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Netflix and Hotstar May Adopt Self-Censorship Code, Flipkart and Amazon Face Heat Under the New FDI Guidelines, India's Fiscal Deficit Widens et al.

Professor of Financial Economics and Part-time Value Investor, Transfin.
Dec 30, 2018 7:16 AM 6 min read

While the new FDI guidelines for the e-commerce sector may have rather severe ramifications for the retails giants such as Amazon and Flipkart, they might prove to be of aid to the smaller retailers. Govt appoints panel of six to review RBI's Economic Capital Framework - a perennial bone of contention with the govt. Fearing Indian govt's rather punitive regulatory stance, streaming services such as Netflix and Hotstar may adopt self-censorship code.


Now to the week's Top Business Stories through our End Of Week Wrap Up:

Netflix and Hotstar Adopt Self-Censorship Code, Flipkart and Amazon Face Heat Under the New FDI Guidelines, India's Fiscal Deficit Widens et al. 



Ex-RBI Governor Bimal Jalan to head panel of six set to review its Economic Capital Framework. Govt to inject INR28,615 cr in seven PSBs. RBI opposes dilution of bank capital norms; might consider revision of existing prudential regulations. Recovery of Indian banks improved in 2017-18 after the implementation of IBC, as per the Trends and Progress Report released by the Central Bank.


Hit Refresh: RBI ‘Surplus’ reserves has been a perennial bone of contention with the govt. The Committee of six will decide whether the Central Bank holds excess provisions, reserves and buffers, which could be remitted back to the govt.


Who Gets to Decide?: Rakesh Mohan, a former deputy governor, will be the deputy chairman. Bharat Doshi and Sudhir Mankad, Directors in RBI’s Central Board, NS Vishwanathan, a Deputy Governor at RBI, and Economic Affairs Secretary Subhash Chandra Garg are other members of the committee.


Also: Government is likely to infuse INR28,615 crore in seven public-sector banks through recapitalization bonds by the end of December including United Bank of India, Central Bank of India, Oriental Bank of Commerce and UCO Bank.


Zoom Out: The government had earlier announced an infusion of INR65,000cr in PSBs in 2018-19, of which INR23,000cr has already been disbursed while INR42,000cr is remaining.


The What: In light of the “Report on Trend and Progress of Banking in India 2017-18” released on Friday, the RBI opposed the relaxation of rules around risk weights and capital requirement for Indian banks. The Central Bank warned that relaxing the current risk-adjusted capital norms could hit the economy at a time when defaults are high and provisions low, as per a Livemint report.


Perspective: At present, the capital adequacy norms for Indian banks are higher than those recommended under Basel.


What else: RBI also suggested that it intends to issue revised prudential regulations, including guidelines on exposure and investment norms, risk management framework and select elements of Basel III capital framework to All India Financial Institutions—investment and development institutions that are crucial to the economy.


Also this: For the 701 cases admitted under the National Company Law Tribunals (NCLT), and claims admitted on 21 accounts for an amount of INR9,900cr, the recovery has been INR4,900cr, indicating a haircut of about 50%.


Also, some nice fresh stuff (what we call "data") from the RBI: Click links to access: 


Report on Trend and Progress of Banking in India 2017-18 
Statistical Tables Relating to Banks in India: 2017-18



Govt tightens FDI guidelines for e-commerce sector. New draft ecommerce policy to plug in loopholes that may favour giants such as Amazon and Flipkart. Govt considers appointment of a dedicated regulator for e-commerce sector. Flipkart, Amazon may consider franchise options to meet new FDI norms. 


Rules first: New FDI guidelines out, stating that:


  • Gist: Govt cracking a whip on Flipkart, Amazon - restricting them from giving out discounts/cash backs. 
  • Secondly: Flipkart and Amazon have to follow a “marketplace” model in India (where you just connect sellers with buyers) rather than the “inventory” mode (where the platform holds its own inventory e.g. Amazon in US). Till now they were bypassing by creating legal entities which first buy from vendors (i.e in a way keep inventory). New rules place more controls. 
  • Conclusion: Bad for ecommerce, good for brick and mortar retail. Prices on e-commerce may align with brick and mortar over the medium term, though subject to full policy guidance.

