Cotlook A Index - Cents/lb (Change from previous day)

12-06-2020 67.40 (-0.55)

12-06-2019 76.50

12-06-2018 100.65

New York Cotton Futures (Cents/lb) As on 16.06.2020 (Change from

previous day)

July 2020 59.61 (+0.60)

Oct 2020 58.88 (-0.70)

Dec 2020 58.86 (+0.51)

16th June

2020

Cotton and Yarn Futures

ZCE - Daily Data (Change from previous day)

MCX (Change from previous day)

June 2020 16000 (-430)

Cotton 11575 (-110) July 2020 16200 (-450)

Yarn 19790 (-40) Aug 2020 16420 (-460)

Nirmala Sitharaman meets private banks, NBFCs to ensure

smooth roll out of ECLGS

Covid-19 impact: After 60% fall in April, exports shrink another

36% in May

GST mop-up hit by Covid, 'act of God': Centre

EU imposes tariffs on Chinese makers of glass fibre fabric in China

and Egypt

www.citiindia.com

2 CITI-NEWS LETTER

-------------------------------------------------------------------------------------- Nirmala Sitharaman meets private banks, NBFCs to ensure smooth

roll out of ECLGS

Widen MSME scheme ambit: Private lenders to FM Nirmala

Sitharaman

CBIC launches e-Office to automate internal file handling

EU-Vietnam free trade pact may hurt India the most

Covid-19 impact: After 60% fall in April, exports shrink another 36%

in May

Covid-hit states urge quick release Rs 20,000 cr IGST dues from

Centre

Farmers expand area under cotton by 24% on price increase, MSP

hike

GST mop-up hit by Covid, 'act of God': Centre

GDP contraction poses ‘existential threat’ to MSMEs, policy measures

offer little succour: Report

Power engineers urge PM to put Electricity (Amendment) Bill on hold

For policymakers, WPI deflation is another warning of a recession

It is time to tap potential of handicrafts and textiles

----------------------------------------------------------------------------- EU imposes tariffs on Chinese makers of glass fibre fabric in China

and Egypt

Egypt, UK to soon sign FTA: trade minister Nevine Gamea

It’s manufacturing that’s giving Iran a lifeline, not oil

WRAP relaunches £1.5m textiles projects grant fund

Sri Lanka- Import of handloom and batik textiles suspended

-------------------- --- ---------------------------------------------

NATIONAL

---------------------

GLOBAL

www.citiindia.com

3 CITI-NEWS LETTER

NATIONAL:

Nirmala Sitharaman meets private banks, NBFCs to ensure smooth roll out

of ECLGS

(Source: Gaurav Noronha, Economic Times, June 15, 2020)

Finance minister Nirmala Sitharaman held a video conference with 20 major private

banks and non-banking finance companies (NBFCs) on Monday to ensure the smooth roll

out of the emergency credit line guarantee scheme (ECLGS). The meeting also included

secretary of financial services, Debasish Panda and representatives of Small Industries

Development Bank of India (SIDBI), according to a tweet by the department of financial

services (DFS).

It highlighted the government’s commitment to help micro, small and medium

enterprises (MSMEs) by ensuring uninterrupted supply of liquidity during these difficult

times, the finance ministry tweeted. “For effective implementation of ECLGS for MSMEs

, Hon. FM @nsitharaman ji along with Secy, DFS meets 20 Pvt Sector Banks & NBFCs

along with SIDBI. Committed to help MSMEs make #AatmaNirbharBhara,” the DFS said

via Twitter. According to a Twitter update from the finance minister’s office, public sector

banks had sanctioned loans amounting to Rs 29, 490.81 crore by June 11 under the

ECLGS, of which Rs 14,690.84 crore had already been disbursed.

Home

Widen MSME scheme ambit: Private lenders to FM Nirmala Sitharaman

(Source: Somesh Jha & Subrata Panda, Business Standard, June 16, 2020)

Govt likely to issue clarification to add more borrowers under ECLGS

Finance Minister Nirmala Sitharaman on Monday held a review meeting with

private banks and non-banking financial companies (NBFCs) to seek feedback to improve

the Atmanirbhar Bharat Abhiyan economic package to deal with the impact of Covid-19.

The private lenders asked the government to revisit some provisions in the Emergency

Credit Line Guarantee Scheme (ECLGS), under which 100 per cent guarantee coverage is

provided to all lenders to enable additional funding to the tune of Rs 3 trillion to smaller

business enterprises, to make the scheme more attractive. The scheme is valid for existing

customers of banks.

The finance ministry said in a statement that the meeting was attended by Financial

Services Secretary Debashish Panda, 20 chief executives of private banks and NBFCs,

www.citiindia.com

4 CITI-NEWS LETTER

along with executives of Small Industries Development Bank of India, and discussed ways

for “effective implementation of the ECLGS for micro, small and medium enterprises

(MSMEs).

“The request from the NBFCs side was that there is a need to include individuals who own

vehicles that are put to commercial use, small traders and businessmen who borrow on

individual names in this scheme as they are a part of the MSME network. We have made

a request that individuals should also be allowed to take working capital loans so that

whole MSME ecosystem can be kick-started,” said Ramesh Iyer, vice-chairman and

managing director of Mahindra & Mahindra Finance.

He said the ministry agreed to review their suggestions. A ministry official said the

government was looking to issue clarification to include some of these classes of

borrowers under the scheme in the next few days.

The banks also wanted the ministry to increase the scope of the scheme to make it in

consonance with the new definition of the MSMEs, which was recently accepted by the

Centre. For instance, any company with an annual turnover of up to Rs 100 crore would

be eligible for funding under the scheme. The government recently revised the definition

of ‘medium enterprises’, which will now be firms with an annual turnover of Rs 250 crore,

as against Rs 5 crore previously. “We are examining the request to broaden the scope of

the scheme,” the ministry official said.

