The Nifty and the Sensex opened the day on a positive note, scaling fresh all-time highs in the process.
Join us as we follow the top business news through the day.
How India’s grain policies have stoked FCI’s debt binge
An explainer on India’s food economics.
Reuters reports: “Food Corporation of India (FCI), the state grain procurement agency, buys rice and wheat from growers every season at guaranteed prices but farmers fear that those purchases may end under new agricultural laws at the centre of recent protests.
Farmers say the new laws will shut the regulated wholesale markets they depend on to take their produce. But FCI has racked up huge debts from the purchases required to meet its role as a buyer of last resort and to supply India’s food welfare program.
HOW HAVE FCI’S PURCHASES CREATED MASSIVE GRAIN STOCKPILES?
For years, India’s federal government, across different administrations, has ordered FCI to purchase grain in excess of its requirement to run the world’s biggest food welfare programme as a buyer of last resort to placate farmers.
FCI’s safety net encourages farmers, especially from states such as Punjab, Haryana, Madhya Pradesh and Chhattisgarh to grow tonnes of rice and wheat.
FCI supplies grain to more than 800 million beneficiaries entitled to receive 5 kg (11 pounds) of rice and wheat every month at 3 rupees (4.1 U.S. cents) and 2 rupees a kg, respectively.
Robust output in many states and rising purchases by FCI have led to overflowing warehouses.
By the end of the crop year to June 2020, FCI’s rice and wheat stocks surged to 97.27 million tonnes against its requirement of 41.12 million tonnes.
According to official estimates, the value of the extra grain lying at state warehouses comes to about $39 billion.
FCI cannot export the grain as its rice and wheat are more expensive than world prices. Also, World Trade Organization rules restrict exports of grain meant for welfare programmes.
WHY FCI’S PURCHASES HAVE RISEN IN THE PAST TWO DECADES?
Punjab and Haryana were at the forefront of India’s Green Revolution in the 1960s and have traditionally accounted for the bulk of FCI’s purchases.
But in the past two decades farmers from other states such as Madhya Pradesh and Chhattisgarh have ramped up rice and wheat output, increasing FCI’s purchases.
In 2020, Madhya Pradesh sold 12.94 million tonnes of wheat to FCI against 351,000 tonnes in 2000/01. FCI’s purchase of rice from Chhattisgarh totalled 5.2 million tonnes this year, up from 857,000 tonnes two decades ago.
WHY HAS FCI RUN UP DEBTS?
In the past decade, FCI’s expenses have risen as the guaranteed price for common rice has climbed by 73% and for wheat by 64%.
However, the prices at which FCI sells rice and wheat to India’s food welfare programme have remained unchanged.
The government is supposed to pay the difference between FCI’s procurement prices and sales prices. But for the past few years, the government has not fully compensated FCI, forcing it to borrow every year. FCI’s total debt has ballooned to 3.81 trillion rupees ($51.83 billion).
For the current fiscal year to March 2021, the government earmarked 1.15 trillion rupees in food subsidies, but FCI is likely to spend about 2.33 trillion rupees, partly because of free grain distributions during the coronavirus lockdown, stretching its debt further.”
Rupee rises 11 paise to 73.38 against US dollar in early trade
The rupee added another 11 paise to trade at 73.38 against the US dollar in opening session on Tuesday in line with stronger Asian peers and positive domestic equities.
The sustained foreign fund inflows also supported the rupee, traders said.
At the interbank forex market, the domestic unit opened at 73.42 against the US dollar, then inched higher to 73.38 against the greenback, registering a rise of 11 paise over its previous close.
On Monday, the rupee had settled at 73.49 against the US dollar.
Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, fell 0.24% to 90.11.
What mattered for global markets in 2020
Govt looking at new plans, laws to solve MSME receivables issue: Gadkari
Some relief could be coming the way of MSMEs.
PTI reports: “Union minister Nitin Gadkari on Monday said that the Micro, Small and Medium Enterprises Ministry is contemplating fresh plans and laws to find a solution of the receivables issue as outstanding dues are creating working capital problem for the sector.
Speaking at the AGM of Bharat Chamber of Commerce, the MSME and Road Transport minister acknowledged that the receivables issue continues to be a major problem.
