RIL becomes first Indian Company to be valued at USD 150 Billion

In rupee term, Mumbai based Indian Multinational conglomerate company, Reliance Industries Limited (RIL) on 19^th June 2020 was valued at USD 150 billion following a rise in the share market, this also made RIL the first-ever Indian company to achieve a market value of above Rs 11 lakh crore. The positive growth in the shares of the company was registered after it announced that the company has become net debt-free well ahead of its target of March 2021.

• As of 31^st March 2020, Reliance has a total debt of Rs 161,035 crore. 
• Despite a pandemic, airlines & other international travel being suspended and a lockdown in most International business hubs across the world, in a period of 58 days, Reliance Industries was able to raise more than Rs 168,818 crore.

Breakdown of which as follows:

• The existing shareholders of the company were offered shares worth Rs 53,124.20 crore.
• The remaining Rs 115,693.95 crore was raised through 11 deals of stake sale in RIL’s subsidiary Jiop Platforms.
• Stake’s of approx 24.70% in Jio Platforms are now owned by the following companies: United States company Facebook bought 9.99% stake at Rs 43,574 crore, this deal to date is the largest Foreign Direct Investment (FDI) in any sector in India. 
• Other companies are Abu Dhabi based investment companies- Mubadala and Abu Dhabi Investment Authority, United States companies- General Atlantic, Silver Lake, Vista Equity Partners, KKR & CO. 
• Inc., TPG Capital, and Catterton Partners. The most recent of the stake sale of 2.32% was on the 18^th of June 2020 to the Public Investment Fund of Saudi Arabia at Rs 11,367 crore.

COVID-19: Fifth Recession of India

Since Independence in 1947, India has faced four recessions. According to Reserve Bank of India (RBI), the recessions occurred in 1958, 1966, 1973 and 1980.

Highlights

Recession is defined as the fall in economic activities of the country along with decline in sales, income and employment. India has so far seen four such negative GDP growth. In 1958, the GDP growth was -1.2%, in 1966 it was -3.6%, in 1973 it was -0.32% and in 1980 the GDP growth was -5.2%.

1958: Balance of Payment Crisis

The Recession that India faced in 1957 was due to Balance of Payment problem. It was mainly due to weak monsoon that affected the agricultural production badly. India then imported 60 lakh tonnes of food grains. This widened trade deficit of the country that in turn reduced foreign reserved to half.

1966: Drought

India fought wars with China in 1962 and with Pakistan in 1965. The wars affected the economy badly and eventually led to drought. The food grain production fell by 20% in 1966 due to droughts. India relied on its foreign imports to rescue its starving population.

1973: Energy Crisis

In 1973, the world faced its first energy crisis. The OAPEC (Organisation of Arab Petroleum Exporting Countries) proclaimed an oil embargo. Embargo is an official ban on trade with a particular country. The organization aimed at countries that supported Israel. This led to increase in oil prices by about 400%. India’s oil imports increased from 414 million USD in 1972 to 900 million USD in 1973.

1980: Oil Shock

The world witnessed an oil shock for the second time in 1980. This was due to decrease in oil production due to Iranian revolution. It further increased due to the Iran-Iraq war that followed the revolution. This created Balance of Payment crisis for India.

COVID-19 crisis

The current Economic crisis faced by India is the worst of all the previous recessions. The international organizations expect India’s growth to contract by 5% to 6.8%

Police Use of Facial Recognition banned by Amazon

On June 11, 2020, the E-Commerce giant Amazon banned the use of its software “Rekognition” by the police. The software used to quickly compare a picture with the police data bases that holds hundreds of 1000s of photos.

Why the ban?

• The facial recognition technology has been criticized over some time. 
• This is mainly because, most of the algorithms of the Rekognition software are more likely to wrongly identify the faces of black people than those of white people.

Recognition

• The Amazon Rekognition software was launched in 2016. 
• It was sold and used by a number of US government agencies.

What is the controversy?

• The Gender Identification technology of Rekognition software identifies faces as only male and female. 
• There is no category for nonbinary gender. 
• According to MIT researchers, the errors in the face recognition system is more. 
• Though it is reducing year after year, the performance of the software on female faces were less accurate than that of male faces.

Enhanced Import Duty on Bamboo Sticks

The Government of India had recently announced that the import duty on bamboo sticks is to be increased from 10% to 25%. This is to have great impact on Agarbatti industry creating at least 1 lakh new jobs according to KVIC (Khadi and Village Industries Commission).

Background

• The decision of enhancing the import duty was taken by the Ministry of Finance to discourage heavy import and help local industries grow. 
• This has great importance as the import of bamboo sticks from Vietnam and China caused huge employment losses in India.