Another demand by lenders was to allow companies with outstanding credit of up to Rs

100 crore as of February 29, 2020, to be a part of the scheme, as against Rs 25 crore at

present.

Under the scheme, the government will provide guarantee for any losses suffered by

banks due to non-payment by the borrowers for all loans sanctioned till October 31, 2020,

or till the time the limit of Rs 3 trillion is reached, whichever is earlier. The cap on interest

rate for banks is at 9.25 per cent, whereas for NBFCs, it is 14 per cent per annum.

The participation from NBFCs and banks to ECLGS was slow in the initial days and the

government has now told them to expedite sanctioning of loans under the scheme. So far,

18 private sector banks and 12-13 NBFCs have become a part of the scheme.

The ministry official said state-owned banks had sanctioned Rs 30,000 crore to over

800,000 firms under the scheme, of which Rs 16,000 crore had been disbursed so far.

Home

www.citiindia.com

5 CITI-NEWS LETTER

CBIC launches e-Office to automate internal file handling

(Source: Economic Times, June 15, 2020)

The Central Board of Indirect Taxes and Customs (CBIC) on Monday launched 'e-Office'

in over 500 GST and customs offices that will help improve governance by automating

the internal processes of handling files. The launch of the application marks a

fundamental change in internal office procedures that are so far based on manual

handling of files and paper movement. "The CBIC expects e-Office would complement its

many other (information technology) ITled reforms that are directly aimed at enhancing

the ease of doing business for the trade and industry," an official statement said. The e-

Office application, developed by the National Informatics Centre (NIC), enables online

file-related work, starting from receiving and marking dak, operating a file, preparing a

draft letter, its approval and signature and dispatch of the signed letter.

CBIC Chairman M Ajit Kumar launched the e-Office application in over 500 central GST

and Customs offices pan-India. "Over 50,000 officers and staff will use this application,

making CBIC one of the largest government departments to automate its internal office

procedures," the statement added. The launch of e-Office is one more measure taken by

the CBIC in leveraging technology for providing a faceless, contactless and paperless

indirect tax administration.

E-Office aims to improve governance by automating the internal processes of handling

files and taking decisions within the government. It would lead to speedier decision

making, transparency, accountability, and positive impact on the environment by cutting

down the use of paper and printing, the statement added.

The e-Office would help avoid contact with physical files, thereby preventing possible

transmission of coronavirus. It would ensure enhanced security as no file or document

can be altered or destroyed or backdated. An in-built monitoring mechanism would

identify where the files are held up enabling quick disposal and faster decision making,

the statement added.

Home

EU-Vietnam free trade pact may hurt India the most

(Source: Amiti Sen, The Hindu Business Line, June 15, 2020)

Export of footwear, garments, marine products and furniture may take a knock

India’s exports of footwear, garments, marine products and furniture to the European

Union stand to be the worst-hit once the 27-member bloc starts dismantling its tariffs for

Vietnam under the EU-Vietnam free trade agreement (EVFTA) to be operational soon.

www.citiindia.com

6 CITI-NEWS LETTER

New Delhi is keen to expedite its own bilateral free trade negotiations with the bloc, which

could level the playing field for its exporters, but will not be rushed into a deal, say experts

and officials.

There are still wide gaps between the two in areas such as intellectual property,

government procurement, investment protection, labour, environment and market

access for sensitive products that need to be bridged, they say.

The EU-Vietnam free trade agreement is an ambitious pact eliminating almost 99 per cent

of customs duties between the EU and Vietnam.

Exporters worried

“Indian exporters are apprehensive about losing their markets in the EU to Vietnam for

key products where its competitor will soon have the advantage of duty-free access

because of its FTA with the bloc. India can nullify this advantage by concluding its own

FTA but it needs to move carefully as a hurried deal may result in the industry losing more

than it gains.

“We are ready to talk with the EU whenever it shows interest,” a government official

told BusinessLine.

In the EU market for apparels and marine products, where the two countries have almost

equal share of $7 billion and $1 billion each respectively, Vietnam will benefit when its

import duties reduce to zero under the FTA while India continues to pay 9 per cent duty

on apparels and 6 per cent on marine, said Ajay Sahai from the Federation of Indian

Export Organisations (FIEO).

“In footwear, where Vietnam exports $7.5 billion worth of items compared to India’s $1.6

billion, the advantage will be enhanced once EU reduced tariffs for Vietnam to zero from

8 per cent. Similarly, in furniture, where India had started making inroads into the EU

with imports of over $900 million, Vietnam’s share of $1.5 billion is likely to increase

several-fold when the import duty of 6 per cent is eliminated, Sahai said.

‘Speed up talks’

FIEO has recently asked the Commerce Ministry to expedite negotiations on the broad-

based trade and investment agreement (BTIA), launched way back in 2007, but stalled

since 2013 due to disagreements over key areas.

Although India expressed its willingness to get back into the talks late last year, the EU

had made it conditional that issues such as government procurement, labour standards

and sustainability have to be included which India finds difficult to accept.

www.citiindia.com

7 CITI-NEWS LETTER

“Trying to undercut the EVFTA by doing our own FTA will have its own problems. We

can’t ignore the fact that there are market access issues on the EU side as well with the

bloc insistent on opening up of sensitive sectors such as automobiles and wine & spirits,”

pointed out Biswajit Dhar, Professor, JNU.

The EVFTA will also make Vietnam a more advantageous location for investments moving

out of China due to the China-US trade war, Dhar added.

Vietnam, which had lagged much behind India in the EU market some years back, has

almost caught up with the country. Vietnam’s exports to the bloc in 2019 was $53 billion

compared to India’s exports of $58 billion, Sahai said.

Home

Covid-19 impact: After 60% fall in April, exports shrink another 36% in May

(Source: Subhayan Chakraborty, Business Standard, June 16, 2020)

Trade deficit at only $3.15 Billion as crude, gold imports continue to drop.

