growth.
Key Points:
Financing: – IFC has extended $500 million in financing to HDFC Bank.
Target Group: – The financing will support microloans to underserved women borrowers in semi-urban and rural areas.
Purpose: – The funding will be used for income generation purposes, fostering financial inclusion and socio-economic growth.
On-Lending: – HDFC Bank will use IFC’s financing for on-lending as microloans to Self-Help Groups (SHGs) and Joint Liability Groups (JLGs).
Sustainable Livelihoods Initiative (SLI): – SLI is HDFC Bank’s business line responsible for microfinance lending programs exclusively for women borrowers.
Growth of Microcredit and Microlending: – IFC’s loan will enable HDFC Bank to grow its microcredit and microlending to women, particularly allowing SHG and JLG borrowers to transition to individual lending schemes.
Bandhan Bank’s Q4 Net Profit Plummets by 93.24% to ₹54.62 Crore
Bandhan Bank reported a significant 93.24% decline in its net profit to ₹54.62 crore for Q4 FY23 due to a technical write-off of ₹3,852 crore of bad loans, primarily in the microfinance segment. Despite the write-off, the bank’s deposit and loan books grew, and its asset quality improved. The bank is also undergoing a management transition with the retirement of MD & CEO Chandra Shekhar Ghosh.
Key Points
Net Profit Decline – Net profit fell by 93.24% to ₹54.62 crore in Q4 FY23.
Technical Write-Off – The bank wrote off ₹3,852 crore of bad loans, mostly microfinance, as a “prudent and conservative” measure.
Provisions – Total provisions doubled to ₹1,774.32 crore in Q4 FY23.
Asset Quality Improvement – Non-performing assets (NPA) decreased by 9.69% to ₹4,784.88 crore. – Gross NPA ratio fell to 3.84% from 4.87% in Q4 FY23.
Business Growth – Deposit book grew by 25% year-on-year. – Total loan book grew by 14%. – Net interest income (NII) increased by 16% to ₹2,866 crore.
Management Transition – MD & CEO Chandra Shekhar Ghosh will retire on July 9. – A search committee has been formed to appoint a successor.
NCGTC Audit – An ongoing audit by the National Credit Guarantee Trustee Company (NCGTC) is expected to be completed shortly. – Ghosh expressed confidence in a “positive result” from the audit.
DGFT Embarks on Global Benchmarking Study to Enhance Trade Finance Practices
The Directorate General of Foreign Trade (DGFT) is exploring global best practices and regulatory reforms to enhance India’s trade finance ecosystem. The revamped eBRC system has facilitated the self-generation of over 2.5 lakh bank realization certificates, improving ease of business. A trade finance study is underway to identify trends, technologies, and policy reforms to align with future needs.
Key Points:
1. Trade Finance Study: – DGFT is conducting a study to identify global best practices and propose comprehensive solutions for trade finance in India.
2. eBRC System: – The revamped eBRC system has enhanced ease of doing business by enabling self-generation of bank realization certificates.
3. Data Capture for Export Credit: – A framework is needed to capture data on export credit flows to provide policymakers with adequate information.
4. Niti Aayog’s Vision: – Niti Aayog aims to promote inclusive development and reach every corner of the country.
5. India’s International Trade Growth: – India’s international trade has grown significantly since 1991, and the gap with China is narrowing.
6. Digitalization of Trade Finance: – Trade finance processes are expected to become increasingly digitalized to streamline documentation, reduce fraud, and enhance efficiency.
7. Growth of Global Trade Finance Market: – The global trade finance market is projected to reach USD 90 billion in the next five years.
8. India’s Trade Finance Market: – India’s trade finance market is still in its early stages, with a current value of approximately USD 3 billion.
9. Prominence of Rupee and UPI: – The Indian rupee is gaining prominence in international balance sheets, and UPI is playing a significant role in trade finance.
RBI Reduces Government Treasury Bill Sales
The Reserve Bank of India (RBI) has announced measures to ease liquidity conditions in the banking system, which have tightened due to muted government spending and faster credit growth. The RBI has reduced the quantum of government treasury bill (T-bill) sales and selected new bonds for the Centre’s buyback operations to free up cash for banks.
