NEWS HOUR - 1st JAN to 7th JAN 2017 - FINANCE AND INVESTMENT CLUB - IIM ROHTAK

NEWS HOUR 1st Jan– 7th Jan 2018

Weekly News Magazine

INDIA’S CURRENT ACCOUNT DEFICIT WIDENS IN Q2 FY17

In This Issue 

India’s current account deficit widens in Q2 FY17

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Modi Government scraps Merchant Discount Rate charges on debit cards, BHIM UPI, upto Rs 2,000

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SEBI bars investment advisors to stop selling financial products

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Indian Exports to China surged by 53% in October

Report by - Rajesh Khanna

India’s current account deficit more than doubled in the second quarter of 2017-18 and rose to $7.2 billion (1.2% of GDP) as against $3.4 billion in the same quarter of last year. The data from RBI further revealed that CAD narrowed sharply from $15 billion (2.5% of GDP) in Q1 of the current fiscal year.

The widening was primarily due to the higher trade deficit of $32.8 billion brought about by the sharp increase in merchandise imports relative to exports. Remittances from Indians living abroad decreased to $0.7 billion in Q2 2017-18 as against $2.1billion in Q2 of the previous year. Net foreign direct investment stood at $12.4 billion of Q2 of 2017-18, moderated from its level in the second quarter of 201617.

Analysts are expecting that the current account deficit will further widen at the end of fiscal year to 1.7 – 2.0% of GDP as oil and other global commodity prices continue to surge, while exports remain stable. Despite a wider CAD, India’s balance of payments stood at $9.5 billion in Q2’17 compared with $8.5 billion a year ago, owing to a stronger capital account.

India has indeed improved a lot in its Current Account Deficit figures from the days of the taper tantrum in 2013. From a deficit of 4.75% of GDP in Q1 2013, it has lowered to 1.2% of GDP in Q2 2017. This achievement is primarily credited to the effect of lower crude oil prices and not because of the spike in exports. In fact, exports fell from 18.79% in Q2 2013 to 12.16% in Q2 2017.

MODI GOVERNMENT SCRAPS MERCHANT DISCOUNT RATE CHARGES ON DEBIT CARDS, BHIM UPI, UPTO RS 2,000

Some key points

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Government will reimburse the MDR charges on transactions of upto Rs. 2000

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MDR reimbusrsed to the banks would increase from Rs. 1050 crore in FY 2018-19 to Rs. 1462 crore in FY 201920

Report by - Himanshu Jatale

For coming two years, MDR charges on transactions upto Rs 2,000 by debit cards, BHIM UPI, and AePS Transactions will be borne by the government by reimbursing the same amount to the banks, so as to boost digital transactions in the country, with effect from 1st January, 2018.

The Union cabinet release stated that, “It is estimated that the MDR to be reimbursed to the banks in respect of transactions less than Rs 2,000 in value would be Rs.1,050 crore in FY 2018-19 and Rs.1,462 crore in FY 2019-20.” In this manner, both the consumer and the merchant will be free from any kind of additional burden by MDR upto value Rs 2,000, thereby paving way for a greater adoption of digital payments by the people for such transactions.

A separate committee comprising of Secretary Department of Financial Service, the CEO, National Payment Corporation of India and the Secretary Minister of Electronics & IT is assigned the task to look into the cost structure of such transactions so as to decide on the level of reimbursement.

As these small category transactions of Rs 1,000 to Rs 2,000 forms the majority in digital transactions, they amount to 15%-20% of total transactions in terms of value and 65% in terms of volume.

As per the RBI's notification, MDR charges to little vendors for an annual turnover about up to Rs 20 lakh has been fixed at 0. 40 percentage for a top of Rs 200 for every transaction by debit cards through Point of Sale (PoS) machines or web transactions.

In the event that those yearly turnover of a merchant may be over Rs 20 lakh, the MDR charges would be 0. 90 percentage for a cap of claiming Rs 1,000 for every transaction. Whether transaction is through QR code, the charges will be 0. 80 percentage with a similar cap.

Source: Web

Some Key Points 

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The Security and Exchange Board of India has decided to split the role of investment advisor and financial products seller The move is unwelcomed by many brokerage firms and distributors

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SEBI BARS INVESTMENT ADVISORS TO STOP SELLING FINANCIAL PRODUCTS Report by - Sanchit Goel

The Security and Exchange Board of India has decided to split the role of investment advisor and financial products seller. The market regulator recently proposed that entities and individuals who register as Investment advisors will not be allowed to sell the financial products in the market. The rule applies to banks, nonbanking finance corporation (NBFCs), corporates, LLPs who are in the business of financial advisors will not be allowed to distribute the financial products. Individuals who are registered as financial advisors cannot indulge in the activity of distribution either directly or through immediate relatives. The regulator has given the option to existing registered investment advisors to choose among providing investment advice or delivery of products. 782 individuals and firms are registered as investment advisors at SEBI whose business might take a hit after this ruling. They have to choose by March 31st, 2019.

The move is unwelcomed by many brokerage firms and distributors including mutual funds who argue that such a decision could have an impact on their business. However, the regulator has allowed mutual funds to explain the features the product and also to ensure the principle of the appropriateness of the product for the client. Their argument is based on the fact that “in India, people don’t pay for investment advice,” and hence they found this regulation impractical.

This was the third discussion paper of SEBI. The first one in October 2016 and the second one was in June 2017.

INDIAN EXPORTS TO CHINA SURGED BY 53% IN OCTOBER

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Report by - Shivam Aggarwal

Indian exports to China surged by 53% year on year in October to reach the astounding figure of US $1.24 billion. Despite the boom in the exports the trade deficit continues to mount, which stood at USD 2.86 billion. These results came at a time when the bilateral ties between the two countries have strained because of territorial issues. In the current fiscal year, the bilateral trade increased to USD 6.33 billion with 13.54% increase over the last fiscal year. During the same period last year, the Indian exports to China were USD 0.81 billion. This spike in the exports came because of the surge in demand of precious stones, natural pearls, precious metals, organic chemicals, copper and articles, ores, slag and cotton including yarn and woven fabric.

The tables turned in this year as the exports increased for the first time in several years. The exports increased by 40.69% year on year in the initial 7 months of the current fiscal year to reach USD 10.69 billion. Despite the positive trends, the trade deficit has risen to USD 44.51 billion which stood at USD 52 billion last year. India has been looking for more opportunities in the pharmaceutical and IT sector, and pressing China to open the gates for the Indian companies to expand the exports base in China.