There are two aspects to the news- knowing the headline and understanding the intricacies of it. We at The Connectere focus on both. While The First Forum edition gives a brief about the headlines, The Weekly Analysis Edition is meant to educate the reader on what do various news mean and what are their intricacies. This initiative is meant to educate the reader on how to understand the important news. In the Nineteenth Edition we are covering the following news:
1. Tracking economic recovery of countries
2. Analysing India’s worsening retail inflation
3. Rise and Fall of the INC
4. Why the Indian markets are still rising
5. What concerns India in China-Iran recent deal
Owing to the coronavirus pandemic, most countries went into lockdown in the last few months bringing business, education, travel, jobs, daily life to a halt; and the economies tumbled. Economies like the UK, Singapore, US are witnessing a downward trend as the curve of COVID-affected people turns upwards. China’s global imports rose 3%, rebounding from May’s 3.3% decline, imports of American goods increased to $10.4 billion despite higher tariffs. Exports to the United States have also gained 1%, the British economy’s growth remains around a quarter smaller than before the pandemic; this has dampened hopes of recovery from what is set to be one of the UK’s deepest recessions in centuries. Let’s look into the economic states of some countries.
The economy grew by 1.8% in May from the previous month after some easing of the lockdown, especially in fields of construction or manufacturing, even retail sector was buoyed by record online sales but with lockdown restrictions remaining in place, many other services remained in the doldrums.
The increase recorded during May was far lower than the 5% anticipated in financial markets and means the economy remains 24.5% smaller than it was in February. With people still fearful of contracting COVID-19, it is harder for non-essential services and the hospitality sector such as pubs and restaurants to restart their business at full swing. Social distancing rules remain in place, and many workers are worried about losing their jobs.
China’s global trade increased in a fresh sign that the world’s second-largest economy is gradually recovering. China’s exports edged up 0.4 %, an improvement over the previous month’s 16.7 % contraction. China was the first major economy to shut down and is also the first to begin the struggle to restore normal business activity. Chinese factory activity is recovering but consumers are reluctant to commit to big purchases. Export activity may decline, as demand for surgical masks is declining and U.S. and European retailers are canceling orders.
The biggest monthly budget deficit in history was incurred in June as spending on programs to combat the coronavirus recession exploded while millions of job losses cut into tax revenues. For the first nine months of this budget year, the deficit totals $ 2.74 trillion. That puts the country well on the way to hitting the $3.7 trillion deficit for the whole year which would surpass the previous annual record of $ 1.4 trillion set in 2009. This deficit was driven higher by spending on various government relief programs such as expanded unemployment benefits and a Paycheck Protection Program.
A 5% contraction in 2020-21 GDP will entail a loss of at least Rs 10 lakh crore, but with an increasing number of cases, the contraction could be significantly more than 5%. RBI Governor Shaktikanta Das hinted at a big disruption in the financial sector. Non-Performing Assets are likely to increase in a big way once the current moratorium on loans ends. With revenues likely to remain subdued, the government will have to take a call on whether to protect livelihoods or production capacity. Key economic indicators such as e-way bills, mobility indices, labor participation rates, and electricity consumption are down in July so far compared with their levels over the same period in June.
Shares fell in Asia as skepticism set in about the recent upward momentum in global markets given rising confirmed coronavirus cases and percolating tensions between the US and China; adding to this is the White House’s decision to reject nearly all Chinese maritime claims in the South China Sea.
Japan’s benchmark Nikkei 225 sank 0.8% in early trading. South Korea’s Kospi lost 0.4%, while Australia’s S&P/ASX 200 dropped 0.8%. Hong Kong’s Hang Seng tumbled 1.9%. The Shanghai Composite lost nearly 1.2%.
As of June 2020, retail inflation for consumers steeply climbed to 6.09% as compared to that of March 2020, which was at a relatively low 5.84%.
A Reuters economists’ poll had predicted the moderation of India’s retail inflation to 5.3%, from the revised 5.84% rate in March. The latest data comes as a shock as India’s consumer inflation rates skyrocketed to 6.09% during the month of June. Despite the overall worse big picture, food inflation had fallen from 9.2% in May to 7.87% in June.