Key Points:
Liquidity Conditions: – Liquidity conditions in the banking system have tightened due to muted government spending and faster credit growth. – Average daily deficit liquidity in May has been around Rs 1.2 lakh crore.
Bank Requests: – Banks, particularly state-owned lenders, requested the RBI to select government securities for buyback auctions at prices acceptable to both lenders and the central bank. – Banks also proposed reducing the quantum of T-bill borrowing.
RBI Measures: – The RBI has reduced T-bill borrowing by Rs 60,000 crore. – The RBI has announced a new list of securities for government bond buyback auctions.
Bond Buybacks: – Bond buybacks inject liquidity into the banking system. – The RBI and nationalized banks have been discussing the pricing of bonds offered for buyback. – The government reduces debt obligations through bond buybacks, providing relief to banks.
T-Bill Reduction: – The RBI has reduced the weekly auction of T-bills from Rs 1.32 lakh crore to Rs 72,000 crore. – This frees up cash for banks that would have been deployed in T-bills.
New Bond Selection: – The RBI has selected bonds closer to par for the next buyback operation. – This makes it easier for banks to sell bonds to the government at acceptable prices.
Bankruptcy Resolutions Prolonged, Creditors’ Losses Surge to 73% in FY24
The haircuts taken by creditors in bankruptcy resolutions in India have increased to 73% in FY24 from 64% in FY23, according to a report by Icra. This increase is attributed to a higher number of resolutions and longer resolution times. Despite the increase in haircuts, the average recoveries for lenders are expected to remain in the 30-35% range in FY25.
Key Points:
Haircuts Increase to 73% – Creditors are taking higher haircuts in bankruptcy resolutions, with the average haircut increasing to 73% in FY24 from 64% in FY23.
Resolution Plans Approved – A total of 269 resolution plans were approved by the National Company Law Tribunals (NCLTs) in FY24, up from 189 in FY23.
New Admissions Decline – New admissions to the bankruptcy process declined to 987 in FY24 from 1,263 in FY23, due to a higher base in the previous fiscal.
Average Resolution Time Increases – The average time taken for a resolution has increased to 843 days in FY24, up from 831 days in FY23, due to litigations.
Liquidation Orders – The NCLT passed liquidation orders for 446 corporate debtors in FY24, up from 400 in FY23.
Liquidation Rate Remains High – The number of CIRPs that have resulted in liquidation continues to be high, at 45% of the closed CIRPs since the inception of the Insolvency and Bankruptcy Code (IBC).
Low Recovery Rate in Liquidations – Creditors realized only 4% of their total admitted claims in liquidations completed by March 2024.
Rationalizing MSME Schemes for Enhanced Outreach: DFS Secretary’s Perspective
The government of India recognizes the need to review and rationalize its over 300 schemes for micro, small, and medium enterprises (MSMEs) to enhance their reach and effectiveness. The schemes face challenges in language accessibility, gaps in documentation, and a lack of alignment with the specific financing needs of different MSME sectors. The government emphasizes the importance of addressing these issues to unlock the untapped potential of MSMEs, which contribute significantly to the country’s GDP, manufacturing, and exports.
Key Points:
1. Need for Scheme Review and Rationalization: – Over 300 MSME schemes run by the central government. – Need to review and rationalize schemes to increase their reach.
2. Language Accessibility and Documentation Gaps: – Schemes often written in complex language, making them difficult to understand. – Gaps in translation and documentation hinder comprehension.
3. Sector-Wise Financing Approach: – Different MSME sectors have varying financing needs. – Need for a sector-wise approach to address these needs.
4. Lender Capability Gaps: – Lenders may lack the necessary capabilities to meet MSME financing requirements. – Need to address these gaps to improve access to credit.
5. MSME Financing Committee Report: – A committee examining MSME financing issues will soon submit its report. – Report expected to provide recommendations for addressing financing gaps.
