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Posted on 01-Feb-2019 Comments  0

Weekly Capsule (Jan 28– Feb 01) and Impact Analysis

News Announcement Impact Analysis

Budget 2019 – Piyush Goyal does away with interim budget concept Unlike in previous years, the budget did not stick to just seeking a vote on account for expenses

Instead, the government went ahead and announced a full-fledged budget with large scale reforms

Divestment target for 2019-20 set at Rs.90,000 crore This is higher than the target of Rs.80,000 crore set for the current fiscal 2018-19, largely through via CPSE mode

The government is expected to fall short of divestment target in the current year by nearly Rs.20,000 crore

Fiscal deficit target for FY19 and FY20 set at 3.4% of GDP This is a spillage of 10 bps for fiscal 2019 and a spillage of 30 bps for fiscal 2020

Fiscal spillage would mean more borrowings and that pressures yields. Hence RBI may not be keen on rate cuts

Budget makes the first step towards Universal Basic Income A total of 12 crore marginal farmers will get Rs.6000 per annum as direct benefit transfer

This will be effective from December 2018 and will cost the government Rs.75,000 crore per year

Income up to Rs.5 lakhs made tax free for individuals This has been structured as a rebate of Rs.12,500 which makes the income up to Rs.5 lakhs tax free. Slabs remain same.

Considering all the exemptions, this would mean that total income up to Rs.10 lakhs can be brought to zero tax

Standard deduction limit raised to Rs.50,000 from Rs.40,000 This is a flat deduction from total income which was introduced in the last budget for all including pensioners

The standard deduction had come in lieu of transport and medical allowance and this will increase the advantage

Budget gives generous sops for second property investments Second home owners now do not need to pay tax on notional rent on second home ownership

Under Section 54, capital gains can be reinvested in 2 properties instead of just one

Realty companies also get a leg up from the budget 2019 Realty companies will be allowed to carry inventory for 2 years instead of 1 year without paying tax

The special benefits for low cost housing have also been continued for one more year till March 2020

Fitch to review India’s sovereign rating based on post-election budget Fitch has admitted that interim budget was not a real worry but the real picture may emerge after the actual budget

Fitch had, last year, refused to upgrade India’s sovereign rating even after Moody’s had done it

Experts now expect the MPC to hold rates in its Feb 07th monetary meet There were hopes of a likely rate cut in the Feb policy after the Fed chose to maintain status quo with dovish outlook

However, the higher fiscal deficit guidance in the budget may impel the RBI to wait for a few months longer for rate cuts

There was a sharp rise in benchmark bond yields after the Union Budget The bond yields reacted to the sharply higher fiscal deficit guidance for the next two years

Higher borrowings to fund the fiscal deficit had pushed up the bond yields, although impact may be limited

Three PSU banks have been removed from the PCA restrictions Bank of India, Bank of Maharashtra and OBC are relieved on better operating matrix in the last two quarters

This will mean that these banks will be free to lend and also look at branch expansion and mergers seriously

Core sector growth weakened to just 2.6% for the month of December-18 The pressure on core sector came from crude oil, refinery products and fertilizers

Core sector accounts for 42% of the IIP growth and hence is critical for the overall GDP growth

Central banks push up their gold procurement to highest in 2018 Central banks procured 651 tonnes of gold in 2018, which is the highest level seen in the last 50 years

This could be indicative of reducing confidence in the traditional hard currencies as a reserve currency

Government refuses to extend the ecommerce deadline beyond Feb 01st These guidelines were specifically aimed at global ecommerce companies to protect local traders

Global ecommerce players cannot hold equity in vendors and also cannot have exclusive sale arrangements

US Fed maintains status quo on Fed rates at 2.25% - 2.50% range This was necessitated after the US economy showed pressure on growth in the light of the trade war with China

The CME Fed Watch Tool has been indicating at a likely status quo till the end of the year and a possible rate cut in 2020

Oil prices harden on US sanctions on Venezuela US imports nearly $11 billion worth of crude from Venezuela and this could pressure the Latin American economy further

The US and EU wants Maduro to go while China and Russia are voting on his continuance as the state head of Venezuela

Chanda Kochhar indicted by Srikrishna Commission on breach of rules The commission directly indicted Kochhar for conflict of interest and for failing to make disclosures internally

The board has terminated her services retrospectively and will also disgorge all her benefits since 2009

Ruia family barred from bidding for Essar Assets Essar promoters had put in a counter bid for Rs.54,000 crore after Arcelor Mittal bid of Rs.42,000 crore had been accepted

This is in line with the judgement of the Ahmadabad bench of NCLT which barred promoters from bidding at NCLT

Fitch warns of emerging market debt rising sharply post 2008 The sharp rise in debt happened when debt borrowing was very cheap in the aftermath of the crisis

However, most of the debt is dollar denominated and a strong dollar could put huge pressure on their flows

India emerges as the world’s second largest steel producer At 106 million tonnes of output in 2018, India has finally gone past Japan in terms of steel production

China with annual steel production of 928 MT remains as the clear leader by a margin



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