Morning Scan: All the big stories to get you started for the day


Reserve Bank of India raises interest rate again to arrest inflation

Reserve Bank of India has hiked benchmark interest rates by half a percentage point, the steepest increase in more than nine years, and sharply lifted its full-year inflation forecast. The central bank’s monetary policy committee raised the repurchase rate, the rate at which it lends money to banks, to 4.9 percent. It had announced a 0.4 percentage point increase in an unscheduled meeting in May.

Why it’s important: The higher inflation forecast indicates there would be more rate hikes this year as the Reserve Bank trains its guns on inflation, which is at an eight-year high.

Rupee sinks to record low against dollar on higher crude oil prices

The rupee settled at 77.74 on Wednesday, weaker than its previous close of 77.71, to hit a fresh all-time closing low against the US dollar. The previous record closing low was on May 19, when it ended at 77.73 against the dollar although it had tested 77.80 levels during intraday trade on May 17.

Why it’s important: Elevated crude oil prices and sustained foreign capital outflows from India is leading to the continued weakness in the rupee.

Government increases procurement prices of kharif crop by 5-9%

The government has raised the minimum support price for paddy, the main kharif crop, by Rs 100 per 100kg. For 13 other summer crops, it raised prices by around 5-9 percent. The biggest hikes were for pulses and oilseeds, notably moong, soybean, and sunflower seed, as has been the norm in the past several years.

Why it’s important: The increase was in line with government policy as it seeks to boost farm production amid a global shortage of food grains. The increase could possibly lead to further hardening of inflation.

Corporate earnings in India to take a hit as interest rates rise

Two successive rate hikes by the Reserve Bank and the reversal in the interest rate cycle could hit corporate profitability in the coming quarters. India Inc gained significantly in 2020-21 financial year after the central bank cut the policy rate to a record low of 4 percent in May 2020 and expanded liquidity, according to an analysis by Business Standard. Borrowing cost in 2021-22 was the lowest in more than a decade that acted as a tailwind for corporate profits.

Why it’s important: The savings of nearly Rs 1 trillion on account of lower interest rates will now evaporate, which will shrink corporate earnings in the coming quarters.

Fintech firms propose banking alerts within apps, citing costs and security

Fintech companies like GooglePay and Paytm have requested the government to consider in-app alerts as an alternative to the mandated SMS notifications for banking transactions. In a representation sent on May 30, industry lobby group Nasscom has asked the central bank to consider allowing app-based notifications for banking transactions. Currently, the Reserve Bank requires banks to send only SMS alerts to customers for each transaction, with the cost borne by the regulated entities.

Why it’s important: The fintech firms have cited higher cost as well as security risks. For a smooth transition to the new system, customers can be given the option of choosing both or either of the two options, the industry has proposed.

India considers slashing tax on lithium-ion batteries to boost electric mobility

The Indian government may cut the goods and services tax on lithium-ion batteries and bring them on a par with taxes on electric vehicles, which are taxed at the minimum rate of 5 percent. Lithium-ion batteries are taxed at 18 percent. The talks of tax rationalization have gained momentum with the push for battery swapping policy.

Why it’s important: The government is looking at various ways to accelerate its green mobility plans. Any change in the tax will have to be taken by the GST Council but the Niti Aayog is expected to make a recommendation.

Reserve Bank of India allows linking of credit cards to UPI network in phased manner

The Reserve Bank of India has decided to allow credit cards to linked with the UPI network, a facility that till now was restricted to debit cards. To start with, it said RuPay credit cards can be linked to UPI.

Why it’s important: The move broadens the scope of digital payments. It will provide access to 30-day interest-free credit to almost all 250 million users of UPI.

Enforcement Directorate orders freeze on accounts of 100 fintech firms

The Enforcement Directorate, which investigates financial crimes, has told payment gateways and banks to freeze the accounts of around 100 fintech firms without ascribing any reason, halting operations at these platforms and putting some of them at risk of closure.

Why it’s important: The directorate has been cracking down on loan apps in particular for the past two years on charges of violations of Foreign Exchange Management Act and Prevention of Money Laundering Act. There have been complaints that they are putting undue pressure on borrowers for repayment.

Telcos flag concerns on 5G spectrum allocation to private networks

India’s top telecom operators have warned the government that that direct spectrum allocations to enterprises for private 5G networks will give the latter a backdoor entry into telecom services, the Cellular Operators Association of India has said in a statement. India’s top IT company, Tata Consultancy Services, had earlier called on the government to directly allocate 5G spectrum to private enterprises, as recommended by the sector regulator.

Why it’s important: The stage is now set for a face-off between telecom operators and technology companies. The auction of 5G spectrum will be delayed till this issue is resolved.

Ludhiana apparel industry stares at losses on Shanghai setback

Ludhiana, Punjab’s Rs 200 billion textile hub, is reeling under repeated supply shocks, the latest being the closure of the Shanghai port in China. It accounts for more than 90 percent of India´s apparel production for the domestic market.

Why it’s important: The industry has been brought to its knees due to the supply disruptions because of the Covid-19 pandemic. Recovery will not be easy as many of the small and medim firms are in deep distress.