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Andy Mukherjee

India wants to go on trading with Russia for reasons that are more practical than to swipe at the West. For one thing, New Delhi relies heavily on Moscow for defence procurement, a dependency that will be hard to shed overnight with new suppliers. For another, Russia is reportedly offering India a $35 discount per barrel on the pre-war price of flagship Urals grade oil. Cheap energy imports can help Prime Minister Narendra Modi put a lid on rising domestic discontent with high pump prices.

The stance won’t exactly please the United States. However, it’s no more opportunistic than Europe continuing to buy Russian gas more than a month into President Vladimir Putin’s invasion of Ukraine. India may still end up testing US and European Union tolerance if it agrees to rupee-ruble trade using Russia’s communication channel SPFS to move funds. That direct challenge to Washington will not be in New Delhi's own longer-term interests.

SPFS is what Moscow has proposed to the Modi government, according to Bloomberg News, as a way to deliberately short-circuit SWIFT, the messaging system used by banks to move money across borders.

SWIFT is a critical surveillance tool: Global banks can be slapped with hefty fines if transaction messages show the involvement of a sanctioned entity. Losing access to SWIFT would itself be a punishment because of the system’s ubiquity. Additionally, if it’s a dollar payment and the settlement occurs in New York — under an arrangement known as CHIPS — then the US can inflict more serious damage, including putting offenders in jail.

In the long run, Washington has to reimagine this policing power by supplementing — or even supplanting — the reigning trinity of SWIFT, CHIPS and the US currency with something better and faster, such as a digital dollar designed for use by the entire world. Right now, though, US President Joe Biden has to thwart attempts by geopolitical rivals to smash the status quo before he has had a chance to define, and lead, the post-SWIFT era in global payments. If the world’s 11th largest economy succeeds in bending sanctions, then China, the second biggest, will surely be able to break them at will.

It’s easy to see why Moscow may want India to bypass SWIFT. Access to the Brussels-based network has been cut off for key Russian lenders, with the exception of Sberbank PJSC and Gazprombank, which the Europeans need to conduct energy trades. The question is, what does New Delhi get in return for this accommodation, besides cheap oil and military hardware like batteries for the S-400 air defence system? Nothing much, actually. If anything, it has much to lose.

Deals like this are often short-lived. They lack the deep liquidity provided primarily by the dollar, a medium of exchange and store of value all counterparties freely accept — unless they happen to be in Russia, where even the central bank has lost access to much of its foreign reserves. Without liquidity, trade shrivels up. For instance, India bought oil from Iran under a US sanctions waiver by depositing rupees in Indian banks. Tehran used these funds to buy food and medicine from India. However, once the waiver lapsed, India had to stop importing Iranian oil. The balances in the accounts dwindled, and now Indian firms won’t sell Tehran rice, sugar or tea because they may not get paid.

At least the trade with Iran was entirely in rupees. SPFS is mainly a system for domestic Russian use. Since it’s being proposed in cross-border trade, we can assume that Moscow will provide messaging log-ins to a couple of Indian banks. They may open accounts with lenders in Russia, and the favour would be returned. Russian exporters will very likely get rupees paid into their banks’ accounts in India. Once transfer messages move on SPFS from New Delhi to Moscow, the Russian banks’ head offices will give these exporters, principally State-linked firms, rubles. Messages and claims will flow the other way for Russian imports from India.

The exchange rate will be important. Back when India conducted commerce with the Soviet Union along similar lines, an “extremely complex system of currency and commodity coefficients” used to be at play behind the scenes to determine how much a ruble was worth, according to a March 1990 paper by the Indian economist Pronab Sen. Soon, however, the USSR collapsed, India got embroiled in a balance-of-payment crisis, and suddenly both parties wanted what neither could print: dollars.

Even if bureaucrats leave the exchange rate to markets this time, it’s unclear how financial claims arising from trade will eventually be balanced: India imported almost $9 billion worth of goods from Russia last year, but exported only a little more than $3 billion. At the national levels, the numbers involved may be peanuts; but they will be significant for the banks facilitating this trade.

If the EU succumbs to Putin’s ultimatum to “unfriendly” states and lets its gas-buyers pay in rubles, using accounts at Russian banks, there will be nothing exceptional about India doing something similar. But to take the lead in adopting a brand-new institutional arrangement with Moscow makes little sense from a geopolitical perspective.

