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Cube Highways to acquire RInfra’s Delhi-Agra Toll Road for Rs 3,600 cr

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Singapore-based Cube Highways and Infrastructure III Pte Ltd is set to acquire Delhi-Agra Toll Road from Reliance Infrastructure (RInfra) at an enterprise value of Rs 3,609 crore and both have entered into a definitive binding agreement for the same.

Cube Highways and Infrastructure III Pte Ltd has been formed by global infrastructure fund I Squared Capital and a wholly-owned subsidiary of Abu Dhabi Investment Authority (ADIA).

“The total deal enterprise value is over Rs 3,600 crore. In addition, National Highways Authority of India (NHAI) claims of Rs 1,200 crore to be filed by DA (Delhi-Agra) Toll Road Pvt Ltd will flow directly to Reliance Infrastructure,” RInfra said in a regulatory filing on Thursday.

The enterprise value includes equity interests of approximately Rs 1,689 crore.

This transaction of selling 100% stake in the special purpose vehicle road project is as per Anil Ambani-promoted company’s strategic plan to monetise non-core businesses. Almost a year ago, RInfra had announced its plans to focus on engineering, procurement and construction (EPC) business.

The proceeds from the sale of this 180 kilometre-long Delhi Agra Toll Road will be utilised to partially repay company’s debt. “Debt of RInfra will reduce by over 25% to only less than Rs 5,000 crore against the net worth of around Rs 23,700 crore,” RInfra’s statement said.

This is not the first business that the company has sold to pare its debt. In August 2018, Adani Transmission Ltd (ATL) acquired Mumbai power generation, transmission and distribution business from RInfra for Rs 18,800 crore. Post that transaction, RInfra reduced its debt liabilities by Rs 13,800 crore.

RInfra has eleven road projects worth Rs 11,430 crore with a cumulative length of 968 km, according to the company’s website. Seven of the projects are operational, while four (including Delhi-Agra) are under construction. Though this six-lane Delhi Agra Toll Road is still being built, the tolling operation had commenced in October 2012 and witnesses heavy traffic flow. As per the concession agreement inked with NHAI, the concession period is till 2038.

The divestment will be undertaken after the commercial operation date for the Delhi-Agra Toll Road is achieved.

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Nisha Shiwani hails from the pink city of Jaipur and is a prolific writer. She loves to write on Real Estate/Property, Automobiles, Education, Finance and about the latest developments in the Technology space.



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Eiliant Advisors bets big on its Lifecycle Growth Advisory business

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  • Expands portfolio and adds 3 new partners
  • To raise a total of USD 12 Million across 3 new mandates in H2, FY20
  • Aims to become a USD 25 million entity by 2025 with a global footprint

Eiliant, a niche, full lifecycle growth advisory firm, announced today that it has signed up contracts for raising over USD 12 Million during H2, FY20 across 3 new mandates in the areas of deep-tech and enterprise-tech. The firm has also signed up 3 multi – year strategic growth-to-exit contracts for challenger brands across organized bakery, wellness, and chocolate. On back of this development, the firm announced on-boarding of 3 industry veterans as its new partners, making a total of 5 partners across verticals. Eiliant now aims to become a USD 25 million entity by 2025 with a global footprint. It is with this intent it is structuring itself to brace up for the growth opportunities.

Since its inception in 2018, Eiliant has grown steadily and recently advised Space-Tech start-up, Bellatrix Aerospace to raise $ 3 Million in its Pre Series – A round. The firm has developed a strong investment thesis around Space-Tech, Cybersecurity, and Health-Tech and is building capabilities on scaling and augmenting growth. Eiliant is focussed on mergers and acquisitions, growth capital augmentation, technology strategy, growth consulting and CFO advisory to enable growth, scale and competitiveness for mid-market companies and curated start-ups. Its advisory is focussed towards 4 verticals – Science and Technology, Manufacturing, Consumer and Financial Services including Fintech. Eiliant has created its own proprietary engagement framework to unlock value and accelerate growth for emerging businesses and challenger brands across their life-cycle while ensuring investors get better-than-market returns on their investments with Eiliant portfolio companies.


