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Showing posts with label Livemint. Show all posts
Showing posts with label Livemint. Show all posts

Tuesday, December 1, 2020

Cashback vexation (Livemint)

That brick-and-mortar retail outlets have been badly hit by e-commerce is no secret, especially with covid-19 keeping us indoors. But have regular old shops been put at an unfair disadvantage? This is what the Confederation of All India Traders (CAIT) has reportedly complained of to India’s finance minister, alleging that banks have colluded with e-com majors in offering cashback on purchases that aren’t available to offline shoppers.


The last time retailers were up in protest, some years ago, it was over what they saw as predatory pricing in the deep discounts offered by e-com websites. That issue was partially resolved, it seemed, by online outlets giving up on their game of burning cash for market penetration; they needed to stanch losses. The current dispute may prove harder to settle. Large companies always have an advantage in arranging finance deals and suchlike. Online outlets sell far larger volumes on a relatively small base of overheads. It’s hard for regular shops to compete with them on prices. But banks should consider reaching out to these shops via CAIT with proposals to help them try. Consumer finance deals should reach all.

Courtesy - Livemint.

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Saturday, November 28, 2020

Phew! Second quarter GDP wasn't as bad as we feared (Livemint)

India’s gross domestic product (GDP) contracted by 7.5% in the July-September quarter, which is not as bad as the 8.6% contraction predicted by our central bank’s “nowcast" model, and much less worrisome than the double-digit shrinkage some global analysts had projected. This decline comes on the back of a nearly 24% scrunch-in officially recorded in the first quarter of 2020-21, the period that bore the brunt of India's covid lockdown. With two successive quarters of shrinking output, it's now official that our economy was in a technical recession during the first half of this fiscal year.


Yet, output figures for the first and second quarters offer a sharp enough contrast for some of our gloom to lift. At this rate of recovery from the depths plumbed earlier, hopes have strengthened that our economy will exit its contraction mode in the current quarter. Consumer demand has been observed to be showing signs of revival in recent months. Supply chains, snapped off by covid curbs, have been restored to a large extent. High-frequency indicators, such such as fuel and electricity consumption, apart from rail freight and mobility, have looked up. And festive season sales were buoyant, though much of the shopping could be attributed to a spring back of pent-up demand.


Order books in the manufacturing and service sectors have also made for optimism that the third quarter might mark an end to the recession. But it would be too early to conclude that the economy is well on its way back. As RBI Governor Shaktikanta Das observed on Thursday, we must be watchful of demand. There's reason to fear that it may slump after the festive season is over. Economists have also warned of second-order effects of our recession. Households reeling under its impact would naturally compress expenditure, even as a precautionary cash preference goes up across the country. This would make it harder to achieve normalcy. Another risk is that of a second wave of corona infections arising, as has happened in the US, before a vaccination drive can squash the virus's spread. But for now, it would seem that the government's gradual recalibration of its clamps-versus-commerce trade-off was reasonably well calculated.

Courtesy - Livemint.

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Friday, November 27, 2020

A family that pays together, stays together, but the key is to set the limits (Livemint)

Priya Sunder

 

Many parents are financially supporting their adult children in a meaningful way in the aftermath of the covid-19 pandemic that has resulted in rampant job losses, pay cuts and professional uncertainty.


Take the case of X, whose son had quit his job to start an organic farming business two years ago. The pandemic disrupted the business’s demand, supply and distribution chains, leaving the son struggling to meet his family’s routine expenses. Or the story of Y, whose son could not meet his daughter’s undergraduate fees for a foreign university because of a huge dip in his portfolio value. Lastly, Z, whose lawyer son was suddenly diagnosed with brain cancer, leaving the son struggling to earn an income to meet his instalments.


In all the above situations, the parents stepped forward to bail out their children with financial support. X created a trust fund, which provided the son’s family a monthly income that met their routine expenses. The son was, therefore, able to focus on bringing his business back on track, knowing that his parents were meeting his family’s basic needs. Y offered his son an interest-free loan for three years to pay the undergraduate fees so he would not need to redeem his portfolio at a loss. Z shook off the loan collection leeches by paying down the home loan entirely and securing the home papers for his son.