The US considers a democratic India to be its potential ally in its superpower rivalry with China. It’s not yet a deep relationship, and requires trust-building on both sides. It’s one thing for New Delhi to abstain from condemning Putin’s aggression at the United Nations, and quite another for it to abet his regime in avoiding sanctions. Agreeing to open a separate financial email channel with Moscow will make India look unreliable to far bigger economies whose markets it needs to move up from a low-middle-income status to high-middle. This transition is much more vital to its national interests than a $35 discount on oil or a favourable deal on weaponry.

India's top retailer, Reliance, has privately defended an abrupt takeover of the stores of debt-laden rival Future Retail, saying mounting dues of $634 million compelled it to act beyond expectations, a company letter shows.

The takeover was part of the race to dominate a $900-billion retail sector that set off a bitter dispute in which India's Supreme Court will decide whether Reliance or Amazon.com Inc gets to scoop up Future's assets.

The March 8 letter, seen by Reuters, reveals for the first time Reliance's stance on the events of the night of Feb. 25, when staff suddenly showed up at many of its rival's stores to take control over missed lease payments.

That move stunned not only Future but also Amazon, which has cited violation of certain contracts to legally block, since 2020, a $3.4-billion deal between the two Indian giants.

In the letter, Reliance said it went "well and truly beyond what can be expected" to keep Future "out of harm's way," as it took "significant steps" to ensure business continuity at Future and make sure there was "no impediment" to their deal.

These steps included financial support of 48 billion rupees ($634 million), comprising 11 billion rupees of unpaid lease rentals and 37 billion rupees of working capital.

Over months, Reliance had taken over the leases of more than 900 of Future's 1,500 stores, while still allowing the company to run them.

As Future proved unable to pay outstanding dues and losses in its retail operations swelled, Reliance faced "compelling circumstances" and decided to exercise its legal right to take over the stores, the letter added.

Neither Reliance nor Future immediately responded to a request for comment.

Future, which is staring at bankruptcy as its losses grow, has previously called Reliance's move "drastic and unilateral".

Before Amazon blocked it, Reliance, led by India's richest man, Mukesh Ambani, had proposed a $3.4-billion deal to buy Future's retail, wholesale and logistics operations, as well as some other businesses.

But following Reliance's abrupt takeover of its stores, Future sought several assurances in a March 2 letter, also seen by Reuters, asking if Reliance would stick to the deal without changing its value or terms.

In its response on March 8, Reliance said Future's request for assurances had to be seen "in the light of the rapidly evolving circumstances".

It added, "As and when the scheme (deal) is implemented, it will be in accordance with its terms."

Also Read: Centre's fiscal deficit jumps to 82.7% of FY22 target in April 2021-February 2022

The Centre's fiscal deficit jumped to 82.7 percent of the FY22 target in April 2021-February 2022, data released on March 31 by the Controller General of Accounts showed.

The fiscal deficit had amounted to 76.0 percent of the full-year target for the corresponding period of FY21.

While the latest numbers on the government's finances continue to show the Centre is on track to meet its revised fiscal deficit target of 6.9 percent of GDP for FY22, February saw a sharp rise in the deficit.

The fiscal deficit had amounted to 58.9 percent of the full-year target in April 2021-January 2022.

In February, the Centre recorded a fiscal deficit of Rs 3.79 lakh crore, more than double of what it posted in the corresponding period last year.

Also Read: US calls India's stand on Russian sanctions 'deeply disappointing'

The U.S. and Australia criticized India for considering a Russian proposal that would undermine sanctions imposed by America and its allies, showing a deepening rift between the emerging security partners as Foreign Minister Sergei Lavrov traveled to Delhi for talks.

“Now is the time to stand on the right side of history, and to stand with the United States and dozens of other countries, standing up for freedom, democracy and sovereignty with the Ukrainian people, and not funding and fueling and aiding President Putin’s war,” Commerce Secretary Gina Raimondo told reporters in Washington on Wednesday. She called reports of the arrangement “deeply disappointing,” while adding that she hadn’t seen details.

Dan Tehan, Australia’s trade minister who also spoke at the briefing, said it was important for democracies to work together “to keep the rules-based approach that we’ve had since the second world war.”

The comments reflect growing unease with India among fellow members of the Quad, a group of democracies seeking to counter China’s assertiveness in the Asia-Pacific region that also includes the U.S., Australia and Japan. India is the world’s largest buyer of Russian weapons, and has also sought to buy cheap oil as fuel prices surge.

ALSO READ: US official warns India, others against increasing Russian oil imports

While India has supported calls for a cease-fire and a diplomatic solution, it abstained at the United Nations on votes for draft resolutions condemning Russia’s invasion that were ultimately vetoed by Moscow. Bloomberg reported Wednesday that India is weighing a plan to make rupee-ruble-denominated payments using an alternative to SWIFT after the U.S. and European Union cut off seven Russian banks from using the Belgium-based cross-border payment system operator.

