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.

 Japan – South Korea Trade Dispute
 The current tensions between South Korea and Japan stems from lingering anger over Japan’s
occupation of the Korean Peninsula in the lead up to World War II.
 During that time thousands of so called comfort women were forced into sexual slavery and thousands
more people were coerced to work without pay.
 Last year a South Korean court ruled that Japanese companies must compensate Korean workers for
forced labor during the war but Japan rejected this ruling.
 Last month Japan placed export restrictions on chemicals and other materials that South Korea’s tech
industry needs to produce semiconductors and smart phone screens.

 Japan produces almost all of the world’s supply of three materials-fluorinated polyimide, photo resists
and hydrogen fluoride- that South Korea tech giants Samsung, LG, SK Hynix rely on.
 Japanese exporters will now have to get permission before sending the materials to South Korea, a
process that takes ninety days.
 South Korean companies produce more than half of the world’s semiconductors and more than 90
percent of smart phone screens. It has lodged a complaint at the World Trade Organization and lobbied
fellow members of the Association of Southeast Asian Nations.
 Japan and South Korea are showing no signs of backing down from a trade dispute that could disrupt
global production of smart phones, computers and other electronics.

Reference:https://www.japantimes.co.jp/news/2019/08/15/business/japan-south-korea-row-may-cause-
lasting-economic-security-shift-aiding-china-north/#.XVfj5P7hXIU
 All That RBI Detected At IL&FS
 The Reserve Bank of India found a series of grave violations by the Infrastructure Leasing & Financial
Services Group when it conducted a special audit into the conglomerate’s operations soon after it
defaulted on inter-corporate deposits last year.
 The RBI found that IL&FS had misrepresented its capital position for the financial year ended March
2018.
 The regulator found that the infrastructure conglomerate had a negative net worth of Rs 1,632 crore for
financial year 2017-18, as opposed to the Rs 6,676 crore that the conglomerate had reported.
 The infrastructure financing firm’s gross non-performing asset ratio was in excess of 70 percent as on
March 31, 2018, the RBI said.
 IL&FS reported additional provisions worth Rs 158.55 crore owing to diminution in investments for
FY18. However, according to the RBI’s assessment, these provisions should have been close to Rs
3,491 crore.

 IL&FS’ asset-liability returns showed that in the 14 days-1 month bucket, the negative mismatch was
very high at -79.36 percent. The negative mismatch reflects a far higher proportion of short-term
liabilities coming due than the company could pay.
 The negative mismatches continued for up to the five year maturity. “This shows that the company did
not have access to liquidity, which was a major concern and resulted in default in commitment.
 The independent directors, according to the RBI, did not ensure that the board exercise proper oversight
on the strategy adopted by the management to fund IL&FS .

Reference:https://www.bloombergquint.com/business/from-hidden-bad-loans-to-misreported-capital-
adequacy-all-that-the-rbi-detected-in-ilfs
 Donald Trump's trade tirade targets India
 The US and China are engaged in a brutal trade war for almost a year, with the US being the first to
impose tariffs on Chinese goods.
 To press demands for an end to policies that Washington says hurt US companies competing with
Chinese firms. China responded with its own tit-for-tat tariffs on US goods.
 Trade tensions with the US has already slowed down the Chinese economy. The country has slashed its
official GDP target to 6 to 6.5 per cent for this year.
 In India’s case, the US has imposed tariffs on steel imports from India and ended preferential access for
Indian products. In retaliation, India imposed retaliatory tariffs on 28 products exported from the US in
June.

 India’s GDP growth slowed to a five-quarter low of 6.6 per cent in October-December quarter on lower
farm and manufacturing growth and weaker consumer demand, as per government data.
 According toSanjay Mathur (Chief Economist, South East Asia & India, ANZ)
Trump’s threat is definitely not a positive news for India. It seems they are moving from one country to
another. It started off with China, and next on target are India and Turkey.
 US President claims New Delhi taking advantage of the ‘developing nation’ tag given by WTO.

Reference:https://www.livemint.com/news/india/donald-trump-s-trade-tirade-targets-india-
1565804764366.html
 RBI allows setting up of Regulatory Sandbox
 RBI permitted startups, banks and financial institutions to set up regulatory sandbox (RS) for live testing
of innovative products in areas like retail payments, digital KYC and wealth management.
 RS usually refers to live testing of new products or services in a controlled/test regulatory environment
for which regulators may (or may not) permit certain relaxations for the limited purpose of the testing.
 The RS will allow the regulator, innovators, financial service providers and customers to conduct field
tests to collect evidence on the benefits and risks of new financial innovations, while carefully
monitoring and containing their risks.
 Users of an RS can test the product's viability without the need for a larger and more expensive roll-out,
if the product appears to have the potential to be successful, is another major benefit of such exercise.
 On risks and limitations of RS, the RBI said innovators may lose some flexibility and time in going
through the sandbox process. However, running the RS in a time-bound manner at each stage can
mitigate this risk.
 The focus of the RS will be to encourage innovations intended for use in the Indian market in areas
where there is absence of governing regulations and there is a need to temporarily ease regulations for
enabling the proposed innovation.

 "The RS shall be based on thematic cohorts focusing on financial inclusion, payments and lending,
digital KYC. The cohorts may run for varying time periods but should ordinarily be completed within
six months," the central bank said.
 Innovative products/services which could be considered for RS, include retail payments, money transfer
services, marketplace lending, digital KYC, financial advisory services, wealth management services,
and digital identification services.
 Mobile technology applications, data analytics, application program interface (APIs) services,
applications under block chain technologies, and artificial intelligence and machine learning applications
too could be considered for testing under RS.
 The guidelines also ensured that any existing obligations to the customers of the financial service under
experimentation are fulfilled or addressed before exiting or discontinuing the RS.

