Research Committee

Crux
The news compendium of
SIBM-B

Crux is a Research Committee endeavor which aims to provide the

students of the institute with weekly updates on the most
important news worldwide. Each news update in the newsletter
has been analyzed by the members of the Research Committee to
bring you the most relevant points related to particular news.
Along with the news updates, it also covers articles on important
topics which have been in news during the week.

With our newsletter series this time, along with the news we are
also providing useful links to allow you to delve into the topic
further.

You call it news. We call it a step towards awareness.

 India's First Sovereign Bonds Offering

 Finance minister Nirmala Sitharaman in Budget 2019-20 announced that the government would start
raising a part of its gross borrowing programme from external markets in foreign currencies.

 The idea, however, has been criticized by many, including economists and allies of the ruling BJP alike,
as they argued that it could create long-term economic risks by exposing the government’s liabilities to
currency fluctuations.

 The government is said to be considering raising $10 billion at one go as early as October, with the yen
and euro marked as preferred currencies.

 A bond is like an IOU. The issuer of a bond promises to pay back a fixed amount of money every year
until the expiry of the term, at which point the issuer returns the principal amount to the buyer. When a
government issues such a bond it is called a sovereign bond.

 Typically, the more financially strong a country, the more well respected is its sovereign bond. Some of
the best-known sovereign bonds are the Treasuries (of the United States), the Gilts (of Britain), the
OATS (of France), the Bunds (of Germany) and the JGBs (of Japan).

 In other words, both the initial loan amount and the final payment will be in either US dollars or some
other comparable currency. This would differentiate these proposed bonds from either government
securities (or G-secs, wherein the GOI raises loans within India and in Indian rupee) or Masala bonds
(wherein Indian entities — not the government — raise money overseas in rupee terms).
 The difference between issuing a bond denominated in rupees and issuing it in a foreign currency (say
US dollar) is the incidence of exchange rate risk. If the loan is in terms of dollars, and the rupee weakens
against the dollar during the bond’s tenure, the government would have to return more rupees to pay
back the same amount of dollars.

 If, however, the initial loan is denominated in rupee terms, then the negative fallout would be on the
foreign investor. There are many reasons why.

 Possibly the biggest of these is that the Indian government’s domestic borrowing is crowding out private
investment and preventing the interest rates from falling even when inflation has cooled off and the RBI
is cutting policy rates.

 If the government was to borrow some of its loans from outside India, there will be investable money
left for private companies to borrow; not to mention that interest rates could start coming down. In fact,
the significant decline in 10-year G-sec yields in the recent past is partially a result of this
announcement.

 Thirdly, a sovereign bond issue will provide a yield curve — a benchmark — for Indian corporates who
wish to raise loans in foreign markets. This will help Indian businesses that have increasingly looked
towards foreign economies to borrow money.

 Moreover, at less than 5%, India’s sovereign external debt to GDP is among the lowest globally. In other
words, there is scope for the Indian government to raise funds this way without worrying too much
about the possible negative effects.

References : https://economictimes.indiatimes.com/markets/stocks/news/overseas-sovereign-bond-proposal-
a-well-considered-decision-garg/articleshow/70405871.cms

https://www.thehindubusinessline.com/economy/indias-overseas-sovereign-bonds-sale-faces-one-more-
hurdle/article28719308.ece

https://economictimes.indiatimes.com/markets/bonds/confusion-over-indias-first-10-billion-foreign-bond-debt-
sale/articleshow/70378796.cms
 Fortune Global 500 List

 The Fortune Global 500 also known as Global 500 is an annual ranking of the top 500 corporations
worldwide as measured by revenue and the list is compiled and published by Fortune magazine.

 The world’s 500 largest companies generated $32.7 trillion in revenues and $2.15 trillion in profits in
2018. Together this year’s Fortune Global 500 companies employ 69.3 million people worldwide and
are represented by 34 countries.The list was topped by Walmart with a revenue of $514,405 million and
second and third position was taken by Sinopec group ($414,649) and Royal Dutch Shell ($396,556)
respectively.

