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US Crude Oil Collapses To $0.01 Per Barrel For The First Time In History

LONDON, April 20: Oil prices ended New York trading in the negative on Monday for the first time ever, as a supply glut forced traders to pay others to take the commodity.

With space to store oil scarce, US benchmark West Texas Intermediate for May delivery ended trading at -$37.63 a barrel ahead of Tuesday's close for futures contracts -- when traders who buy and sell the commodity for profit would have had to take physical possession of it.

"It's a contract for something that nobody wants to buy," said Matt Smith of ClipperData.

The unprecedented price drop is a consequence of the coronavirus pandemic, which has devastated the global economy by forcing billions of people to stay home to stop its spread, and an ongoing price war between top producers Saudi Arabia and Russia.

That price war contributed to an oversupply that drove crude lower, to the disadvantage of US shale producers.

Covid-19 pulls down India's exports by 34.6% in March

NEW DELHI, April 16: India’s merchandise exports slumped by a record 34.6% in March while imports declined 28.7% as countries sealed their borders to combat the covid-19 outbreak.

In February, merchandise exports had rebounded 2.9% after falling for six months in a row.

Of the 30 major items each in India’s export and import baskets, 29 saw a contraction in March, signalling the severity of the impact of the coronavirus pandemic on global demand. Only iron ore exports (58.4%) and import of transport equipment (11.9%) recorded a growth during the month.

Engineering Export Promotion Council chairman Ravi Sehgal said the sharp drop in merchandise exports was not a surprise with major economies of the world in a state of lockdown. “April would be worse as international trade excepting medicine and essential supplies has come to a near halt. Exporters are facing a question of survival," he added.

During FY20, India’s exports contracted 4.8% to $314.3 billion while imports shrank 9.1% to $467.2 billion, leaving a trade deficit of $152.9 billion.

The World Trade Organization (WTO) has projected global merchandise trade to plummet between 13% and 32% in 2020 due to the covid-19 outbreak. “The wide range of possibilities for the predicted decline is explained by the unprecedented nature of this health crisis and the uncertainty around its precise economic impact. But WTO economists believe the decline will likely exceed the trade slump brought on by the global financial crisis of 2008‑09," it said last week.

Sharad Kumar Saraf, president, Federation of Indian Export Organisations, said with cancellation of over 50% of orders, gloomy forecast, major job losses and rising bad loans among exporting units, the government should immediately announce a relief package for exporters as any further delay would be catastrophic. “The huge support given by various economies to exports will put Indian exports in further difficulties as when the size of the cake reduces, competition intensifies with focus on prices," he added.

World Bank in its latest South Asia Economic Focus said reduced external demand for manufacturing as well as services exports will impact India. “One of India’s largest exports is business and professional services, consisting of business process outsourcing (BPO) such as technical support and call centres largely based in India. This sector is severely affected. Lockdown measures, both in origin and destination countries, have forced offices to close as their infrastructure is heavily geared towards in-office working. There is also a concern that external demand will drop precipitously even beyond the lockdown period, as clients cut costs. This situation will certainly mean fewer new projects, as well as the scaling back of existing ones," it added. However, the bank said India’s balance of payments position may improve. “Weak domestic demand, low oil prices and COVID-19-related disruptions are expected to narrow the current account deficit to 0.2% in FY21 and to keep it low in the following years," it added.

Fitch downgrades India's grwoth to 2%

NEW DELHI, April 4: Fitch Ratings has sharply reduced its FY21 growth projection for India to 2% from 5.1% estimated just 15 days ago, as Asia's third largest economy announced a nationwide lockdown that crippled normal economic activity. This will be the slowest since the economy was liberalised 30 years back.

The growth forecast by Fitch released on Friday as an update to its Global Economic Outlook (GEO) is the lowest among the major rating agencies such as S&P (3.5%) and Moody’s (2.5%).

Fitch said the speed with which the coronavirus pandemic is evolving has necessitated another round of huge cuts to its global GDP forecasts. “We now expect world economic activity to decline by 1.9% in 2020 with US GDP down by 3.3%, the eurozone down by 4.2% and the UK down by 3.9%. China’s recovery from the disruption in 1Q20 will be sharply curtailed by the global recession and annual growth will be below 2%. These numbers are much worse than the baseline (and downside variant) of the March 2020 GEO forecast published on 19 March, when we expected global growth of over 1%," it said.

