Flipkart, Ola Seek Government Protection, Air Asia Grilled on Forex Breach And Other India News

Surprise move: The Reserve Bank of India’s decision to keep interest rates unchanged came as a surprise move. Analysts had hoped the central bank to cut rates to the tune of at least 25 basis points support growth. But its decision to scrap the ad hoc, incremental cash reserve requirement – imposed on Nov 26 – will eventually bring rates down indirectly. Meanwhile, India Inc has expressed disappointment at the decision, arguing that a rate cut was necessary to provide fillip to the weakening industrial economy and stimulate consumption.

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The comparison of inflation target for a particular quarter with what forecasters expect inflation to be may offer some clues on why RBI chose to keep rates unchanged. (Pic credit: Livemint)

Optimistic outlook: RBI also lowered its growth forecast for the year over the second-quarter slump, but strongly defended the government’s demonetization move. With keeping rates unchanged, the bank tried to show that the situation is under control and all is but well. The government, quite expectedly, hailed the central bank’s decision calling it a “bold and beautiful call.” Some experts, however, believe that it is possible the RBI itself isn’t sure of the impact of the currency withdrawal from the economy yet, hence kept the rates unchanged.

Last resort? Flipkart’s Sachin Bansal and Ola’s Bhavish Aggarwal have turned to the government for some protectionist support in their fight against foreign rivals. Citing the example of China, they have urged the government to form policies that will favor homegrown companies. Flipkart and Ola’s rival companies Amazon and Uber, respectively, are considerably more richly funded. This may allow them to eventually win the price war. Local entrepreneurs and investors have been discussing for a while the need for government to protect domestic companies, but this is the first time someone has spoken publicly about it. But the irony here is although the two entrepreneurs are waving the nationalism flag, they are 80% owned by overseas companies. It’s now looking like a “grapes are sour” instance.

Tata-Mistry spat update: The fight between the Tata Group and ousted chairman Cyrus Mistry is turning uglier by the day. Ratan Tata has not only sought the support of minority shareholders to remove Mistry from the boards of Tata Group companies but also called him a “disruptive” influence. Mistry was quick to respond. Accusing the 78-year old of lying, he said this was “misrepresentation and convenient mischaracterization.” The extraordinary general meeting on Dec. 26 will be a crucial event where Tata Powers is expected to remove Mistry from its board on suggestion from Tata Sons. If that happens, a possible retaliation from Mistry can also be on the cards.   

Flying in rough weather: The Enforcement Directorate has issued summons to AirAsia India over alleged violations under Foreign Exchange Management Act. The move comes weeks after Cyrus Mistry’s revelation of a “fraud” to the tune of 220 million rupees in AirAsia India. A forensic audit by Deloitte also revealed questionable payments of about 120 million rupees to a Singapore-based firm. This could further hurt the image of the Tata Sons – currently embroiled in a much publicized battle with Mistry – which holds 49% stake in AirAsia India. (See cover image)  

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