Hugo Erken, head of international economics at Rabobank, had quoted that drops in inflation are caused by marked increases in economic activity that had halted early in the lockdown phase, and has been recovering in a slow manner.
A decline in price pressure could be helpful to the RBI, in lieu of the decrease in its repo rate by 115 points ever since the beginning of the lockdown. The nation’s industry outputs contracted by 37.8% during May 2020.
IIM, Ahmedabad conducted a survey that showed a sharp jump in one-year ahead of business inflation expectations; the climb had steepened to 4.57% in March 2020 from 3.85%in February 2020. Despite signs of increased inflation, the RBI’s policy may be focused on the worsening growth outlook. With increasing COVID-19 cases, most states have extended their lockdown period with few relaxations and this extension is expected to have a deep impact on economic activity, with India’s GDP forecast for this financial year sharply cut by a contraction of 2%. These places under lockdown contribute to over 60% of India’s economy; therefore, even though the central government has reopened parts of the economy, it has not yet been fully kick-started.
Every month costs the country’s GDP 1-2% in contraction. Consequently, the greater the delay in lifting lockdown, the greater will be the economic contraction. With higher fiscal spending being the need of the hour, the widening fiscal deficit is also attributed to lower tax collections across India.
At the dawn of independent India’s political journey, the Indian National Congress was the largest political party, the most powerful even, since India’s independence in 1947 the Indian National Congress has observed an outright majority in 17 general elections. Initially, it won because the people trusted the INC as it had an important role in India’s independence struggle later it was mostly due to a lack of choice. When the Vajpayee government came in the center, it was a signal to the INC that the people are losing trust but very strategically a no-confidence motion was passed and the government was dropped.
Fast forward to 2014, hopes were shattered, legacies are broken Narendra Modi led NDA government won the elections with a clear majority. This marked the rise of the BJP and the fall of the INC. The INC still had hope, just like the Vajpayee government it hoped and longed for the BJP government to fall too, to their utter dismay the government appeared victorious for a second full term in office.
And look how the tables have turned, the Indian National Congress has been reduced to a regional state party now, controlling only 6 of the 29 states of India, one of which might possibly be on the verge of being ruthlessly snatched away. 70 years ago, tell a person that the Indian National Congress would be reduced to a state party, the person might have called it an anachronism. Going by the claims of the Congress party, BJP is not fit to lead the nation, it indulges in horse trading and its behavior decadent, well in that case at least BJP is better at business than the Congress party.
The problem with the Congress Party is the concentration of power with the Gandhi family, its refusal to share power, or rather disseminate power amongst the younger generation and to let them command the horses of politics. It is because of a lack of choice with the people in the Lok Sabha elections that the BJP emerges victorious despite all it does wrong. It is because of a lack of harmony both within particular parties and amongst the opposition that the BJP emerges victorious in such mid-term floor tests.
More than the INC, it is the people who are at a loss here, the people who are forced to choose a candidate they don’t wish to choose because bad is better than worse, to the parties it might just be a change in comparative and superlative degrees between ‘bad’ and ‘worse’ to the people, however, it is a matter of life and in some cases death too. A government, any government for that matter, is for the people and by the people and it should never be the case that a government is ‘for’-called upon the people and not chosen by the people. The next Lok Sabha election is still far, the INC has enough time to contemplate, it must take advantage of the current pandemic time and instead of indulging in name-calling and blame gaming, it must set an example in the states it governs and show the people of the country how a pandemic is really dealt with, actions speak louder than words, and this is what INC must do act more and speak less.
As we know that the cases of coronavirus are increasing, there are very few green shoots, lockdowns are getting increasingly local, and yet the markets are rising. Let’s understand this rising trend in the market.
One major reason is that the market always looks upon the future. If there is an anticipated news or event in the economy or a particular company, the stock prices tend to rise/fall even before the actual news or event is rolled out, so the market is always forward-looking. In the current scenario, as we know the vaccine development for Covid-19 is in final stages and trials have also been started, so this brings a positive outlook to the economy as development of vaccine will help the economy to open up more, increasing the demand for various goods and hence bringing back the economy to pre COVID levels.
