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


India faces twin deficit problem due to rising subsidies, commodity prices

Higher commodity prices and rising subsidy burden are leading to an increase in both fiscal and current account deficits, the finance ministry has warned. As government revenues take a hit after cuts in fuel levies, an upside risk to fiscal deficit has emerged. The increase may cause the current account deficit to widen, compounding the effects of costlier imports, and weaken the value of the rupee.

Why it’s important: It is the first time the government has admitted the possibility of fiscal slippage in the current financial year. The government, however, maintains that India faces low risk of stagflation.

India may allow life insurance companies to sell health cover

India’s insurance regulator is planning to allow life insurance companies to offer full-fledged health insurance policies. The Insurance Regulatory and Development Authority of India is likely to issue draft guidelines allowing life insurers to sell indemnity health insurance products, commonly known as mediclaim policies.

Why it’s important: The move will increase competition and has the potential to reduce premiums and increase access to affordable health cover.

Payments firms complain that banks are not sharing infrastructure subsidies

Payments companies and banks fighting over the sharing of government-granted subsidies for building payment infrastructure. The payments firms have told the National Payments Corporation of India that Rs 700 crore of the Rs 1,500 crore granted in the budget is being retained by banks. This has deprived companies connecting up the last mile of state-promised revenues.

Why it’s important: The government provided the subsidies in exchange for waiving charges related to the merchant discount rate. The Reserve Bank is expected to carry out a comprehensive review of all aspects related to charges in digital transactions.

Margins still under pressure at FMCG companies despite cooling input costs

Packaged consumer goods makers are unlikely to slash prices despite the correction in crude and palm oil prices but will instead slow the pace of price increases. Palm oil has dropped below $ 1,300 per ton from $ 1,900 while crude oil has retreated to less than $ 107 a barrel from a peak of $ 130. These together account for more than half of companies’ input costs.

Why it’s important: FMCG companies did not earlier pass on the full burden of increased input costs to consumers, fearing a weakening in demand. There is no indication that demand has revived.

Air India considers purchasing 300 aircraft to revamp fleet

Air India may buy 300 Airbus SE’s A320neo or Boeing Co.’s 737 Max aircraft to revamp its fleet. A deal for 300 737 Max-10 jets could be worth $ 40.5 billion at sticker prices, although discounts are common in such large purchases. Production and delivery of 300 planes would likely take years or even more than a decade.

Why it’s important: The purchase could be one of the largest in commercial aviation history as the former state-run airline looks to overhaul its fleet under new ownership by the Tata group.

Yes Bank in talks to raise $ 1 billion from Carlyle, Advent

Yes Bank is in advanced negotiations to raise $ 1 billion in equity from Carlyle and Advent International. The talks picked up pace after the lender decided to partner with JC Flowers to offload most of the bad loans on its books. It may take some more time as it is seeking shareholder approval for a new board of directors.

Why it’s important: Yes Bank has been trying to dig its way out of trouble by recapitalising. It has started exiting the reconstruction scheme set up two years ago after the government and the Reserve Bank put in place a special plan to rescue the private sector lender.

Vedanta offers to sell shuttered Sterlite copper smelter in Tamil Nadu

Oil-to-metals conglomerate Vedanta has offered to sell a copper smelter complex in southern Tamil Nadu that was closed four years ago. Prospective buyers have until 4 July to submit expressions of interest. The smelter in Thoothukudi was ordered shut in May 2018 after an agitation for closure for alleged pollution.

Why it’s important: The chances of reopening the factory look slim as the matter of closure is in the courts. It is unclear who would be interested in buying the facility.

Private banks charging high foreclosure fees, small businesses say

An association representing nearly two million small enterprises in India has accused top private banks of levying steep charges to foreclose their loans. Hidden charges levied by banks are putting severe pressure on working capital, said Anil Bhardwaj, secretary general of the Federation of Indian Micro and Small and Medium Enterprises.

Why it’s important: The levies charged to close a loan before its tenure comes at a time many small enterprises in the country are facing severe input pressures on rising commodity prices.

Indian companies face sharp increase in funding costs as rate cycle reverses

After two years of a record low interest-rate regime, Indian corporate houses are experiencing a sharp and abrupt increase in funding costs. The yield on the benchmark triple-A-rated corporate bonds maturing in three years has climbed 0.98 percentage point since the policy rate hike in May. A significant portion of corporate borrowing is conducted in papers maturing in three to five years.

Why it’s important: The easy money cycle has ended due to persistently high inflation. Borrowing costs will only rise from here on in the foreseeable future.

Corporates welcome new military recruitment scheme despite protests

Corporate India has gone out of its way to support the central government on its Agnipath military recruitment scheme, which has triggered a mass agitation across India. Top business leaders, including N Chandrasekaran, Anand Mahindra, Harsh Goenka, Sanjiv Bajaj and Kiran Majumdar-Shaw, felt the soldiers who will not be retained after four years would find employment in the private sector.

Why it’s important: There seems to be a disconnect between aspirants for military service and the government and business leadership. It remains to be seen if the youth are convinced by assurances by the top brass.