The company’s new partners are Dean George who has worked with Arvind, Titan, StoreKing and HCL, Jubin Mishra who has worked with Accenture, HSBC, Sony and Aavishkaar-Intellecap and Sachin Gupta who has worked with LG, Blue Dart, Toll Group before joining Eiliant. Dean George, an MBA from University of Canterbury Christchurch, New Zealand, brings in 20 + years of experience and will lead Sales and Business Operations Advisory; Jubin Mishra, an alumnus of IIM Kozhikode with 20+ years of experience will be responsible for Growth Strategy and Marketing Advisory; Sachin Gupta, a chartered accountant and alumni of IIM Bangalore joins Eiliant advisory to focus on transaction and CFO Advisory.


Speaking about the development, Mr. Udit Mitra, Founder, Eiliant Advisors said: “With Dean, Jubin, and Sachin joining, we now have a leadership team of accomplished professionals with a proven track record across businesses and geographies. At this point, we are running and curating deals across our focussed verticals and their addition will help us to broaden our service portfolio across the business life cycle of our clients. This will now enable us to work as an extension for the investors, in achieving their R-o-I and exits, while building competitive business models for entrepreneurs in mid-market and curated start-ups. With this new addition, we have a collective 100+ years of experience – which we will bring to fore to offer our differentiated services to our clients and investors.”


Adding to the firm’s development, Mr. Anish Sengupta, Co-Founder said: “As a firm, we have a significant focus on deep-tech mandates. We look for enterprise technology companies with a defensible technical moat, reached through significant research and protected by patents or copyrights. With Dean, Jubin, and Sachin coming on board, we hope to accelerate growth in this area also”.

Eiliant Advisors is currently working on exclusive mandates in deep-tech company using Artificial Intelligence and Edge Computing to deliver intelligent monitoring and energy savings for large facilities and buildings; a Made-in-India, smart urban mobility solution – automating over 3 million parking spaces across India and South East Asia using proprietary Algorithm. The firm is also looking at various deals across consumer, manufacturing which will be online in upcoming quarters. The firm is targeting to on-board 2 more full life cycle clients during the second half of FY20.


About Eiliant

Eiliant is a niche advisory firm that offers specialized services to unlock value and accelerate growth for start-up and mid-market companies across their entire lifecycle through its 4*4 strategy – focus on 4 industry verticals (Science and Technology, Manufacturing, Consumer and Financial Services including Fintech.) across 4 Service Lines ( Business Transformation and Growth Enablement, Investment Banking and M&A, Technology Advisory and Digital Strategy, and CFO and Structuring Advisory).

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‘One Belt One Road’ (OBOR): An external challenge to India’s economy and security

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In recent times China has emerged as a strong player in this new unfolding global system.

It has launched a new initiative called One Belt and One Road initiative. The aim of the OBOR project is to create an economic land belt and marine link to redirect  Chinese capital to develop infrastructure and trade capacity of ASEAN, Europe, Central Asia, and Africa.

The concept of OBOR is based on certain principles where the broad aim is to establish multi-dimensional and multi-tiered connectivity to tap the market potential of the region’s leading countries to aggressively undertake job creation and promotion of consumption. It has the plan to involve more than 60 countries in the project and also plans to negotiate a free trade agreement with all of them, the entire OBOR.

OBOR

 

OBOR, CPEC, String of Pearls

China Pakistan Economic Corridor (CPEC)

The China –Pakistan relations, over a period of time, have evolved to the extent that some scholars aptly call Pakistan, China’s Israel. Today, china clearly believes that Pakistan has a core part to play in its transition to global power and lies at the heart of China’s plan for ports and railways and for oil and gas. The CPEC comes at a time of growing geopolitical ambition of china, being partly a strategic gambit. One of the important aims of CPEC is to bolster the Pakistani Economy by addressing the Key infrastructure constraints in Pakistan.

CPEC as a subset of OBOR

In March 2015, China’s National Development and Reform Committee announced the OBOR initiative. The CPEC is part of OBOR and was formalized in April 2015 between Pakistan and China. This concluded with around 51 memorandums of understanding with a total investment of 46 billion dollars. CPEC has emerged out of the Chinese principle of co-operative mechanism with different parts of the world to increase its trade. It has identified the China-Pakistan Economic Corridor and Bangladesh-China-India–Myanmar(BCIM-EC) as the key initiatives broadly associated with OBOR.

