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.

 UK-US Relations: Is it the end of a ‘special relationship’?

• UK's Ambassador to US, Sir Nigel Kim Darroch's secret diplomatic cables to the
British government, dating from 2017 to 2019, were leaked to The Mail on
Sunday. They included Darroch's unflattering assessments of the Trump
administration, e.g. that it was "inept and insecure".
• He also refered to US policy on Iran as “incoherent, chaotic” and questioned Mr
7th July Trump’s publicly stated reason for calling off a retaliatory air strike against Tehran
following the downing of an American drone & suggested it may have been motivated
2019 by Mr Trump’s focus on the 2020 re-election campaign and his previous promises not
to involve the US in foreign conflicts.

• Donald Trump critizied Darroch on twitter calling him "a very stupid guy " and
"pompous fool" and said that the US would no longer deal with him.
• Boris Johnson, frontrunner to become Britain’s next prime minister refused to support
Darroch when asked about the issue in a televised debate with his challenger for the
9th July premiership, Jeremy Hunt and repeatedly dodged questions about whether he would
2019 sack the ambassador if he became PM. That prompted the ambassador’s resignation

• Darroch resigns as the Amassador to US

• Both Theresa May and the leader of the opposition, Jeremy Corbyn, praised Darroch's
service in the House of Commons and deplored that he had to resign under pressure
10th July
from the United States
2019
• Darroch affair is not just a diplomatic storm but an existential challenge to Britain’s foreign policy with
USA.

• UK and US have always shared a “special relationship”. Over the past few years this relationship has been
strained, especially since the time Donald Trump has taken charge as the President Of USA.

• Theresa May was the first foreign leader to visit Trump after his inauguration, and she invited him to make
a return visit. The visit was tentatively planned for late February 2018, and would include a ceremonial
opening of the new American embassy. However, he cancelled the visit and denounced the new embassy.

• In June 2019, Trump accused May of botching Britain's negotiations to leave the EU and said the next
British leader should send arch-Brexiteer Nigel Farage to conduct talks with the EU.

• Also, Boris Johnson has himself been a hardline Brexiter. He had endorsed Vote Leave in the "Out"
campaign for the 2016 United Kingdom European Union membership referendum.

• He has also promised for introducing an immigration system modelled on a so-called Australian-style
points system and also for immigrants to learn English. He has evoked comparisons with United States
President Donald Trump.

• The West seems to be divided as the far-right wing forces seem to be on a rise.

US-UK Trade Balance:

• U.S. goods and services trade with United Kingdom totaled an estimated $262.3 billion in 2018. Exports
were $141.1 billion; imports were $121.2 billion. The U.S. goods and services trade surplus with United
Kingdom was $19.9 billion in 2018.

• United Kingdom was the United States' 5th largest goods export market in 2018 & the 7th largest supplier
of goods imports in 2018.

• The U.S. goods trade surplus with United Kingdom was $5.4 billion in 2018, a 69.4% increase ($2.2
billion) over 2017.

• UK is among those very few countries with whom USA has a trade surplus. Donald Trump therefore
wants to push the UK for a hard Brexit and then sign up a bilateral trade agreement with UK post that.

• Theresa May did not support Donald Trump’s views but the prospective PM Boris Johnson holds the same
views as Donald Trump. Therefore, we can expect some interesting trading and geopolitical changes in
the West in coming months.

Reference: https://ustr.gov/countries-regions/europe-middle-east/europe/united-kingdom#
 Crisis in IndiGo over feud between promoters

• The feud between IndiGo promoters Rakesh Gangwal and Rahul Bhatia is now out in the open which has
resulted in 20% fall in share price of this aviation company. In his latest letter to SEBI, Rakesh Gangwal
has flagged serious corporate governance lapses at the company.

• The reason of dispute between the promoters raised by Rakesh Gangwal is:
o Questionable related party transactions between InterGlobe and Bhatia group entities.
o Unusual rights that give Bhatia control over the board and that have led to governance failures.

• Gangwal alleges several irregularities in the RPTs (Related Party Transaction), ranging from lack of
competitive bidding to lack of audit committee approval in some cases and backdating of contracts in
others.

• The InterGlobe board Chairman, M Damodaran, commissioned a review of RPTs by consulting firm EY
earlier this year and procedural irregularities in the RTPs like some RPTs were not approved by audit
committee, some RPTs were not approved by audit committee.

• From Rahul Bhatia’s view the company has received the most favored treatment in each RPT.He also
stated that Gangwal's real agenda is "to dilute and diminish the controlling rights of the IGE Group” in
the shareholder agreement that expires in October.

• Because of these irregularities Gangwal has requisitioned an EGM in which he wants shareholders to
recommend new RPT safeguards to the board. He has also asked SEBI to look into the "unusual rights"
held by the Bhatia Group and amend the company’s articles.