Exports contracted 36.47 per cent in May after a historic fall in April, even as the

lockdown eased and ports cleared cargo. While the government says this offers hopes of

recovery, exporters remain doubtful. Exports have now fallen for the third straight month.

Except for iron ore, pharmaceuticals, spices, and rice, all

other commodities have printed negative growth in May,

the commerce department said on Monday. Also, crucial

petrochemical exports continued to shrink, falling 68.4 per

cent, up from 66 per cent in April. However, policymakers

are less worried about the knock-on effects of the current

series of major contraction on outbound trade in 2020-21

(FY21). The March-June period is crucial in the export cycle

for many sectors, such as apparel and engineering goods,

but export numbers are encouraging, they say.

Last week, Commerce and Industry Minister Piyush Goyal

said exports in the first week of June were on a par with

what they were in June 1-7, 2019.

“Exports during June 1-7 dipped by only 0.76 per cent to $4.94 billion, from $5.03 billion

in the same period last year,” said Goyal. Earlier, Goyal had said he expects contraction

to narrow to 8-10 per cent in June. But in May, 27 of the 30 major product groups showed

higher double-digit negative growth. “We need immediate roll-out of additional 2 per cent

www.citiindia.com

8 CITI-NEWS LETTER

export incentives across the board, rising to 4 per cent for labour-intensive sectors.

Allowing rollover of forward cover without interest and penalty, and automatic

enhancement of limit by 25 per cent to address liquidity challenges,” said Sharad Kumar

Saraf, president, Federation of Indian Export organisations.

Engineering Export Promotion Council of India Chairman Ravi Sehgal said: “Even within

engineering exports, we need to rework our strategy. Sub-sectors, like medical devices,

will be doing well, while core infra industries may take time to recover.”

With several nations continuing to order major quantities of drugs from India, exports

rose 17.32 per cent in May after a marginal 0.25-per cent rise in April. In April, only

$10.36 billion worth of goods had been exported. The rate of fall in outbound trade was

the most since April 1, 1995, even as manufacturing units remained shut for the first 20

days owing to nationwide curbs and faced major logistics and supply-side hurdles later

on. The country’s exports had declined 34.57 per cent in March.

Imports also continued to contract, albeit at a smaller margin than April’s 58.65 per cent.

In the latest month, imports fell 51 per cent to $22 billion, even as crude oil imports were

drastically cut, and gold inflows almost wiped out. As a result, the monthly trade deficit

reduced to just $3.15 billion. “The merchandise trade deficit slipped to the lowest level

since March 2016, led by compression in oil, gold, and other imports. The relatively

contained pick-up in imports suggests domestic demand remained muted during the

lockdown,” said Aditi Nayar, principal economist, ICRA.

As a result, the largest component of the import bill — crude oil — saw the cost of inbound

shipments fall 71.98 per cent, up from 59 per cent to $3.48 billion.

Gold, the second-largest item in the import bill, witnessed incoming shipments get almost

obliterated for the second month. Imports fell 98.4 per cent, slightly less than the 99-per

cent drop seen in the month before.

Non-oil and non-gold imports — an indicator of domestic industrial demand — fell for the

19th month, contracting 33.74 per cent.

ICRA expects current account surplus of $12-15 billion in FY21. However, if domestic

demand recovers quicker than global demand, the size of India’s current account surplus

may be limited below $10 billion.

Home

www.citiindia.com

9 CITI-NEWS LETTER

Covid-hit states urge quick release Rs 20,000 cr IGST dues from Centre

(Source: Dilasha Seth, Business Standard, June 15, 2020)

They argue that while Centre recently released Rs 36,400 crore in pending IGST dues in

lieu of compensation for December, Jan and Feb, more remained to be given to them

With revenues being hit hard by the lockdown, the states have asked the Centre to

expeditiously disburse the remaining Rs 20,000 crore of unsettled integrated goods and

services tax (IGST) dues from 2017-18. The matter was deliberated during the 40th GST

Council meeting on Friday and was referred to the group of ministers (GoM) led by Bihar

deputy chief minister Sushil Kumar Modi.

The states argued that while the Centre recently released Rs 36,400 crore worth of

pending IGST dues in lieu of compensation for December, January and February, more

remained to be given to them. Generally, compensation is paid from the compensation

cess but the cess collection has fallen due to the economic slow down.

The matter pertains to the year of GST introduction- 2017-18, when the unsettled amount

of Rs 1.76 trillion left in the IGST was transferred to the Consolidated Fund of India by

the Centre instead of distributing the same to the states as an ad hoc settlement.

Therefore, states only got 42 per cent of that as devolution according to the 14th Finance

Commission formula, instead of 50 per cent share. Besides, states have raised the issue

that they are also entitled to 42 per cent of the Centre’s share in the kitty, taking the total

unsettled dues at over Rs 55,000 crore.

Of that, while Rs 36400 crore was paid in lieu of compensation money earlier this month

to states, Rs 20,000 crore of dues still remain unsettled.

“In 2017-18, instead of distributing IGST to states on an ad hoc basis, it was put in the

consolidated fund of India. So states only got 42 per cent of that as devolution, whereas

we were entitled to 50 per cent of IGST and another 42 per cent out of Centre’s half. Now

they have released around Rs 36400 crore,"

Kerala finance minister Thomas Isaac told Business Standard.

The Comptroller and Auditor General had earlier pointed out in its report that that the

procedure for devolution of IGST from consolidated fund of India was against the

provisions of Constitution of India.

IGST is levied on inter-state movement of goods as well as imports. There should ideally

be ‘nil' balance in the IGST pool since the amount should be used for payment of CGST

and SGST. As some businesses are ineligible to claim the benefits of input-tax credit (ITC),

the IGST account always has some un-utilised amount in it.

www.citiindia.com

10 CITI-NEWS LETTER

Union finance minister Nirmala Sitharaman said after the Council meeting that

understanding the need of states to have money in their hands, Centre corrected one end

of the anomaly, wherein the Centre could release money and give to the states without

states having to do any adjustment. She said the matter will be further taken up by the

GoM led by Sushil Modi.