Steps taken

• In 2019, the Ministry of Commerce placed import of raw Agarbatti under “Restricted” category. 
• This restriction revived 100s of Agarbatti units in the states of Madhya Pradesh, Maharashtra, Gujarat and Uttar Pradesh. 
• The restriction also resulted in the increase of import of bamboo sticks from Rs 210 crores in 2018-19 to Rs 370 crores in 2019-20.

Bamboo

• India produces 14.6 million tonnes of bamboo every year. 
• Around 70,000 farmers are engaged in bamboo plantation. 
• Thus, enhancing import duty will help to boost bamboo production and also help industries that are dependent on bamboo. 
• The KVIC will also launch bamboo plantation drive to make India self-sufficient and meet growing demands of bamboo in 3 to 4 years.

RBI releases Framework for sale of Loan Exposure and Securitization of Standard Assets

The Reserve Bank of India recently released draft framework for “Sale of Loan Exposures” and “Securitization of Standard Assets”.

Highlights

• The guidelines issued are applicable to Scheduled Commercial Banks. 
• This includes All India Financial Institutions such as EXIM Bank, NABARD, Non-Banking Financial Companies. 
• The guidelines have also included recommendations of Committee on Development of Housing Finance Securitization Market in India that was chaired by Dr Harsh Vardhan. 
• Also, the guidelines included the recommendations made by the Task Force set up on the Development of Secondary Market for Corporate Loans. 
• Both the Committee and the Task Force were set up by the Reserve Bank of India.

Key Features of the Guidelines

• The Guidelines has proposed Two Capital Measurement approach. This includes Securitisation External Ratings based approach and Securitisation Standardised Approach.
• Simple Transparent Comparable Securitisation has been prescribed to define preferential capital treatment.
• The new guidelines allowed Securitisation of exposures that are purchased from other lenders
• The Stressed Assets under the new guidelines shall be sold only through novation and assignment.

First virtual Trade Fair of India

The Export Promotion Council for Handicrafts hosted a four day virtual fair for around 200 Indian Exporters. The exporters were mainly from the industries of fashion jewelry and accessories

Highlights

• The four-day fair that was conducted online focused on markets such as Europe and United States. 
• The fair generated business opportunities of Rs 153 crores. 
• Every seller was provided with a virtual stall.

Working

• As an overseas buyer clicks on a stall, he will be directed to the photographs and videos of the product of the seller. 
• If the buyer is interested, he will be provided with the links of immediate interaction through Zoom or Skype. 
• If he places the order, he will be delivered through courier services.

Benefits

• Usually the sellers had to spend around Rs 1.5 lakhs to Rs 2 lakhs to install a physical stall. 
• This time, their expenses was just Rs 10,000 to showcase their products in a virtual stall. 
• This helped several small exporters to participate in the virtual fair.

Future Plans

• The Export Promotion Council for Handicrafts will now adopt the method for other goods and services. 
• Also, it is to scale the virtual export fair to cover products in fashion, lifestyle, textiles, home, furniture. 
• Around 3,000 to 50,000 buyers are expected to participate in such future fairs.

Finance Minister launched instant Aadhaar based E-KYC

On May 27, 2020, the Union Finance Minister Nirmala Sitaraman launched instant Aadhaar based E-KYC.

Highlights

• The facility will be available for PAN applicants that possess valid Aadhaar number. 
• They should also have a mobile number registered with Aadhaar. 
• The process of allotting PAN is paperless and is also free of cost.

Union Budget

• The instant Aadhaar based E-KYC was introduced by the Finance Minister in the Union Budget 2020-21. 
• She announced that a system will be brought in that will instantly provide PAN without the requirement of filling up of application form.

About PAN

• PAN is Permanent Account Number. 
• It is a 10-digit alpha numeric number that is issued by Income Tax Department. 
• It enables income tax department to link the transaction of the person with the department. 
• The transactions include TDS, TCS, tax payments, income returns, correspondence, specified transactions, etc.
• It is now mandatory to provide PAN on return of income. 
• Also, it was made mandatory to provide PAN for all challan payments since 2005.

22nd Financial Stability and Development Council meeting chaired by Finance Minister

On May 28, 2020, the Union Finance Minister Nirmala Sitaraman chaired Financial Stability and Development Council meet.

Highlights

• The meeting reviewed current domestic and global economic situation, financial vulnerabilities issues, liquidity of Micro financial institutions, Non-Banking Financial corporations, regulatory responses, etc. 
• The council noted that COVID-19 posed a great threat to the global financial system and the timing of recovery is uncertain.

