BQuick On Sept. 20: Top 10 Stories In Under 10 Minutes
This is a roundup of the day’s top stories in brief.
1. Diwali Comes Early For India Inc.
In a surprise move, Finance Minister Nirmala Sitharaman announced several changes to tax rates applicable to Indian companies. The amendments to the tax incidence on corporates will make India a competitive jurisdiction, experts said.
The key changes, effected via an ordinance, include:
- Currently, companies with up to Rs 400 crore turnover per annum are taxed at 25 percent and companies with turnover above Rs 400 crore are taxed at 30 percent.
- The effective rates, including surcharge and cess, are 29.12 percent and 34.9 percent, respectively.
- Now, all domestic companies have been given the option of paying tax at the rate of 22 percent as long as they don’t avail any tax exemptions or incentives. The effective rate for such companies, including surcharge and cess, will be 25.17 percent. Such companies will not be required to pay Minimum Alternate Tax as well.
- Also, any new domestic company incorporated post Oct. 1, 2019 making fresh investment in manufacturing can choose to pay income tax at the rate of 15 percent.
- Sitharaman today announced that listed companies that have already made public announcements to buy back shares before July 5 are exempted from the enhanced surcharge introduced earlier this year.
More details on the corporate tax rate cuts here.
2. Equity Markets Rejoice, Make Investors $96-Billion Richer
Indian equity benchmarks clocked their biggest intraday gains in a decade as the government lowered corporate tax rate to spur growth and trigger more jobs.
- The S&P BSE Sensex surged 1,921.15 points or 5.32 percent to 38,014.62.
- The NSE Nifty 50 jumped 569.40 points to close at 11,274.20.
- The broader markets represented by the NSE Nifty 500 Index surged 5.29 percent.
- The move has created an investor wealth of around $96 billion.
- The cut in tax rate announced by the Finance Minister Nirmala Sitharaman could lead to more foreign investors and industries to come in the Indian market, KR Choksey Investment Managers’ Managing Director Deven Choksey said.
- The Nifty is expected to reach 12,000 by Diwali as ‘fear’ turns to ‘greed’, according to Sanjiv Bhasin, executive vice president, IIFL Securities.
3. The Fiscal Deficit Impact Of Tax Cuts
While equity markets and corporate India cheered the tax cuts, bond markets remained more concerned with the fiscal slippage worries.
- The Indian government is likely to run a fiscal deficit higher than the 3.3 percent of GDP target announced in Union Budget 2019-20, after it proposed to cut corporate tax rates.
- “Revenue foregone for the reduction in corporate tax rate is Rs 1.45 lakh crore per annum,” Sitharaman said.
- The revenue foregone will push up the fiscal deficit to Rs 8.48 lakh crore—at about 3.97 percent of the GDP.
- The government did not provide any clarity on what it expects the fiscal deficit to settle at in FY20.
- Still, the fiscal consolidation road map will likely have to be redrawn.
Bond markets, which have been jittery about the government’s ambitious tax collection targets, reacted negatively to the news.
4. Fed Injects Cash For Fourth Consecutive Day
The Federal Reserve added liquidity for a fourth straight day to a vital corner of the funding markets, helping further stabilise rates as investors remain concerned that fresh bouts of stress may be felt in the weeks ahead.
- The New York Fed injected another $75 billion Friday through an overnight repo operation.
- That followed operations of the same size on Wednesday and Thursday, and $53.2 billion on Tuesday.
- The actions, commonplace in pre-financial crisis times, temporarily add cash, with the Fed taking government securities as collateral.
- Wall Street bond dealers submitted about $75.6 billion of securities for Friday’s Fed action, lower than the previous two days’ levels.
- The operations have calmed the funding market, with repo rates declining to more normal levels after soaring to 10 percent Tuesday, four times last week’s levels.
- Overnight general collateral repurchase agreement rates remained steady Friday, trading around 1.90 percent, according to ICAP.
- Many analysts are already predicting the Fed will do a similar operation on Monday.
The operations have calmed the funding market, but there are signs of investor apprehension.
Meanwhile, U.S. equities climbed toward an all-time high as a busy week of central bank meetings drew to a close, with investors’ focus now likely to shift back to the trade war.
- The S&P 500 Index gained 0.2 percent as of 9:53 a.m. New York time.
- The Stoxx Europe 600 Index advanced 0.3 percent.
- West Texas Intermediate crude gained 0.6 percent to $58.47 a barrel.
Get your fix of global markets action here.
5. ‘Howdy Modi’: India-U.S. Look To Find Middle Ground On Trade
India and the U.S. are working toward easing trade tensions, including a possible withdrawal of some disputes from the World Trade Organization, ahead of a meeting between leaders of the two economies, reported Bloomberg citing people familiar with the matter.