The rating agency said the lockdown policies being implemented in many countries are having instantaneous and dramatic effects on daily economic activity with full nationwide lockdowns reducing daily activity by about 20% relative to normal levels.

“The impact on GDP will depend on how long the lockdowns last. By means of illustration, a two- to three-month crisis with a five week ‘peak stringency’ national lockdown period that reduces GDP by 20% a day would translate to a 7% to 8% decline in quarterly GDP. This is in fact in line with our latest estimate of the sequential quarter on quarter decline in China’s GDP in 1Q20 (which included a full lockdown period of four or five weeks) and we have used this as a guide in our baseline forecasts," Fitch said.

‘Stupid advice,’ says Chidambaram on interest rate cut for small savings

NEW DELHI, April 1: The Congress on Wednesday criticised the government for its decision to reduce interest rates on small saving schemes with senior party leader and former finance minister P Chidambaram calling it a wrong step based on “stupid advice”.

The opposition party demanded its immediate rollback.

The government reduced the interest rates on small savings schemes by 70 to 140 basis points for the year 2020 during April-June quarter.

Public provident fund interest rates in the quarter have been brought down by 80 bps to 7.1% and for KVP -- Kisan Vikas Patra -- have been slashed by 70 bps to 6.9% and after reduction of 0.8%, the girl child-focussed Sukanya Samriddhi scheme now stands at the interest rate of 7.6%.

“I know that sometimes the government acts on stupid advice, but I am amazed how stupid this advice was. While reducing the interest rate on PPF and small savings may be technically correct, it is absolutely the wrong time to do so,” Chidambaram tweeted.

He said though India’s GDP for the last quarter could not be have been more than 4%, it was time to focus on saving people’s lives and not the GDP.

In times of acute distress and uncertainty about income, people depend on the interest income on their savings, added Chidambaram, demanding immediately rollback of the decision and restoring old rates until June 30.

About the GDP, he said after the three quarters’ growth rates of 5.6%, 5.1% and 4.7% respectively, the fourth quarter of 2019-20 ended Tuesday. “Q4 growth could not have been more than 4%. So, annual GDP for 2019-20 must be a disappointing 4.8%.”

However, Chidambaram said this was the time of discussing the growth rate of coronavirus and not GDP. “Once Covid-19 is in control automatically the GDP will increase. In my view, we should not worry about growth now. The focus should be on saving people’s lives whatever it takes,” he said.

The former finance minister also expressed concern over the government not announcing the second financial assistance package during the lockdown imposed amid the Covid-19 pandemic.

“That is why I am appalled that the government has not yet announced FAP II after the miserly and disastrous FAP of March 25,” he tweeted.

His party colleague Jaiveer Shergill termed the government’s decision “irrational, illogical and ill-timed”, saying it has come at a time when the people are already facing hardship due to the lockdown and the economic recession.

“The BJP government’s decision to cut interest rates on small saving schemes is a heartless and shameful act that will hit the common people, especially the farmers, middle class and the poor who are already suffering due to the downturn in the economy,” he told reporters at a press conference held through video conferencing.

He demanded that the government waive interest on EMIs for the three-month period from March to June, saying the moratorium on EMIs is merely hogwash and a postponing exercise.

Shergill also urged the government to come out with a second tranche of economic relief packages to help small and medium enterprises, and the poor and common people from the economic downturn the country is facing.

“The decision to reduce interest rates on small savings is ill-timed, illogical and irrational,” he said, adding that it will snatch the incomes of 90 crore people in the country.

Shergill said the government will earn an additional Rs 26,000 crore through this reduction in interest rates and said it should not act like “Shylock to extract a pound of flesh” from the people.

The government should instead work towards raising incomes of people instead of shrinking it, for helping them survive this economic downturn, he added.

Banks mega-merger effected

NEW DELHI, April 1: The new financial year beginning today will see the merger of six public sector banks into four (the anchor banks) in a bid to make them globally competitive.

