Government Retaliates to Chinese Investment

The People's Bank of China increased its stake in India's largest private sector bank HDFC to more than 1%, this move has been seen by the authorities as a risk of an opportunistic investment by the Chinese.

The share prices for the Bank were above Rs.1200 throughout February but due to coronavirus have fluctuated at around Rs.800. The bank also showed a 15.5% profit in the 4th Quarter of the financial year. Many government owned Chinese banks have been investing in countries around South Asia as a part of the One Belt One Road initiative. India has stayed out of the One Belt One Road initiative however, this move by the Chinese Central Bank seemed to worry the authorities.

Taking note of the situation, the government decided to amend the Foreign Direct Investment (FDI) policy in order to discourage opportunistic investment in India. The new FDI policy requires Investors from the neighbouring countries, sharing land borders will require investment through a government route which will require the government to give a thumbs up to the investors before investing. The new policy also restricts the transfer of ownership to any of these countries and a transfer of ownership will require the government's approval.

The stake which the Chinese Central Bank has bought in HDFC also adds to the foreign ownership of domestic assets, which decreases the financial account of India and can lead to a deficit in the balance of payments for India.

Companies and individuals from Pakistan are restricted from investing in space, defense and atomic energy sectors.

These policies reduce the chances of opportunistic takeovers or acquisitions by the Chinese, other countries like the United States and Japan have also put similar restrictions on the Chinese. These restrictions will help keep the Indians safe from the neighbouring countries who may try to make the best of this opportunity to gain more access to the Indian markets. However, the reduction in investment may affect the G.D.P growth in India which has taken a hit due to the pandemic, the industries need investment the most at such a time where Aggregate Demand and Aggregate Supply have fallen and consumer confidence needs to be boosted.

image source- business standard

Comments

E - Vehicles get assistance by Delhi government

The Delhi government has announced an incentive on the purchase of electric vehicles, upto Rs. 30,000 on two wheelers and Rs. 150,000 on four wheelers. The incentive will come in the form of a subsidy which will allow producers to produce at lower costs and therefore are likely to reduce prices for consumers. This will funded by the pollution cess and road tax on fuels. India has very few electric vehicles due to high tariffs on importing electric vehicles and also lack of domestic production. Although Two wheelers have become famous in the country due to previous central government initiatives such as FAME, these initiatives have not been very effective. E- Vehicles are beneficial for the environment since they reduce the greenhouse emissions and are also considered to be on average low cost. One of the reasons for a lot of companies to not produce in India was the high cost and less availability of spare parts. This assistance gives the producer an incentive to...

Full article

Privatization of Indian Railways

The Ministry of Railways has announced that it would be moving towards the privatization of 109 railway routes. The Indian railways are the world's fourth-largest network. The government plans an Rs. 30,000 Crore investment from the private sector. According to the ministry, the objective of this is to modernize the railway, reduce traveling time, create jobs, and enhance safety along with better experience. The department also stated that the private trains would be equivalent or faster than the already existing trains on the same route. The private sector will also be responsible for the maintenance and operating of these costs and will have to pay haulage and energy charges to the Indian Railways, and the driver and guard will be from the Indian Railways. The Indian Railways has been a burden on the government due to its losses. The affordable prices of the railways, limit the revenue generated by the government, and privatizing the railway could help ease th...

Full article

PRICE WAR IN THE OIL INDUSTRY

On 8th March 2020 there was a price war between Saudi Arabia and Russia, which consequently caused 31% price drop (From $31.02 to $20 per barrel). The factor which led to the price war between the two countries is the drop in quantity demand for oil barrels due to the widespread of Coronavirus, subsequently Russia refused to agree with OPEC to stabilise/fix a price, clearly indicating a non-collusive oligopoly. The price war has caused the oil prices to drastically fall, and has also led to reduction in the world oil supply, which can have drastic effects on the economy because oil is an essential resource for the world, as oil is used for transportation, energy production, cooking and more, without these activities an economy will have major problems in functioning, for instance visualise an economy sustaining without electricity; communicating with other without electricity would become impossible, which can result in an economy down turn. Nonetheless, the reduct...

