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Interim Budget Promises Direct Income Support for Farmers, Tax Relief for Middle Class, RCom Files for Bankruptcy, India’s Unemployment Rate Hit 45-year High et al.

Professor of Financial Economics and Part-time Value Investor, Transfin.
Feb 3, 2019 11:06 AM 5 min read
Editorial

Interim budget promises direct income support for farmers, tax relief for middle class. Govt to breach fiscal deficit target for current FY. Jet to seek approval from its shareholders to convert a portion of its debt into equity. Government allocates INR3,900cr to service Air India debt. India’s unemployment rate hit 45-year high at 6.1% in 2017-18. 

 

Now here's the Breakdown:

 

BUDGET

Interim budget promises direct income support for farmers, tax relief for middle class. Govt to breach fiscal deficit target for current FY. 

 

One For All: Piyush Goyal presents a Budget which pleases all. Key highlights include:

  • An increase in income tax exemption limit to INR5L per year, along with an increase in the standard deduction limit to INR50,000 from INR40,000
  • Announcement of a mega pension scheme to provide assured pension of INR3,000 per month to people working in the informal sector
  • Farmers with up to 2 hectares of land to get direct income support of INR6,000 per year under PM KISAN scheme
  • Significant financial outlay for the One Rank One Pension (OROP) scheme

 

Fiscal deficit for the current FY has been revised upward to 3.4% from the budgeted target of 3.3%.

 

AIRWAYS

Jet to seek approval from its shareholders to convert a portion of its debt into equity. Government allocates INR3,900cr to service Air India debt. 

Rescue Mission: Jet to seek shareholder approval to convert existing debt into equity in a bid to salvage the beleaguered domestic airline. 

The Plan: In an extraordinary general meeting (EGM) scheduled on 21 February, Jet’s shareholders would vote on a proposal to raise its authorized share capital from INR200cr to INR2,200cr through a special resolution which would then allow Jet to issue fresh shares to lenders, and in turn bring in fresh investments. 
 

Upon authorization, SBI is likely to take an equity stake of at least 15% in the airline. 

Ghost of the Past: Read this rather interesting piece to know how Jet’s proposed plan may be another Kingfisher redux?

 

Air India: As per the Budget presented on Friday, the government will provide INR3,900cr for servicing Air India's loans transferred to a special purpose vehicle. Of the total amount, INR1,300cr will be allocated this fiscal year, while the remaining INR2,600cr will be provided in the next. The national carrier is estimated to have a debt burden of INR55,000cr.

 

Hawk-Eye View: Under its new revival strategy, the Ministry of Civil Aviation has asked Air India to share its business plan. While the Ministry notes that the airline has been doing "pretty well" with a revenue growth of 20% YoY in Q3, constant monitoring will ensure that it does not walk the path created by Jet Airways or Kingfisher Airlines.

 

COMPANIES

Reliance Communications files for bankruptcy. Chanda Kochhar loses job, Srikrishna Committee submits report to ICICI Bank following probe into ICICI Bank-Videocon loan case. Investigative portal Cobrapost alleges INR31,000cr scam by the promoters of DHFL. 

 

Unable to sell its spectrum assets to Mukesh Ambani’s Reliance Jio, Anil Amabani’s Reliance Communications filed for insolvency.

To Refresh Our Memories: The insolvency petition comes weeks after the Supreme Court had issued a notice to Anil Ambani on a plea by Ericsson India seeking initiation of contempt proceedings for allegedly not complying with its order to clear dues of INR550cr. RCom has outstanding dues worth over INR46,000cr.

 
Read original press release here.

 

You Are Under Watch: As per a Business Standard report, ICICI Bank-appointed panel has submitted its report in the INR3,250cr ICICI bank-Videocon loan case. Board finds Chanda Kochhar in violation of its Code of Conduct, fires her and claws back her bonuses from April 2009-March 2018.

Hit Refresh: ICICI had constituted the panel under Justice Srikrishna on May 30, 2018, to probe various allegations, including the alleged conflict of interest and quid pro quo against the Kochhars in the Videocon loan case. 