Reference:https://economictimes.indiatimes.com/news/economy/finance/rbi-allows-fintech-companies-
financial-institutions-to-set-up-regulatory-sandbox/articleshow/70664351.cms
 Auto Industry bets big on Scrappage Policy
 Automobile industry's representatives have sought an 'End of Life' policy from the Central government
as a measure to arrest the falling sales.
 The policy, if implemented, is expected to encourage customers to go in for new purchases which will
be backed-up by government incentives in lieu of their old vehicles.
 Significantly, the move is considered to be the most vital element in any stimulus package for the
industry which has recorded an overall decline of 18.71 per cent in off-take for July, the highest monthly
sales de-growth in the last 19 years.
 Consequently, the industry's production levels have also receded as demand plunged, eventually leading
to job losses. Industry insiders opined that an India specific scrappage policy might include both
commercial and passenger vehicles.

 Recently, all major OEMs consisting of passenger, commercial, two- and three-wheeler manufacturers
have reported a massive decline in domestic sales.
 Overall, passenger vehicle sales declined 30.98 per cent in July to 2,00,790 units against 2,90,931 units
in the year-ago month.
 In the commercial vehicle segment, sales were down by 25.71 per cent to 56,866 units. In case of two-
wheelers, which include scooters, motorcycles and mopeds, the sale edged lower by 16.82 per cent to
15,11,692 units.

Reference:https://economictimes.indiatimes.com/industry/auto/auto-news/cash-for-clunkers-auto-
industry-bets-big-on-scrappage-policy/articleshow/70722531.cms
 The Indian Auto Industry Slowdown: An Analysis
 Witnessing its worst slowdown in decades, the Indian automotive industry has been badgered, bruised
and continues to suffer great losses.
 Figures released by the Society of Indian Automobile Manufacturers have revealed that passenger
vehicle sales in the month of July plummeted a whopping 31 per cent to 200,790 vehicles compared to a
year earlier.
 This massive drop in sales has happened despite the introduction of recent models like the Mahindra’s
XUV300, the Hyundai Venue and the MG Hector. All products pegged to be game changers in their
own right.
 Due to less demand, manufacturers are also cutting down on production, sometimes even shutting their
factories down to adjust inventory.

Causes for the Slow down :

 Due to the slowdown in economic growth in the country, banks all over the country have had to make
changes to their policies as a response. Some of them, including NBFC’s as a result of bad loans and
weak retail sales have decided to enforce stricter restrictions.
 These restrictions include giving out loans only to people with a high credit rating. This has majorly
affected auto dealers and customers especially from tier 2 and tier 3 cities.
 A combination of other factors such as higher insurance costs and tax increases have contributed to the
drop and have resulted in a major liquidity crunch.
 Despite the central bank having a dovish stance on loan rates, automotive lending continues to be
stringent with much higher rates.
 India is set to enforce stricter BS6 emission norms on all its vehicles come 2020. This bombshell has
gotten customers worried and confused on whether they should purchase a vehicle before it and have no
idea if the switch to BS6 is worth the extra money.
 Automakers like Maruti, Honda, Renault and Nissan have already started offering huge discounts and
special offers in order to clean out their BS4 inventory before April 2020. However, this is leading to
customers waiting for further discounts, which has further delayed purchase decisions.
 Over the past three-four years, we have seen the rapid rise of ride-share apps like OLA, Uber, Sride and
Quickride in the country.
 This has certainly challenged the concept of ownership and thus affected sales. It has made customers
hesitant to buy a vehicle as much of their expenses are slashed with regular carpool use.
 The Indian government has envisioned a radical push for all vehicles to go fully electric by 2030.
Despite EVs like the Hyundai Kona Electric SUV slowly making its way to India and EVs getting a
reduction in GST rates, it's clear that India is still unprepared for a fully-electric era.
 Customers fear that any vehicle that they purchase could potentially become obsolete in the next decade
or so. Thus they are clearly looking to hold on to their current vehicles in order to avoid an unnecessary
purchase if EVs are on the way.

Reference:https://www.zigwheels.com/news-features/news/the-indian-auto-industry-slowdown-an-
analysis/34833/
 News from around the world

 Brexit: leaked papers predict food shortages and port delays

https://www.theguardian.com/politics/2019/aug/18/brexit-leaked-papers-predict-food-shortages-and-
port-delays-operation-yellowhammer

 Sudanese protesters sign final power-sharing deal with army

https://www.indiatoday.in/world/story/sudanese-protesters-sign-final-power-sharing-deal-with-army-
1582070-2019-08-18

 Russia Says Won't Install New Missiles Unless US Deploys Them In Europe
https://www.ndtv.com/world-news/russia-says-wont-install-new-missiles-unless-us-deploys-them-in-
europe-2086744

 State Bank of India extends credit period of stressed auto dealers

https://economictimes.indiatimes.com/industry/auto/auto-news/state-bank-of-india-extends-credit-
period-of-stressed-auto-dealers/articleshow/70725971.cms

 FPIs pull out Rs 8,319 crore in August amid persisting negative sentiment
https://economictimes.indiatimes.com/markets/stocks/news/fpis-pull-out-rs-8319-crore-in-august-amid-
persisting-negative-sentiment/articleshow/70721608.cms

 Birla veteran Muthukumaran appointed CFO of ReNew Power

https://economictimes.indiatimes.com/industry/energy/power/birla-veteran-muthukumaran-appointed-
cfo-of-renew-power/articleshow/70723187.cms
In case of any feedback or queries, contact us:

E-mail - students.research@sibm.edu.in
Mobile - Ishika Garg: +91 7405402473
Ankit Mehta: +91 9911001645