India’s official position is that CPEC passes through the Pakistan Occupied Kashmir(PoK), which is a disputed territory, and land that has been illegally occupied. India asserts that China has not shown any understanding of India’s sovereign claims and thereby it will not be part of the OBOR. Again for India, OBOR is a national initiative of China to enhance its connectivity all over to ensure that it is able to sustain its low-cost manufacturing programme which is declining due to rising domestic wages in China. This is by integrating itself to global value chains.

India has now to decide whether it would allow political differences to prevail over economic interaction.

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Dr. Ashutosh Karnatak is the new CMD of GAIL ( India) Ltd

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Dr. Ashutosh Karnatak, new CMD of GAIL ( India) Ltd
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Gas Authority of India Limited with its headquarter based in New Delhi’s Bhikaiji Cama Place has nominated its new Chairman Cum Managing Director. Dr. Ashutosh Karnatak earlier serving as Director project GAIL since 2014 has today taken over charge as the new CMD of this highly profit-making organization. The earlier CMD Mr. Tripathi has retired.

Mr. Ashutosh Karnatak carries behind him a rich experience of 37 protracted years in the hydrocarbon sector and is also concurrently serving as Director ( Projects) in GAIL.

As per the financial projections till February 2019 the state-owned gas distribution company GAIL ( India) Limited jumped in the third quarter profit beating market estimate, buoyed by a surge in revenue from its natural gas marketing segment says a TOI report published in February. According to the report, the profit for the quarter ended then on December 31 last came to a whopping 16.81 billion rupees i.e. 234.32 million dollars compared with a profit of 12.62 billion rupees last year as per the GAIL’s projections.

According to the Refinitiv Eikon data quoting TOI report sixteen analysts on average estimated the company, which also engages in the transmission of petrochemicals and liquefied petroleum gas, posted a profit of 15.51 billion in a quarter.

The TOI report of Feb 2019 further says that GAIL’s revenue from operations surged 37.3% to 197.89 billion rupees. Similarly, it’s gas marketing segment which accounts for more than 3, 4th of the total revenue enhanced to a whopping 46%.

Along with Dr. Ashutosh Karnatak who took charge as CMD GAIL, Dr. Kulbhooshan Baluni also took charge as Director IIM Kashipur and Professor Padhy as Chairperson of IIM Kashipur Campus, Dun today. Mr. KC Pandey of Awaj Suno Pahadon ki and Uttarakhand Journalists Forum extended their heartiest congratulations to all of them for their enlightened future.

Dr. K. C Pandey a renowned entrepreneur of Uttarakhand and social activist congratulated Dr. Karnatak on assumption of the charge as new CMD GAIL at his Bhikaiji Cama place office by presenting a bouquetin person.

A post-graduate from IIT Delhi Karnatak graduated in electrical engineering from HBTI Kanpur. He is credited for developing an innovative project monitoring and controlling technique ARJUNA and a capability-building model. He accompanies with him a 39 years experience in Oil and Gas sector who joined GAIL in 2014 and reached its top slot just in a span of 4 and a half years.

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Have we registered our brand name yet?

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The brand name is the very soul of the company. With the rise in the number of brands in India, the likelihood of the brand name being stolen has increased. Therefore, it is high time that we take measures to protect our brand name through Trademark registration.

Why we should consider trademark registration?

1. Because the brand name is the very identity of our product or service.
2. Because a brand name makes the customers recognize our product among many.
3. Because with trademark registration, we can deter the infringers from stealing our mark.
4. Because trademark registration gives a monetary value to our mark
5. Because trademark registration opens the door to business expansion through licensing.

This important article curated from the web.

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DPIIT summons food aggregators like Zomato, Swiggy over predatory pricing

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The Department for Promotion of Industry and Internal Trade (DPIIT) has summoned food aggregators including Swiggy, Zomato, Foodpanda and Uber Eats over restaurants complaint of them engaging in deep discounting. The dispute between restaurants and food aggregators has been going one for almost a year.

DPIIT has called meeting to resolve offline restaurant concerns, which is quite similar to what offline retailers had with e-tailers, said an official aware of the development.

The meeting will be attended by food aggregators and restaurant associations, including the Federation of Hotel & Restaurant Associations of India and National Restaurant Association of India. It will be chaired by DPIIT secretary, Ramesh Abhishek.

