Top Business News of the Week: RBI May Cut Rates Again, Govt Proposes Metro for Small Cities, Boris Johnson Becomes PM

Top Business News of the Week: Indian economy risks ‘crowding out’ of private borrowings due to high government borrowings, warns ex-Deputy RBI Governor, Viral Acharya. RBI expected to cut rates again in its next meeting. MCA wants antitrust probe into practices of Big Four auditing companies. Govt proposes Metrolite transport system for small cities. Govt backtracks on earlier proposal to allow easier retrenchment. Jio has taken over Airtel, but Vodafone Idea remains on top; the numbers, however, paint an ambiguous picture. American regulators approve merger of T-Mobile and Sprint. Report says Huawei helped North Korea build its wireless network, in violation of international sanctions. US government announces broad investigation into big tech firms like Facebook, Google and Amazon. Can blockchain revolutionise construction and infrastructure planning? Boris Johnson named next British PM. Shinzo Abe poised to become the longest-serving Japanese PM in history. A trade war flares up between Japan and South Korea.

 

Moving on to the top Business news of the week. 

 

 CENTRAL BANKING 

Indian economy risks ‘crowding out’ of private borrowings due to high government borrowings, warns ex-Deputy RBI Governor, Viral Acharya. RBI expected to cut rates again in its next meeting.

 

Viral Goes “Viral”: Deputy Governor of the Reserve Bank of India, Viral Acharya, who ended his stint at the Central Bank last week, has warned the Indian economy of the risks "crowding out" of private borrowings due to high government borrowings

 

Acharya, who left office 6 months ahead of the end of his term, also added that the government should cut back on subsidies and schemes that will be unable to impart long-term growth. Moreover, he said the Centre should divest from public sector units, paving way for private sector investment, which can bring in more efficiency.

 

When Doves Cry: When the RBI meets in August 7, it is widely expected to cut rates for the fourth time in a row by 25bp, bringing down repo rates to 5.5%. Low growth, weak inflation and uninspiring growth forecasts are reportedly in the Central Bank’s purview as it seeks to revive economic growth.

 

If it does cut interest rates, it will make it one of the more aggressive central banks in Asia. The last time it cut rates this frequently was in the aftermath of the 2008-09 financial crisis.

 

 POLICY 

MCA wants antitrust probe into practices of Big Four auditing companies. Govt proposes Metrolite transport system for small cities. Govt backtracks on earlier proposal to allow easier retrenchment.

 

Showdown: The Ministry of Corporate Affairs reportedly wants the Competition Commission of India to probe the Big Four auditing firms for possible antitrust violations.

 

The Big Four – PwC, EY, Deloitte, KPMG – account for the auditing work of almost 60% of the top 500 companies on the NSE. A government official told reporters that they are “totally dominant” and “seem to be sharing the work”, before pointing to entry barriers in the market.

 

Metrolite - Like Metro, but Light: The government has proposed a new intra-city transport system called “Metrolite”. This will involve light urban rail transit systems and could be set up in small cities where ridership is not very high. The Metrolite trains would have three coaches, have passenger capacity of 300, and run at 25kmph. The new system would also be cheaper to develop than the high-capacity, high-speed Metros in big cities. 

 

No Retrenchment: The Code on Industrial Relations Bill sent by the Labour Ministry to the Union Cabinet doesn’t include its earlier proposal to relax retrenchment norms for big-sized companies. The draft Bill had earlier proposed allowing factories with up to 300 workers to retrench or lay off workers without seeking the authorities’ nod. Now, due to opposition from trade unions including the RSS-affiliated Bharatiya Mazdoor Sangh, the Ministry has back-tracked.

 

 TELECOM 

Jio has taken over Airtel, but Vodafone Idea remains on top; the numbers, however, paint an ambiguous picture. American regulators approve merger of T-Mobile and Sprint. Report says Huawei helped North Korea build its wireless network, in violation of international sanctions.


 
The Great Indian Telecom Wars: Before Reliance Jio disrupted it entirely, India’s telecom industry had over a dozen operators battling it out to gain more market share. Then, three years ago, Jio upended the entire game with its rock-bottom tariffs and drove most competitors out of the battlefield. Then, there were three. Only Vodafone Idea and Bharti Airtel remained as private adversaries for Jio.