The Russian plan involves rupee-ruble-denominated payments using the country’s messaging system SPFS and central bank officials from Moscow are likely to visit next week to discuss the details. No final decision has been taken.

India’s middle-ground position on the war has left to a raft of diplomacy in the past few weeks, with China’s foreign minister visiting for the first time since 2019 and now Lavrov seeking to shore up support. At the same time, the U.S. and its allies are also stepping up engagement in a bid to influence Prime Minister Narendra Modi’s government.

ALSO READ: Steel, fuel prices to impact domestic steel demand in coming quarters: SteelMint

Japanese Prime Minister Fumio Kishida visited Delhi earlier this month, and Australian Prime Minister Scott Morrison also held a video summit with Modi. On Wednesday, Secretary of State Antony Blinken held a call with his counterpart, Subrahmanyam Jaishankar, to discuss “the worsening humanitarian situation in Ukraine” among other issues.

During Lavrov’s trip, India is also hosting U.S. Deputy National Security Advisor for International Economics Daleep Singh and U.K. Foreign Secretary Liz Truss. Her office said she “will point to the importance of all countries reducing strategic dependency on Russia at this time of heightened global insecurity.”

India has pushed back against U.S. concerns by noting that it needs Russian arms to counter China, particularly after border clashes in 2020, and alternatives are too expensive. The strategic relationship between India and Russia dates back to the Cold War and remains robust, even as Modi has shifted the country more toward the U.S. orbit in recent years.

The domestic steel demand is expected to take a hit in the coming quarters due to "very high steel prices" and continuously rising fuel prices, according to industry consultancy SteelMint India. Steel prices in India are trading at an all-time high.

While hot-rolled coil (HRC) is quoting in the range of Rs 76,000-77,000 per tonne, cold-rolled coil (CRC) is costing between Rs 85,000-86,000 per tonne. Rebar price stands at Rs 72,000-73,000 a tonne, SteelMint India said on Thursday.

Steel prices in India are trading at an all-time high. While hot-rolled coil (HRC) is quoting in the range of Rs 76,000-77,000 per tonne, cold-rolled coil (CRC) is costing between Rs 85,000-86,000 per tonne. Rebar price stands at Rs 72,000-73,000 a tonne, SteelMint India said on Thursday.

In the domestic market, prices of HRC in the first week of March were in the range of Rs 68,000-69,000 a tonne, while CRC was at Rs 73,000-74,000 per tonne. Rebar was costing about Rs 67,500-68,500 a tonne. SteelMint said it "expects demand to be negative in coming quarters on rising steel prices and higher fuel prices, which may defer buying activities".

The government on Thursday hiked petrol, diesel prices by 80 paise a litre each, the 9th increase in 10 days, taking the total hike to Rs 6.40 a litre. Rising fuel prices will impact the logistics for the supply of steel items which may also impact the demand, the consultancy said.

According to SteelMint, domestic steel consumption is likely to be at 98 million tonnes in April 2021-March 2022.

Read Also:- Role of IT in the Stock Market

India’s economy is “vulnerable” because of its increasing fiscal deficit and retail inflation, and indirect exposure to the Russia-Ukraine war, according to a report by Nomura on Emerging Markets.

The report has analysed the resilience and vulnerability of 20 major EM economies, taking into account recent stressors and the countries’ fundamental financials.

Poor fiscal health

The report said that while budget deficits have ballooned in nearly all countries due to the pandemic, resulting in higher public debt ratios, some countries such as India are in a worse shape than others. It clubbed India with Brazil, Hungary, South Africa and China, while it grouped the better offs as Russia, Peru, Chile and Turkey. 

To control inflation and reduce its impact on poorer households, India may need to consider increased subsidies for fuel.

The report stated “large net importers of food and energy may need to impose price controls or increased food and fuel subsidies to limit the rise in inflation, thereby cushioning the cost-of-living impact on poorer households but at the cost of larger budget deficits”.

It stated, “The surge in commodity prices – notably food prices, which have a much larger weighting in the CPI baskets of EM countries than their DM counterparts – will result in more EM countries joining the double-digit inflation camp (Russia could soon join Turkey with over 50% inflation). Even in Asia, where inflation has been relatively low, prices are set to accelerate”.

The country’s indirect-exposure to the Russia-Ukraine war comes from its fertiliser imports. Thirty percent of India’s fertiliser imports come from Russia and Belarus.