Govt will try to address the restaurants issues through mutual discussion and find equal growth opportunity for the industry, reportedly said officials.

Commerce and industry minister, Piyush Goyal, had earlier warned e-comm firms, in almost similar cases, to avoid hurting small businesses through their predatory pricing practices. Goyal had categorically said that the government will not allow small retailers and kirana shops to be wiped out.

The restaurant associations have time and again complained against food aggregators harming their business through making consumers discount addicts.

Two months ago, restaurants had complained, about the impact of deep discounting offered by food aggregators, on their business. Through predatory pricing food aggregators are forcing restaurants to drop prices, restaurants said.

Food aggregators have also indulged in running their own private labels, who are eating away their businesses and using consumer behaviour data to consolidate their business, they added.

In January, over five hundreds of restaurants had complained to the CCI.

 

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Delhi High court restrains Hotelier Association from calling for ban on Oyo Rooms

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The Delhi High court has restrained the Hotelier Welfare Association from issuing any notices to hoteliers and service providers calling for a ban on or seeking to boycott the hotel services provided by Oyo Rooms.

The ex-parte interim injunction order was passed by a vacation Bench of Justice Jayant Nath in a suit by the owner of Oyo Rooms, Oravel Stays Private Limited (plaintiff)  against the Hotelier Welfare Association (defendant).

The Court was informed that the plaintiff is in the business of standardizing unbranded budget hotels, bed and breakfast and guesthouses through online and offline channels.

It was further explained that the plaintiff enters into business arrangements with the service providers or hotelier, in which the service provider or hotelier permits the plaintiff to have full control over pricing, booking brought in by the hotel, publishing room tariffs on its website and/or mobile application at any point in time etc.

It was the plaintiff’s grievance that the defendant had been illegally conspiring and colluding with other similar hotelier associations such as Budget Hotel Association of Mumbai to coerce the plaintiff into submitting to their unwarranted, illegal demands.

Pursuant to the various statements, notices/letters issued by the defendant, several hoteliers had expressed their apprehension in continuing their business-relation with the plaintiff, the Court was further informed.

The Court also perused one such notice allegedly by defendant association, calling upon all hotels to support a nationwide protest against OYO by boycotting and blocking OYO rooms from June 20.

The conduct, the plaintiff argued, had halted its business and could also potentially impact more than 1,35,000 bookings across India.

It was also pointed out that the defendant was earlier the business partners of the plaintiff but have now formed an association and have been acting against the plaintiff.

After hearing the plaintiff, the Court concluded that a prima facie case had been made out against the defendant for an ex parte injunction order.

The Court thus restrained the defendant from issuing notices or calling other hoteliers/service providers to boycott the plaintiff in any manner whatsoever till further orders.

Oyo Rooms was represented by Senior Advocate Neeraj Malhotra, briefed by a team of Advocates from IndusLaw Sandeep Grover, Mohit Chadha, Pankhuri Bhardwaj, Tarang Aggarwal, and Kshitij Parashar.

  1. The matter will be heard next on August 8
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Mindtree gives three board seats to L&T, Subroto Bagchi resigns

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Mindtree’s board has appointed three L&T senior leaders including chief executive officer and managing director executives S N Subrahmanyan. Engineering major L&T, whose target is to up its stake in the mid-tier IT services companies to more than 66%, has got three seats on Mindtree’s board.

The Board of Directors and the Nomination and Remuneration Committee on Thursday approved the appointments of S N Subrahmanyan, J D Patil, Senior Executive Vice President for L&T’s defence business and Ramamurthi Shankar Raman, chief financial officer, L&T as non-executive directors, the company said in a filing.

These appointments will be effective July 16 subject to shareholders’ approval.

Co-founder Subroto Bagchi has resigned from Mindtree’s board. The company said Bagchi, who is retiring on July 16, did not offer himself a reappointment.

The Bengaluru-headquartered IT firm has also approved the appointments of Prasanna Rangacharya and Deepa Gopalan Wadhwa as independent directors on the board.

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Paytm to dole out incentives for merchants at kirana stores

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In a move to make deeper inroads in the country, digital payments company Paytm on Thursday announced to push cashback from peer-to-peer UPI transactions to offline merchant payments at retail kirana stores.

The company is aiming to partner with almost 20 million retail kirana stores, enabling them to accept all digital payment modes including UPI, wallet and cards.