But parents must wear their safety belts first before helping others. If their assistance towards their children negatively impacts their financial independence or goals, they must desist from offering such support. While the child can find employment in the future and earn an income, parents do not have that luxury if they exhaust their assets, leaving them eventually dependent on their children.


Hence, even if parents offer financial assistance, they must structure a broad framework of such financial support and set limits in terms of money, time or emotional involvement. This framework is crucial to establish expectations, else it may lead to unhealthy dependence or friction on both sides.


Generally, the financial assistance offered can be of four types: income, expense, asset and liability.



Income: Income support comes by way of providing a fixed inflow each month. One of my clients redirected her rental income to her daughter. Other sources of income may be in the form of trusts, dividend from stocks or interest from bonds and deposits, or systematic withdrawal plans (SWPs) from mutual funds.


Expense: Parents can take over a part of the children’s expense, such as equated monthly instalments (EMIs), rent, school fees or routine expenses. It is important to ensure that the expense commitment is fixed and predetermined so that expense spikes do not cause steep outflows on certain months or extend beyond the decided time limit.


Assets: Parents may decide to fund an asset, such as a car or a house, partially or fully. In some instances, parents may find it prudent to gift a property during their lifetimes rather than bequeath it after their death. If parents have the financial wherewithal to transfer wealth during their lifetimes, it may be more beneficial for their children now, than to leave behind a large inheritance when the need is not so dire. In fact, transfer of wealth during the parents’ lifetime offers them immense satisfaction when they see that the money is being put to good use, such as educating a grandchild, buying an asset, or closing a loan. However, such transfers must not materially affect the financial independence or lifestyle of the parent.



Liabilities: Though taking over a liability is not advisable for retirees, parents can choose to pay down a child’s liability, such as a credit card bill for the month, or car and home loans, if their finances are healthy. They may also choose to pay down a loan entirely or partly instead. But parents must refrain from taking on loans as a co-signee, since the responsibility for repaying the loan then shifts to them, at least partially.


Financial advisers play an integral role in deciding whether elders have the wherewithal to support their children. They can project expenses into the future and ensure the existing corpus is able to weather inflation, taxes, market disruptions and unplanned expenses. Such calculations must be arrived at after factoring a very conservative return on assets, or in some instances, even writing off a part of their assets. After leaving an adequate buffer, any remaining surplus can be used to help their children financially. Advisers can also act as an objective third party, highlight the consequences of certain financial decisions on both parties, intervene between the child and parent, and enforce discipline when financial boundaries are crossed.


It is natural for parents to help their children in distress just as children would want to do so for their parents. This support is what binds families together, and strengthens and nurtures relationships. Parents need to walk the fine line between supporting an otherwise hardworking child who has fallen into bad times; and supporting an entitled child and creating an ongoing dependency. If it is the former and you have put on your oxygen mask, go ahead and strap it on for your child too.


Priya Sunder is director and co-founder, PeakAlpha Investments.

Courtesy - Livemint.

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Thursday, November 26, 2020

Maradona’s divine goal and worthy absurdities (Livemint)

No goal has riveted eyeballs quite like the “Hand of God" one scored—or stolen—by Argentine football legend Diego Maradona, whose life was claimed by a heart attack on Wednesday. He was 60, loved for his mastery of the game, admired for his art as much as artifice, and a rare player who could send up a great groan across the globe each time he took a fall, his fandom mostly intact through a run of latter-day addictions (and all that befell him thereafter). The goal for Argentina that appears to have granted him immortality was against England in a 1986 FIFA World Cup quarter- final, a match fraught with the fallout of their 1982 Falklands War, which saw the former fail to wrest control of islands off its coast long held under British colonial rule. On the field that day, Argentina won 2-1, thanks to a ball fisted into the net by a leaping Maradona. Mistaken as a header by the Tunisian referee, the goal was awarded, though our impish master of sleight would later admit divine intervention. It was scored, he said, “a little with the head of Maradona and a little with the hand of God". It was absurd, of course, but an absurdity that had popular endorsement all the same. For, it was his second goal, struck four minutes later with a delightfully-dribbled run all the way from the Argentine half to the English goalpost that wowed us enough to call it the “Goal of the Century" and hail his greatness. That strike alone was seen to be worth two on the scoreboard. Surely, it deserved as much, did it not?