As per the government’s mega consolidation plan, Oriental Bank of Commerce and United Bank of India will merge into Punjab National Bank (PNB); Syndicate Bank into Canara Bank; Andhra Bank and Corporation Bank into Union Bank of India; and Allahabad Bank into Indian Bank.

The exercise assumes significance as it is taking place at a time when the entire country is under the grip of the Covid-19 outbreak, which has triggered a 21-day lockdown.

Experts said merger at this point of time will not be very smooth and seamless. However, heads of the anchor banks exuded confidence.

“We don’t foresee any problem it is going as per the plan. We have reviewed in the light of this situation also. Certain modification in implementation we have done so that there is no disruption for employees and customers. We are ensuring zero disruption,” said Union Bank of India Managing Director Rajkiran Rai.

Following the consolidation, there will be seven large public sector banks (PSBs), and five smaller ones. The PNB will become second largest after the State Bank of India (SBI), Canara Bank fourth, Union Bank of India fifth and Indian Bank seventh biggest public sector lender.

“We have planned very well and from tomorrow onwards we will ensure that the merged entity functions more efficiently and effectively. Particularly we would ensure that customer services remain uninterrupted,” PNB MD S S Mallikarjuna Rao said.

There were as many as 27 public sector banks (PSBs) in 2017. The total number of public sector banks in the country will come down from 18 to 12 in the new financial year.

“We are delighted that following the amalgamation as a single legal entity, we will become a powerful banking institution that is globally competitive and efficient working towards providing differentiated customer experience excellence across all our products and services,” Canara Bank MD L V Prabhakar said.

The merger will result in the creation of seven large PSBs with scale and national reach, with each amalgamated entity having business of over Rs 8 lakh crore. It would help create banks with scale comparable to global banks and capable of competing effectively in India and globally.

Last year, Dena Bank and Vijaya Bank were merged with Bank of Baroda. Prior to this, the government had merged five associate banks of SBI and Bharatiya Mahila Bank with the public sector bank.

These were State Bank of Patiala, State Bank of Bikaner and Jaipur, State Bank of Mysore, State Bank of Travancore and State Bank of Hyderabad effective April 2017.

Exporters get 6 months buffer for realization of proceeds

NEW DELHI, April 1: The Reserve Bank of India announced more measures on Wednesday to deal with the economic fallout of coronavirus, including an extension of the period for realisation and repatriation of export proceeds, in a move aimed to help businesses.

The banking regulator had earlier announced several measures including slashing of bank rates to ease liquidity pressure and to stabilise the markets and the financial sector, along with steps to give major relief to individual borrowers by announcing measures including a three-month moratorium on EMIs of various loans including personal, housing and auto.

Here are the additonal business-specific measures announced by the RBI on Wednesday

1. Extension of realisation period of export proceeds by six months

Presently the value of the goods or software exports made by the exporters is required to be realized fully and repatriated to the country within a period of 9 months from the date of exports. In view of the disruption caused by the COVID-19 pandemic, the time period for realization and repatriation of export proceeds for exports made up to or on July 31, 2020, has been extended to 15 months from the date of export. The measure will enable the exporters to realise their receipts, especially from Covid-19 affected countries within the extended period and also provide greater flexibility to the exporters to negotiate future export contracts with buyers abroad.

2. Review of Limits of Way and Means Advances of States/UTs

Reserve Bank also increased the Ways and Means limits for state governments and Union Territories by 30 percent from the existing limit to enable the states to tide over the situation arising from the outbreak of the Covid-19 pandemic. The revised limits will come into force with effect from April 1, 2020 and will be valid till September 30, 2020.

3. Implementation of countercyclical capital buffer

RBI also deferred the activation of Countercyclical capital buffer or CCyB for a period of one year. The framework envisages the credit-to-GDP gap as the main indicator, which is used in conjunction with other supplementary indicators.

Meanwhile, Congress has asked finance minister Nirmala Sitharaman to ensure that the RBI circular regarding deferment of EMIs be issued widely and that interest subvention arrangement should be made for the interest on the deferred EMI payments.

 

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