“The ministry is looking at new plans and laws to find a solution. It is creating working capital problem for the sector,” he said.
Chamber President Ramesh Kr Saraogi suggested that an external agency be appointed to monitor the outstanding dues with the government and public sector companies who are supposed to clear the dues in 45 days of supplies.
As part of the Aatmanirbhar Bharat package announced in May, MSME dues from central government agencies and CPSEs should have been paid in 45 days.
The Centre had on December 10 stated in an official statement that over Rs 21,000 crore of MSME dues have been paid in the past seven months by central government agencies and CPSEs.
The minister also sought industry”s help to raise the rural economy from Rs 80,000 crore to Rs 5 lakh crore for employment generation in agriculture, rural and tribal sectors in 115 focus districts.
On the high logistics cost of 18 per cent in India compared to 10 per cent in China and 12 per cent in Europe, he said that the country needs to use fuel blended with ethanol to bring it down.”
Office space leasing drops 44% on WFH: report
Net office space leasing fell 44% year-on-year during 2020 to 25.82 million sq. ft across seven major cities as corporates deferred expansion plans and adopted ‘work-from- home’ (WFH) policies for employees because of the COVID-19 pandemic, as per JLL India.
Net leasing of office space stood at 46.5 million sq. ft in 2019 across seven cities — Delhi-NCR, Mumbai, Chennai, Kolkata, Hyderabad, Pune and Bengaluru. JLL India, however, noted that office space demand rose 52% during October-December to 8.27 million sq. ft over the previous quarter.
During January-March, net absorption of office space stood at 8.8 million sq ft, which plunged to 3.32 million sq ft during the second quarter of this calendar year on account of the nationwide lockdown to curb coronavirus pandemic.
“The year 2019 saw historic highs with net absorption crossing 46 million sq ft. In 2020, net absorption dipped by 44 per cent when compared to 2019.
Sensex, Nifty continue record run in opening session
The record bull run continues.
PTI reports: “Benchmark indices Sensex and Nifty continued their record-setting spree on Tuesday morning as investor sentiment remained upbeat amid positive domestic as well as global cues.
The BSE gauge Sensex was trading 228.73 points or 0.48 per cent higher at a fresh record of 47,582.48 in early deals.
Likewise, the NSE barometer Nifty jumped 66.50 points or 0.48 per cent to a new high of 13,939.70 in the opening session.
On the Sensex chart, IndusInd Bank, HCL Tech, Kotak Bank, Axis Bank, HDFC Bank and Bajaj Auto were top gainers.
Barring Nestle, Asian Paints and PowerGrid, all shares were trading in the green on the Sensex.
On Monday, the Sensex had settled up by 380.21 points or 0.81 per cent at its all-time closing high of 47,353.75; and the Nifty too had risen by 123.95 points or 0.90 per cent to a new closing high of 13,873.20.
Asian shares were trading mostly higher following positive global trends after the US cleared the much awaited coronavirus relief bill.
US President Donald Trump signed into law a massive USD 2.3 trillion spending bill that includes a USD 900 billion coronavirus relief package, averting a government shutdown and extending coronavirus aid to millions suffering from the economic impact of the pandemic.
The advancement of rollout of COVID-19 vaccines in India too uplifted domestic sentiments, leading to a positive momentum across all sectors, analysts said.
Meanwhile, the global oil benchmark Brent crude futures rose 0.22 per cent to USD 51.06 per barrel.
Foreign portfolio investors (FPIs) purchased shares worth a net Rs 1,588.93 crore on Monday, as per exchange data.”
2021 will witness lot of regulatory efforts channelled towards virtual assets: SBI official
The use of crowdfunding websites create additional risk and the year 2021 will see a lot of regulatory effort channelled towards virtual assets, a senior SBI official said on Monday.
Addressing a virtual ‘AML/CFT Conference 2020,’ Sujit Kumar Varma, SBI’s DMD (Corporate Accounts Group), said trade-based money laundering remains a significant risk.
“The use of crowdfunding websites, although not entirely new, create an additional risk as these can be misused for terror financing,” he added.
“2021 will see a lot of regulatory effort channelled towards virtual assets and also likely witness the introduction of more regulations for virtual assets service providers.”
According to Varma, there will be enhanced supervision for those dealing in precious metals and jewels from next year.