Economy Current Affairs - 2019

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Government to launch first fixed income ETF of bluechip PSUs

Union Government will launch India’s first fixed income Exchange Traded Fund (ETF) comprising debt securities of large central public sector enterprises (PSUs) by mid-December 2019. It will comprise only AAA-rated papers of the PSU companies. It is expected to have a size of Rs 15,000 crore to Rs 20,000 crore. It is expected to improve liquidity in corporate bond market, smoothen borrowing plans of the participating state-owned companies and enhance investor base.

About India’s 1st fixed income ETF

The proposed debt ETF will be first large fund in India that will provide retail investors convenience to invest in fixed income product comprising a basket of securities, without need to study individual bond issues.

It may be comprising of corporate debt securities in the form of bonds, debentures, credit-linked note, promissory notes as underlying instruments. Large PSUs are expected to participate in the maiden debt ETF.

Department of Investment and Public Asset Management (DIPAM) has appointed Edelweiss Asset Management as the asset manager for this proposed debt ETF. The tax treatment of this debt ETF will be same as that of debt mutual funds.

Benefits of this debt ETF: It will provide safe investment option, alongside high liquidity. It will also help in deepening the corporate bond market and will allow PSUs to borrow from the market. As these ETF units will be listed on exchanges, it will provide new options to investors to own securities of government-owned PSUs along with facility of overnight liquidity. Moreover, it will provide investors higher yield than on fixed deposits. Compared with bank fixed deposits that generate a post-tax return of around 5.5%, this debt ETF can provide return of over 7% for the investors.

Background

In the 2018-19 Union Budget, Union Government had announced that DIPAM is planning to come out with debt ETF, which will help PSUs better plan their borrowing needs and capital expenditure. At present there are number of gold and equity ETFs in markets, but there are no debt ETFs, barring two government securities-based ETF that have not generated much investor interest. In 2018-19, Union Government had launched Bharat-22 ETF and CPSE ETF comprising stake sale in a basket of 22 and 11 government companies, respectively. These were used by government to divest its equity in state-owned companies. It had helped government to raise Rs 10,000 crore through CPSE-ETF and another Rs 4,368 crore through Bharat-22 ETF.

5th India – Europe 29 Business Forum held in New Delhi

The 5th edition of India-Europe 29 Business Forum was recently held at Pravasi Bharatiya Kendra in New Delhi from 20 to 21 November 2019. It was organized by industry body Confederation of Indian Industry (CII) and Union Ministry of External Affairs. It saw participation of some 400 delegates from 29 European countries. The focus sectors for this edition of forum were Smart Cities, IT & ITES, Renewable Energy, Pharma and Artificial Intelligence (AI). India-Europe 29 Business Forum is India’s largest European Platform.

Background

Europe 29 region: It stretches from Switzerland in west to Turkey in the east and Norway in the north to Cyprus in the south. It comprises following countries:  Austria, Albania, Liechtenstein, Lithuania, Bosnia & Herzegovina, Croatia, Moldova, Macedonia, Bulgaria, Malta, Norway, Denmark, Poland, Estonia, Romania, Finland, Serbia, Greece, Cyprus, Montenegro, Iceland, Sweden, Latvia, Czech Republic Slovak Republic, Hungary, Slovenia, Switzerland and Turkey.

China’s “16+1″ mechanism

China is making inroads into this Europe 29 region with increased investments and joint ventures. In 2012, it launched so called “16+1″ (i.e. China+16 European countries) mechanism to boost cooperation between the two. The stated aim of this mechanism is to enhance and expand investment, financial, scientific, transportation, educational and cultural cooperation between China and Central and East European (CEE) countries. China has prioritized three areas of economic cooperation: high-technology, green technology and infrastructure development under this mechanism. Most of the 16+1 countries are European Union (EU) members, but the grouping also includes five non-EU states. According to some critics, there are major misgivings in Europe over 16+1 format as in it seen in EU as an attempt by China to divide union by offering investments to less-developed members of EU in exchange for political influence.