What seems bizarre to some could be just another shrug-and-move-on matter for others. Think of the endless loop of Argentina’s sovereign debt, its defaults, and its tango with the International Monetary Fund (IMF). As it happens, the country is back trying to defer its dues to the lender, some $44 billion of it this time, having won an IMF package to avert a default just two years ago. It routinely imports more than it exports, watches its peso fall, sees local prices of imported goods soar, runs short of dollars, has tight-money and fiscal-austerity plans imposed, then reopens public coffers to quell unrest and ends up staring at its next crisis. Arguably, what its economy needs is export competitiveness, a ground-up exercise, rather than periodic fixes of macro policy.


Speaking of absurdity, perhaps the world’s most apparent one nowadays is the price inversion seen in financial markets, where investors have been piling into negative-yield bonds. In effect, borrowers are getting paid to borrow money. As debt issuers, Europe and China have both been beneficiaries of this. A closer look, however, reveals an explanation. For one, it is a direct outcome of the super-cheap lending done by major central banks to stimulate covid-crunched commercial activity. Once official interest rates are pushed to negligible levels, they could drop below zero in real terms anyway (if inflation is higher). For another, market rates on debt can go into the minus zone if there’s a rush for overpriced bonds, and there currently exists robust demand for negative-yield paper that is not irrational. Such securities are usually secure, backed as they are by governments, and thus serve as safe havens in uncertain times. They also act as a deflation hedge. Moreover, if downward pressures on rates persist, they can even be sold off for more money. All said, if the usual rules of play can bend so easily in the credit arena, why not in a football stadium?

Courtesy - Livemint.

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Thursday, November 19, 2020

Will I&B ministry play moral police for OTT content? (Livemint)

Shuchi Bansal

 

Earlier this month, a gazette notification brought digital audio-visual content, such as films and web shows, on over-the-top (OTT) streaming platforms under the ambit of the ministry of information and broadcasting (I&B), sparking fears of censorship of video-on-demand (VoD) content.


The government had been pushing for self-regulation of the sector for two years, but sparring OTT firms were unable to agree to a common code. Eventually they signed one under the aegis of the Internet and Mobile Association of India (IAMAI), creating a framework for age classification, appropriate content description and access control. However, this was rejected by the I&B ministry, which hinted at an independent complaints redressal mechanism, and enumeration of prohibited content.


In India, covid-19 coincided with rising digitization and access to affordable internet. “In the last eight months, OTT or digital media and entertainment platforms have all but replaced television," said Sajai Singh, partner, J Sagar Associates. I&B ministry decided to step in, considering that unlike films and TV, digital content is not subject to censor certification.



Amber Sinha, executive director at research think tank Centre for Internet and Society, said that the current move represents a significant widening of the regulatory ambit of I&B ministry. “However, there’s still scope for self-regulation though there seems to be some intent to redefine the self-regulation code," he said.


Traditionally, the ministry has focused on broadcasting services where the viewer has limited control over what he can watch. Though viewers can choose from an array of channels, content is still being “pushed" to them as opposed to OTT streaming services where you ‘pull’ content from a repository. “Given this important distinction, the regulatory approach for OTT streaming media may have to be distinct from offline broadcasting media," said Sinha.


Yet growing fears about censorship are natural. “Currently, there are archaic criminal law provisions on blasphemy and sedition that have been used to target content by OTT players. If these considerations find their way into the regulatory framework, it will inevitably lead to private censorship by platforms. Even if the laws are vague, it may lead to platforms reducing risk by censoring content," Sinha said.