The Constitution was amended in August 2018 to allow for distribution of any balance

IGST equally between Centre and states.

The un-utilised IGST is distributed between the Centre and all states in a 50:50 ratio.

M S Mani, partner, Deloitte India said, "In the present situation where tax collections of

both the Centre and the States have been under stress , while expenditure has been

mounting on account of increased healthcare costs , it would be preferable to have a

monthly settlement of the states dues. “

The compensation mechanism will be discussed in a separate GST Council meeting in

July.

Home

Farmers expand area under cotton by 24% on price increase, MSP hike

(Source: Dilip Kumar Jha, Business Standard, June 16, 2020)

Demand to pick up now as textile mills resume operations after lockdown

Buoyed by increase in futures prices and the minimum support price (MSP), cotton

farmers have increased acreage under the cash crop by shifting from maize and soybean

in the early kharif sowing season.

Following a rise in cotton prices (by 3 per cent) in the first fortnight of June after a fall

earlier and an increase in MSP by the agriculture ministry by 5 per cent, farmers have

planted more cotton this kharif season.

www.citiindia.com

11 CITI-NEWS LETTER

The benchmark cotton futures for near

month delivery jumped by 3 per cent on

the Multi Commodity Exchange of India

(MCX) to trade at Rs 16,120 a bale (170

kgs).

The government raised MSP of medium

staple cotton by Rs 442 to Rs 9,376 a bale.

Also, the minimum threshold of long

staple cotton was raised by Rs 468 to Rs

9,903 a bale.

The increase in cotton prices, ahead of the

planting season, augurs well for farmers despite a record procurement by the

government-owned Cotton Corporation of India (CCI) and weak demand from textile

mills. The slack demand is due to the 70-day of nationwide lockdown.

The MCX offers trade in ginned cotton, a processed version of raw cotton, for which the

government fixes the MSP. Hence, MSP range stands lower than the ginned cotton traded

on the MCX.

“Acreage under cotton across India so far in 2020-21 (July-June) is higher by 24 per cent

at 1.7 million hectare (ha) as farmers in the northern states, including Haryana, Punjab

and Rajasthan, have brought more areas under the fibre crop. By contrast, cotton acreage

in Gujarat is expected to shrink at least by 10 per cent in 2020-21 as farmers may shift to

more lucrative crops like groundnut, amid a fall demand outlook due to

the coronavirus (Covid-19) pandemic,” said Vinod TP, analyst, Geojit Financial Services.

According to the ministry of agriculture, cotton sowing across the country till the first

week of June touched nearly 16.7 lakh ha against 13.5 lakh ha sown in same period last

year.

“Textile mills have gradually restarted operations after the nationwide lockdown and

achieved 50-70 per cent of their operating capacity. We believe their capacity would

increase steadily. A major quantity of cotton inventory with mills, which was stored before

the lockdown, has been consumed. We expect cotton demand to increase by the end of

June or early July. Looking at the demand scenario, we have reduced our discount offer,

albeit marginally,” said Pradeep Agarwal, chairman and managing director, CCI.

The public sector cotton procurement agency has procured around 10 million bales of

cotton worth Rs 25,000 crore this year and set the highest procurement record.

The CCI has lowered its discount price by Rs 200 a candy (one candy = 355 kg) on bulk

purchases of cotton bales procured in 2018-19 (Oct-Sep) and 2019-20 marketing years.

www.citiindia.com

12 CITI-NEWS LETTER

“As markets started opening for cotton, Indian exports are expected to pick up as our rates

are reportedly the lowest globally. Exports to China, Vietnam and Bangladesh may rise

(with additional support from a firm dollar vs rupee),” said Ajitesh Mullick, vice-president

(retail research), Religare Broking.

Home

GST mop-up hit by Covid, 'act of God': Centre

(Source: Sidhartha, Economic Times, June 15, 2020)

Amid the chorus for GST compensation from states, the Centre has conveyed that there

is a need to factor in the “abnormal situation” due to the coronavirus pandemic, which it

described as an “act of God”, indicating that there was no insurance for 14% growth in

GST collections during these times. Three years ago, while introducing GST, the Centre

had promised to compensate states for “revenue loss”, if collection growth was under 14%

in a year. “Compensation is a larger issue. The Centre is not going back on its promise,

but should it not enforce the force majeure clause since this is an event triggered by things

beyond anyone’s control? It is an ‘act of God’,” an official told TOI.

Data presented at the GST Council meeting on Friday showed that GST collections had

shot up to over Rs 62,000 crore in May — almost twice the level seen in April — but 38%

lower than a year ago. A large part of the sequential jump was attributed to payments for

April spilling over into May given the extended deadline. In any case, the actual numbers

will only be known after a few months as the Centre is not enforcing the payment and

filing deadline. “While collections during April and May have been around 45% of

monthly average (of a shade over Rs 1 lakh crore), is it fair for the states to demand 114%?”

said a source. “Haven’t their VAT, excise and property tax collections suffered,” added

another source. The Centre has, however, agreed to look into the issue of compensating

states after finance minister Nirmala Sitharaman suggested in March that the Council

could look at the option of market borrowings. On Friday, her party colleague and Bihar

deputy chief minister Sushil Kumar Modi is learnt to have pointed this out.

A state finance secretary told TOI that “invoking the force majeure clause” was not

provided for in the statutes, although the Centre has made it clear that the GST Council

needs to arrange for the compensation. “Technically, they (Centre) are right. They are in

no position to pay, given that there was a shortfall last year too,” the official said.