Hanging on commodity prices

In the overall assessment, India has been placed among economies that have “relatively sound fundamentals and will benefit once commodity prices decline”. The other countries in this group are China, South Korea, Thailand and the Philippines. 

Titled ‘Beware of painting all EMs with the same brush’, the report has classified the 20 countries into three. Countries with weak economic fundamentals and high negative exposure to Russia and Ukraine via high commodity prices as vulnerable; countries with fairly healthy fundamentals, limited exposure to the two warring countries and that could benefit from high commodity prices as resilient; and countries that have relatively sound fundamentals and will benefit once commodity prices decline as ‘commodity-dependent group’

India falls in the commodity-dependent group. Hungary, Romania, Turkey, the Czech Republic and Russia fall under the ‘vulnerable’ group  and Brazil,Peru, Mexico, South Africa and Indonesia come under the ‘resilient group’.

Logistics company Delhivery aims to launch its initial public offering (IPO) in the June 2022 quarter, said investment bankers who know about the plans.

The Gurugram-based company filed in November its draft red herring prospectus with market regulator Securities and Exchange Board of India (Sebi). It got Sebi’s approval for the IPO in January.

Challenging market conditions due to the US Federal Reserve’s hawkish pivot and Russia’s attack on Ukraine have roiled the IPO market after a record-breaking 2021.

"The market has seen an improvement in the past one week amid talks of ceasefire between Russia and Ukraine. If market conditions continue to improve, we can see large issuances such as Delhivery launch their share sale," said a banker. Four IPOs have got launched in the past one week compared to just three between January and February.

Delhivery IPO is pegged to be around Rs 7,000 crore. It is India’s largest multimodal, fully-integrated logistics and supply-chain firm by revenues (FY21 basis).

Brokerage Motilal Oswal said in in a recent note the domestic logistics sector offers a large addressable opportunity as it is pegged to grow at an annualized rate of 9 per cent to $365 billion between FY20 and FY26. It expects the growth to be higher for the organised players due to their “relentless focus on technology and automation.”

At present, the logistics market is highly fragmented with organized players accounting for less than 4 per cent of market share. Motilal Oswal said the shift to unorganised to organized sector is already underway.

“This shift has gathered pace with the rollout of GST, which increased demand for national, integrated supply chain service providers with integrated warehousing and Transportation models, that allow customers to scale operations at lower fixed costs, while creating opportunities for optimizing footprints and capacity utilization, lesser inventory, and faster and cheaper fulfillment,” said Alok Deora and Dhirendra Patro, who are analysts at Motilal Oswal, in a note.

As per the brokerage, some of the key positives of Delhivery are an asset-light business model, diverse customer base, and sophisticated network infrastructure.

Motilal Oswal said Delhivery has proprietary technology systems that enable it to offer integrated logistics services to a wide variety of customers. Its technology stack consists of over 80 applications that encompass all supply chain processes.

Private sector lender Axis Bank is close to acquiring Citigroup's retail banking business in India and a deal is likely to be announced soon, sources said on Wednesday.

According to the sources, the deal, to be valued at USD 2.5 billion (about Rs 18,000 crore), will be subject to regulatory approvals.

In April 2021, American banking major Citigroup announced its plan to exit from the consumer banking business in India as part of its global strategy.

The business comprises credit cards, retail banking, home loans and wealth management. The bank has 35 branches in the country and employs about 4,000 people in the consumer banking business.

Once the deal gets the approvals, the sources said the balance sheet size of Axis Bank will expand and the retail segment will witness a significant jump.

An e-mail sent to Axis Bank seeking comments on the proposed deal did not elicit any response immediately.

Earlier this month, Axis Bank said it was yet to take a decision on the purchase of Citigroup's India retail business.

Citigroup had entered India in 1902 and started the consumer banking business in 1985.

Apart from the institutional banking business, Citigroup in India will continue to focus on offshoring or global business support rendered from centres in Mumbai, Pune, Bengaluru, Chennai and Gurugram.

Also Read:- As sustainability reporting kicks in, ESG investing faces global credibility risk

In two days’ time, from April 1, new corporate governance rules as mandated by the Securities and Exchange Board of India (Sebi) will become operational. The top 1,000 companies ranked by market capitalisation will be required to include Business Responsibility and Sustainability Report (BRSR) in their annual reports. This, many experts see, as the precursor to formalisation of Environmental, Social and Governance (ESG) disclosures in India through a set of standard metrics.