“Paytm will invest money in offline merchant expansion instead of driving incentive led P2P transactions. Our offline merchants create high-frequency usage and an important use-case for Paytm consumers,” said Deepak Abbot, Senior Vice President, Paytm.

UPI P2P payments are mostly done by users to receive‍ some extra money. On Paytm, the UPI users are already the ones who have been using a large host of Paytm services for a long time and don’t nerd cashbacks to make payments.

“To further help merchants get better access to capital and provide more financial security Paytm will invest on lending and insurance, rather than on P2P payments,” the company said in a statement.

Through its payment ecosystem, Paytm has already created a network effect with over 5 billion transactions in 2018-19.

It also claims to have 12 million merchant partners accepting payments through Paytm QR, which accepts all digital payment instruments like UPI, wallets, cards and netbanking.

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Piramal Enterprises Sells Entire Stake In Shriram Transport Finance

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Piramal Enterprises Ltd. has exited Shriram Transport Finance Company Ltd. by selling its entire stake in the asset financier.

The billionaire Ajay Piramal-backed company sold 9.96 percent stake in Shriram Transport to third-party investors, according to an exchange filing. A total of 2.26 crore shares of Shriram Transport changed hands via two block deals in the National Stock Exchange—1.3 crore shares were sold at Rs 1,023.55 apiece and another 0.9 crore shares at Rs 1,027.25.

The total value of the deal stood at Rs 2,316 crore—a gain of 42 percent since 2013 when Piramal Enterprises had bought 10 percent in Shriram Transport for Rs 1,636 crore.

Piramal Enterprises is looking to consolidate the financial services businesses, Chairman Ajay Piramal had Reportedly said after the fourth quarter earnings announcement.

“We are seeing how to create value for Shriram and Piramal shareholders. One of the steps is to bring all Shriram companies into one. That will create value for Shriram shareholders,” Piramal had said in April. “We are also looking to exit. If we get the right value and the right buyer, we may do it.”

Piramal Enterprises also owns 10 percent in Shriram City and 20 percent stake in Shriram Capital—an unlisted holding company of the Shriram Group. It has invested Rs 801 crore and Rs 2,146 crore in Shriram City and Shriram Capital, respectively. Piramal Enterprises’ total investments in Shriram Group stood at Rs 7,259 crore as of March 2019. That, however, was prior to Monday’s block deals.

Shriram Transport shares fell as much as 7.8 percent after the block deal, while Piramal Enterprises’ stock rose nearly 2 percent. That compares with a 0.62 percent decline in the NSE Nifty 50 Index.

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The Impact of rise in fuel price on Indian Economy

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A sudden surge of fuel price has raised the eyebrows of many of us. Ordinary citizens of India begin to chide and criticize the govt policies and oil companies deregulation strategy as they have to shoulder the maximum brunt in many ways. But the bottom line is we simply unaware of the facts and figures that are controlling the price of fossil fuels. So it is high time we must aware of the intricacies and delicacies of a hike of fuel price and its subsequent effect on the economy

Fuel means coal, gas or oil which burns to gives us energy or heat. But in the broader economic terms we are more concerned about crude oil; i.e. petrol or diesel. The recent rise in the prices of crude oil has drawn everyone’s attention towards the crucial role that oil plays in the economy of any nation. Crude oil is one of the most necessitated commodities in the world and India imports around 100 million tons of crude oil and other petroleum products. This, in turn, results in spending huge amounts of foreign exchange.

In the Indian Context

The increasing quantum of imports of petroleum products has a significant impact on the Indian economy, especially when crude oil prices are shooting up globally. Crude oil not only serves as a source of energy but also as a major raw material to various industries. With no major discoveries in recent years, the increasing costs of production have pushed up crude oil prices globally. Also, the high volatility in the prices of oil breaching the $100/barrel mark and rising to a high of $147/barrel could be attributed to the fact that in the recent years, many index funds have taken positions in commodities considering oil to be an asset stock in their portfolios. It has been usually observed that in India, the pricing scheme is designed in such a way that it offers a system to moderate the soaring international oil prices and thereby study the impact on growth, inflation, etc.

Reasons for the surge

There has been a sharp hike in the prices of petrol and diesel since the “dynamic” daily pricing model for these fuels was introduced in India. Before accepting the causes of the surge, we must know how the crude oil price is designed.