 According to this year’s list Chinese based companies accounted to 129 which surpassed the number of
USA based companies which accounted for 121.

 Chinese smartphone manufacturer Xiamoi has become the youngest company on the Fortune Global 500
List for 2019, ranking 468, with a revenue of $26,443.50 million.

 RIL becomes top ranked Indian company in the list and has toppled state run Indian Oil Corporation. It
has attained a rank of 106 in the list, recording an improvement of 42 positions from its previous
ranking.On the other hand, IOC improved its position to 117th rank, registering a jump of 20 spots.

 Other Indian companies in the list include ONGC (160), State Bank Of India (236), Tata Motors (265),
Bharat Petroleum (275) and Rajesh Exports (495).

Reference : https://www.livemint.com/companies/news/ril-becomes-top-ranked-indian-company-in-fortune-
global-500-list-1563941318823.html
Electric vehicles set to get cheaper - tax rates slashed from 12% to 5%

 Electric vehicles typically cost over 50 per cent more than their petrol and diesel counterparts and the
high price has been cited as one of the big impediments in their growth.

 In a big boost to electric vehicles in the country, the Goods and Services Tax (GST) Council on
Saturday decided to slash the duty on all electric vehicles from 12% to 5% as also on electric chargers
for vehicles from 18% to 5%.

 The government is lately showing very clear intentions of promoting EVs and GST reduction is one
such measure in line with a series of actions taken by the government in the last few months.

 The reduction that comes into force from August 1, is in line with the government's policy to encourage
EVs and discourage vehicles that are run on fossil fuels like petrol and diesel at the same time.

 Electric mobility has been a major thrust area for the government that is keen to reduce the transport
sector's dependence on imported fossil fuel. India imports nearly 84 per cent of its crude requirement
every year.

 The government has taken measures to disincentivize conventional vehicles by increasing the import
duty on a number of components, some of them that are not even produced in the country in significant
quantity, and raising the surcharge on petrol and diesel that increases the operating cost of these
vehicles.

 The reduced rate of GST on EVs should help foster demand for this environment friendly variant,
through a tax arbitrage between conventional vehicles and EVs.

Reference : https://www.businesstoday.in/sectors/auto/gst-council-meet-electric-vehicles-set-get-cheaper-tax-
rates-slashed-12-percent-to-5-percent/story/368280.html
 What Boris Johnson's elevation as British PM means for India

 Johnson, the former foreign secretary and London Mayor, on Tuesday beat foreign secretary Jeremy
Hunt in the race to be crowned the new Conservative Party leader.

 Johnson easily defeated Conservative rival Jeremy Hunt, winning two-thirds of the votes of about
160,000 party members across the U.K.Johnson is set to take formal charge at Downing Street on
Wednesday after Theresa May hands in her resignation to Queen Elizabeth II at Buckingham Palace.

 May, who stepped down over her failed Brexit strategy, has been functioning as a caretaker Prime
Minister during the course of the leadership election.

 “I say to all the doubters: ‘Dude, we are going to energize the country, we are going to get Brexit
done,’” said Johnson, a former London mayor and British foreign secretary.

 Boris Johnson, the new British Prime Minister, is expected to rely on his declared personal connect with
Prime Minister Narendra Modi to deliver a “truly special” UK-India relationship and strike a “new and
improved” trading relationship.

 One of Johnson’s priorities when he visited India as foreign secretary was to conclude a free trade pact
with Asia’s third largest economy, which would be ready for signing when Britain was about to exit the
EU in March 2019.

 Johnson is set to take formal charge at Downing Street on Wednesday after Theresa May hands in her
resignation to Queen Elizabeth II at Buckingham Palace. May, who stepped down over her failed Brexit
strategy, has been functioning as a caretaker Prime Minister during the course of the leadership election.
 But Britain has had no luck in trying to get India to negotiate a trade deal simply because New Delhi is
waiting to see the terms and conditions under which Britain exits the EU as per the new deadline in
October this year.

 A “no deal" Brexit – under which Britain leaves the EU without any agreement on relationship with the
EU – is seen as disadvantageous to Britain but strengthening India’s hand in any future trade
negotiations.