Reference:https://www.businesstoday.in/current/corporate/crisis-in-indigo-over-feud-between-promoters-
rahul-bhatia-rakesh-gangwal-full-text-letter-sebi/story/363122.html
Northern Ireland: From Legalizing Same Sex Marriage To No Deal Brexit

• There has been no devolved government in Northern Ireland since January 2017, following the collapse
of a power-sharing deal between the Democratic Unionist Party (DUP) and Sinn Fein.

• Legislation to allow same-sex marriage in England, Wales and Scotland was passed in 2014 but has never
been introduced in Northern Ireland.

• MPs have voted to extend same-sex marriage and access to abortion to Northern Ireland, bringing the
region into line with the rest of the UK on the two significant social issues. The vote for abortion rights
was passed by 332 to 99 and for equal marriage by 383 to 73.

• If the Stormont assembly has not been restored by 21 October, the government must bring regulations to
Parliament to amend the law in Northern Ireland on same-sex marriage.

• Amid the joy of this historic move the sword of No Deal Brexit is hanging loose on Northern Ireland.

• It could put 40,000 jobs at risk in Northern Ireland and exports could fall between 11%-19%.

• From medium to long run the number of FDI projects would fall by 6% a year and FDI related new jobs
would fall by almost 8%.

• On the other hand, if UK leaves with a deal then by 2020, Irish GDP drops by 0.6% and after 10 years it
will drop by 2.6%.

• The impact on employment after a period of 10 years would be that employment will fall by 1.8%.

• Most hard hit sectors of the economy will be export and investment. Irish exports will fall by 3.6% after
5 years and investment will fell by 4.1% after 10 years.

Reference:https://www.theguardian.com/uk-news/2019/jul/09/mps-vote-to-extend-same-sex-marriage-
to-northern-ireland
 Cancellation of NBFC licenses by RBI

• The Reserve Bank of India (RBI) cancelled licenses of 1701 Non-Banking Financial Companies (NBFCs)
in the fiscal year of 2018-19 due to their failure to meet minimum capital requirement.

• According to the RBI Act Amendment of 1997, minimum capital requirement for NBFCs was Rs. 25
lakhs which was raised to Rs. 2 crores for new registrations.

• NBFCs in India are not under strict regulations of RBI. However, in the union budget, a proposal was
given to amend RBI Act, 1934 which would give more powers to the central bank to overlook the board
of NBFCs.

• This would allow RBI to resolve situational crises of financially troubled non-banks by either merging
them or splitting them in to bridge institutions.

• The NBFC sector grew 20.6% to ₹28.8 trillion in FY19 as against an increase of 17.9% to ₹24.5 trillion
in FY18.

• 45% of 1701 NBFCs lost their licenses after the unearthing of IL&FS crisis. The defaults of IL&FS led to
a serious crunch in liquidity for other NBFCs.

• Although, NBFCs can operate even after they lose their license, they eventually go out of business due to
their inability to raise money from markets or banks.

• RBI’s financial stability report of June says that NBFCs depend majorly on public funds (70% of their
total liability).The major sources of funding for NBFCs are bank borrowings, commercial papers and
debentures.

• Bank loans to total borrowings increased from 21.2% in March 2017 to 23.6% in March 2018 and further
to 29.2% in March 2019.

Reference:https://www.livemint.com/industry/banking/1-701-nbfc-licences-cancelled-in-fy19-as-rbi-
cracks-the-whip-1562786399092.html
 Why did Stock Market fall after Union Budget 2019

• Indian stock market fell nearly 1% after Finance Minister Ms. Nirmala Sitharaman presented the Union
Budget on 5th July 2019.
• It fell nearly 2% on the next trading session i.e on 8th of July

Possible reasons behind the fall can be:

Budget Proposals:

• Budget proposal to increase minimum public shareholding of listed shareholdings of listed companies to
35 percent from 25 percent has spooked market sentiments.
• According to sources, the hike of income-tax surcharge, on high net worth individuals may hit some
overseas funds.
• This lead to FPIs (Foreign portfolio investors) rushing to book profits as their long term capital tax is
going to increase in future.
• 20 % tax on stock buybacks has also discouraged investors as it can affect their returns in future and it
may dry share repurchases in the market.
US Data Jobs:

• US Labour Department reports showed that there was an unexpected hike in jobs, adding 224,000 jobs in
June in contrast of market expectation of 160,000.
• It gives a hint that US Fed is not going for rate cuts in near future, which makes US a better prospect for
investment than India, which has proposed double taxation at various levels.

Sell-off in Asia

• US jobs data dragged Asian shares to lower price levels. Chinese, South Korean and Hong Kong markets
fell by almost 2 %.
• Same sentiment gripped Indian Equity Market in addition to the disappointment over budget
announcement.
Other reasons:

• PNB on 6th July 2019, reported a borrowing fraud of 38.05 billion Indian rupees in Bhushan Power &
Steel Ltd’s account to the RBI. This puts a big question mark on the credit rating firms working in the
country. It may also have led to a decrease in investor’s confidence.
• Investors were cautious ahead of the June quarter earnings season, which turned out to be better than
expected. But this cautious behavior might have led to some sell-offs.

