Budget to increase government spending to boost growth
The national budget to be presented tomorrow is likely to propose increased government spending on infrastructure and other developmental sectors to continue efforts to reverse the impact of the COVID-19 pandemic on economic activity. Capital expenditure estimates for 2022-23 may rise between 10-20 percent, with the bulk of the money funnelled into developing social and physical infrastructure.
Why it’s important: The central government is likely to give priority to economic growth over fiscal consolidation as the recovery from the pandemic has been incomplete. Finance minister Nirmala Sitharaman is expected to leave tax rates unchanged, relying instead on income from asset sales and a higher borrowing of about Rs 13 trillion to partly fund the capex plan.
Central government firms short of meeting capex target
Despite the government pushing central public sector enterprises to frontload capital expenditure, state-owned firms have spent only 63.3 percent of their annual capex target of Rs 5.95 trillion in the first nine months of 2021-22. Companies owned by the central government spent Rs 3.76 trillion towards capex between April and December.
Why it’s important: Slow capital spending by central PSUs and ministries could pose a hurdle for finance minister Nirmala Sitharaman, who is expected to substantially raise capex allocation in the 2022-23 budget, especially since private investments are yet to pick up.
LIC boosts shareholder corpus to Rs 66 billion from Rs 1 billion
Life Insurance Corporation of India has increased the size of its shareholders’ fund to Rs 66 billion from Rs 1 billion. The size of the fund has been enhanced by retaining two years of dividend and issuing fresh capital.
Why it’s important: The move will accommodate a larger shareholder base ahead of its public listing this year. Increasing the size of the shareholders’ fund will help push up the number of shares for allotment in the insurer’s IPO.
Vistara to coexist with Air India, merger talks premature
The Tata Group wants to turnaround Air India without hurting the operations of Vistara and any talk of an eventual merger of the airline firms was premature, said Bhaskar Bhat, chairman of Tata SIA Airlines, which owns Vistara. The government transferred Air India last week to Talace Pvt Ltd, a wholly owned Tata subsidiary. Bhat is also a director of group holding company Tata Sons.
Why it’s important: While Air India as a structure will be untouched for a year, the Tata Group is said to have a long-term plan to create a unified aviation entity that will be efficient in terms of operational structure to compete well in the market.
SEBI’s rules on related-party transactions raise concerns
New rules on related-party transactions and other transactions that require shareholder approval have alarmed many corporates, who have told the Securities and Exchange Board of India that onerous procedures could slow decision-making, impact competitiveness, and affect productivity.
Why it’s important: In November, SEBI mandated tighter shareholder control and stricter disclosures around related-party and material transactions to check misstatements and omissions in financial statements. The new rules come into force on April 1.
Deal with Google to help Airtel in expanding 4G services
The strategic nature of Google’s partnership with Bharti Airtel on driving mass adoption of affordable smartphones will help India’s second-largest cellphone operator push feature phone users to opt for 4G services. It will increase its growth of average revenue per user.
Why it’s important: Airtel will directly benefit through gains on revenue market share in the coming quarters. This might give it an edge in the hypercompetitive telecom market in India.
Cost pressures easing for auto, consumer appliances firms
After an unrelenting rise in commodity prices, companies manufacturing automobiles and consumer appliances are expecting cost pressures to ease because prices of inputs like steel, aluminium, copper, plastics, and some precious metals show signs of softening.
Why it’s important: If price hikes by manufacturers is greater than incremental increase in input costs, margins are expected to widen in the current quarter. However, increasing inflationary trends could pare some of the gains.
Lenders start raising interest rates on deposits
In a good news for savers, deposit rates are rising as banks are following non-banking financial companies in competing for funds. The State Bank of India hiked deposit rates on fixed deposits twice in a week, following closely on the heels of private lenders HDFC Bank, Axis Bank and ICICI Bank.
Why it’s important: Lenders in India are factoring in an impending hike in benchmark rates by the Reserve Bank of India as retail inflation remains perilously close to its tolerance range. The change in the interest rate cycle will make borrowing more expensive.
Firms invest in developing COVID-19 vaccine that can fight all variants
Five global vaccine developers are working jointly on a new coronavirus vaccine as mutations and the new variants push scientists across the globe to collaborate and find a lasting solution to tackle the pandemic that has now lasted for more than two years.
Why it’s important: The need to avert severe disease and hospitalizations led pharma companies to work on vaccines that offered protection against the Alpha and Delta variants. However, most vaccines have failed to prevent infection against Omicron, forcing researchers to return to the drawing board.
Bad bank faces challenges with change in structure
The newly-minted bad bank faces obstacles in the resolution of stressed assets as the final structure and contours of the institution get more of a public sector flavor than the originally envisaged. The public sector-owned National Asset Reconstruction Co Ltd oversees resolutions, but asset management is by the private sector India Debt Resolution Co Ltd
Why it’s important: There is scope for conflicts in the resolution approach given that NARCL will have to comply with all government-mandated rules including vigilance and audit, which is likely to slow down the recovery process, potentially negating the benefits of having a private sector asset manager.