A state finance minister conceded that it may not be possible for the Centre to compensate

if a state fails to achieve 14% annual growth in GST collections. “Pre-lockdown too, there

was a massive gap because 14% growth was assured. The gap will rise given the economic

situation,” the minister said. In fact, during the GST Council meeting in Goa too, the issue

had been flagged since the average GDP growth had slowed down from the earlier highs.

www.citiindia.com

13 CITI-NEWS LETTER

“To achieve 14% GST growth, with GDP growth of 6% is tougher than at 8-9%,” a state

revenue secretary added.

Home

GDP contraction poses ‘existential threat’ to MSMEs, policy measures offer

little succour: Report

(Source: Financial Express, June 15, 2020)

From a sectoral perspective, it said consumer discretionary, construction, and export-

linked ones will bear the brunt, while small real-estate contractors into EPC (engineering,

procurement, construction) projects, and ceramics and textiles makers have been

significantly impacted so their credit profiles are the most vulnerable.

A 5 per cent contraction in gross domestic product (GDP) during 2020-21 may lead to a

15 per cent fall in corporate India’s revenues and poses an “existential threat” for small

businesses, a report said on Monday. However, policy interventions by the Reserve Bank

of India (RBI) and the finance ministry offer little hope because they cannot revive

demand, which is crucial for the small businesses, the report said.

The micro, small and medium enterprise (MSME) sector will have to face a sharper

decline in revenues of up to 21 per cent, while operating profit margins will narrow to 4-

5 per cent, said the research wing of domestic ratings agency Crisil.

The agency expects a 5 per cent contraction in the economy because of the impact of the

coronavirus pandemic, which has led to nearly three months of lockdown across the

country with little steps at opening up lately. The government and the RBI have already

announced actions like collateral-free loans of up to Rs 3 lakh crore to the segment since

the onset of the crisis.

“MSMEs face existential crisis, revenue to fall a fifth…a sharp decline at the operating

level will also impact creditworthiness, aggravating the liquidity stretch these units have

been grappling with, particularly on the working capital front,” the agency said.

It said there are gains to be made out of the lower commodity prices but the weak demand

in the economy will ensure that the small business segment is unable to capitalise on

those, it said. The average interest service coverage ratio could slide to 1-1.5 times from

2.4 times seen between the financial years 2016-17 and 2019-20, even after factoring in

the benefit of moratorium on interest payments announced by the RBI, it said adding that

without the moratorium, the ratio would have gone below one.

The hardest hit will be the micro enterprise segment, which accounts for 32 per cent of

the overall MSME debt, and are facing material stress in terms of revenue growth,

www.citiindia.com

14 CITI-NEWS LETTER

operating profit margins and working capital stretch, it said.

Drawing from precedents, it said previous downturns have shown that micro and small

enterprises are unable to manage transient working capital challenges as easily as their

large and medium peers.

The policy interventions from the RBI and the finance ministry will help them tide over

tapered cash flows, it said adding that the biggest concern is demand that needs to be

revived for the betterment of this crucial sector. However, the report was not so optimistic

on the policy interventions’ ability to drive demand in the economy.

“The current facilitations may not have the heft to crank up demand in the near term

because fiscal stimulus is limited and only to vulnerable households,” its Chief Operating

Officer Amish Mehta said.

“It is critical that the demand curve is yanked steeply northwards, especially in

discretionary products and services,” he added. He said a three-pronged strategy is

essential now, which should include improvement in the sentiment around job security

for formal and informal workers to boost consumption, hastening implementation of the

Aatmanirbhar scheme to ensure flow of liquidity to MSMEs continues, and lenders going

beyond traditional credit processes because they have to play a seminal role in recovery.

From a sectoral perspective, it said consumer discretionary, construction, and export-

linked ones will bear the brunt, while small real-estate contractors into EPC (engineering,

procurement, construction) projects, and ceramics and textiles makers have been

significantly impacted so their credit profiles are the most vulnerable.

Revenue growth of MSMEs in the real estate EPC segment could almost halve with

demand sliding even as rising costs, supply chain disruptions and labour issues exert

severe pressure on margins, it added. Lower utilisation and partial absorption of BS-VI

price hike could erode margins of auto-component MSMEs this financial year despite

lower raw material prices, it said. The bigger companies are not expected to be impacted

as much by the challenges, and the overall revenue growth will decline 15 per cent only

while the operating profit margins will be down by a fourth, it said.

Home

Power engineers urge PM to put Electricity (Amendment) Bill on hold

(Source: Financial Express, June 16, 2020)

Shailendra Dubey, chairman AIPEF said the controversial Bill must be withdrawn,

particularly as a number of states such as Tamil Nadu, Telangana, Andhra Pradesh,

www.citiindia.com

15 CITI-NEWS LETTER

Maharashtra, Kerala, Chhattisgarh, West Bengal, Bihar, Jharkhand and Puducherry have

expressed strong objections regarding it.

The All India Power Engineers Federation has urged Prime Minister Narendra Modi to

put on hold the controversial draft Electricity (Amendment) Bill 2020 as a large number

of states have raised serious objections regarding the amendments.

In a letter sent to the Prime Minister, Shailendra Dubey, chairman AIPEF said the

controversial Bill must be withdrawn, particularly as a number of states such as Tamil

Nadu, Telangana, Andhra Pradesh, Maharashtra, Kerala, Chhattisgarh, West Bengal,

Bihar, Jharkhand and Puducherry have expressed strong objections regarding it.

“The issues contained in draft amendments are far too draconian to be rushed through

and certainly deserve a detailed feedback from the states, more so as power is on the

concurrent list,” he said, adding that the amendments seek to erode the working of

regulatory commissions and dictate terms on issues of tariff, DBT, subsidy, Electricity

Tribunal ECEA and payment security issues, which come under the purview of state

policy.

“In view of strong objections from a number of states, the Bill certainly requires extended

discussion and debate in both houses of Parliament, which would not be possible under

the constraints of virtual participation. It makes it all the more necessary and urgent that

the Bill must be referred to the Standing Committee on energy, so that states and

stakeholders, including consumer organisations, employee and engineers can submit

their objections in detail,” he said.