A filmmaker had earlier pointed out that the government’s intent to regulate OTT should not be confused with restriction on nudity, language or violence but on content that counters its ideology or policy, killing any contrarian narrative.


Sinha said the changes giving I&B ministry jurisdiction have been brought through administrative rules. “This should only give the ministry administrative authority over OTT content providers, and not regulatory authority. Regulatory authority can only be vested by legislation. However, it remains to be seen whether this important legal distinction will be observed," he said.


Globally, norms around OTT can be categorized under three models. The first seeks to regulate streaming providers in much the same way as broadcasting services and is being discussed or implemented in countries such as Australia, Singapore, and Turkey. The second seeks to create clear censorship and government control over OTT players in countries such as Saudi Arabia and Kenya.



“The third model that we see emerging in countries like the UK is a more cautious approach. This includes self-regulation and content rating system by OTT players or their association, while contemplating the modalities of a new regulatory framework for them distinct from the broadcasting laws," said Sinha.


However, to regulate the sector in India, Singh suggested that the current IAMAI Universal Self-Regulation Code for online curated content providers (OCCP), though rejected by the ministry, be read into the recommendations of the Shyam Benegal committee on certification of films and be adapted for digital media.


Among other things, this suggests that ministry’s role should be limited to only deciding who and what category of audience can watch a particular content, without acting as a moral compass. The age/maturity categorization and content descriptors should be a sort of statutory warning for audiences of what to expect in a particular film, and thereafter the viewing of the film should be considered a consensual act, and up to the viewers of that category.


The OCCP code and the Benegal committee recommendations may help the government come up with a code not only acceptable to all stakeholders but also “one that recognises the ground realities of today and stays away from playing the moral police (as aptly addressed by the Bombay High Court in the case of Udta Punjab)", Singh said.


Shuchi Bansal is Mint’s media, marketing and advertising editor. Ordinary Post will look at pressing issues related to all three. Or just fun stuff.

Courtesy - Livemint.

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Wednesday, November 18, 2020

Moderna, Pfizer covid-19 vaccines: Side effects are next big challenge

Therese Raphael

The US Centers for Disease Control and Prevention plans to send daily texts to those who are vaccinated for the first week and then weekly texts for six weeks, while the Food and Drug Administration will also be monitoring side effects in real time.


Regulatory authorities are gearing up for a deluge in people reporting side effects when the new Covid-19 vaccines go into use. Even if the vaccines prove safe — a reasonable assumption based on current information — managing the reporting and follow-up of what are known as adverse drug reactions will be critical to keeping to the high levels of public participation needed for a vaccination program to be successful.


The US Centers for Disease Control and Prevention plans to send daily texts to those who are vaccinated for the first week and then weekly texts for six weeks, while the Food and Drug Administration will also be monitoring side effects in real time.


It’s not clear if the UK’s monitoring system will have similar capabilities by the time the vaccine is rolled out. The country’s Medicines & Healthcare Products Regulatory Agency issued an urgent tender notice (recorded last month in a European Union public procurement journal) for an artificial-intelligence software tool to help deal with the expected high volume of reported effects. (The roughly $2 million contract went to outsourcing firm Genpact.)


The agency didn’t mince words in explaining the reasons for the urgency: Its legacy system would be overwhelmed by the volume of reports and could not be retrofitted to cope with the new vaccine. The absence of a new tool would “hinder its ability to rapidly identify any potential safety issues within the Covid-19 vaccine." That in turn would represent a “direct threat to patient life and public health."


Even if the language may have been partly crafted to exempt it from normal EU tender requirements, it underscores what’s at stake for governments around the world as these brand new vaccines are rolled out with unprecedented speed to a far wider public than ever before. As with any new drug, the range of these adverse drug reactions — unintended, harmful events linked to the medication — will only be known when a very large number of people have been vaccinated.


