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UK, Bank of England lay out economic costs of Brexit scenarios

The government’s analysis shows the UK economy would be between 0.1 percent and 1.3 percent smaller after 15 years under the close relationship envisioned by the government than it would have had the UK remained in the EU.

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London, Nov 29 : The British government and the Bank of England said the United Kingdom risks serious economic damage in the case of a messy break-up with the European Union, an assessment that Prime Minister Theresa May hopes will persuade a majority of lawmakers to back her plan for Brexit, Efe news reports.

In twin analyses published Wednesday, the government and the central bank argued the economy would face widespread disruption from an abrupt divorce from the EU in March if talks conclude without agreement over the terms of the UK’s exit. The bank’s analysis found such a crash-out could leave Britain’s economy 10 per cent smaller just four years later than it would have been without Brexit.

May, who governs without an outright majority, is hoping such stark warnings will prod wavering lawmakers to get behind her controversial withdrawal plan when it comes before Parliament on December 11.

Her proposals face opposition from both pro- and anti-Brexit members of Parliament, making victory far from certain. She is currently touring the country to drum up support from the public and business leaders.

The analyses also show the UK would probably be better off economically if it scrapped Brexit and remained an EU member, giving ammunition to anti-Brexit voices pushing for a second referendum on whether to quit the bloc.

Meanwhile, pro-Brexit lawmakers who advocate a much more decisive break with the EU than that so far negotiated by May, dismissed the findings as scare-mongering.

“We’ve all had about enough of Project Fear,” said Priti Patel, a former international development secretary.

The government’s analysis shows the UK economy would be between 0.1 percent and 1.3 percent smaller after 15 years under the close relationship envisioned by the government than it would have had the UK remained in the EU.

That cost could rise to 3.9 percent if immigration from the EU slumped and the UK faced higher barriers to trade than it aspires to, a scenario many economists said could arise as the final deal is negotiated. New free-trade deals with the US and other major economies wouldn’t provide much of an offsetting boost, according to the government analysis.

The Bank of England’s analysis reached similar conclusions, though it took a shorter-term view. It concluded that at the end of 2023, the economy would be between 1.25 percent and 3.75 percent smaller under May’s plan than if the 2016 vote to leave had never happened, depending on the closeness of the economic ties finally negotiated.

Both analyses show the cost of an abrupt and messy break with the EU would be much greater. If the UK crashes out of the bloc without a deal in March, the economy would be between 6.3 percent and 9 percent smaller after 15 years than if the UK remained an EU member, according to the government.

The Bank of England modeled what it described as a worst-case no-deal scenario, where ports freeze up, EU workers flee in the tens of thousands, tariffs and regulatory barriers shoot up, and interest rates ratchet higher to contain galloping inflation from a collapsing pound.

Such a doomsday scenario would lead to a 2019 recession deeper than that suffered during the financial crisis and leave the economy more than 10 percent smaller at the end of 2023 than it would have been had the UK never voted to leave. The bank also modeled a less disruptive scenario in which the costs were smaller.

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Markets open on positive note

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Sensex Nifty Equity

Mumbai, Feb 20: The 30-scrip Sensitive Index (Sensex) on Wednesday opened on a positive note during the morning session of the trade.

The BSE Sensex opened at 35,564.93 before touching a high of 35,581.14 and a low of 35,520.21.

It was trading at 35,528.69 up by 176.08 points or 0.50 per cent from its Tuesday’s close at 35,352.61.

On the other hand, the broader 50-scrip Nifty at the National Stock Exchange (NSE) opened at 10,655.45 after closing at 10,604.35.

The Nifty is trading at 10,656.25 in the morning.

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PF funds’ investment in IL&FS bonds have no government guarantee: Finance Ministry

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IL&FS Financial Service

New Delhi, Feb 19 (IANS) The provident and pension fund trusts that invested in the IL&FS bonds now fear loss of money as the debt-ridden company’s bonds are unsecured debt, and the Finance Ministry says superannuated bonds do not carry any government guarantee and all such instruments have to face all market-related risks.

“Since these are investments in bonds, the government does not ensure any guarantee on them as such and if these are invested in stock markets, they carry the market risks as applicable. It is between the bond issuer and bond holders…,” the Finance Ministry said in response to IANS queries.

Thousands of crores of money of more than 15 lakh employees of both public and private sector companies have exposure to IL&FS bonds.

However, queries sent to the EPFO Commissioner and Labour Minister Santosh Gangwar remained unanswered.

Over 50 funds that manage retirement benefits of over 15 lakh employees have exposure to IL&FS. PF trusts of state electricity boards, public sector undertakings (PSUs) and banks are among them. The provident and pension fund trusts have filed intervening applications in the National Company Law Appellate Tribunal (NCLAT) stating that they stand to lose all the money since the bonds are under unsecured debt.

Usually, retirement funds have a low-risk appetite and invest in “AAA” rated bonds (which IL&FS bonds used to be once upon a time) and get assured returns with low interest rates.

The worries of pension and provident fund trusts come from the classification of IL&FS profiling its companies as to which can meet the dues obligations. Many important trust managing funds of PSUs like MMTC, IOC, Hudco, SBI and IDBI are among those filing petitions. From private sector, HUL and Asian Paints are among the petitioners.

IL&FS is currently under resolution process at the National Company Law Tribunal (NCLT). The process will decide under Section 53 of the IBC the order of priority for distribution of proceeds of the process.

The beleaguered company has informed the NCLT that of the 302 entities in the group, 169 are Indian companies, out of which only 22 are emerging as those which can meet all obligations (green), while 10 firms can pay to only secured creditors (Amber). There are 38 companies of IL&FS (red) which cannot meet any obligations of payment, and 120 entities are still being assessed.

These PF and provident funds trusts are worried that if payment is limited to secured creditors, then only financial creditors like banks will receive the dues while unsecured bond-holders will be get any payments.

IL&FS bonds attracted investments by PF trusts as it had the shareholding of SBI and LIC giving its bonds the comfort factor.

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Sachin Bansal invests Rs 650 crore in Ola

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Bengaluru, Feb 19 (IANS) Internet entrepreneur and Flipkart co-founder Sachin Bansal has invested Rs 650 crore, or about $92 million, in ride-hailing platform Ola in his personal capacity as investor, the company said in a statement on Tuesday.

This investment is part of Ola’s larger Series J funding round. It is also the largest investment by an individual in Ola to date, it said.

“Ola is one of India’s most promising consumer businesses that is creating deep impact and lasting value for the ecosystem. On one hand, they have emerged as a global force in the mobility space and on the other, they continue to build deeper for various needs of a billion Indians through their platform, becoming a trusted household name today,” Bansal said.

He further said he has known Ola founder Bhavish Aggarwal as entrepreneur and friend over the years and that he has great respect for what he and the team at Ola have built in 8 years.

“We are extremely thrilled to have Sachin onboard Ola as an investor. Sachin is an icon of entrepreneurship and his experience of building one of India’s most respected businesses ground up, is unparalleled,” Ola CEO Bhavish Aggarwal said.

Ola integrates city transportation for customers and drivers onto a mobile technology platform ensuring convenient, transparent, safe and quick service fulfilment, the statement added.

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