Statsguru: Value erosion in PSUs can limit govt's disinvestment target

All sectors will be opened up for private firms and PSUs will be privatised in non-strategic sectors.

While announcing the economic package to deal with the impact of Covid-19, Finance Minister Nirmala Sitharaman had said that the government would formulate a new policy for public sector undertakings (PSUs).

All sectors will be opened up for private firms and PSUs will be privatised in non-strategic sectors. This will not only help improve efficiency in the system but also raise resources for the government. The government has budgeted to raise over Rs 2 trillion through disinvestment in the current fiscal year (chart 1). Notably, PSUs have improved their dividend payment in the past few years.

However, the data shows that recent developments in PSUs can limit the value that the government can expect to raise. In FY20, the biggest chunk of disinvestment inflow came by selling stakes in PSUs through exchange-traded funds (ETFs), as shown in chart 2. Also, the performance of PSUs has been weak in the market.

The BSE PSU index has fallen more sharply as compared to the BSE Sensex in the last two years (chart 3). The fall in stock prices has eroded significant value in some of the largest PSUs, which will limit receipts for the government (chart 4). One clear reason for this could be the poor financial performance of PSUs: Their sales and profits have come down significantly in recent quarters (chart 5).

There are some sectors in which sales performance of PSUs has been better than private companies, such as the power sector (chart 6). But the case is different in the refinery sector.

Delay in regulatory leeway likely to prove costly affair for banks

With loan growth and asset quality likely to take a hit, FY21 earnings estimates are coming under the knife.

The sharp rally in banking stocks, which rose 10-12 per cent, in the first half of Thursday’s trade did not sustain fully as hopes of relief or bailout measures for the sector from the finance minister did not materialise. The minister though has kept the option open for more relief measures as and when needed, which suggests that some relaxation (from the Reserve Bank of India or RBI) on asset classification norms (critical for classification of non-performing assets or NPA) may come through for the sector. While hopes of some relief have been around for over 10 days, any further delay could prove costly for banks.

Analysts are already downgrading their earnings expectations, with private banks likely to see a sharper cut. In fact, an across-the-board earnings downgrade is also the first of its kind for private banks.

The nation-wide lockdown, which was initially to be more a problem for small and medium enterprises (SME) exposure of banks, is beginning to spread. “The current pan-Indian lockdown will certainly affect cash flows of borrowers, both individual and corporate, which may lead to an increase in corporate as well as retail NPAs,” say analysts at ICICI Securities. “The lockdown will adversely impact most sectors and may not be restricted to chemicals, textiles, electronics, and entertainment,” they add.

The last time when banks received dispensation on asset recognition was in 2016, after demonetisation. The RBI gave a 90-day window for classifying certain retail loans as NPAs.

“Without a similar dispensation being extended from the March quarter, banks could find it very difficult to sail though,” said a top executive of a state-run bank. Another senior banker said unless such dispensations are soon given, it may be difficult, especially for private banks, to lend support to customers. While most state-owned banks have come out with special schemes for their customers battling the lockdown, private banks are yet to act. “The longer it takes to roll out these relief measures, the prolonged will be the period of dull growth for banks,” he adds while mentioning that business volumes have been quite negligible in the last two weeks.

Japan braces for Q4 GDP slump, decline in output on coronavirus fears

Japan is among countries worst affected by the epidemic outside China, with 251 confirmed cases including those on a cruise ship.

Japanese policymakers on Friday braced for a sharp contraction in October-December growth and warned of the hit to output and consumption from the coronavirus outbreak, signalling alarm over a darkening outlook for the world's third-largest economy.

Bank of Japan Executive Director Eiji Maeda said gross domestic product (GDP) may have suffered a "big contraction" in the final quarter of last year due to sluggish overseas demand and damage to consumption from last year's sales tax hike.

"Japan's economy is expected to continue expanding moderately as a trend," thanks to robust capital expenditure and government spending, Maeda told parliament.

"But we need to be vigilant against various risks such as the impact the coronavirus outbreak could have on output and spending by inbound tourists," he said.

Economy Minister Yasutoshi Nishimura also told reporters the virus outbreak, as well as unusually warm weather that hurts sales of winter clothing, were "fresh factors weighing on the economy."

Analysts polled by Reuters expect Japan's economy to have shrank an annualised 3.7% in the October-December quarter, which would be the fastest pace of decline since 2014. The GDP data is due 8:50 a.m. Monday (2350GMT Sunday).

Japan is among countries worst affected by the epidemic outside China, with 251 confirmed cases including those on a cruise ship.

Some analysts expect Japan's economy to suffer another contraction in the current quarter as China's virus outbreak hurts exports, output and consumption through a sharp drop in overseas tourists.

The government decided on Friday to spend 10.3 billion yen from budget reserves to respond to the coronavirus.

Industry urges FM Nirmala Sitharaman to change tax settlement scheme

Sources in Ficci say the lacuna of the scheme is that 100% of the disputed tax has to be paid.

Industry on Monday asked Finance Minister Nirmala Sitharaman to tweak the Bill on settling direct tax disputes by reducing the amount of tax under the scheme on the lines of a similar one for indirect taxes announced in the previous Budget.