A reported adverse effect doesn’t mean a vaccine isn’t safe, and in some cases it may not be related to the inoculation at all. But ADRs help doctors, pharmaceutical companies and regulators monitor the impact of licensed drugs. They can identify misuse of a drug, compromised batches or simply side effects that need to be disclosed even if it doesn’t change the safety profile.


Effective monitoring is especially important given these vaccines will be released with less safety follow-up than is typical for widely used shots. Having a robust system to log, analyze and allow for prompt feedback from reported side effects is essential to ensuring public safety. Combined with clear communication, it will also be central to building confidence in the new vaccines.


In general, most side effects appear soon after an injection and remain only for a short period. A small percentage of people will experience them from any well-established vaccine, or even your typical pain relief medication. Most people are willing to accept that small level of risk for massive benefit — to their children and public health generally — from vaccination programs.


The UK’s Yellow Card system might receive one report per 1,000 immunizations. But if you dramatically increase the number of people being vaccinated, the amount of reported effects can be expected to increase proportionately. With Covid vaccines likely to go to the oldest and most vulnerable first, there may be even more ADRs reported than usual. Even if they aren’t related to the vaccine, they can spook the public.


The side-effect reports have the potential to be a gold mine for anti-vaxxers. Vaccine skepticism is higher in the US, but the UK bears the scars of the now thoroughly debunked linking of the MMR vaccine to autism. In a survey last week by the London Assembly Health Committee, only three in five respondents said they are likely to or will definitely get vaccinated; almost half of those who said they wouldn’t or might not do so cited lack of trust in government guidance or drug companies.


Such concerns aren’t entirely irrational. If vaccines have traditionally taken up to a decade to win approval, people wonder how can we trust the safety of one produced in a small fraction of the time.


One answer is that in the battle against Covid, no effort, brainpower or resource was spared. That intense, global competition has borne impressive fruit. The technology has also advanced so rapidly that past timetables aren’t a very good guide. The so-called messenger RNA technology used by the two leading inoculation candidates from Moderna Inc. and the partnership of Pfizer Inc. and BioNTech SE, is already revolutionizing vaccine development, as my colleague Max Nisen explains.


With all of this in mind, it’s vital governments educate the public about what they might expect. The side-effect profiles so far seem nothing to be concerned about. Still, they may be a bit harsher than a typical flu shot, which is the only reference point most of us have. If people know what to expect, they’ll be less likely to worry or flood hotlines.


These may well be modern day miracles, but as the saying goes, vaccines don’t save lives, vaccinations do. With vaccines expected to cover as much as a third of the population by the first part of next year, effective monitoring and total transparency will be essential if we are to defeat not just this pandemic, but the next one too.


Courtesy - Livemint.

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Tuesday, November 17, 2020

Distress signal

Fresh data from the Employees’ Provident Fund Organisation (EPFO) accessed by Mint shows that the count of contributing establishments dropped by over 30,800 in October from September, marking the first drop since April, when India was under a full lockdown. The number of individual provident fund (PF) contributors also fell by 1.8 million last month.


The decline suggests that the after effects of our covid crisis are yet to play out fully, with the private sector not quite done with payroll compression, even as various other signs emerge of the Indian economy staging a festive season recovery of sorts. A raft of indicators, from tax revenues to order-book index readings, have lately exhibited marked improvement. If corporate profits in this fiscal year’s second quarter saw big jumps, it was chiefly on account of the battles waged against fixed costs, including salary bills. Simultaneous job losses across business sectors could have a significant second-order impact on the overall demand for goods and services in India. Let’s hope the government’s revival of a PF subsidy scheme for new recruits at low salaries helps stem the EPFO enrolment slide.

Courtesy - Livemint.