 

What You Need to Know: Investigative portal Cobrapost alleged a INR31,000cr scam by promoter of NBFC Dewan Housing Finance Corporation Limited (DHFL).The portal alleged that the scam has been pulled off primarily by sanctioning and disbursing funds as secured and unsecured loans to dubious shell companies, which have in turn passed the money on to companies controlled by the Wadhawans, the chief promoters of DHFL.

 

"Mischievous Misadventure": DHFL however, denied all charges and said that the "mischievous misadventure appears to have been done with a mala fide intent to cause damage to the goodwill and reputation of DHFL and resulting in erosion in shareholder value".
 

Read the original story by Cobrapost here.

 

TECHEARNINGS

Alibaba and Facebook beat estimates. Samsung falls. Apple reports fall in revenue in Q1.

 

Alibaba Calms China’s Fears: Alibaba reported 37% rise in Q3 net profit at 33.05bn yuan ($4.92bn) vs last year. Revenue jumped 41% to 117.28bn yuan.

Gross Merchandise Volume (GMV) grew at a robust 29%. Revenue from its cloud business rose c. 85% to 6.6bn yuan, while sales from its digital entertainment and media business rose 20% to 6.5bn yuan.

Facebook Rallies Despite Year of Scandal: The social media giant posted a record profit of $6.88bn in Q4 vs. $4.27bn last year. Revenue rose 30% y-o-y to $16.64bn.

Oh No...: Samsung posted 29% drop in Q4 operating profit on back of a slowdown in demand for memory chips.

 

Missing revenue guidance, Apple reported a 4.5% fall in revenue to $84bn and a marginal fall in profit to $20bn in Q1. 

Revenue from iPhone declined 15% vs last year, while total revenue from all other products and services grew 19%. 

Midlife Crisis: The slump in growth can be ascribed to users’ increasing reluctance to upgrade to pricier devices and fierce competition in China from lower-priced, feature-rich phones. 

Meanwhile…Apple Hits a New Milestone: The tech giant reported to have hit a new milestone with 1.4bn active Apple devices globally. This covers iPhones, Macs, iPads, Apple TVs, iPods, and Apple Watches. Accessories like AirPods aren’t included.

 

ECONOMY

India’s unemployment rate hit 45-year high at 6.1% in 2017-18. Government to conduct new survey on employment. GDP growth rate for FY2017-18 revised upwards to 7.2% from 6.7%. 

 

No Vacancy: As per an NSSO survey which has not been made public yet, India's unemployment rate stood at a 45-year high of 6.1% in 2017-18. Joblessness was higher in urban areas (7.8%) than in the rural areas (5.3%).

Read this insightful piece to understand why the report has been the centre of controversy following allegations of the government refusing to release it, leading to the resignation of the last two remaining independent members of the National Statistical Commission.

 

The government will conduct a new national sample survey on employment, which will show that there has been "substantial job creation", said Prime Minister's Economic Advisory Council Chief Bibek Debroy. 

 

The legitimacy of the unemployment data has been much debated upon, and government’s policy think tank, NITI Aayog’s refusal to accept the numbers or to comment on the report has further muddied the waters.

Read this insightful piece by The New York Times which shows how any bad news on jobs is likely to hurt the incumbent government in the next elections.

 

The Revision: The government on Thursday revised the economic growth rate for FY2017-18 upwards to 7.2% from earlier estimated 6.7%.  

 

US

Fed holds interest rates steady, indicates dovish stance for future.
 

Hawks, Doves and Owls: Following a two-day policy meeting, the Federal Reserve voted unanimously to hold its policy rate in a range between 2.25% and 2.5% on back of rising economic activity and increased spending by households.
 

Chairman Jerome Powell dismissed the possibility that President Trump's criticism of the Fed consistently raising rates last year adversely affecting the US economy had any role to play in Fed’s decision to hold rates steady. Read Powell's retort here.

 

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