The new framework will come into force on February 1, 2019.


What’s the new draft about?: As per a Business Standard report, the new draft ecommerce policy to be released next week will seek to plug in gaps in the policy released yesterday. As such, the policy released yesterday might have inadvertently favored retail giants such as Amazon and Flipkart.


Up Close: For instance, the new FDI rules state that an online marketplace cannot sell products from a vendor in which they have a stake. However, they do not say anything about selling goods from a subsidiary firm of a vendor. For example, Cloudtail is a joint venture between and Narayan Murthy’s family office Catamaran Ventures, which forms a majority of Amazon's sales. 


Also this: As per a Livemint article, the government is also debating the need for a dedicated regulator for the sector to ensure fair play for all.


What about Amazon and Flipkart?: Flipkart and Amazon may have to enter into re-seller agreements with multiple Indian companies to be able to sell their products as the new FDI guidelines prohibit platforms from purchasing more than 25% from a single vendor.



India’s fiscal deficit widens to 115% of full-year target in November. Govt plans INR1.25L crore direct benefit scheme for farmers.  


Up Close: India’s fiscal deficit stood at INR7.16L crore at the end of November, according to data released by the Controller General of Accounts. This is 114.8% of the budgeted estimate of INR6.24L crore for 2018-19.


Expert opinion: The government is widely expected to miss its fiscal deficit target in the current fiscal year or else be forced to announce spending cuts in the last quarter, per a BloombergQuint report.


Farm woes: The government is considering relief programs for agriculture sector with special focus on a direct benefit scheme for farmers to help them meet expenses for seeds, fertilizers, pesticides and laborers.


Also this: Another option being deliberated by the government is “price deficiency payment”, under which subsidy would be provided in case the price falls below an MSP (minimum support price)-linked threshold.


The Bigger Picture: The move comes ahead of the 2019 general elections and shortly after the government lost in 3 states, primarily agrarian, in the recent elections. Implementation of these income support scheme could see the exchequer taking a hit of INR600-700bn a year, according to a Business Standard report.



Chinese e-commerce giant plans $1bn share buyback. FedEx appoints Indian-American Rajesh Subramaniam as President and CEO.


What you need to know:’s shares have slumped nearly 16% in the two days after recent rape allegation against CEO Richard Liu, and 50% in the past one year. The buyback program is worth about 3.5% of the company’s market capitalization.


The Big Picture: Shares of and other Chinese tech companies have plunged this year on back of an investor base worried about a slower economic growth in China, tightening government regulations and an ongoing trade war with US.


What else?: Rajesh Subramaniam appointed as President and CEO of FedEx. He is an IIT-Bombay graduate from Thiruvananthapuram, and is currently the Executive Vice President, Chief Marketing and Communications Officer of the co. He has been with the co for more than 27 years. 


Netflix and Hotstar Adopt Self-Censorship Code, Flipkart and Amazon Face Heat Under the New FDI Guidelines, India's Fiscal Deficit Widens et al. 



Netflix, Hotstar and other streaming services may adopt self-censorship code. JioCinema ties up with Disney for content partnership. 


Code of conduct: According to an Economic Times report, streaming platforms including Netflix, Hotstar and Reliance Jio may soon adopt a voluntary censorship code that would restrict streaming of content that is banned by Indian courts, disrespects the national emblem and flag, outrages religious sentiments, promotes terrorism or violence against State etc. The code is likely to adopt a redressal mechanism that will allow viewers to send complaints in case of any violation.


The Why?: The development is considered to be a preemptive move against the Indian government imposing its own rules, which may be punitive in nature.


Zoom Out: Amazon, Facebook and Google are unlikely to opt in, fearing that the code might interfere with creative liberty and set a precarious precedent of regulating the internet. It is worthwhile to note here that the three speculated to be pushing against the code perhaps see content as secondary to their core business offering and more as a tool to augment their primary businesses. Furthermore, considering that Facebook and Google's Youtube are largely user-generated content platforms, any self-policing could be seen as counter-intuitive with meaningful ramifications to their business models.


Jio’s deal with Disney: JioCinema, Reliance Jio’s digital app has tied up with Disney to push content through a dedicated section on its platform from the likes of Disney, Pixar, Marvel, and Lucas film.


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