“The Union power ministry is trying to push through the draft amendments and acting

against the spirit of democratic functioning without prior discussions as per the spirit of

democratic functioning,” the letter said.

Home

For policymakers, WPI deflation is another warning of a recession

(Source: Aparna Iyer, Live Mint, June 16, 2020)

The first reading of the wholesale price index (WPI) inflation since the lockdown shows a

grim picture. WPI measures prices at the producer level and is a good gauge of the pricing

power of companies.

At a -3.21%, this is the worst print in roughly five years and far lower than the -1.2%

expected by economists. To be sure, the deflation at the producer level was anticipated.

But the subgroups in WPI shows some segments saw steep price cuts, probably to shed

inventory, as the lockdown was eased in May. The index for manufactured products fell

0.42%.

www.citiindia.com

16 CITI-NEWS LETTER

Details of subgroups show Indians mostly shopped for essentials during the 70-day

lockdown and even when it was progressively relaxed from April. Food processing,

pharmaceuticals and tobacco products showed inflation, though lower than before.

Textiles, leather and other non-essential items slipped into deflation.

The biggest contributor to WPI deflation was crude, petroleum and natural gas, which

showed a fall of 46.21%, a fallout of the crash in global prices. By extension, fuel and power

prices, too, fell from a year ago. Food, which has a high weightage in the index, showed

an inflation print of 1.13%.

Does this mean Indians would get deep discounts once they restart discretionary

spending? Historically, wholesale and retail inflation trajectories have diverged. Ergo,

WPI deflation may not necessarily translate into deflation at the retail level. In 2014-15,

WPI showed deflation, but the consumer price index (CPI) indicated inflation.

As the lockdown had also made data collection a challenge for ministries, the WPI release

was suspended in April. The Central Statistical Organization (CSO) has not released the

headline retail inflation print for two months now. Inflation at subgroup levels has been

made public.

What they show is that deflation at the wholesale level may not necessarily translate into

deflation at the retail level. Should policymakers then respond to WPI deflation at all?

To be sure, WPI has long stopped being the nominal anchor for monetary policy as the

central bank adopted CPI in 2014. Nevertheless, with CPI data hard to come by, WPI data

can give some early warnings for policymaking.

Home

It is time to tap potential of handicrafts and textiles

(Source: Ritu Kumar, Hindustan Times, June 15, 2020)

It can be produced in rural areas; it creates jobs; it needs low investment; it can be a Made

in India by Hand brand

India has an estimated 16 million craftspeople, living mainly in rural India, who are

actively involved in some of the most complex textile processes that the world has ever

seen. This is not an insignificant number. These craftspeople constitute a highly-skilled

workforce, with huge knowledge of specialised processes, learnt from master craftsmen,

who ran guilds over centuries, of complex designs.

It was in the 1960s that I discovered the art of gold embroidery in a rural setting, in small

villages in West Bengal, where the craft was being practised. It is said that the origin of

www.citiindia.com

17 CITI-NEWS LETTER

the craft was Iran, and it came to India during the Sultanate. The embroideries from these

villages were once patronised by the Nawabs of Bengal. India is replete with village

workshops like these, which cannot survive without financing and infrastructure.

After the coronavirus pandemic, the reality is that the handloom and handcraft sector in

India needs a way to survive. There is no relevance today in government-run emporiums.

Our philosophy is completely wrong. A superior handloom product, aesthetically

appealing as well as ecologically-friendly, cannot be sold out of compassion but needs the

modern technology of marketing and retailing, and needs to be projected as the best in

the world. This is the only way to survive in a competitive market.

A fact not commonly known is that the textile sector is the second largest employer in

rural India, after agriculture. India was the world’s largest supplier of textiles 200 years

ago. By 1947, this was converted into a nation using copies of its own textiles, in bulk from

England’s industrial areas. This bankrupted India’s rich craft economies is causing

destitution in India’s rural markets.

It is a miracle that post-Independence, due to the government’s efforts to revive heritage

crafts, India has been able to recreate many of its forgotten textile crafts. This was

forward-thinking at its best and was not easily achieved. It took a sustained and

progressive, revival movement to save India’s handmade legacy. This was successfully

launched with a series of the “Viswakarma” exhibitions, which displayed the sophisticated

creations of this revival in prestigious museums. The programme generated a great degree

of excitement, and the affluent middle-class became the biggest patron of these textiles.

This was unlike in many other countries where priceless textiles were relegated to dusty

museums. In India, these creations, and not fashion from the international ramps,

became aspirational garments for urban consumers, especially women.

In an effort to create interest in Indian crafts internationally, the “Vishwakarma”

exhibitions were exhibited through the Festivals of India in the most-prestigious

museums around the world capitals. This highlighted the richest traditions of handcrafts

left in the world. This again caught the attention of the fashion fraternity abroad. India

was once again on the world fashion map.

Over the last two decades, the Indian fashion industry has made strides. And unlike the

rest of the world, it boasts of an indigenous team of designers. These do not necessarily

mean only those who show on the ramps, but also those present in the rural fields. They

are weavers, embroiderers and creators of embellishments, which no one in the world can

create. Most of Indian couture and its glamorisation can be attributed to the handmade

crafts. In India, the garments from maharajahs and royal pageants serve as a theme to Big

and Small Indian Weddings. Their imitations have flooded malls, boutiques,

www.citiindia.com

18 CITI-NEWS LETTER

village haats and bazaars across smaller markets. Each has its own version, creating a

theatrical, Indian ethnic fashion.

With the recessionary trend that the pandemic is causing, it is time for the government to

step in, as they did in the 1950s, to save India’s handicrafts. The drop in the retail of high-

end merchandise will temper the scale of celebrations. Most high-end production will

move from hand-made to mechanised alternatives.The world today produces textiles

using sophisticated machinery. India’s vast repertoire of designs may end up being used

only as an inspiration, as is the case with China, which produces copies of the woven

Benares saris, among a host of other textile merchandise, and sells these at a fraction of

the price to India. This has destroyed the handloom market in Varanasi. After the

pandemic, we have a real problem of livelihood on our hands here, as well as one of the

intellectual property of textiles which is facing a real threat.