The actions that corporations take for sustainability, and to protect the planet, is important for investors to understand corporate purpose, strategy, and management quality of companies.

From an investors’ point of view, ESG rankings can be a useful way to hold companies accountable, and measure them on their sustainability actions and efforts. That said, it may well be worthwhile to flag a caveat. How does one measure outcomes, and impact on a quantifiable scale that are not nationally, if not globally, standardised?

Paul Clements-Hunt, who coined the acronym ESG, said that the ESG fund industry is headed for a “shakeout” over the next five years. He is of the view that the finance sector has “sprinkled ESG fairy dust” on products that do little to account for environmental, social and governance risks.

“Anybody who uses ESG, sustainability or green purely as a marketing device is really heading for trouble. You’ll see a developing queasiness from marketing departments where, perhaps, ESG funds aren’t all what they’re cracked up to be,” he said in an interview to Bloomberg.

Experts have been cautioning about the risks associated with opaqueness in ESG measurement. In an essay in the Harvard Business Review last year, Jennifer Howard-Grenville, Diageo Professor of Organization Studies, at the Cambridge Judge Business School, said that the “current focus on ESG measurement is dangerously narrow. It fails to capture the complex, systemic nature of social and environmental systems, and indeed that of business organizations themselves”.

ESG funds and their managers from across the world are gradually, but increasingly, showing signs of acknowledging that a more restrained approach may be required in ESG investing, which may also be partly drawn by disproportionately greater commissions that incentivises them to skew their portfolios towards such investments.

The key question for asset managers is: What are classified as ESG investment, and what are not?

A recent Schroders Institutional Investor Study, ‘Gearing up against greenwashers: investors seek clarity on sustainability terminology,’ has revealed that investors want a better understanding of sustainability terminology so as to avoid ‘greenwashers’. ‘Greenwashing’ happens when companies falsely communicate and make unsubstantiated claims about environmentally-friendly products, and processes.

“A dearth of clear, agreed sustainability definitions present a challenge to investors looking to invest sustainably”, it said. The study surveyed 650 institutional investors across 26 countries during April 2020.

Tariq Fancy, who was BlackRock’s first global chief investment officer for sustainable investing between 2018 and 2019, has also cautioned about the errors that are beginning to creep into these investments, guided by incomplete information, and interpretation.

“Green bonds, where companies raise debt for environmentally friendly uses, is one of the largest and fastest-growing categories in sustainable investing, with a market size that has now passed $1 trillion. In practice, it’s not totally clear if they create much positive environmental impact that would not have occurred otherwise,” Fancy said in a recent online essay.

This is because “most companies have a few qualifying green initiatives that they can raise green bonds to specifically fund while not increasing or altering their overall plans. And nothing stops them from pursuing decidedly non-green activities with their other sources of funding,” he added.

Financial institutions may have an extra motivation to push for ESG products, driven by higher fees that they earn.

According to data from FactSet and published by the Wall Street Journal, ESG funds had an average fee of 0.2 percent at the end of 2020, whereas other more standard baskets of stocks had fees of 0.14 percent. The Wall Street Journal said that “socially focused exchange-traded funds give asset managers higher fees in a low-fee industry.”

The lack of reliable and standardised data and metrics has opened up the precarious possibility of pitting one investors’ views against another, meaning one portfolio manager could classify a firm as ESG-friendly, while another might view the same firm as not doing much on sustainability efforts.

Sheila Patel, chair of Goldman Sachs Asset Management, underlined this with caution. “When you think about the composition of ESG funds it’s first of all important to remember they are still meant to be a fund invested to get a return for the portfolio. And so they can tilt based on industry groups, based on sector views and that may or may not relate to an ESG view,” Patel told CNBC.

There is no gainsaying that ESG investing today is big business. Trillions of dollars are at stake, based on the individual fund managers’ interpretation about companies. This can be fraught with risks as the absence of a standardised, transparent system of gauging sustainability efforts may allow fund managers’ biases to influence ESG investment decisions, rather than informed choices guided by prudent, globally accepted norms, and audit.

Addressing the programme via video conferencing, Modi said his government has given topmost priority to providing houses to the poor people.

So far, 2.5 crore houses have been constructed under the PMAY scheme in the country, including two crore in rural areas, he said.

Madhya Pradesh Chief Minister Shivraj Singh Chouhan participated in the programme from Chattarpur in the state.

On the occasion, PM Modi also said that under the Nal-Jal scheme in the country, six crore families were provided pure water tap connections in their houses.

“We have the policy to ensure that even the last man in the queue gets the benefit of government schemes,” he said.