 
And Then There Were Two: Earlier this week, Jio overtook Airtel to become India’s second-largest operator in terms of mobile phone subscribers. Vodafone Idea still retained the apex position. But a closer look into the numbers reveals strange and interesting results.

 

Merger Mayhem: American regulators have approved T-Mobile’s $26.5bn takeover of rival Sprint. This leaves just three major cellphone companies in the US – the others being Verizon and AT&T. The Justice Department’s conditions included setting up a fourth, smaller provider named Dish as “a disruptive force in wireless”.

 

Where There’s a Bill There’s Huawei: The Chinese tech tsar has been at the centre of the US-China trade war for some time now. Now, a report in The Washington Post threatens to make the West even more suspicious of Huawei and Beijing.

 

According to the report, Huawei partnered with a Chinese state-owned firm on a string of projects in North Korea over a period of eight years that gave the country its wireless cell network.

 

So What?:  North Korea is under sanctions over its nuclear programeme and human rights abuses. If the report is true, Huawei – and because a state-owned company was also involved, even the Chinese government – flouted the sanctions on Pyongyang. And if Huawei used American products and parts while building this wireless network, the consequences could be even more dire.

 

Furthermore, this comes at a time when relations between Washington and Beijing are at an all-time low. And at a time when the Trump administration is trying to build a relationship with North Korea.

 

 TECH 

US government announces broad investigation into big tech firms like Facebook, Google and Amazon. Can blockchain revolutionise construction and infrastructure planning?

 

Big Tech in Big Trouble: The US Department of Justice has announced a broad antitrust investigation into the practices of big tech companies like Facebook, Google and Amazon.

 

In its press release, the DoJ said it would probe “practices that have reduced competition, stifled innovation, or otherwise harmed consumers”

 

The investigation will assess the competitive conditions online, especially “search, social media and some retail services”, to ensure users have access to “free markets in which companies compete on the merits to provide services that users want”.

 

Blockchain to Build Buildings?: Construction can be a tedious industry. Endless armies of contractors and sub-contractors to pay heed to, bundles upon bundles of codes, regulations and standards to adhere to, and deadlines and budgets to pay slavish attention to. Given all the constraints and challeges, can blockchain revolutionise construction and infrastructure?

 

 

 INTERNATIONAL 

Boris Johnson named next British PM. Shinzo Abe poised to become the longest-serving Japanese PM in history. A trade war flares up between Japan and South Korea.

 

Boris Trumps May: Three months before it is scheduled to leave the EU, the UK got a new PM. Boris Johnson and Jeremy Hunt both sought to succeed Theresa May. But the odds were aggressively in Johnson’s favour, and he won the race last week.

 

PM Johnson will have a long and unenvied to-do list waiting for him at 10 Downing Street. If he survives the no-confidence motion that the opposition Labour Party is threatening to move on Thursday and (if the motion passes) if his Conservative Party sails through the general election that could follow, his administration will have to tackle the Brexit beast that has already devoured two premiers and dangerously split a nation.

 

London vs Brussels, Round 859: The Brexit bedlam is staggering. Most MPs want to leave the EU with a deal, but Johnson wants May’s deal renegotiated, but this will have to be done before October 31, and the EU is in no mood to give more extensions (or to compromise).

 

The most extreme outcome – a no-deal Brexit – is more probable than ever before, and Johnson thinks it’d be “vanishingly inexpensive” (though Parliamentary committees, economists, and his colleagues across the English Channel might disagree with him).

 

Japanese Juggernaut: Japan’s ruling coalition retained its majority in elections for the upper house of Parliament. This all but ensures that PM Shinzo Abe will become the country’s longest-serving leader (he’s four months short of that distinction).

 

Trade is a Multi-Edged Sword: Meanwhile, Japan became the latest country to weaponise trade. Tokyo restricted exports to South Korea. The products? Chemicals essential to the latter’s vast and vital semiconductor industry. The lightning rod? A reparations dispute between the two countries dating to the Second World War. South Korea has vowed retaliation and a  tightly-knit economic partnership is at risk of unravelling, threatening the prices of everything from memory chips to iPhones.  

 

Japan is not the first country to turn trade into a crossbow. He’s following the examples set by his peers in Washington and Beijing. Unfortunately, punitive protectionism doesn’t only hurt the countries sparring: it also affects the highly-integrated, highly-globalised international economic system.

 

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