About the Council

• The financial stability and development council is an apex body constituted by GoI. 
• The idea was mooted in 2008 by the Raghuram Rajan Committee. 
• The Council was set up in 2010 by the then Finance Minister Pranab Mukerjee.
• The council composes of Governor of RBI, chief economic advisor, secretaries and chairman of SEBI (Securities and Exchange Board of India), IRDA (Insurance Regulatory and Development Authority), PFRDA (Pension Fund Regulatory and Development Authority), IBBI (Insolvency and Bankruptcy Board of India). The Finance Minister chairs the meeting.

Functions of the council

The Council deals with issues such as financial sector development, financial stability, inter-regulatory coordination, financial inclusion, financial literacy.

Apart from these, the council also coordinates with India’s International interfaces such as Financial Action Task Force. The Financial Minister has powers to change the functions of the council from time to time. Currently, the council is working to deal with financial issues created by COVID-19.

Status Paper on Government Debt released

On May 22, 2020, the Ministry of Finance released Status Paper on Government Debt 2018-19. According to the report, the overall debt of centres and states declined by 68.7% in March 2018 to 68.6% in 2019.

Highlights

• The Status Paper on Government Debt is being produced by the Ministry of Finance since 2010. 
• Current debt of India stands at Rs 1.3 crore crore.

Key Findings of paper

• The debt of central government dropped marginally from 45.8% in 2017-18 to 45.7% in 2019, The external debt was 2.7% of GDP. 
• The Average Interest Cost of the centre remained unchanged in the year 2018 to 2019. 
• Around 94% of centre’s liabilities were of domestic debts.
• The tenure of the longest security was 37 years.

Government Debt

• The Government Debts are classified as internal debt and external debt. 
• The Internal Debts include non-marketable and marketable debt. 
• External debt refers to debt borrowed from all the sources outside the country.
• Government Liabilities are classified into liabilities in public account and debt contracted against Consolidated Funds of India.

Monetary Policy Committee meets: Repo rate reduces to 4%

On May 22, 2020, the policy committee met in an emergency meeting to review the current economic outlook and impacts of COVID-19.

Highlights

• The RBI has reduced the repo rate from 4.4% to 4%. 
• It has reduced the reverse repo rate to 3.35%. 
• The RBI also announced that the reduction in policy rate is to be provided as long as the economic growth in the country is to be mitigated.

Current Economic Scenario

• The global trade is declining and the world is heading towards recession. 
• The Indian Economic growth is also slowing down to a great extent in spite of GoI trying to infuse liquidity in to the market. 
• The top six industrialized states that account to 60% of industrial production in the country now falls in red zone. 
• This will affect India’s growth further as economic activities in red zones are not being operationalized to its fullest.

Challenges

• The rural and urban demand has been falling down. 
• The manufacturing activity in the country has fallen down by 21% post COVID-19. 
• Also, the output from core industries has fell by 6.5%.

Measures of RBI

RBI has announced 4 major economic measures to boost the economy. This includes measures to improve functioning of markets, measures to ease financial stress, measures to support exports and imports and measures to ease financial constraints faced by the state governments.

The measures are as follows

• RBI will provide another 90-day extension to offer loan facilities.
• Rs 15,000 crore line of credit allocated to EXIM banks
• RBI has increased export credit period from 12 months to 15 months.
• The term loan moratium has been extended till August 31.
• The group exposure limit of the banks has increased from 25% to 30%.
• The rules of Consolidated Sinking Funds have been relaxed. This will enable states to meet 45% of redemption of their market borrowing.

GoI amends General Financial Rules

On May 21, 2020, the Government of India amended General Financial Rules to make sure the goods and services that are of value less than Rs 200 crores are procured from domestic firms.

Highlights

• The GFR 2017 (General Financial Rules) have been amended by the Central Government. 
• Under the new amendment, global tenders henceforth will be disallowed in government procurement that are of value Rs 200 crores. 
• This was announced in Atma Nirbhar Bharat Abhiyan.

General Financial Rules

• The GFR are set of rules that deal with matters that involve public finances. 
• They were first issued in 1947 bringing together all the existing orders. 
• They are instructions that pertain to financial matters.
• The GFRs were modified in 1963 and 2005.

GFR 2017

• The GFR 2017 was revised in 2017 to make sure an organization manages its business without compromising its flexibility.

Global Tender

• Tendering is a process where bids for a project are accepted. Now, global tendering is tenders from foreign countries or through foreign investment. 
• “Disallowing Global Tenders” is stopping foreign investments to a particular threshold to boost indigenous companies.