Business News Today: Budget 2019 Highlights, Push for Faster Adoption of Electric Vehicles

Ritesh Agarwal in talks to buy back $1.5bn shares of OYO. Facebook Libra may face opposition from the Indian government. Budget 2019 seeks to boost the adoption of electric vehicle in India. Pushes to prevent revenue leakages and improve compliances. Morgan Stanley predicts global stock slowdown. Meanwhile, shares are in the red in US, Europe, China & Hong Kong.
 

Moving on to the top Business news of the week.  

 

 BUDGET PLUSSES 

 

Budget 2019 seeks to boost the adoption of electric vehicle in India. Pushes to prevent revenue leakages and improve compliances. 

 

Living the Electric Life: Finance Minister Nirmala Sitharaman in the Union Budget 2019 announced a slew of measures to encourage the adoption of electric vehicles in India. Some of these include:

 

  • Income tax deduction of INR1.5L on the interest paid on loans taken to purchase EVs
  • Zero import duty on lithium-ion cell imports
  • Removal of import duty on spare parts for exclusive use in EVs 
  • GST on EVs to be cut to 5% from 12%
  • INR10,000cr outlay till 2022 for EVs under FAME-II scheme
  • Of the total outlay, INR1,000cr earmarked for charging infrastructure


Joining the League: These incentives have placed India in the league of countries such as Europe and China that have backed the development of the nascent EV industry by offering extensive fiscal incentives and a favourable regulatory environment. However, unlike the latter two, India has not yet set a target for automakers to convert a certain part of their total vehicle production to electric or other electrified offerings.

 

More on this here.

 

No Escape: The Union Budget 2019 presented in the Parliament on the 5th of July has sought to prevent revenue leakages and improve compliance – a move that can be viewed in conjunction to the government’s attempt to widen the tax base as it seeks to boost tax collections. This is in addition to the already announced measures such as additional taxes on fuels and select imported items, and a surcharge on high-income earners.

 

Some of these measures include:

 

  • Those who enter into high-value transactions have to file returns even if their income is below the tax exemption limit.
  • Those who spend INR2L a year on foreign travel or consume electricity worth INR1L a year or have deposited INRcr in a current account with a bank or co-operative society, have to file income tax returns even if their income is below INR2.5L
  • Individuals, who pay more than INR50L a year for contractual work or for professional services, have to deduct 5% of the payment at source and remit to the government as tax

 

 BUDGET CRITICS 


Budget 2019 fails to cheer investors, more than INR5L cr of equity investor wealth gets wiped out. Gems and jewellery industry fear rise in grey market, price of jewelry upon increase in customs duty.  
 
 
Every Action has an Equal and Opposite Reaction: As per this report, more than INR5L cr of equity investor wealth got wiped out in last two sessions, as Budget 2019 failed to cheer investors.
 

Market capitalisation of all the BSE-listed companies plunged to INR147L cr on Monday vs INR154L cr at the start of Friday. 

 
BSE Sensex closed at 38,720.57 (-2.01%) while NSE Nifty ended at 11,564 (-2.09%).

 
“Long-term capital gain tax has increased for FPIs, because of a few tweaks…Buyback tax and the plan to increase in public shareholdings after few years are a few other reasons which hit the market badly,” noted AK Prabhakar, Head of Research, IDBI Capital Markets.
 
 
Gems to Lose Their Sheen: Gems and jewellery industry expects a 30% rise in grey market on back of the increase in customs duty announced in the Budget 2019

 
The increase in customs duty and GST will hike the prices by 15.5%. The subsequent rise in price of jewellery will not only hamper the demand of gold in the country, which has already been affected due to multi-year highs. Additionally, the rise in prices is likely to encourage the grey market, which will provide 4-5% discount making it attractive for consumers.

 
Alcohol Stock: By imposing a tax on share buybacks, is the government betraying stock investors, the majority of whom are not posh portfolio managers and suited executives but the aam janta? By not doing away with taxes on dividends, has the Finance Ministry treated equity investing like cigarettes and alcohol use, by enacting policies that will counter-intuitively harm the common man more than well-off citizens?

 

 ATYPICAL 


Ritesh Agarwal in talks to buy back $1.5bn shares of OYO. Facebook Libra may face opposition from the Indian government. 

 

Take Me Back to the Start: Founder Ritesh Agarwal is in talks to buy back $1.5bn shares of OYO from early investors Sequoia Capital and Lightspeed Venture Partners as he seeks to increase his ownership in the hospitality company.

 

As per reports, Ritesh Agarwal is looking to raise his stake to 30% from the current 10%. He could also buy stake held by management and employees, taking his stake up to 32-33%. 

 

The move would enable Agarwal to have the second-largest stake in OYO, after lead investor SoftBank, which currently owns close to 48% of the company.

 

$1.5bn worth of shares is expected to be bought from Sequoia and Lightspeed. Another $500mn is expected to come in the form of primary capital, which could see existing investors also pitch in.

 

No Entry!: Social media giant Facebook recently announced its foray into fintech with a new digital currency named Libra. However, Facebook’s latest offering is likely to witness pushback from India.

 

An Air of Distrust: Economic Affairs Secretary Subhash Garg noted that the cryptocurrency lacked details when it comes to design. Moreover, considering that it would be a private cryptocurrency, it is unlikely that Libra would witness explosive acceptance and growth in India, especially at a time when the Indian government and the Reserve Bank of India have banned the use of cryptocurrencies.

 

 FINTECH 


Government’s decision to waive MDR worries banks. Union Budget 2019 heavily featured fintech.

 

A Coin Has Two Sides: To encourage cashless transactions, the Union Budget had proposed that no merchant discount rate (MDR) be charged for companies with more than INR50cr turnover accepting payments digitally. The MDR will instead be absorbed by the respective banks and the RBI.

 

MDR is the fees levied by banks for the technology infrastructure that supports digital transactions between two banks.

 

Some fintech industry executives, however, are concerned that this will hurt banks, who will have to bear these additional costs , and also large payment firms like Mastercard and Visa, which will now have no reason to incentivise online payments.

 

Full-On Fintech: If anything proves the coming-of-age of fintech, it’s the recently revealed Budget. Using technology to address financial issues featured heavily in Nirmala Sitharaman’s maiden Budget speech.

 

A payment platform for small businessmen, easy credit access to MSMEs via loans accessed online, highlighting the inter-operable One Nation One Transport Card and incentivising digital payments by waiving off MDR altogether: these were some of the ways in which the government sought to advance financial inclusion through digital enhancement.

  

 GLOBAL 

Morgan Stanley predicts global stock slowdown. Meanwhile, shares are in the red in US, Europe, China & Hong Kong.
 

Doldrum-beats: Morgan Stanley analysts predict a global stock slowdown in the near future. They point to weakening economic growth and falling bond yields as the reason behind this.
 

The darkening economic outlook is despite the US Federal Reserve hinting at a future rate cut and the recent lull in the China-US trade war.

 

Strategists noted that in the past two decades equity market returns have usually been low in the period between mid-July to mid-October. Today, even as markets rallied recently, trade and PMI data are bleak and uninspiring.

 

Has The Storm Already Set In?: Meanwhile, strong US jobs data has further reduced markets’ expectations that the US central bank will cut rates in July. This caused US, Asian and European markets to dip.

 

Shares were in the red even in Shanghai, Hong Kong and Japan. At the same time, bond yields fell further and gold and oil gained.

 

If today’s data is any indication, Morgan Stanley’s prediction of a global stock pullback might indeed be on the horizon.  

 

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