6. Importance of MSMEs: – MSMEs contribute 30% of GDP, 41% of manufacturing, and 46% of exports. – Critical for achieving India’s economic growth targets.
7. Role of Technology: – Account aggregator framework can facilitate faster and easier credit access. – Technology can enhance credit discipline and foster growth.
8. Increasing Financing Needs: – MSMEs require significant financing to support their growth. – Banks and NBFCs play a crucial role in bridging the credit gap.
RBI Approves Pradeep Natarajan’s Appointment as Whole-Time Director of IDFC FIRST Bank
The Reserve Bank of India (RBI) has approved the appointment of Pradeep Natarajan as Whole Time Director on the Board of IDFC FIRST Bank for a three-year term. The appointment is subject to shareholder approval.
Key Points:
- Appointment of Pradeep Natarajan:
- Approved by RBI as Whole Time Director on the Board of IDFC FIRST Bank.
- Designated as Executive Director for a three-year period.
- Bank’s Performance:
- Net profit of Rs 724 crore for Q4 FY24.
- Gross NPAs reduced to 1.88% from 2.51% in Q4 FY23.
- Net NPAs reduced to 0.60% from 0.86% in Q4 FY23.
IFC Invests USD 500 Million in HDFC Bank to Support Women Borrowers
HDFC Bank has secured USD 500 million from IFC to provide microloans to underserved women borrowers. The funds will be used to support income generation, financial inclusion, and socio-economic growth. HDFC Bank will extend the loans to self-help groups and joint liability groups of women enrolled in its Sustainable Livelihoods Initiative.
Key Points:
- Funding: HDFC Bank raised USD 500 million from IFC.
- Purpose: To provide microloans to underserved women borrowers.
- Target Group: Self-help groups and joint liability groups of women enrolled in HDFC Bank’s Sustainable Livelihoods Initiative.
- Impact: Income generation, financial inclusion, and socio-economic growth.
- Significance: Banks’ extensive reach and lower funding costs can be leveraged to extend microloans to women.
- IFC’s Role: IFC has made 650 microfinance investments totaling USD 6.2 billion over the past 20 years.
RBI Raises Concerns over Debt Restructuring Companies’ Operations
The Reserve Bank of India (RBI) has raised concerns about the functioning of asset reconstruction companies (ARCs) during interactions with debt recast firms. The RBI emphasized the importance of fostering a culture of integrity and ethical conduct, adopting a regulation-plus approach, and strengthening assurance functions within ARCs.
Key Points:
1. Supervisory Concerns: – RBI has identified supervisory concerns in the functioning of ARCs.
2. Regulation-Plus Approach: – ARCs are urged to comply with both the letter and spirit of regulations.
3. Assurance Functions: – Boards of ARCs should prioritize risk management, compliance, and internal audit to mitigate risks and ensure compliance.
4. Governance: – Sound governance is crucial for ARCs to build a robust business model.
5. Responsible Conduct: – ARCs should follow transparent and non-discriminatory practices in the recovery process.
6. Conference for ARCs: – A conference was held in Mumbai for Directors and MD/CEOs of ARCs to discuss governance and supervisory expectations.
7. Supervisory Engagement: – RBI has also held a similar conference for Scheduled Commercial Banks and Urban Cooperative Banks.
India Projected to Become Third Largest Economy by 2026-27: Arvind Panagariya
India has the potential to become the third largest economy by 2026-27, according to Arvind Panagariya, chairperson of the 16th Finance Commission. However, to achieve this, India needs to shift its workforce from agriculture to industry and services, reform labor laws, and create larger habitations for increased productivity.
Key Points:
Economic Growth: – India has grown at an average of 8% in real dollars over the past 20 years. – India could become the third largest economy by 2026-27 or 2027-28.
Labor Market: – 45% of India’s workforce is employed in agriculture, which produces only 15% of GDP. – Average labor productivity in agriculture is one-third of the average productivity in the economy. – India needs to move its workforce out of agriculture into industry and services. – Labor laws need to be reformed to facilitate this movement.
Land Holdings: – About half of India’s land holdings are less than half a hectare. – Land per worker in agriculture is too little for high average labor productivity.
