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The Department of Telecommunications (DoT) is currently scrutinising potential tax implications before granting final approval to a significant 10-year service agreement between Mahanagar Telephone Nigam Ltd (MTNL) and Bharat Sanchar Nigam Ltd (BSNL), according to a report by the Financial Express. This agreement, approved by MTNL’s board on Wednesday, is a strategic move that allows BSNL to manage MTNL’s operations without merging the two state-run telecom giants.

The DoT’s focus on possible tax implications highlights the government’s cautious approach to avoiding unforeseen financial liabilities. Officials are particularly concerned about ensuring that the deal doesn’t result in additional costs for the government, which is already supporting MTNL’s sovereign bond payments but has refrained from covering other liabilities, such as the company’s substantial bank debt.

MTNL-BSNL 10-year agreement

This agreement is seen as a pivotal step for MTNL, which is struggling under a debt load of Rs 31,944.51 crore and facing operational challenges. The partnership with BSNL is aimed at stabilising MTNL’s finances by achieving earnings before interest, taxes, depreciation, and amortisation (Ebitda) neutrality, ensuring that its revenue matches its expenses. This financial stability is crucial for the planned rollout of 4G and 5G services in Delhi and Mumbai, regions currently served by MTNL. 

In addition to the service agreement, MTNL’s board has approved several other key proposals. These include the sale of shares in its overseas subsidiary, Mahanagar Telephone (Mauritius) Ltd (MTML), and in MTNL STPI IT Services Ltd (MSITS), as well as the closure of Millennium Telecom Ltd (MTL), all in line with guidelines from the Department of Investment and Public Asset Management (DIPAM).

Agreement aims for efficiency

The agreement between MTNL and BSNL allows for flexibility, with provisions for early termination or extension by mutual consent. This arrangement is designed to sidestep the complexities of a merger, which had been previously considered but was deemed too challenging to implement.

MTNL, which currently holds a modest 0.2 per cent market share with about 1.9 million wireless subscribers, is aiming to boost its operational efficiency through this collaboration with BSNL. However, the DoT’s final nod will depend on the resolution of any tax or financial issues that may arise, ensuring that the government’s fiscal interests are protected.

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Steelmaker giant Baowu warned that the industry is falling into dire straits, as a severe Chinese downturn could spell trouble for worldwide producers.

According to a company statement cited by Bloomberg, the firm’s chair Hu Wangming told staff that a “harsh winter” was looming over the country’s steel sector, with conditions that are “longer, colder and more difficult to endure than we expected.”

Though China’s industry has experienced serious difficulty in 2008 and 2015, producers should brace for a more extreme challenge, Hu added. Those crises were eventually rectified by stimulus aid, Bloomberg said, but that’s a less certain prospect given Beijing’s current economic approach.

Although Baowu itself offered few explanations for the sector’s gloomy outlook, a lot can likely be explained by general conditions roiling through China. Momentum in the world’s second-largest economy has been lackluster since the pandemic, while industrial production and real estate demand have suffered.

According to data cited by the Financial Times, steel-intensive construction starts have fallen 24% in this year’s first half, extending last year’s 21% reduction.

That’s left steelmakers with more steel supply than they can use, and the industry is leaning on foreign markets to resolve this.

But dumping large amounts of the metal in other countries bodes ill for ex-China producers.

Prices of steel-related components are already sliding. Iron ore futures in Singapore fell as low as 3.4% to $95.2, Bloomberg said, the cheapest level since May 2023. Meanwhile, rebar futures slumped 4% to a 2017 low.

As the world’s largest steelmaker, Baowu’s words carry weight among global players. According to Bloomberg, it makes up 7% of the international steel supply.

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An intensifying supply crunch in the Chinese yuan has pressured Russians to embrace a costlier method of securing the needed currency, Bloomberg reported.

While the yuan has been a go-to tender for the Russian economy amid Western sanctions, fresh constraints from the US this summer have forced some Chinese lenders to cut ties, deepening payment issues between Moscow and Beijing.

With the yuan liquidity shortfall doubling, Russian firms have grown increasingly dependent on yuan swaps provided by the Bank of Russia, Bloomberg said, but borrowing the yuan this way comes at a higher rate.

This hasn’t stopped yuan swap activity from ballooning.

According to the outlet’s calculations, the average daily volume of swap borrowing climbed to 20 billion yuan this month, double the 10 billion yuan borrowed in June.

That month, the US provided the Treasury Department broader power to penalize foreign institutions that do business with Russia and support Moscow’s war machine. This involved many Chinese entities, given that Beijing has become a major trade partner to Russia following the Kremlin’s 2022 invasion of Ukraine.

But even before the fresh sanctions package took effect this summer, Chinese banks were already halting yuan payments with Russia over fears of Western repercussions. The trend only swelled in June, and Russian exporters now note difficulty getting paid.

And yet, the US may still have more planned for China. Last month, National Security Adviser Jake Sullivan hinted that fresh sanctions could target Chinese dealers that have not ended their support of Russia:

“We think China should stop because we think it is profoundly outside of the bounds of decent conduct by nation states,” he said at a forum.

Ironically, June’s sanctions have boosted the yuan’s importance in Russia, given that the restrictions prompted the country’s main exchange to restrict the trade of dollars and euros.

The Carnegie Russia Eurasia Center then argued that China and Russia will find ways to get around Western sanctions, and noted that restrictions should have been put in place much earlier to be most effective.

