Facebook Announces Digital Currency Libra, Government Considers Reducing GST on Electric Vehicles in India, ED Questions et al.

Professor S

Professor of Financial Economics and Part-time Value Investor, Transfin.

Jun 19, 2019 1:32 PM 6 min read

Professor S

Professor of Financial Economics and Part-time Value Investor, Transfin.

6 min read95 views

Editorial

Explained

Mobile wallets in search of newer ways to accelerate the KYC process. Government considers reducing GST on EVs. US and China to discuss trade at the G-20 Summit in Japan next week. Facebook announces its own digital currency. ED to question Founder Naresh Goyal in the Jet Airways privilege case.

Moving on to the top Business news today:

RULES

Mobile wallets in search of newer ways to accelerate the KYC process. Government considers reducing GST on EVs. Expert Committee suggests doubling of collateral-free loans for MSMEs, Mudra and SHGs.

Finding Greener Pastures: Mobile wallet firms are reportedly in search of newer ways to accelerate the KYC process, ahead of RBI’s August 31 deadline when the full Know Your Customer (KYC) mandate kicks in.

August 31 has been set as the deadline by the Central Bank for mobile wallets to capture the complete details of the customers.

The Burden of Increasing Costs: Newer ways, including the provision of a video KYC, are being sought by mobile wallet companies in an attempt to avoid physical collection of documents, which cost these companies as much as INR250 per customer.

In cases of companies with large wallet bases, the cost shoots up enormously. Paytm has estimated a cost of INR2,500cr for its 10 crore user base.

Towards a Greener Tomorrow: The Indian government is mulling slashing the Goods and Services Tax (GST) levied on the sale of electric vehicles to 5% from the existing 12%, in the upcoming 35th GST Council meeting.

The move comes shortly after government think-tank NITI Aayog’s proposal that only electric vehicles should be sold in India by 2030.

A Helping Hand: An expert committee of the RBI on Micro, Small and Medium Enterprises (MSMEs) has suggested doubling collateral-free loans for these units.

The suggestion should also be applicable to Micro Units Development and Refinance Agency (Mudra) and Self-Help Groups (SHGs).

The committee, headed by former SEBI Chairman UK Sinha has suggested hiking the ceiling of collateral-free loans for MSME units to INR20L from INr10L presently.

TRADE

US and China to discuss trade at the G-20 Summit in Japan next week. US warns India against supplying American equipment to Huawei.

We Need to Talk: US President Donald Trump and Chinese President Xi Jinping have agreed to meet in Japan next week to discuss the ongoing trade war between the two nations.

A tweet by Trump regarding the meeting next week at the G-20 in Japan has brought some cheer to the global markets which has been languishing on back of the escalating trade tensions between US and China, especially after potential talks broke down between the two in early May.

Stay Clear: In a letter sent to the Ministry of External Affairs, the US has warned the Indian government that companies found supplying equipment or other products of American origin to Huawei or its units could face punitive action.

Zooming Out: The news comes shortly after President Donald Trump last month signed an executive order that enables the US to ban telecommunications network gear and services from “foreign adversaries.” While the order does not name any countries or companies, officials and industry executives believe that its targets likely included Huawei and its Chinese rival ZTE, whom US officials believe are beholden to the Chinese government.

Also This: Shortly afterward, the Department of Commerce said it had put Huawei and 70 affiliates to its so-called “Entity List” - a move that bans the telecom giant from buying parts and components from US companies without US government approval, essentially forbidding it from doing business with American companies.

MARKETS

IndiaMart to open INR475cr IPO on 24 June. Paytm Money plans to raise c. $1.2bn in a mega funding round, set to enter the unicorn club.

The What: IndiaMart is set to launch its INR475cr Initial Public Offering (IPO) on 24 June.

The Price: In the IPO, which will close on 26 June, IndiaMart has priced its shares in the range of INR970-INR973 apiece.

IndiaMart, which operates Indiamart.com, one of the largest online listing platforms for small and medium businesses in India will be the first company to IPO under the re-elected Modi government.

“The Next Big Thing”: Paytm Money, the wholly-owned subsidiary of Paytm that runs mutual funds, insurance, forex, and other financial services on the platform is planning to raise as much as $1.2bn in a mega funding round at $5bn valuation.

The deal, if it goes through, will make Paytm Money the third unicorn of Paytm family. This would also make Paytm Money the most valued startup in the country right below BYJU’s.

FACEBOOK

Facebook announces its own digital currency. The crypto world’s reception to Libra has been lukewarm. Will Facebook cause a “crypto Cambridge Analytica”?

Foray into Fintech: After months of build-up, Facebook finally revealed its digital currency, Libra. Pitted as the first mainstream global crypto-currency, it will be launched in the first half of 2020. Libra would then be available to anyone with an entry-level smartphone and an internet connection.

The virtual currency can be bought by users using fiat money, which adds to the reserve assets (along with investors’ contributions) that Libra is backed by. This is what sets it apart from, say, Bitcoin or Ether, which are speculative assets and are thus prone to wild fluctuations.

Facebook rushed to assure the public that data security and user privacy would be taken care of. An independent Libra Association (of which Facebook will be one of 100 members) will be established to govern all aspects of the currency.

Are you Crypto Enough?: Crypto enthusiasts are divided on Libra. Many are optimistic – and proud. Just a few years ago the world was mocking the crypto community, dismissing them as naive and impressionable. Today, one of the biggest companies in the world is investing in a crypto-currency, and the concept in mainstream, discussed by everyone from news anchors to policymakers.

Many allude to the project’s potential. For example, Changpeng Zhao, CEO of the crypto-currency exchange Binance, wrote that Facebook has a chance to “reshape the payment industry” and start the “un-dollarisation of the world”.

On the other hand, many are decrying Libra as a betrayal of blockchain technology. Crypto-currencies usually have a decentralised structure and are borderless, censorship-resistant and open to public verification. Libra’s reliance on reserve assets and the composition of the Libra Association have led to some commentators concluding that it will be able give competition to banks, not Bitcoin.

But will Facebook be Facebook?: Libra was also met with suspicion – given Facebook’s tarnished record on data security and compromising users’ privacy.

Additionally, there are fears that Libra’s Achilles’ heel won’t be Facebook itself, but its developers. According to the company’s white paper, the currency will be based on Libra Blockchain, which will be an open source platform that “any consumer, developer or business” can build on.

In 2013, a data scientist at the University of Cambridge was able to access numerous Facebook accounts after the company allowed him to harvest data for his third-party app (this was thanks to “Open Graph”, a feature on Facebook that was launched in 2010). A political consultancy firm, Cambridge Analytica, bought this data, accessed even more, and used it to chart users’ political preferences and target political ads accordingly. The resulting data breach affected 87 million users.

Now, given that Libra’s barriers to entry for research and innovation are practically zero, could Cambridge Analytica happen again? If it does, this time it won’t be usernames and passwords that will be compromised. It will be crores of digital currency that will be stolen.

JET

ED to question Founder Naresh Goyal in the Jet Airways privilege case. International Airlines Group promises to buy 737 Max.

Not So Privileged: The Enforcement Directorate (ED) is likely to question Jet Airways Founder Naresh Goyal in relation to stake sales in the unit that ran the grounded carrier’s loyalty programme, Jet Privilege.

Other Charges: ED is also examining allegations of tax evasion of more than INR650cr made against Jet Airways and its units.

Jet Airways incorporated Jet Privilege Pvt Ltd (JPPL) as a wholly owned unit in 2012. After Etihad bought a 50.1% stake, it was hived off as an independent entity.