Rural Population: – 76% of India’s rural population lives in habitations of fewer than 5,000 people. – Fewer industries are likely to establish in these areas. – India needs to urbanize rural areas or encourage migration to urban areas for increased productivity.
UN Lowers India’s GDP Growth Projection by 0.7% to 6.9%
The United Nations (UN) has revised India’s economic growth forecast for 2024 upward to 6.9%, driven by robust public investment and resilient private consumption. The forecast for 2025 remains unchanged at 6.6%. The UN also raised the global growth forecast for 2024 to 2.7% and 2025 to 2.8%. However, the near-term economic outlook remains cautiously optimistic due to economic vulnerabilities, including high interest rates, geopolitical tensions, and climate risks.
Key Points:
Growth Forecast: – India’s growth forecast for 2024 revised upward to 6.9% – Growth forecast for 2025 remains unchanged at 6.6%
Global Growth Forecast: – Global growth forecast for 2024 revised upward to 2.7% – Global growth forecast for 2025 revised upward to 2.8%
Economic Outlook: – Near-term economic outlook cautiously optimistic – Economic vulnerabilities include high interest rates, geopolitical tensions, and climate risks
Fiscal Deficit: – Government committed to gradually reducing fiscal deficit – Target to reduce fiscal deficit to 5.1% in FY25
Inflation: – Inflation in India projected to decelerate to 4.5% in 2024 – Inflation expected to stay within the central bank’s target range
Labour Markets: – Employment prospects remain weak in several developing countries – Labour market indicators in India have improved
Critical Minerals: – Developing economies hold significant share of critical mineral deposits – Need for innovation and policy reforms to harness potential of critical minerals
Other Revisions: – IMF projects India’s growth at 6.8% in FY25 – ADB raises India’s FY25 growth forecast to 7%
Headwinds: – Subdued external demand to weigh on merchandise export growth
SEBI May Allow Mutual Funds to Invest in India-Focused ETFs
SEBI is considering allowing domestic mutual funds to invest in overseas exchange-traded funds (ETFs) with an Indian exposure, up to a limit of 20%. This move aims to address the ambiguity surrounding such investments and facilitate access to global benchmarks.
Key Points:
1. Proposal for Overseas ETF Investments: – Domestic mutual funds may be permitted to invest in overseas ETFs with Indian exposure.
2. Fund-of-Fund (FoF) Route: – Investments will be made through the FoF route, which currently invests solely in overseas securities.
3. Indian Exposure Limit: – The Indian exposure in these funds must be capped at 20%.
4. Benchmark Tracking: – FoFs will be able to track popular benchmarks such as the Emerging Market (EM) index and the JP Morgan EM Opportunities Fund.
5. Rebalancing and Liquidation: – If India’s weighting in a global ETF exceeds 20%, Indian MFs must wait six months for rebalancing. If exposure remains high, they must liquidate their investment within six months.
6. Restrictions on Non-Compliance: – Funds that fail to liquidate within the six-month period will face restrictions on fresh subscriptions, new scheme launches, and exit loads.
7. Industry Limit for Overseas Investments: – The industry has exhausted the current $7 billion limit for overseas investments.
8. Conditions for Investment: – No advisory agreement between Indian MFs and underlying overseas funds. – Overseas mutual funds must have an independent investment manager.
India’s Aspiration: Establishing Global Financial Giants Like JP Morgan and Citibank
Niti Aayog CEO B V R Subrahmanyam emphasizes the need for reforms in India’s financial services, external sector, and education and skilling sectors. He calls for the creation of large, globally competitive banks and the opening up of the external sector to foster economic growth. Subrahmanyam also highlights the importance of addressing challenges in education and skilling to create a skilled workforce and promote job creation.
Key Points:
Financial Services Reforms: – India needs “own JP Morgans and Citibanks” – giant banks of international standards. – Reforms required to create larger banks with global reach to support Indian firms worldwide.
