Indian economy likely to slow down on more interest rate hikes
The Reserve Bank will further hike benchmark interest rates, and the spending squeeze that would follow will likely slow down the economy, members of the central bank’s Monetary Policy Committee noted in its last meeting. The committee raised the benchmark repo rate by 0.5 percentage point earlier this month after a 0.4 percentage point increase at an unscheduled meeting in May.
Why it’s important: The Reserve Bank has joined the battle against persistently high inflation. Higher borrowing costs in a demand-driven economy like India’s will have an impact on economic recovery.
Digital finance companies to petition government and central bank for regulatory clarity
After the Reserve Bank said prepaid payment instruments must not be loaded through credit lines from non-bank lenders, the country’s top digital finance companies are joining together to petition the government and the central bank for clarity on the directive. The government too wants a regulatory framework for fintech firms because of complaints of potential breaches in prudential norms.
Why it’s important: Using credit lines to top up prepaid cards has become increasingly popular among fintech companies in the buy now, pay later segment. Unsecured lines of credit increase risk in the system and need to be properly regulated.
Officials reject demand for reducing GST on 200 items
A committee of officials has proposed a change in GST for a host of items but rejected demands for a reduction of levy on 200 goods and services, even as the GST council meets next week. The committee is likely to suggest an increased rate for tetra packs.
Why It’s important: The easing of tax on 200 items was part of efforts to ease the inflationary burden on consumers. The GST Council has a lot of ground to cover on the rate rationalisation front.
CBDT issues guidelines on tax deducted at source for crypto assets
The Central Board of Direct Taxes has issued guidelines on tax deducted at source on cryptocurrencies. From July 1, TDS of 1 percent will be levied on payments towards cryptocurrencies beyond Rs 10,000 in a year. Under the new regime, the transactions will have to be disclosed in the tax return and a paper trail will have to be maintained.
Why it’s important: The guidelines will help both buyers and sellers since they can enter into contracts with an exchange for passing the responsibility to deduct tax on their behalf on virtual asset transfers.
RBI taps top banks to run pilot on blockchain-based trade financing
HDFC Bank, ICICI Bank and State Bank of India are among the top lenders the Reserve Bank is engaging with to run a blockchain-based pilot project centered on trade financing. Belgium-based SettleMint, US-based Corda Technologies and IBM would provide technology support for the project driven by the RBI’s innovation hub in Bangalore. Axis Bank, Bank of Baroda and Union Bank of India are also involved.
Why it’s important: The pilot seeks to make blockchain technology a part of the core banking system that could help prevent loan frauds by the likes of Nirav Modi and Mehul Choksi, borrowers who gamed the system to siphon off billions.
Google against frequent sharing of citizen data with government
Frequent and large-scale sharing of citizen data, even if anonymised, can damage users’ privacy, Google’s chief privacy officer Keith Enright has warned. On May 26, the ministry of electronics and information technology announced a draft framework to govern citizen data that proposed rules through which data sets from government and private entities can be accessed by the research and innovation ecosystem.
Why it’s important: An earlier draft framework had proposed to monetise government data. India wants data localisation for sensitive or critical personal data, but Big Tech argues there is no clear definition regarding sensitivity and criticality.
Indian rupee slides to new low on global recession worries
The rupee slumped to another record low of 78.39 against the dollar as global recession worries resurfaced. The Reserve Bank is estimated to have sold about $1. 5 billion through a mix of spot and forward market interventions using multiple state-run banks.
Why it’s important: The run on the rupee continues due to lack of confidence among investors. The local currency is likely to remain volatile amid about of fund outflows from India. Unless oil prices cool, global recession fears will keep haunting the financial markets.
Domestic wealth managers prop up equity markets after foreign money bails out
Domestic institutional investors (DIIs) led by mutual funds and insurers have pumped in Rs 2.16 trillion into Indian equities so far in 2022, helping cushion the impact of the Rs 2 trillion plus outflow from foreign funds. Ever since foreign portfolio investor (FPI) outflows started from October 2021, DIIs have invested Rs 2.8 trillion into stocks. FPIs have sold Indian stocks worth Rs 2.4 trillion since October last year.
Why it’s important: Continuously increasing flows from retail investors into equity mutual fund schemes have been the main driver of domestic money into the stock market. This is likely to continue as returns from other asset classes like real estate remain muted.
India’s exports of orthodox tea rise as Sri Lanka battles economic crisis
As Sri Lanka struggles with an economic crisis, India’s tea planters and exporters see an opportunity to expand business. Calls to Indian planters and exporters from foreign buyers of Sri Lankan orthodox tea are pouring in and the buoyant sentiment is reflecting in prices at auction centres.
Why it’s important: India is reaping the benefits of the anticipated shortfall due to the Sri Lankan crisis. The increased demand is also showing up in higher prices.
Secondhand phone seller Cashify raises $90 million in funding
Online used-phone seller Cashify has raised $90 million (Rs 700 crore) in a funding round led by new investors NewQuest Capital Partners and Prosus. Cashify, run by Manak Waste Management, raised the fresh capital at 2.5 times the valuation at which it had raised its previous funding in March last year.
Why it’s important: Cashify has said it aims to achieve breakeven in the next year and a half after which public listing would be considered. Startups in India continue to attract capital despite a funding winter.