The government has to think outside the box, step in and support start-ups. This is a

lucrative market. It can be run and marketed by a professionally-run organisation, with

cutting-edge pricing, which also offers retail spaces on the internet. The only way to do

this is to become a conduit to the customer to buy directly from the craftsman which

would involve minimal overheads. It can easily be achieved.

Let us look at the USP of this sector. Handicrafts can be best generated in agrarian set-

ups. They do not necessitate a move from the rural to the urban scenario, hence avoiding

the ghettoisation of its inheritors.

It requires little investment in production infrastructure or skill development. It will be

the only Made in India by Hand brand in the world.

Ritu Kumar is a fashion designer

Home

--------------------------

www.citiindia.com

19 CITI-NEWS LETTER

GLOBAL

EU imposes tariffs on Chinese makers of glass fibre fabric in China and Egypt

(Source: Reuters, June 16, 2020)

The European Union imposed tariffs on Chinese producers of glass fibre fabric in China

and Egypt after finding they had benefited from unfair subsidies that allowed them to sell

at excessively low prices in Europe.

The European Commission, which oversees trade policy in the 27 EU countries, said in a

report published on Monday that the companies had received preferential lending,

artificially cheap land and electricity and various grants and tax breaks.

The companies include two Egyptian subsidiaries of state-owned China National Building

Materials Group Corp (CNBM), marking the EU’s first look into whether Chinese aid is

unfairly helping Chinese companies based abroad. It normally only considers subsidies

from the host government.

Combined with related anti-dumping duties, the EU will apply tariffs of 30.0% to 99.7%,

the higher rates applying to China-based companies and the lower rates to the operations

in Egypt, the EU official journal said. The tariffs are backdated to Jan. 22. The commission

found the market share of the producers in China and Egypt rose to 31% in 2018 from

23% in 2015, while their average sales price fell by 14%.

Glass fibre fabrics have a wide range of applications, such as in wind turbine blades, boats,

trucks and sports equipment. EU producers include Belgium’s European Owens

CorningFiberglas, France’s Chomarat Textiles Industries, Germany’sSaertex and

Finland’s Ahlstrom-Munkzjo Glassfibre. The commission is also looking into alleged

unfair subsidies received by CNBM subsidiary Jushi in Egypt regarding glass fibre

reinforcements. It set provisional duties of 8.7% in that case. Final findings are due in

July.

Reporting by Philip Blenkinsop; Editing by Nick Macfie

Home

www.citiindia.com

20 CITI-NEWS LETTER

Egypt, UK to soon sign FTA: trade minister Nevine Gamea

(Source: Fibre2Fashion, June 15, 2020)

Egypt will soon sign a free trade agreement with the United Kingdom following

the latter’s exit from the European Union, according to minister of trade and industry

Nevine Gamea, who recently announced the development during a virtual conference on

the government’s role in supporting the private sector organised by the British Egyptian

Business Association.

As the United Kingdom considers Egypt to be the main gateway to Africa, her ministry

was looking at obtaining additional advantages, especially concerning the export of crops,

Gamea said.

The volume of trade exchanged between the two countries reached $2.5 billion during

the first 10 months of 2019, compared to $2.4 billion during the same period in 2018.

During the conference, Gamea spoke about intensifying local industrialisation, which is a

long-standing issue that has been discussed for years, but whose implementation is not

easy, according to Egyptian media reports.

Gamea noted her ministry and the finance ministry have held several meetings with

industrialists from sectors like engineering, textiles and readymade clothing to

understand the needs of domestic manufacturers.

Customs distortions were the biggest obstacle facing the ministry’s plans to deep local

industrialisation, she said.

The government will review the new export subsidy programme, launched last November,

in which overdue arrears are being paid. The programme has met with opposition from

several companies, which necessitated the review, she added.

Home

It’s manufacturing that’s giving Iran a lifeline, not oil

(Source: Esfandyar Batmanghelid, The Print, June 15, 2020)

In 2019-20, non-oil exports amounted to $41.3 billion and exceeded the country's oil

exports for the first time in Iran’s modern history.

Earlier this month, Mohammad Bagher Nobakht, the official responsible for planning

Iran’s state budgets, told parliament he planned “to sideline oil in the economy and run

the country’s programs without oil.” He didn’t have much choice: Iran, Nobakht said, had

www.citiindia.com

21 CITI-NEWS LETTER

earned just $8.9 billion from the sale of oil and related products in 2019-20, down from

a peak of $119 billion less than a decade ago.

Like their counterparts in other hydrocarbon-dependent states, Iranian officials have

long talked about the importance of reducing reliance on oil revenues. But the need for

transition to a non-oil economy has become critical, following the Trump administration’s

reimposition of secondary sanctions in November 2018, which has left China as the only

major purchaser of Iranian crude.

The transition is well under way in the private sector, with a boom in manufacturing. For

the past decade, companies have been looking beyond Iran’s large domestic market to

export an increasingly diverse range of goods to a wider range of markets, turning the

devaluation of the rial to their advantage. In 2019-20, non-oil exports, totaling $41.3

billion, exceeded oil exports for the first time in Iran’s modern history. Around half of

Iran’s non-oil exports were in manufactured goods, meaning that Iran’s factories earned

more than double what the country’s oil rigs earned in export revenue last year.

Sanctions pressure contributed to a 7% decline in total non-oil exports, but the total

remains near historic highs. Iranian consumer goods and industrial products—ranging

from cookies to stainless steel—are exported widely within the Middle East as well as

further afield to China, Russia and Europe.