 New Delhi wants a deal with easier immigration norms for its people. But with Brexit premised on
keeping out foreigners, it is difficult to predict how any such negotiations will proceed.

 India is the third largest investor in Britain and has emerged as the second largest international job
creator with Indian companies having created over 110,000 jobs in Britain.The total consolidated
revenue of Indian companies in Britain is £47.5 billion with technical and telecom sector accounting for
31% of the revenues, a note on the website said.

 Uncertainty over Brexit has caused many Indian companies to look at shifting their bases of operations
to countries like Netherlands.

 But Boris Johnson also plugged his proposals for a so-called “Australian-style points-based system” of
immigration, which would ensure “friends, family members and business contacts in India do not face
undue discrimination or barriers when seeking to work, travel or study in the UK”.

 One thing that could cement a stronger political relationship between India and the Johnson government
is if Britain cracks down on supporters of the Khalistan movement which seeks a separate state for Sikhs
carved out of Punjab.

 Last year, the British government refused to accede to an Indian request seeking a denial of permission
to pro-Khalistan supporters planning a major demonstration -- something that did not go down well with
India.

References : https://www.financialexpress.com/world-news/boris-johnson-to-use-personal-modi-connect-for-
new-and-improved-india-uk-ties/1653990/

https://www.livemint.com/news/india/what-boris-johnson-s-elevation-as-british-pm-means-for-india-
1563947127919.html

https://www.thehindubusinessline.com/news/world/uks-new-pm-boris-johnson-to-use-personal-modi-connect-
for-new-and-improved-uk-india-ties/article28687783

https://apnews.com/6f533afc9bb14c29a1b9e013f270159e
 IMF lowers India’s growth outlook for FY20 on weaker demand

 The International Monetary Fund (IMF) further cut its annual growth forecast for India, as it expects
weaker domestic demand to limit an economic recovery.

 The economy is now expected to expand 7% in the year ending 31 March 2020, 0.3 percentage point
slower than IMF’s April projection.The broad-based slowdown in consumption and investment demand
in India was partly a reflection of the uncertainties associated with the just concluded general elections
in India, as well as tightening of borrowing conditions for small and medium enterprises

 Reserve Bank of India (RBI), the Economic Survey of the finance ministry, and the Asian Development
Bank have cut their growth outlook for India to 7%.IMF said the recent softening of inflation across
emerging markets and developing economies gives central banks the option of becoming
accommodative.

 Last month, RBI cut policy rates for the third consecutive time by 25 basis points (bps) and changed its
stance to accommodative from neutral. This signaled that more rate cuts were in store to revive growth
and support faltering consumer demand.

 With retail inflation at 3.18% in June, most analysts expect RBI to cut interest rates for the fourth
consecutive time in its policy review on 7 August.

References : https://www.livemint.com/news/india/imf-lowers-india-s-growth-outlook-for-fy20-on-weaker-
demand-1563886980904.html
 News from around the world

 Global economy moving into unsettling phase

https://www.livemint.com/industry/banking/global-economy-moving-into-unsettling-phase-shaktikanta-
das/amp-1564140871151.html#referrer=https%3A%2F%2Fwww.google.com&amp_tf=From%20%251%24s

 Apple to acquire the majority of Intel's smartphone modem business

https://www.inc.com/minda-zetlin/apple-buys-intel-modem-business.html

 Moves to improve press freedom in Malaysia met with cautious optimism

https://www.theguardian.com/global-development/2019/jul/26/moves-to-improve-press-freedom-in-
malaysia-met-with-cautious-optimism

 Nissan Is Cutting 12,500 Jobs; Latest Sign of Trouble for The Auto Industry
https://www.npr.org/2019/07/25/745192415/nissan-is-cutting-12-500-jobs-latest-sign-of-trouble-for-the-
auto-industry

 EU moves to tackle deforestation caused by chocolate and other products

https://www.theguardian.com/global-development/2019/jul/25/eu-moves-to-tackle-deforestation-caused-by-
chocolate-and-other-products
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