How is the Indian crude basket calculated?

  • The Indian basket of crude oil basically represents a derived basket comprising Sour Grade and Sweet Grade of crude oil processed in Indian.
  • Prices of petrol and diesel have both been made market-determined. Since then, the Public Sector Oil Marketing Companies (OMCs) are supposed to take appropriate decisions on the pricing of petrol and diesel. This is in line with international product prices and other market conditions such as the exchange rate and the demand-supply situation.
  • In 2017, the new dynamic daily pricing was introduced.

What does dynamic daily pricing system mean?

  • Dynamic daily pricing means the state retailers will reset the price of petrol and diesel each day, rather than wait for a fortnightly revision.
  • On a broad view, this move will align the retail pricing of crude products in line with price changes in the international markets. This will bring transparency in the pricing of crude products.
  • The companies will change the price of transport fuels every day based on crude price movements. Dynamic pricing is followed in many developed countries.
  • We can say therefore say that the retail fuel prices are expected to be more aligned to market dynamics.

What is the positive impact of dynamic daily pricing system?

  • This move is believed to crystallize the outlook for oil marketing companies marketing margin, or the difference between the cost of procurement and the price charged by retailer and therefore boost confidence over the overall sustainability of this broad deregulation initiative.
  • The shorter time lag between crude purchase and products sales will collapse, thus allowing prices to reflect cost and avoid artificial distortions.
  • It will enhance OMCs’ ability to pass the prices into the economy more effectively.
  • Global experience shows that the current dynamic pricing of fuel has the potential to attract the participation of private players in fuel retailing and several downstream opportunities, thus exposing the downstream and marketing to best practices and modern technology in refining.
  • A liberalized retailing regime may also expose the PSUs into an intensive competitive scenario.

What is the negative impact of dynamic daily pricing system?

  • Consumers may be affected sometimes, especially if there is a major international event, like a war or riot. Then, the prices may fluctuate a lot. It can become expensive or cheap, depending on the nature of the incident.
  • Prices of FMCG goods may also fluctuate dynamically. FMCG prices are directly related to fuel prices. Now, if the fuel prices suddenly increase, then there are chances that FMCG products pricing may also fluctuate, and sometimes daily.

What explains the divergence in the movements of the crude basket and of retail prices?

  • With global crude oil prices plummeting to record lows when it took charge, the government resorted to a series of excise duty hikes in the second half of 2015 and the initial months of 2016 on both petrol and diesel to help shore up finances.
  • This has helped the Centre realize higher central excise duties primarily through the increased tax on petrol and diesel, which are still outside the ambit of GST.
  • In India, the share of taxes in the retail selling prices of petrol and diesel (as on July 16) was 55.5% and 47.3% respectively, with central taxes (essentially excise duty) accounting for the bulk of it.

What other variables are involved?

  • The price is determined not only by the movement of crude oil price (the main raw material), but also by the rupee/dollar exchange rate and the demand-supply situation in the market.
  • While a deficit of the product leads to a rise in its price, an increase in supply will lead to a decrease.
  • Over the first nine months of the calendar year 2017, the global crude oil price for the Indian basket fell by 0.44% while the price of petrol (in Delhi) came down by 0.3%.
  • This is despite the fact that the rupee strengthened against the dollar by nearly 7%, something that would have translated into sharply cheaper imported oil.

How has the government justified the excise hikes?

  • The government has defended the higher duty and said that increased revenue was going into welfare activities of building more roads and providing irrigation and drinking water facilities.
  • Government has said that oil companies would continue to have pricing freedom.
  • The government says that one part of the fall in oil prices as a part of proper economic and fiscal planning goes to the consumer.
  • The second part is going to developmental activities, particularly national highways and rural roads, because those who consume petrol and diesel drive vehicles on these roads, and they must pay for it.
  • The third part is consumed by the states by way of VAT.
  • Of what the central government gets, 42% is being passed on to the states.
  • And for the fourth and final part, it goes to the oil companies for the reason that when oil companies make international purchases against future purchases, they suffer a huge loss.