External Sector Reforms: – “Throw open the doors and the boundaries” of India’s external sector. – Reforms similar to those of 1991 and 1994 unleashed India’s industrial transformation. – Competition and de-licensing foster growth, even if some companies may vanish.
Education and Skilling Reforms: – Tackling difficult problems in education and skilling is crucial for overall progress. – India needs to create more jobs in labor-intensive sectors. – Reforms required in the application of rules and regulations to promote industrial growth.
SEBI Imposes Rs. 8 Lakh Penalty on Reliance Home Finance for Disclosure Violations
The Securities and Exchange Board of India (Sebi) has imposed a penalty of Rs 8 lakh on Reliance Home Finance for failing to disclose information about a National Company Law Tribunal (NCLT) order and other events to stock exchanges within the stipulated time frame.
Key Points:
- NCLT Order Disclosure: Reliance Home Finance failed to disclose an NCLT order dated June 21, 2021, which directed the company to pay interest and redeem debentures worth over Rs 2,850 crore.
- Delayed Disclosures: The company also made delayed disclosures regarding its debt resolution plan, including the invitation of Expression of Interest bid and the approval of the resolution plan.
- Sebi Penalty: Sebi imposed a penalty of Rs 8 lakh for violating the Listing Obligations and Disclosure Requirements (LODR) Regulations, 2015.
- Timeframe for Disclosures: Companies are required to make disclosures within 24 hours of the occurrence of an event under the LODR Regulations.
- Responsibility of the Company: Sebi emphasized that companies cannot rely on disclosures made in annual reports or media outlets to fulfill their disclosure obligations.
SEBI Proposes Easing Mutual Fund Investments in International Funds
Sebi proposes to allow Indian mutual funds to invest in overseas funds that invest a portion of their assets in Indian securities, subject to a 20% limit on exposure to Indian securities by such overseas funds. This move aims to enhance the cost-effectiveness and transparency of Indian fund of funds (FoFs) while providing investors with access to overseas securities.
Key Points:
- Overseas Fund Investments:
- Indian mutual funds may invest in overseas funds that have exposure to Indian securities, provided the exposure does not exceed 20% of the overseas fund’s net assets.
- FoF Label and Cost-Effectiveness:
- This move ensures that Indian FoFs remain true to their label and offer cost-effective investment options for investors.
- Attractive Investment Opportunity:
- India’s strong economic growth prospects make its securities an attractive investment opportunity for foreign funds.
- Diversification and Overseas FoFs:
- Indian mutual funds often invest in overseas securities to diversify their portfolios and participate in overseas FoFs schemes.
- Ambiguity and Deterrence:
- Current ambiguity regarding investments in overseas funds that invest in Indian securities has deterred mutual funds from investing in such funds.
- Safeguards and Transparency:
- Sebi proposes safeguards to ensure that Indian FoFs remain true to their label and that investors have access to transparent information about overseas fund portfolios.
- Public Consultation:
- Sebi has sought public comments on the proposal until June 7, 2024.
Reliance Capital Requests 10-Day Extension for Asset Transfer to Hinduja Group
Reliance Capital’s administrator has requested a 10-day extension from the Reserve Bank of India (RBI) to transfer businesses to Hinduja Group’s Aasia Enterprises. The original deadline for the transfer expired on Friday, and the extension would align with the NCLT’s deadline for the Hinduja Group to implement its resolution plan.
Key Points:
- Deadline Extension Request: RCAP administrator seeks 10-day extension till May 27 from RBI.
- Original Deadline: RBI approval for the transfer was valid for 6 months, expiring on Friday.
- NCLT Deadline: Hinduja Group’s resolution plan implementation deadline is also May 27.
- Resolution Plan Approval: NCLT approved Hinduja Group’s Rs 9,650-crore resolution plan on February 27.
- RBI Supersedure: RBI superseded Reliance Capital’s board in November 2021 due to governance issues and payment defaults.
- Debt Burden: Reliance Capital had a debt of over Rs 40,000 crore.
- Initial Bidders: Four applicants initially bid with resolution plans, but all were rejected.
- Challenge Mechanism: IIHL and Torrent Investments participated in a challenge mechanism.
