The US yield curve inverted once again after a gap of more than a year. An inverted yield curve is when the gap between the 10-year bond yields and the 2-year bond yields invert and turn negative. Historically, the negative yield curve sustaining for a lengthy period of time has been a strong signal of impending recession. However, in the last two years, the US yield curve has turned negative several times before returning back to normal. Hence economists are not reading too much into this inversion. While GDP growth has been under pressure, these are seen more as adjusting impulses.
Wall Street rebounded on Tuesday and led a sharp rally in risk asset classes across the board with Apple leading the charge. The global markets had been worried that the China Corona virus could impact growth negatively but that fear appears to be receding and that was visible after gold prices also fell from a 3-week high on Tuesday. Most global investors are confident that China would be able to contain the side effects of the virus and are taking a more charitable view of its impact. The positive impact of the trade deal phase 1 had been largely nullified by the pandemic over the last few weeks.
For the government and the people at large, there appears to be some relief in sight as onion price slipped by nearly 40% in the last one week. Largely due to the efforts by onion producers across India to increase output, global imports of onions and better supply and distribution management, the prices of onions have tempered sharply. However, it is yet to come down to the pre-crisis levels. Onion prices had been solely responsible for the sharp spurt in food inflation and this will mean that the CPI inflation should also temper from the higher levels of 7.35%. Onions are economically and politically sensitive.
The Insurance Regulatory and Development Authority (IRDA) has issued detailed norms to protect the interests of insurance policyholders in the event of merging public sector banks. In the last year, the government announced the strategic of many smaller PSBs with larger PSBs like BOB, Canara Bank and Union Bank of India. Many of these PSBs also had insurance franchises. IRDA stipulated that the insurance shall make adequate arrangements with the acquirer to ensure that the service continuity was ensured for policyholders. The idea of merging has been to reduce the duplication of service by PSBs.
As India moves closer to the Budget 2020, there may be a big challenge on hand in terms of matching revenues to outlays. For example, the Rs.145,000 crore outlay for corporate tax outlays could be a big thorn in the flesh. It is estimated that the total tax shortfall itself could be in the region of Rs.2 trillion in this budget. Apart from the corporate tax cuts, all the heads of tax collections have seen tepid to negative growth. For example, corporate taxes are likely to grow at -1% against an estimated growth of 15.4%. The all important GST is likely to show just 4% growth as against an estimated 44% growth envisaged. Thirdly, growth in income tax collections is also expected to be tepid at just 7% as against an anticipated 23%. The big question now is how this gap is going to be filled up by the government?
The government is all set to offer 100% of its stake in Air India and also throw in sweeteners like reducing the burden of debt even further via the SPV route. It is expected to hive off nearly debt to the tune of Rs.40,000 crore to make the deal more attractive to buyers. The government has also agreed to transfer full management control as well as its two subsidiaries to the buyer. The earlier attempt to sell Air India in May 2018 had not drawn any responses. The government is sinking Rs.10,000 crore into Air India each year with no output and the debt is already at an unsustainable level of Rs.60,000 crore.