Sitharaman on Monday met industry representatives on the scheme that provides opportunity to taxpayers to pay outstanding taxes and get waiver of interest and penalty.

Sources in the Federation of Indian Chambers of Commerce and Industry (Ficci) said the main lacuna of the scheme was that 100 per cent of the disputed tax had to be paid.

On the other hand, a similar scheme to settle pre-GST excise and services tax dispute had a provision to reduce tax liability by half.

The chamber recommended that reduction of tax should also be provided under the direct tax scheme.

The Direct Tax Vivad se Vishwas Bill offers waiver of interest, penalty and prosecution for settlement of these disputes pending before the commissioner (appeals), Income Tax Appellate Tribunal (ITATs), high courts or the Supreme Court as of January 31.

While a complete waiver of interest and penalty will be given in case of payment made by March 31, an additional 10 per cent of the disputed amount will have to be paid after that.

Separately PHD Chamber of Commerce President D K Aggarwal in a statement said that the last date for the scheme should be extended by a month till April 30.

The scheme “will benefit many taxpayers and can generate more than Rs 2 trillion for the government in the coming times if it is broadened and exclusions are minimum under this scheme,” said Aggarwal.

PM Narendra Modi starts pre-Budget meets to brainstorm on economy

The focal point of the interaction was drawing a road map for reforms across departments leading up to the ease of doing business and economic growth.

In the run-up to the Union Budget, Prime Minister Narendra Modi has lined up a string of meetings spread across days. He began the exercise on Tuesday with a meeting of top bureaucrats in finance and other key ministries to finalise the government's priorities. The focus is clearly on reviving the economy and creating jobs, officials in the know said.

Next, the PM will interact with economists, bankers and sectoral experts through the week to brainstorm on pressing issues such as agriculture, reforms and effective implementation of signature schemes and projects.

Tuesday’s meeting at the PM’s residence, attended by all the five secretaries in the finance ministry besides top officials of other economic ministries and NITI Aayog, cleared a five-year vision plan for the government to make India a $5-trillion economy by 2024, it is learnt. Also, the future course of PM’s pet projects like doubling farmers' income, PM-Kisan, Pradhan Mantri Awas Yojana, piped water for all, and electricity for all came up for discussion.

The focal point of the interaction was drawing a road map for reforms across departments leading up to the ease of doing business and economic growth. GDP growth, which has been a controversial issue recently due to doubts raised over government data, was discussed too. Stepping up government revenues while carrying out reform to push GDP growth, which slipped to a five-year low of 6.8 per cent in 2018-19, also figured in the meeting, sources said.

With the farm sector facing headwinds, Modi had last week stressed upon the need for structural reforms in agriculture to boost private investment, strengthen logistics, and provide ample market support to farmers.

The PM is expected to meet senior finance ministry bureaucrats on Thursday to discuss issues relevant to the Union Budget, to be presented on July 5.

Apart from reform announcements to be made in the Budget, the government’s fiscal consolidation roadmap, revenue position and expenditure commitments will be taken up at the meeting.

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BJP targets Chidambaram over 'undeclared' assets; Congress hits back

Defence Minister Nirmala Sitharaman drew parallels between Chidambaram and former Pakistan PM Nawaz Sharif who has been barred from holding public office for life for not disclosing assets abroad.

The BJP on Sunday targeted former Union Finance Minister  P. Chidambaram and his family's "undeclared assets in foreign countries," after which the Congress hit back by saying that the BJP had no moral right to ask questions and should instead give answers on various issues.
The opposition party termed the Income Tax (I-T) Department "another caged bird" that does the government's bidding.
Addressing a press conference here, Defence Minister and senior BJP leader Nirmala Sitharaman drew parallels between Chidambaram's case and that of former Pakistan Prime Minister Nawaz Sharif who has been barred from holding public office for life by that country's Supreme Court for not disclosing assets abroad.
Terming it as the "Nawaz Sharif moment of the Congress," she said: "In this (Chidambaram's) case, the parallels are hard to miss. Therefore, I am wondering if the Congress President - who himself is also out on bail in a financial matter - will comment and tell people if he is going to investigate one of his senior leaders (Chidambaram) for not disclosing assets held abroad."
Her comment came after the Income Tax department informed a special court in Chennai that Chidambaram's wife Nalini, son Karti and daughter-in-law Srinidhi didn't disclose their foreign assets and investments while filing their income tax returns.
Bharatiya Janata Party (BJP) President Amit Shah, too, attacked Chidambaram and the Congress leadership.
In a tweet, Shah said that under the law dealing in black money, four charge sheets had been filed against Chidambaram and his family for "possessing and operating several illegal assets and accounts in foreign countries".
"The Income Tax Department estimates illegal assets held by UPA's then Finance Minister to be to the tune of $3 billion! This explains why despite the Supreme Court's orders, Sonia Gandhi, former Prime Minister Manmohan Singh and the then Finance Minister P. Chidambaram dragged their feet on the formation of SIT. How could they indict their own selves?" Shah tweeted.
He said that the formation of a Special Investigation Team (SIT) to track and curb black money was one of the first decisions taken by the Narendra Modi government.

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