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Indian Economy May Witness Contraction For the First Time in 40 Years

Professor of Financial Economics and Part-time Value Investor, Transfin.
Apr 19, 2020 2:32 PM 6 min read
Editorial

Indian economy may be heading for first contraction in 40 years. Centre makes prior Government approval mandatory for FDI from countries that share a land border with India. PM announces extension to lockdown till May 3rd. China's economy shrinks, ending half a century-long growth. 

 

 

ECONOMY

Indian economy may be heading for first contraction in 40 years. 

Dubious Distinctions

India’s economy was painfully trying to reverse a long-drawn slowdown that had dragged GDP growth to the lowest point in six years before the coronavirus pandemic hit. Now, with the 21-day lockdown extended to 40 days, the economy may be headed for its first contraction in four decades. Societe Generala GSC, Nomura, Bloomberg, ICRA – these are some of the research firms that have recently predicted a contraction in FY21. [BS]

 

Other ratings agencies like Moody’s, Fitch, Crisil and CARE Ratings have already made grim predictions of their own. [TRANSFIN.]

 

Centre makes prior Government approval mandatory for FDI from countries that share a land border with India.

The Centre has made prior Government approval mandatory for foreign direct investments (FDI) from countries which share a land border with India. Previously, only investments from Pakistan and Bangladesh faced such restrictions. The move is likely to restrict Chinese investments in the country. 

 

The revised FDI policy is aimed at “curbing opportunistic takeovers/acquisitions of Indian companies due to the current COVID-19 pandemic,” said a press release from the Department for Promotion of Industry and Internal Trade on Saturday. [Livemint]

 

PM announces extension to lockdown till May 3rd. 

The First Wealth is Health?

Prime Minister Narendra Modi today announced an extension to the 21-day nationwide lockdown till May 3rd in an attempt to flatten the curve and break the chain of spread of the coronavirus outbreak in the country as the number of active cases crossed 8998.

 

In his address, the PM said that extra scrutiny/monitoring will take place till April 20th in every district to disallow new hotspots. Following this, areas that show remarkable improvement in terms of not allowing new hotspots to be created will see some relaxation in lockdown rules after April 20th. 

 

A detailed list of guidelines will be released tomorrow. [BS]

 

PERSONAL INTEREST

Health insurance to cost up to 25% more, cover more diseases.

Health with an Increased Price Tag

Health insurance policies in India are poised for an overhaul that will make them more customer friendly.

 

Getting a health insurance might be a tricky business. And taking cognisance of this fact, the Insurance Regulatory and Development Authority has set September 30th as the deadline for all health policies to be standardised across health insurers with similar inclusions and exclusions and uniform language in policy documents and brochures.

 

Besides this, the coverage will widen, including diseases such as mental illness, obesity, menopause, Alzheimer, Parkinson and even robotic surgeries. [Business Today]

 

IT companies defer increments and promotions, but assure of no layoffs. 

Your Big Promotion May Be Delayed

IT companies in India have already held back salary increments and promotions or are expected to do so very soon in order to conserve cash as they gear up to battle the crisis triggered by the coronavirus pandemic.

 

While industry leaders Tata Consultancy Services (TCS) and Wipro have already announced deferring wage-hike plans, other players such as Infosys and HCL Technologies are expected to follow suit soon, as per industry insiders.

 

This is vastly different from the approach undertaken by global peers, couple of whom have announced salary hikes for a large portion of their employee base in India. For instance, French IT services and consulting major Capgemini and US-headquartered Cognizant have effected salary hikes, apart from giving out of turn increments, to help employees during this time of crisis. [BS]

 

COMPANIES

Zomato looking to acquire Grofers. 

India’s consumer internet sector is brimming with chatter – a major consolidation may be incoming. Zomato is reportedly in talks with Grofers to acquire the online grocery retailing startup in an all-stock deal.

 

Grofers, which has seen increased demand of late on the back of the nationwide lockdown, is expected to be valued at $750m. Zomato, which is currently valued at $3.2bn, recently struck a partnership with Grofers to sell groceries on its food delivery and restaurant discovery platform.

 

The deal, if it goes through, would be Zomato’s second big buyout (it acquired UberEats earlier this year). Moreover, SoftBank is apparently looking to invest c. $100-200m in the merged entity. [ET Tech]

 

Maruti expects car boom post-lockdown.

The Sun Shines Brighter After a Storm

RC Bhargava, Chairman at Maruti Suzuki India Ltd., says there is possibility of a car boom after the nationwide lockdown is lifted. He argues that as social distancing becomes a common practice, buyers could “become apprehensive of sharing space with another passenger”, thus increasing demand for vehicles.

 

While it remains to be seen if this hypothesis will come true, if a pandemic ends up reversing the long-drawn auto slowdown, it will go down in business history books as a cruel irony. [Livemint]

 

TECH

Reliance Jio in talks with Facebook to build a ‘super app’. 

Super Together

Mukesh-Ambani led Reliance Industries and tech giant Facebook are reportedly in talks to build a ‘super app’ of sorts, along the lines of the Chinese app WeChat.

 

The plan is to leverage Facebook-owned WhatsApp's massive user base in India and create an app that would combine digital payments, social media, gaming as well as flight and hotel bookings, among other features. 

 

The app would not just be a communication platform but one where users would also be able to buy groceries through Reliance Retail stores, or shop at ajio.com, or make payments using JioMoney. 

 

The ongoing discussions, however, have been delayed due to the pandemic. [ET Software]

 

Google developing smart debit card to compete with Apple.

Mirror Mirror on the Wall...Who's the Smartest of All?

Tech giant Google is reportedly developing its own smart debit card to compete with that of Apple's. 

 

The Google card and associated checking account is expected allow users to buy things with a card, mobile phone or online.

 

It is expected to connect to a Google app with new features that let users easily monitor purchases, check their balance or lock their account. The card will be co-branded with different bank partners, including CITI and Stanford Federal Credit Union. [TechCrunch]

 

GLOBAL

China's economy shrinks, ending half a century-long growth. 

The Chinese Dragon Comes to A Screeching Halt

The Chinese economy shrank 6.8% in the first three months of the year compared with a year ago, showed government statistics released on Friday, on back of the coronavirus pandemic.

 

This brings decades-long of continuous growth to a screeching halt. [CNN Business]

 

Did You Know

This is the first time China has reported an economic contraction since 1976, when Communist Party leader Mao Zedong's death ended a decade of social and economic turmoil.

 

The Chinese economy had shrunk 1.6% that year.

 

 OPEC+ approves deal to cut oil supply by a historic 20%.

Sign in Oil

OPEC and its allies have agreed to oil cuts which will be the largest in history in a long-fought attempt to support oil prices, which have reached record lows on the back of historically low demands amidst the coronavirus pandemic.

 

The unprecedented deal will see global oil supply cut by 9.7m barrels per day (bpd) or by 20%, four times more than the previous record cut in 2008. Producers will slowly relax curbs after June, although reductions in productions will stay in place until April 2022. [Reuters]

 

Extra Crunch

The countries that signed the agreement on Sunday is a loose 24-member organisation of crude-producing nations called OPEC+. They are led by Saudi Arabia and Russia. As for why these two petrostates are quarrelling over oil supply and prices, read this article. [TRANSFIN.]

FIN.

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