Monetary policy
Are global central banks turning hawkish after a long time?
After nearly 9 years of a consistently dovish stance by global central banks, there is finally a subtle shift that is happening. Key central banks have been becoming less dovish. While nobody is being overly hawkish, there is at least an indication that the rates may have bottomed and the bond portfolio of central banks may have peaked. Here is what 3 central banks are doing and what does it mean for India?
BOJ has indicated so much…
The BOJ was one of the first central banks to commit that the benchmark 10-year yields will be maintained in positive territory. This was seen as a hawkish signal at a time when other central banks were already pushing rates into negative territory. The BOJ is yet to speak at length about its $5 trillion bond portfolio, but that should come sooner rather than later!
ECB is turning mildly hawkish…
The recent ECB meeting was the first sign of hawkishness. Mario Draghi of the ECB confirmed that the ECB was already at the end of the rate cut cycle and further cuts into negative territory were ruled out. ECB has also indicated at a gradual winding down of its $2 trillion bond portfolio, but that may have to wait till the time growth in EU region picks up. The last quarter has seen green-shoots of recovery in the EU and it may set the tone for future meets.
Air India
Will it fit into the overall Indigo Airlines strategy?
One of the big news items last week was the plan to hive off Air India. While one can argue that it has come late, it is always better late than never. But that is off the point. What was more intriguing was that India’s largest domestic airline, Indigo, expressed interest in the international business of Air India. What will be the implications and does it fit into the overall strategy of Indigo. Here are 3 issues to consider before evaluating the possibilities …
How does it fit for Indigo?
The big question is how does such an acquisition fit into the overall strategy of Indigo? It needs to be remembered that Indigo already has a leadership position in India and corners nearly a 40% market share in the domestic aviation market. While the Air India buyout is restricted to the international operations, it is still not clear how it fits into the aviation strategy of Indigo. Till date Indigo has grown organically. It has managed to run the aviation part profitably by combining an eye on costs with smarter operating efficiency and quicker turnaround time.
Air India operates on a different plane altogether. Whether Indigo is able to maintain these efficiencies after taking over the Air India global operations remains to be seen. Air India has been known to be languid and impervious to change. There is also the risk of cultures of the two companies not fitting. That is surely a big challenge to overcome!
GST build-up
Understanding the crux of anti-profiteering…
As the nation readies for the launch of GST on an all-Indian basis on 01st July, there are a plethora of nuances that need to be addressed. One such question pertains to the all important idea of anti-profiteering. Here is what you need to know about the same…
What is anti-profiteering…
The implementation of GST will lead to change in the taxes payable for a variety of products. In case of some products, the actual impact of GST may be higher than before. In other cases, the impact of GST may be lower than before. If the actual tax rate is higher, then the company will ensure that the higher costs are passed on to the end customer. But what happens if the eventual tax payable under GST is lower. In that case, the GST Council will ensure that these benefits of lower tax are passed on to the end customer. If the benefits are not passed on to the end customer, then it will invite penal action from the GST Council and it will include cancellation of the GST registration. At least, the system is in place to ensure that post GST, the benefits of lower rates are passed on to the end customer.
Delineating the tax component…
All that will be easier said than done. The big problem will be in delineating exactly the tax component from other components. The price of the product or service is not just about the tax but also other aspects like cost of the product, competitive scenario, distribution costs, entry barriers etc. Trying to directly link the cut in tax rates with a reduction in price may be a tad unfair to business. That is because in many competitive businesses, the companies do absorb a part of the costs to ensure that they are competitive in terms of pricing.