Why the prices have increased/Causes

  • Variation in supply
  • Stronger dollar
  • Import-dependent
  • Sanctions on Iran

Oil and Iran

  • India purchases 10% of its requirement from Iran
  • It is also 3rd largest supplier to India
  • It provides a credit of 60 days
  • Iran supplies 2.4 MN barrels per day of crude to the international market
  • The value of import bill for oil increased by 76% in July from a year earlier to $10.2 bn, which pushed up the trade deficit to more than $18 bn (the highest in five years). The increasing crude oil prices will ensure that the CAD will reach 2.6% of GDP in this financial year from 1.5% a year ago

According to the recent World Economic Outlook (WEO) by the IMF, roughly 80% of the recent oil price increase was caused by deterioration in supply conditions. This, however, is not the only study on the factors leading to higher crude prices.3. The “Oil Price Dynamics” report published by the Federal Reserve Bank of New York finds that less than two-fifths of the rise in oil prices since the beginning of 2018 was on account of supply-side factors.4These contrasting studies lead to uncertainty regarding the sustainability of higher crude prices

Impacts on Indian economy: The unbearable effects –

Impact on national income

According to RBI sources, for every unit dollar increase in crude oil price, WPI inflation rises by 30 basis points. India, the world’s seventh-largest economy, was a key beneficiary of falling crude oil prices between 2013 and 2015. An analysis by this newspaper, more than a year ago, had indicated that almost the entire reduction of about 0.6% of the gross domestic product (GDP) in India’s fiscal deficit between FY14 and FY16 could be attributed to the sharp fall in crude prices. Lower crude prices also contributed to the narrower current account deficit. The biggest benefit of the fall in oil prices was evident in narrower twin deficits. Since the pass-through of the fall in crude prices to retail consumers was limited (the government retained a large part of the benefits by hiking excise duty on retail fuel products), the direct impact on inflation—measured by consumer price index (CPI)—was muted.

Things, however, started reversing about two years ago and have gathered pace in the past few months. As against an average price of $46.2/barrel for the Indian basket of crude oil in FY16, it rose to $56.4/barrel in FY18 and averaged $65/barrel in the fourth quarter of FY18. With the US’ decision to walk away from the Iran nuclear deal and to re-impose sanctions on Iran, upside risks to crude prices cannot be ruled out. It is then worth understanding the impact of higher crude prices on the Indian economy.

In short, one could safely conclude that higher crude prices will adversely affect the twin deficits—fiscal and current account deficit—of the economy, which will have spillover impact on the monetary policy, and consumption and investment behavior in the economy. However, before we talk about the impact in numbers, it is important to address one tricky question: “what is driving higher crude prices?”

The question is relevant because the factors leading to change in prices will decide the sustainability of the higher prices.

If the rise can be attributed to demand-side factors, it is not necessarily adverse for economic activity or financial markets. The higher crude oil imports bill could be offset by higher oil and non-oil exports (and of course, remittances). Similarly, better domestic economic activity could help meet fiscal deficit targets. However, if oil prices are pushed up by supply factors, it would be concerning.

According to the recent World Economic Outlook (WEO) by the International Monetary Fund (IMF), roughly 80% of the recent oil price increase was caused by deterioration in supply conditions (particularly faster-than-expected deterioration in Venezuelan output). This, however, is not the only study on the factors leading to higher crude prices. The “Oil Price Dynamics” report published by the Federal Reserve Bank of New York finds that less than two-fifths of the rise in oil prices since the beginning of 2018 was on account of supply-side factors. These contrasting studies lead to uncertainty regarding the sustainability of higher crude prices.

Not surprisingly then, the majority of the forecasts for oil price remain at $65-70/barrel. An increase of 15-25% in oil prices in one year will impact the Indian economy in various ways.

Impact on fiscal math

As a rule of the thumb, an increase of $10 per barrel in crude prices will lead to an increase of about Rs17,000 crore (or $2.5 billion at an exchange rate of 67/$) in fuel subsidies, equivalent to 0.09% of GDP. In the Union Budget 2018-19, the government had budgeted for petroleum subsidy of Rs25,000 crore, similar to that in FY18.

Our calculations, however, suggest that fuel subsidy could be as high as Rs54,000 crore if crude price averages $65/barrel in FY19. Additionally, a cut of Re1 in excise duty for both petrol and diesel will lead to an annual revenue loss of Rs12,000-13,000 crore (or 0.065% of GDP). It remains to be seen if the excise duty cut can be resisted by the government, considering that the general election is less than a year away now.