References:https://www.livemint.com/market/stock-market-news/sensex-slides-2-as-budget-proposals-
affect-sentiment/amp-1562607635527.html

https://economictimes.indiatimes.com/markets/stocks/news/sensex-tanks-400-points-5-factors-that-
dragged-the-market/articleshow/70122433.cms

https://www.businesstoday.in/union-budget-2019/why-stock-market-gave-a-thumbs-down-to-union-
budget/story/361942.html
 Can India make the transition to electric vehicles?

• The union budget 2019 has recommended a reduction in excise duty on EVs from 12% to 5%. In
addition, it charts out an income tax rebate worth Rs. 1.5 lakh for buying EVs, low custom duty on
certain EV spare parts and tax incentives for local manufactures of these parts.

• Suzuki motor Corp. is in a three-way tie-up with Toyota and Toshiba to build batteries in Gujarat. The
Toyota and Maruti Suzuki brands will begin bringing hybrids and electric to market starting 2020-21.

• Hyundai has a tie-up with Indian Oil Corp. for fast chargers at selected fuel stations in Delhi, Mumbai,
Chennai and Bangalore. Hyundai Kona Electric car just launched in India. Instead of importing these
cars from Korea it has chosen to assemble the cars locally, so duty is reduced.

• The government policy think tank NITI Aayog recommends that Sub 150cc two-wheelers should be
100% electric by 2025. We are changing from hydrocarbon economy to an electronic economy.

• By looking at FAME (Faster adoption and Manufacturing of Hybrid & Electric vehicles) with Rs.
10,000 crores allocated for its implementation

References: https://www.livemint.com/mint-lounge/features/are-you-ready-to-plug-in-your-
tesla1562919686434.html
 Re-Capitalization of Banks - What it means?

• Union Budget 2019 specified multiple structural changes to the banking sector starting with provision of
about Rs 70,000 crores in terms of additional capital infusion to state-owned banks to support credit
improvement.

• The provision is Rs. 20,000 crores over and above the market expectations; banks will now have the ability
to extend more credit which will boost industrial growth, especially the MSMEs.

• Credit Guarantee Enhancement Corporation will be set up this year with the objective of deepening the
corporate bond repos, credit default swaps etc. to enhance the sources for infrastructure financing.

• Addition of powers vested with RBI over NBFCs and Housing Finance companies will help to streamline
regulations and its implementations, leading to establishment of more uniform regulatory environment in the
lending sector and consolidation of NBFCs.

• In order to ease liquidity and provide impetus to infrastructure and real estate, investments made by
FIIs/FPIs in debt securities issued by Infrastructure Debt Fund(IDF-NBFCs) are allowed to be
transferred/sold to any domestic investor within the specified lock-in period.

• FDI in insurance was increased from 49% to 100% for insurance intermediaries, coupled with reduction in
Net-owned fund requirements to Rs. 10 billion from Rs. 50 billion. These measures will encourage more
insurance firms to set up operations in India, increase penetration and help establish enhanced distribution
channel.

• Recoveries via IBC in the first quarter of FY19-20 will add to the profitability of the banks, enabling them
to step up lending and aid credit growth besides helping weaker banks to maintain regulatory norms.

References: https://www.livemint.com/market/mark-to-market/capital-for-growth-in-fy20-visible-but-it-is-
just-a-trickle-1562468668971.html

https://economictimes.indiatimes.com/industry/banking/finance/banking/budget-2019-what-sitharamans-
budget-had-for-indiasanks/articleshow/70087210.cms
 News from around the world

• Anshula Kant appointed MD and CFO of World Bank

https://economictimes.indiatimes.com/news/politics-and-nation/sbis-anshula-kant-appointed-md-and-cfo-of-
world-bank/articleshow/70196867.cms

• Seoul denies sharing technology with North Korea as trade war with Japan heats up
https://www.telegraph.co.uk/news/2019/07/10/seoul-denies-sharing-technology-north-korea-trade-war-japan/

• Iran nuclear deal: Government announces enrichment breach

https://www.bbc.com/news/world-middle-east-48899243

• India likely to continue supporting Afghanistan despite US drawdown: Pentagon

https://indianexpress.com/article/world/india-likely-to-continue-supporting-afghanistan-despite-us-drawdown-
pentagon-5828082/

• Russian missile delivery to Turkey strains ally's relations with US

https://www.theguardian.com/world/2019/jul/12/russian-missile-delivery-to-turkey-strains-allys-relations-with-
us
https://www.moneycontrol.com/news/business/markets/budget-2019-responds-comprehensively-to-banking-
financial-sector-resolves-liquidity-issues-4176711.html

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