The First Forum is an initiative which focuses on covering the latest happenings going around in the world in a brief format. This is in lieu with the importance of catching up with these events in this fast changing world.
In this Twenty First Edition of The First Forum we would be covering the following:
1. Business
2. Economics
3. Finance

(By Gunika Vij, Somya Yadav and Manraj Uppal)

Business

Making Inactive Accounts Functional
In a bid to make all inoperative accounts functional, the finance ministry has tweeked the Prevention of Money Laundering Norms (PML) in order to enable the COVID-19 relief packets to reach the beneficiaries. The Department of Financial Services in its communication to the banks has conveyed that in respect of the Pradhan Mantri Jan Dhan Yojana accounts, basic savings account and small accounts, those which have become inoperative due to multiple reasons. Read MoreThe aim behind such a step by the government has been to avoid any and all challenges being faced by the poorest of the poor.

Demand Drop of Coal India
The fire of demand drop has reached Coal India too, the country’s largest coal producer, which has observed a 10% fall in demand from the power sector. This has led to an increase in inventories both at power plants and coal mines. With industrial and commercial consumers constituting 50% of total power demand the generation of power has observed serious downfall. Read MorePost lockdown the demand for power has dropped by 25%. The brunt of this fall in power demand will have to be borne by the coal companies single handedly. This will have a significant impact on the GDP of the country which is estimated to grow at 2% post the lockdown.

Stocks and Consumer Goods
Stocks dropped over 2% as was observed on Friday. The rupee too has depreciated against the dollar which refers to the weak sentiment in the domestic equities held by investors. Even though the global food prices have dropped significantly the same has not been the case with the domestic prices. Read MoreThe price of flour, pulses and edible oils have gone up by Rs. 10-12 per kg following the 21 day lockdown ordered by the Prime Minister. There has also been a shortage of supply from distributors, this coupled with an increased demand has led to a demand supply mismatch causing a rise in prices.

Share price of Bajaj finance drops
The share price of Bajaj finance dropped for the second successive session as global investment advisory firm Bernstein downgraded its stock to ‘underperform’ with the price target of Rs. 1740. The reason that was cited for this was that there was a great deal of uncertainty with regards to the 21-day lockdown in India and whether it will be extended. Read MoreAn announcement from the Modi government on this issue is expected as India enters the last 10 days of the announced lockdown. After receiving confirmation on the same, Investment advisory firms will be in a much better position to evaluate the long term effects of the pandemic and grade the stocks accordingly. As of now, Bernstein stated that it would be conservative to assume that the first quarter of this fiscal year is likely to be a total economic freeze. Bernstein earlier had an ‘outperform’ on Bajaj Finance’s stocks.

Economics

India’s direct tax collection falls amid slowdown
The country has been under a slowdown for almost an year resulting in the fall of direct tax collections. The estimates have been revised targeting collection of Rs 11.7 lakh crore from the earlier Rs 13.3 lakh crore estimated in the budget presented in July 2019. Read MoreThe direct tax dispute resolution or the Vivad se Vishwas (VsV) scheme would have helped the tax department meet its tax mop-up but due to the 21 day lockdown declared by the central government owning to the outbreak of the COVID-19 pandemic they were unable to do so.

Jobs destroyed worldwide due to coronavirus
As the menace of coronavirus refuses to relent, unemployment rates and welfare claims are soaring throughout the world. In the last 2 weeks, over 9 million Americans have applied for unemployment benefits. To put things into perspective, it took 6 months for this figure to reach 9 million during the 2008 recession. In Britain, one million people have applied for unemployment benefits in the last 2 weeks and 27 percent of businesses have reported that they are reducing their staff levels in the short term. Read MoreSpain’s unemployment rate has hit the high teens while Austria’s stands at 12 percent, the largest number since the aftermath of World War II. In France, about 400,000 companies are relying on government handouts to keep their workers paid. These companies employ more than 4 million people (20 percent of France’s entire private sector workforce). The situation in Germany is not too different either. 470,000 companies there have applied for government wage support. The situation in Thailand is unimaginably grim. 23 million people, one-third of its entire population, applied for government’s cash handout announced on 28th march. To the utter astonishment of the desperate populace, the government announced that that it would only be able to cover 9 million people. The news from all over the world indicates that this may be the worst peacetime recession since 1929.