- Giving market access to U.S. dairy products, premium pricing power for some innovative American medical devices and tax concessions on information technology are also among the so-called goodwill measures being considered by India, the people said.
- In return, the U.S. may possibly restore In return, the U.S. may possibly restore India’s preferential trade treatment terminated earlier this year, they said, asking not to be identified as the discussions are private.
- The trade department in New Delhi has been holding daily meetings over the last few days to work out a doable package in time to be taken up by Prime Minister Narendra Modi when he embarks on a week-long trip to the U.S.
Easing of trade tensions will help India boost exports and cushion an economic slowdown.
6. Cheaper Hotels, Costlier Cola
The Goods and Services Tax Council today reduced rates on hotel tariffs in an attempt to boost India's domestic tourism industry.
- Hotel tariffs above Rs. 7,500: From 28% to 18%
- Hotel tariffs from Rs. 1,000 to Rs 7,500: From 18% to 12%
- Hotel tariffs below Rs. 1,000: Nil
- Outside Catering: From 12% to 5%.
Besides, the Council also increased the tax on caffeinated beverages 28 percent, along with a 12 percent compensation cess. The earlier rate was 18 percent.
This means the caffeinated versions of cola and energy drinks will now be costlier.
Follow other decisions here.
7. After Default, Altico Seeks More Funds
Altico Capital India Ltd., which defaulted on interest payments last week, has sought additional funding from its bankers so that it can continue disbursements to real estate projects it is financing.
- The demand is part of a three-part resolution process, which includes asset-monetisation, restructuring of the existing loan book and fund infusion from new or existing shareholders.
- BloombergQuint has reviewed a copy of the resolution plan submitted to lenders.
- Altico Capital is asking lenders to allow existing management to continue managing day-to-day operations.
- The management will actively monitor the non-banking financial company’s project portfolio to help preserve the value of assets, the presentation said.
The company hopes to bring down some of these concentrated exposures.
8. Excess Food Stock Adding To India’s Woes
A vicious cycle of higher production of wheat and rice, increased procurement by the government, and limited demand for excess stock in the open market is adding to the pressure on Food Corporation of India.
- FCI has seen financing needs rise over the last three years and has stepped up borrowings from sources such as the National Small Savings Fund.
- With wheat and rice stocks running at record highs and FCI seeing limited demand to offload these commodities in the open market, funding pressures at the government’s official procurement agency are expected to remain high.
- Data for the first five months of financial year 2019-20 shows that FCI’s attempts to sell excess rice and wheat stocks, even at prices lower than the economic cost, have only been partially successful.
With record stock of rice and wheat, is FCI running out of storage?
9. India Wants Facial Recognition In Policing
India is planning to set up one of the world’s largest facial recognition systems, potentially a lucrative opportunity for surveillance companies and a nightmare for privacy advocates who fear it will lead to a Chinese-style Orwellian state.
- Prime Minister Narendra Modi’s government will open bids next month to build a system to centralize facial recognition data captured through surveillance cameras across India.
- It would link up with databases containing records for everything from passports to fingerprints to help India’s depleted police force identify criminals, missing persons and dead bodies.
- The government says the move is designed to help one of the world’s most understaffed police forces, which has one officer for every 724 citizens -- well below global norms.
- It also could be a boon for companies: TechSci Research estimates India’s facial recognition market will grow sixfold by 2024 to $4.3 billion, nearly on par with China.
But the project is also ringing alarm bells in a nation with no data privacy laws.
10. From Mumbai To New York: Students Rally To Save Earth
Tens of thousands of people across Asia, Africa and Europe kicked off what are set to be the largest global climate protests in history Friday, demanding adults act now to stop environmental disaster.
- From Sydney to Seoul, Manila to Mumbai, children heeded the rallying cry of fellow teen activist Greta Thunberg and shut their textbooks in a collective call to action.
- Students skipped school and workers walked off jobs to participate in the rallies.
- In India, schoolchildren rallied in New Delhi and Mumbai while thousands protested in the Philippines, which experts say faces threats from rising sea levels and increasingly violent storms.
- Protesters joining the Global Climate Strike movement want governments to treat global warming as an emergency, slash subsidies for fossil fuels, and switch economies to 100 percent renewable energy as soon as possible.
- They’re part of a worldwide series of demonstrations that organizers say will take place in 150 countries on Friday and on Sept. 27.
As the sun rose above the international dateline, events began in the deluge-threatened Pacific Islands -- where children chanted “We are not sinking, we are fighting”.