The second main reason for this comes to be the increase in all large, mid, and small-cap companies. Conceptually when you fall from 100 to 10, it is a drop of 90%. But when you bounce from 10 to 20, it is a jump of 100%, even though you are down 80% from the top. Small caps were once down 65% from the top. This much fall in the market cap, made them expect companies to shut down. They have bounced back as their fears have been proven unfounded. Companies have found innovative ways to cut costs and survive the downturn.
The third reason comes out to be that we have seen a large number of new retail investors entering the market directly through stock exchanges. There are a couple of reasons attracting retail investors to the stock markets. Many young people have recognized the importance of savings due to the surge in medical expenses (unexpected), and would like to invest in starting early and gain the benefits of compounding. Many people aren’t able to spend much due to the lockdown and hence have to park their surplus funds. Many are sitting at home and have tried their luck to make a quick buck through trading in the stock market. Their participation has increased retail participation in the stock market to one of the highest levels ever.
A large proportion of these people are chasing lower-priced shares in the market. Their non-analytical buying has pushed prices higher, giving them instant gains. This instant success makes them put more money in the market, and also bring their friends and relatives into the market. The data on volumes in the cash segment shows that retail investors have increased their share to over a decade’s high of nearly 70 percent. FPIs and domestic institutional investors (DIIs) are more or less the same.
China and Iran are close to concluding an agreement on economic and security cooperation, which is a step that has attracted policymakers in India and around the world.
The seeds were sown during a visit by Chinese President Xi Jinping to Iran in January 2016, when the two sides agreed to establish a relationship based on the Comprehensive Strategic Partnership while announcing talks, to begin with the aim of concluding a 25-year bilateral pact. The 18-page agreement indicates that it will bring in about $ 280 billion from Beijing, which seeks to buy oil from Iran. China will also invest $ 120 billion in Iran’s transport and construction infrastructure, thereby providing major sectors in Iran including banks, telecommunications, ports, and railways. Iran has already signed with China’s Belt and Road Initiative (BRI), and this is in line with China’s “debt-trap diplomacy”. The agreement has been opposed by Iranian political leaders, including former President Mahmoud Ahmadinejad.
Concerns for India
While India is watching China with great concern, what is alarming about New Delhi is that Beijing is also concluding a security partnership and military cooperation with Tehran. It requires “joint training and exercise, joint research and weapons development and the sharing of intelligence” to fight “the war on terrorism, drug trafficking, and street crime”.
Earlier reports in Iran suggested that China would send 5,000 security personnel to protect its projects in Iran. Other reports suggest that Kish Island in the Persian Gulf, at the mouth of the Strait of Hormuz, maybe “sold” to China. Iranian authorities have denied the allegations.
With the emerging Chinese presence in Iran, India is concerned about its move to roll out the ever-expanding Chabahar port project, which is where it makes Rs 100 crores in the final budget. The port is close to the Gwadar port in Pakistan, which was built by China as part of the China-Pakistan Economic Corridor which connects the Indian Ocean via the BRI.
India’s momentum in building the project is slowing down due to US sanctions. That has made Iran impatient and last year, it decided to start work on the Chabahar-Zahedan railway. Now, India finds itself caught in a geopolitical rivalry between the US and China over Iran. While India is recovering from US sanctions on the development of the port – on the grounds that it will help reach Afghanistan rather than Pakistan – it is unclear whether the railway and other projects are not exempt from sanctions.
Iran has begun setting up 628-kilometer railway links between the provincial capital Zahedan and Chabahar. The government is facing elections in 2021 and plans to complete the first 150km train track by March 2021, with full length by March 2022.
India is committed to delivering tracks and rakes. But with respect to steel, govt. feels it will wait for the US to make a deal before deciding to provide tracks and rakes.
India’s dilemma also stems from the fact that robust support from the US is essential when it is locked in a border stand-off with China. India may want to wait for the results of the November US election. If Joe Biden returns to power, there may be some surprises; but if Trump is re-elected, India may prefer a long-term, strategic decision before proceeding with the railway project. “One cannot just spend Indian taxpayers’ money without making sure they do not get sanctions,” a New Delhi government source said.
While the govt. showed Tehran that it could “join later” the project, Tehran pointed out that there is no denying that through business partnerships, the principle of governance is “first come, first served “. ” If a person does not respond directly and in a timely manner, others may take it timely,” an Iranian government source said.