For now, as liquidity stumbles, Russian firms increasingly turn to former Soviet countries to make payments, Bloomberg said.

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The Chennai bench of the National Company Law Appellate Tribunal on Wednesday stayed the corporate insolvency resolution proceedings against Coffee Day Enterprises. 

The interim order was granted following an appeal filed by Malvika Hegde, a shareholder and director of Coffee Day Enterprises, challenging the 8 August order by the National Company Law Tribunal (NCLT), which had permitted the initiation of the insolvency proceeding against the company by IDBI Trusteeship.

A detailed order is awaited in the matter.

Coffee Day Enterprises is the parent company of the Coffee Day group that operates Cafe Coffee Day chain.

In September 2023, IDBI Trusteeship had moved the Bengaluru bench of the National Company Law Tribunal (NCLT) to initiate insolvency proceedings against Coffee Day Enterprises Ltd for an alleged default of ₹228 crore.

On 9 August, the company informed the exchanges in a filing that it was deliberating legal action in the matter.

Private lender IndusInd Bank too, in September 2023, had filed an insolvency application against the retail coffee outlet.

However, the bank later told the NCLT it had reached an amicable settlement with the firm and withdrew the insolvency application against the company. It submitted that the debt in question was sold to ASREC (India) Ltd, an asset reconstruction company. A joint settlement application was also filed by the two in the matter.

Following this, the Chennai bench of the appeals tribunal set aside a National Company Law Tribunal (NCLT) order from 20 July, which had allowed the initiation of an insolvency resolution against Coffee Day Global Ltd. At that time, Shailendra Ajmera had been appointed as the company’s interim resolution professional to oversee its day-to-day affairs.

Shares of Coffee Day Enterprises were trading at ₹36.75 on the National Stock Exchange on Wednesday, up 5% from the previous close.

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New Delhi: India’s Consumer Price Index (CPI) inflation dropped to 3.54 per cent in July 2024, its lowest in nearly five years, largely driven by a decline in vegetable prices. However, despite this positive development, the State Bank of India (SBI) has cautioned that the path forward may be challenging, according to the SBI research report.

The dramatic reduction in vegetable inflation, which plummeted from 29.3 per cent in June to a mere 6.8 per cent in July, played a crucial role in achieving this multi-year low. The weighted contribution of vegetables to the overall CPI also shrank from 1.77 per cent in June to 0.55 per cent in July, underscoring their impact on the headline inflation figure.

Additionally, the prices of fruits and fuel showed signs of moderation, contributing further to easing inflationary pressures.

However, this broad-based relief was tempered by a slight uptick in core CPI inflation, which excludes food and fuel prices.

The SBI’s latest report highlights that the once-dominant “Follow the Fed” mantra appears to be waning, with an increasing number of central banks prioritizing domestic economic conditions over synchronizing with U.S. rate decisions, signaling a shift in global monetary policy dynamics.

This decline in CPI marks the first time in half a decade that CPI inflation has dipped below the Reserve Bank of India’s (RBI) target of 4 per cent, a feat largely attributed to a steep fall in vegetable prices.

Core CPI rose from 3.12 per cent in June to 3.30 per cent in July, driven primarily by an increase in mobile tariffs. Notably, the transport and communication segment saw inflation rise sharply from 0.97 per cent in June to 2.48 per cent in July, indicating sector-specific pressures.

The moderation in food inflation, which stood at 5.06 per cent year-on-year in July, was significantly influenced by a higher base effect. Despite this, concerns persist over the uneven distribution of monsoon rainfall, particularly in key foodgrain-producing states experiencing deficient precipitation.

With La Nina conditions gaining strength, the possibility of excessive rainfall in August and September looms large, raising fears of crop damage that could reignite food price inflation.

Looking ahead, inflationary pressures may persist, potentially exceeding the RBI’s forecast of 4.5 per cent for FY25. The domestic growth momentum remains robust, with GDP expected to surpass 7 per cent in Q1 FY25.

However, geopolitical uncertainties continue to pose risks to the growth outlook. The RBI, maintaining a tight liquidity stance to control inflation, has deferred potential rate cuts to December 2024 or February 2025.

State-wise analysis reveals that the majority of states recorded CPI inflation rates below the national average, with only six out of 22 states experiencing higher-than-average inflation. Despite this, significant rural-urban inflation differentials were observed, with most states seeing higher inflation in rural areas compared to urban counterparts. Only four states reported higher urban inflation.

Historically, when the U.S. Federal Reserve adjusts its interest rates, global capital flows are impacted, prompting central banks in emerging markets to follow suit. However, while the Fed’s recent rate hike cycle (2022-2023) saw a synchronized global response, the current rate-cutting phase is proving to be less coordinated. Central banks in countries like China, Chile, Brazil, Mexico, the UK, Canada, and the European Central Bank have already begun reducing rates, while the Fed is expected to initiate cuts in September 2024.

India’s Index of Industrial Production (IIP) grew by 4.2 per cent in June 2024, down from a revised 6.2 per cent in May. The mining sector led the growth with a 10.3 per cent increase, followed by electricity at 8.6 per cent and manufacturing at 2.6 per cent. For the April-June 2024 period, industrial growth stood at 5.2 per cent, compared to 4.7 per cent in the same period the previous year.

As India navigates the delicate balance between growth and inflation, the coming months will be critical in shaping the country’s economic trajectory, especially with potential global shifts in monetary policy and the evolving monsoon season.

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