Manufacturing is also a major contributor to employment. Between March 2018 and

December 2019, the manufacturing sector added 472,000 jobs, exceeding the 315,000

jobs lost in the quarter following the reimposition of U.S. sanctions. New employment

helped soften the blow of sanctions, keeping Iran’s chronic high joblessness from getting

worse.

The pivotal role of the manufacturing sector in supporting the economy is also clear in

data for GDP growth. While the oil sector contracted 35% in 2019-20, the manufacturing

sector only contracted by 1.8%. The sector in fact grew 2.4% in the final quarter, between

January and March of this year.

Despite the rebound, Iran’s largest industrial enterprises continued to languish. The

automotive and steel sectors, dominated by inefficient state-owned companies, have been

hit hard by the sanctions, which have increased the price and reduced the availability of

raw materials. They have also felt the impact of inflation, which has depressed domestic

consumption. The private sector—including small and medium enterprises which

produce food products, home goods, and apparel, among other consumer products—has

compensated for the struggles of the state firms.

The coronavirus pandemic has introduced a new challenge for the manufacturing sector.

The virus hit Iran hard, leading to more than 180,000 confirmed cases and nearly 9,000

www.citiindia.com

22 CITI-NEWS LETTER

deaths. The country’s economic recovery was derailed as a national lockdown brought

factories to a halt and regional borders were closed, interrupting trade.

Iranian authorities eased the lockdown in mid-April, and that decision appears to have

paid-off in the short term. Purchasing Managers’ Index (PMI) data published by the Iran

Chamber of Commerce, show that private-sector manufacturers returned to expansion

in the first month following the relaxation of the lockdown. As the pandemic continues to

depress oil prices, the non-oil exports will be even more important for the country’s

economy this year.

But new threats loom. Given the pivotal role of Iran’s manufacturing sector in the

country’s economic resilience, the U.S. may seek to tighten the sanctions noose. In

January, the White House issued a new executive order targeting the “construction,

mining, manufacturing, or textiles sectors of the Iranian economy.” The administration

is in effect targeting the private sector and the millions of blue-collar workers in the

country’s factories, contrary to its stated intention of using sanctions to restrict the

financial resources of government authorities.

If the Trump administration follows through on this order the impact will undermine any

post-pandemic rebound.- Bloomberg

Home

WRAP relaunches £1.5m textiles projects grant fund

(Source: Innovation in Textiles, June 15, 2020)

WRAP is making its £1.5 million textiles grant fund more accessible and has streamlined

the application process so that funds can be allocated more quickly. The deadline for

applications, published on Thursday 18 June, no longer applies. Applications will now be

assessed on a rolling basis until WRAP closes the scheme or all funds are allocated.

The grants are intended to support projects that provide innovative ways for textile waste

to be recycled or re-used, keeping it out of landfill or incineration so that it remains a

valuable resource. The money is part of the UK based Defra’s £18m Resource Action

Fund, set up to support key priority policy areas.

Under the scheme, amounts between £20,000 and £170,000 (the maximum state aid

threshold) are available to organisations of any size, both commercial and not-for-profit.

The money is for capital expenditure only; either for equipment or technologies that

enable recycling or re-use of clothing or linen waste textiles. Successful projects need to

demonstrate ‘innovation beyond normal practice’ and will be assessed against a number

of criteria.

www.citiindia.com

23 CITI-NEWS LETTER

Changes under the re-launched scheme are:

100% of capital costs are now funded – no match funding required

The money will be released in milestone payments

The grant can be used to fund capital costs to reconfigure a business to comply with

government guidelines on COVID-19 safety measures, where this forms an integral

part of an innovative proposal/project

Applicants are welcome to apply immediately

Increased textiles collection and reprocessing is required in the UK to help deliver the

Resource and Waste Strategy (R&WS) and the Circular Economy Package (CEP)

objectives. Existing markets for recycled textiles are small scale and traditional, with

limited innovation or growth potential. To meet the requirement for separate collections

of textiles by 2025, new processes and markets need to be found, to avoid separately

collected items simply being discarded. In addition, the textiles recycling sector believes

that export markets may diminish over time as other countries increase their exports of

used textiles. The aim of this grant fund is to address the need for increased capacity,

sorting, handling, and reprocessing of textiles from municipal sources.

Peter Maddox, Director of WRAP UK, comments: “We have responded swiftly to feedback

from the textile sector that businesses are struggling due to the negative impact of COVID-

19. There has been an excellent response since this fund was launched in March. Now

that there is no absolute deadline and no match funding required, I am confident that

many more organisations will come forward with imaginative projects to combat barriers

to textile recycling and re-use – and I urge them to apply soon, to make sure they get their

share of the funds available.”

Environment Minister Rebecca Pow said: “I know coronavirus has placed extra pressures

on the textiles sector, so I’m very pleased that this fund is helping more organisations to

explore innovative solutions for the industry. Fast fashion is having a real impact on our

environment. With more than 300,000 tonnes of clothing being sent to landfill or

incineration every year, it’s important that we find ways to make the clothing sector more

sustainable and environmentally-friendly.” Interested applicants can find more

information and download an application

from: https://wrap.org.uk/content/textiles-recycling-and-re-use-small-

scale-grantWRAP is a not for profit organisation founded in 2000 which works with

governments, businesses and citizens to create a world in which we source and use

resources sustainably. Its impact spans the entire lifecycle of the food we eat, the clothes

we wear and the products we buy, from production to consumption and beyond.

Home

www.citiindia.com

24 CITI-NEWS LETTER

Sri Lanka- Import of handloom and batik textiles suspended

(Source: Menafn, June 15, 2020)

The Government has decided to suspend the import of handloom and batik textiles.

The decision was taken following a directive issued by President Gotabaya Rajapaksa.

The President had taken the decision in order to boost the local industry, the President's

Office said.

A discussion in this regard was held at the Presidential Secretariat today.

The President had noted that suspension will also help the local economy.

Home

--------------------------