India’s bailout may not be enough
India recently passed a 23-billion-dollar package to help its economy whether the crisis ushered in by the spread of coronavirus.  This stimulus is largely targeted towards workers of the unorganized sector of the country which employs 94 percent of India’s workforce and produces 45 percent of its total output. Many daily wage laborers lost their jobs overnight when the Modi government announced a nationwide lockdown for 21 days. Read MoreBut is this package enough to rise to the challenge? The experts don’t think so. India’s economy had already been faltering before the global pandemic took center stage. Its growth rate had dwindled down to 4.7 percent and unemployment was at a 45 year high. On top of that, the small businesses had only just recovered from the ill-planned demonetization in 2016. Now, coronavirus has aggravated an already dismal situation. The aviation and automobile industry face an estimated loss of 4 billion dollars and 2 billion dollars respectively. The tourism industry is in tatters and is likely to stay that way for a few months. Farmers are ready to cut their crops and if supply lines are not put back in place, they will have to bear heavy losses. India may need yet another stimulus package to tide over the crisis.

US economy to shrink at fastest rate since 1946
The coronavirus pandemic has led many financial firms and banks to analyze the long term implications of its impact on the US economy. In a new research published by Morgan Stanley, it is claimed that the US economy will shrink by 5.5 percent in 2020. Read MoreThe contraction in the second quarter is estimated to be around 38 percent, in sharp contrast to the predicted contraction in the first quarter which is estimated at 3.4 percent. The unemployment is also likely to reach 15.7 percent in the second quarter which would mean the loss of about 21 million jobs. Such a huge unemployment crisis is likely to overwhelm the welfare structure of the world’s largest economy. Millions have already applied for unemployment benefits as the government scurries to limit the spread of this deadly virus. Experts indicate that the tourism and aviation sector can take months, if not years, to fully recover from the shock of this global economic catastrophe. The US congressional budget office has also predicted that the domestic output of USA is likely to decline by 7 percent in the second quarter. As the death toll continues to mount, Donald Trump is dealing with the toughest challenge of his presidency yet.

Finance

RBI Halves Trading Hours to curb Volatility
The RBI has shortened the trading hours for all Forex, government securities and money market from 10am to 2pm until April 17, which were earlier operational for 9 am to 5pm. However, the retail banks will continue to perform all their regular banking operations- RTGS, NEFT, e-Kuber as per the original timings. Read MoreThe COVID-19 lockdown has reduced the economic activity and liquidity in the markets, increased the volatility in the price of these securities and posed operational and logistical risk for the staff. This move will help to prevent huge intraday swings in financial assets.

Rating agencies see more pain for banks and non banking financial institutions
As the economic activity has come to a standstill, the rating agencies see degradation in the asset quality of banks. The two major agencies, Moody and ICRA have judged the health of banking system stable but at the same time are expecting an increase in the non-performing assets. Read MoreMoreover, GDP growth is estimated to decline to 2 percent during financial year 2020-21 from 4.4 per cent in 2019-20. Additionally, the NBFCs are finding it difficult to lift funds from the capital markets due to high cost and availability of funds, thus, are relying more on banks for their funding requirements.

World Bank approves $1 billion aid to India to fight Covid-19
The World Bank has approved a $1 billion aid to India for the India COVID-19 Emergency Response and Health Systems Preparedness Project to prevent, detect and respond to this global outbreak. Read MoreThe project covers procurement of testing kits, ; setting up of new isolation wards — including turning hospital beds into intensive care unit beds; infection prevention and control; and purchase of personal protective equipment, ventilators, and medicines, particularly in district hospitals. India is expecting two more social security aids from the World Bank in 10-12 days to mitigate the Covid-19 impact.

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