E-commerce policy, interest on interest, and Maruti’s mega plan: Three things Teji Mandi investors should know on March 25, 2021
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New E-commerce policy in making:

Indian is in the process of formulating a fresh e-commerce policy. It is expected to plug all the FDI-related concerns expressed by the trader community.

The Commerce Ministry has conducted several meetings with stakeholders to discuss required changes in the FDI policy in the E-commerce sector. Recently, several trader organizations had raised questions around practices carried by E-commerce platforms. They are accused of giving preferential treatment to only a few merchants. Traders have demanded to ban FDI backed e-commerce companies from holding even an indirect stake in sellers offering products on their platforms.

Back in December 2018, India had tightened its FDI rules for e-commerce. It had restricted FDI-backed e-commerce platforms from having ownership or control over the inventory sold on its platform.

The companies had responded by tweaking their business models. It allowed them to continue holding an indirect stake in the inventory. This issue recently came to the fore when traders complained about partiality in favor of a handful of merchants. New policy that is under discussion is likely to address this loophole on an immediate basis.

Who will bear the burden?

The Supreme court has directed banks to extend the benefit of interest on interest for all the borrowers. It has raised a new question now: who will bear this cost?

The government, back in October 2020 had stated in the Supreme court that it is impossible for banks to bear this burden. It had suggested that giving relief on interest on interest could erode the net worth of banks.

Bearing this cost would impact the profitability of banks. Hence, banks could ask the government to foot this bill as per Mint's report.

The government had announced that relief on compound interest waiver

for loans of up to Rs 2 crore. Its estimated cost was expected to be in the range of Rs 7,000-7,5000 crore. It would have been manageable for banks. However, the court has guided to waive it off for all the borrowers, making the matter worse.

Lenders are expected to take up this issue with Indian Banks’ Association (IBA) at the next managing committee meeting.

Maruti's aggressive plans:

Maruti Suzuki is eyeing record production levels for the next financial year. The company has informed its vendors about it. As per the available information, Maruti Suzuki is planning to raise production to 2.05-2.07 million in FY22, up 42% from FY21.

Maruti has faced two years of double-digit declines in FY19 and FY20. The story is expected to be the same in FY21 as well due to the lockdown.

Maruti Suzuki is the largest carmaker in India and accounts for ~50% of total sales in the passenger vehicle segment. Its aggressive guidance for FY22 has come on a very low base in the last three years. However, if this holds, FY22 could well be a turnaround year for the entire PV segment.

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