Impact on current account deficit

As a rule of thumb, an increase of $10 per barrel in crude oil prices will lead to an adverse impact of $10-11 billion (or 0.4% of GDP) on current account deficit. There are two opposite forces at work in the current account deficit. Higher oil prices will push the import bill higher; however, it will be partly offset by higher oil exports and better remittances. The latter will materialize since more than half of India’s remittances are reported to be channeled through the Gulf countries, which are likely to witness better economic conditions with higher oil prices. If we talk in numbers, an increase of $10 per barrel in crude prices will push the merchandise imports to bill up by about $20 billion, which will be partly offset by an increase of about $6 billion in oil exports and $3-4 billion in workers’ remittances.

Impact on inflation

With a weightage of only 2.4% in headline CPI, the adverse impact will entirely depend on the extent to which higher crude oil prices are passed on to the consumers. Considering the general election next year, it is difficult to envisage a significant hike in retail fuel prices, and thus, the direct impact on CPI inflation is likely to remain muted.

Overall, the windfall gains—in terms of lower subsidy and higher revenue for the government, and lower imports—from lower crude prices are behind us.

Looking ahead

The soaring price of oil is having a major influence on India’s economy. India spends a lot of money financially supporting its citizens with fuel every year. Petrol in India is a lot cheaper than it should be. However, Oil firms in India are still buying oil at international market value. Therefore, Indian oil firms are hemorrhaging money at $100 million a day. There will be more difficulties faced if the price increases any further. It is understandable that the government is receiving complaints to raise the price of fuel by the oil companies but politically it is an unfavorable thing to do as members have to win election votes.

The political disturbances in the Middle East recently due to Iran and other countries have increased anxieties of the Finance Minister who has to smooth over conflicts for the home consumers. The question about oil production and availability has led to rising apprehensions. The minister spoke out about the situation saying they were in touch with the Petroleum Ministry and would take steps to settle the undesirable effect of high energy costs on the public. His reasoning was that when prices reached $147 a barrel that they managed the situation. Political turmoil in Egypt has resulted in crude oil prices going past 100 dollars a barrel which has led to the outcome of prince increases in all major oil importing countries like India. High global oil prices increase the government funding bill and broaden the trade decrease as India starts importing much more than it exports. India already imports three-quarters of its fuel needs. State-run firms like Indian Oil, Hindustan Petroleum and Bharat Petroleum will bear the brunt of severe revenue shortages. In 2010-11, the under-recovery of oil firms is estimated to exceed Rs. 700 billion leaving the government to pay the rest of it as a subsidy. Modi led government put in fuel reforms by deregulating petrol prices and raising prices of diesel, kerosene, and LPG to cut its subsidies and fiscal losses.

Since the past couple of years, India has maintained steady and rapid development and has infused vigor into global economic growth. The world will be a big factor in its coming improvement as India will not be able to progress without it. In approximately twenty years India will make historic inputs into the development of the global economy by the expansion of foreign trade and expansion and development in the west. It will improve its overseas investor relationships and have better business outlooks. Overseas investments will have to be guided and supported by competitive businesses and have to complete complex types of economic and technological collaboration with improved quality and benefits for both organizations. India will also have to diversity and increase its bilateral, multilateral and regional economic assistance so they can have mutual development and a global strategy in all countries and regions around the world.

India’s economy has enjoyed sustained progress in recent times. In comparison to the global economies, India’s has had a nice steady momentum with fewer fluctuations. India’s information industry has been the cause of rapid improvement with developments in language and human talent. The service industry has taken leaps and attracted many investors, therefore leading to the manufacturing industry getting less focus. India’s government has also had encouragement endeavors that have promoted growth.

There are still many hurdles to face before India’s economy can reach greater heights. Economists say that there will be great progress as well as many challenges in the future. The government especially has to start successful policies to cope with any downfalls. The most crucial problem faced by the government at the moment is current inflation due to an exponentially expanding economy. Only the passing of time can say how India’s economy will adapt to the increasingly bleak global economic climate.

Global oil prices are becoming increasingly market-oriented. Thus, dynamic fuel pricing will improve the competitiveness of the economy overall. It would also bring in transparency in fuel pricing and incentivize investments in the oil sector.

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