Full article

UK terminates Tampon Tax: A significant and necessary step

Tampons are products used by women during their menstrual cycle. This good could be classified as need, making it essential for survival and something that all women should have access to. UK officially left the European Union on 31st December 2020, and with this its obligation for a 5% tax on tampons was also forgone, the UK could now choose to tax this good according to its will, since the EU did not allow the tampon tax of 5% to be reduced or abolished, however since BREXIT is now complete the Boris led government has made the decision to take a step which was long needed. The tampon tax raises the price of the good, making it expensive for consumers, and in some cases may also make it unaffordable for poor consumers, which should not be the case since making tampons inaccessible can have multiple adverse effects. Woman who cannot afford these products during their cycle, may feel stressed and depressed, they are less likely to go to work and if they do, they are more likely to...

Full article

RBI INTERVENES AGAINST COVID-19

On Friday, March 27, India’s Central Bank, The Reserve Bank of India reduced the Repo Rate and Reverse Repo Rate in order to tackle the economic slowdown India is facing due to the coronavirus. India has been under a total lock down and only essential services are open to consumers, this has led to production of a lot of goods and services being put at a standstill since workers cannot travel to their workplace, leading to a shortage of goods and services forcing many retailers to sell goods at higher prices. The repo rate is the rate at which the commercial banks borrow money from the central bank. The reverse repo rate is the rate at which the central banks borrow money from the commercial banks, commercial banks may park their excess money there. Both the repo and reverse repo rate are a part of the monetary policy which controls the interest rate and money supply in the country. The new repo rate is set at 4.40% and this has been t...

Full article

What Does Boycott China Mean for the poor in India?

Throughout May, the situation between India and China at their border. In June, 20 Indian soldiers were killed in a clash at the Galwan valley which led to an escalation in tensions between the two economic and military powerhouses. This sparked anger among the Indians and many, including politicians called for a boycott of Chinese Imports. However, what is not known is if India can live without Chinese goods. China is India’s largest trading partner and India runs a trade deficit with China, which means the value of goods imported from China is more than the goods exported from India to China. The problem with boycotting Chinese goods is that the goods imported from China are to a large extent goods which are cheap but to an extent quality goods, such as mobile phones. Although goods from European and American competitors tend to be better than the Chinese, they are expensive and only a small proportion of Indians can afford them. Therefore, those who are rich are less likely to use g...

Full article

SUPREME COURT ORDERS TO MAKE COVID-19 TESTING FREE

On Thursday, 9th April, the Supreme Court of India asked the government to ensure that testing for the coronavirus should be made free by all private labs. The reason for this being that private labs are charging nearly Rs.4500, which many Indian may not be able to afford. Government labs which do the tests for free can do around 15,000 tests a day. By taking this decision the supreme court is making the tests widely available and reducing the chances of spreading the virus. This was an important step because the poor people are more likely to get Coronavirus since they live closely and they should be able to afford these tests. Since these tests become free it will lead to India getting rid of Coronavirus faster which is good for the economy. However, the private labs may not be able to bear the cost of providing everyone with free tests and may have to shut down. Hence the government will have provided them with some other source of support. The court also announced that the g...

Full article

Fiscal Stimulus or Economic contraction

Recently, the prime minister of India Narendra Modi announced an injection of 20 lakh crore into the economy. The aim of the investment is to help India take a step forward towards economic stability. According to news, The PM claimed that it may take an extensive period of time to combat the outbreak of Covid-19, and hence it is salient for the economy to continue its economic growth to avoid a severe unprecedented economic crisis. Thus, the government decided to enhance economic activity by injecting money into the economy. Furthermore, the government of India also aspires to make India and reduce its economic dependency to avoid any vulnerability to the economy (in terms of relying on imports) during times of exogenous shocks. The injection into the economy may be controversial, and may not bring out the expected outcome for the economy. There are numerous theories and ideas which indicate that such a fiscal stimulus can have negative effects on the India economy. Fi...

Full article

US ANNOUNCES $2.9 MILLION ASSISTANCE FOR INDIA TO TACKLE COVID-19

T he United States government announced that they would be providing India with a $2.9 million assistance package in order to help the Indian government prepare laboratory systems, activate case-finding and event-based surveillance, and support technical experts for response and preparedness. This will help India combat the deadly virus which has taken thousands of lives around the world. As India is still in the initial stages and under a lockdown, the total cases in India stand a little above 1200 and have continued to grow, looking at other countries such as Italy and the United States, who have a smaller population and better health facilities compared to India and hence India poses a larger threat from this virus. According to experts the most effective way to stop the spread of this virus is to have social distancing because the virus can spread easily from person to person. However, the World Health Organisation believes that to contain the virus all countries need ...

Full article

IB Economists

Search This Blog