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Monday, November 16, 2020

Atmanirbhar Bharat – Promoting local shouldn't be seen as anti-trade

Aashish Chandorkar

Today’s advocates of free trades were all protectionist at some point, but do not wish India to traverse the same path. India in fact has the added advantage of a monopsony market to normalize its non-tariff barriers for global firms


The Cabinet recently approved introduction of a production-linked incentive (PLI) program to attract manufacturing in ten key sectors to India. These ten sectors include the traditional export intensive warhorses like textile, pharmaceuticals, automotive, steel and white goods, but also the sectors of the future like solar panels, telecommunications gear, advanced cell batteries, food processing and electronics products.


The idea of the PLI program is to get large manufacturers to India, whether integrating India as part of the supply chains or encouraging them to set up new base. The total five year outlay of the program is INR 1,45,000 crore. The PLI program provides incentives to companies against their incremental sales, capital expenditure or investments after the program is notified.


Earlier in October, the government cleared a PLI program to boost large scale electronics manufacturing, approving ten firms in the mobile phone segment and six others in the electronics component manufacturing segment. The former segment included big names like Samsung, Foxconn (Hon Hai), Wistron and Pegatron. This targeted PLI program was notified in April and within six months, it evinced enough interest, netting several big names, with an expectation of INR 10,50,000 crore incremental production.



This success has led the government to look at the latest initiative involving ten new sectors.


When Prime Minister Modi gave the clarion call for Atmanirbhar Bharat, sections of the commentariat immediately got worried about Protectionism 2.0. The ‘professional pessimistic’ view was that India will go back to the days of license raj, close its borders and stop trade. This clamour grew when the government targeted certain imports with duties, especially in the aftermath of the Chinese border aggression.


The government is deploying a carrot and stick policy on trade, coupled with large scale domestic factor market reforms to plug the gaps on various shortcomings India has as an investment destination. But it continues to attract flak for being perceptibly anti-trade.



The conventional wisdom says that open trade and Free Trade Agreements (FTAs) should over time lead to better domestic competitiveness. India has had FTAs with the ASEAN nations (2009), South Korea (2009) and Japan (2010) for more than a decade. Not only has these FTAs not helped export competitiveness in a great way, India has actually yielded ground to several South East Asian countries in terms of trade balance.


While India eliminated tariffs on 74% of its market to ASEAN countries, the reciprocity was less generous. Indonesia eliminated tariffs only on 50% of its market for India while Vietnam on 69% of the trade market. In 2009, India’s exports to South Korea was $3.4-billion, which barely increased to $4.7-billion in 2018-19 after a decade of signing an FTA.



Anecdotal evidence cited to call India protectionist flies in the face of ground reality of the last decade. Our concern should be the protectionism we face from other export oriented countries.


The situation has been complicated further with China using the South East Asian route to dump its goods, circumventing the Country Of Origin (COO) issue. This was a key concern why India did not sign the Regional Comprehensive Economic Partnership (RCEP) last year. In fact, at one point India had considered signing an FTA with China itself, which would have been a sure death knell to whatever little manufacturing happening in India. Thankfully better sense prevailed, for without that FTA, Indian trade deficit with China peaked at $73-bilion in 2016-17.


No large economy captured market share without using moderate tariffs to protect its interest. Today’s advocates of free trades were all protectionist at some point, but do not wish India to traverse the same path. India in fact has the added advantage of a monopsony market to normalize its non-tariff barriers for global firms.


In the last few years, India has taken a more holistic view of the problem rather than treating free trade as some kind of an inalienable dogma. The labour and capital reforms currently being undertaken will provide a fillip to domestic competitiveness. Reduced corporate tax rates aligned with other competing countries would shift the location selection consideration towards areas of India’s strength like human capital. The government is also using public procurement as a tool to truly leverage India’s market power in promoting local manufacturing.


Free trade leading to unhinged import dependence and fair trade leading to strengthening specific areas of domestic manufacturing should really be a Hobson’s Choice for India. The promotion of manufacturing should involve Make In India for India and for the world. We may never make everything that we need – imports won’t be wiped off. That is neither the intent of the Atmanirbhar Bharat approach nor its end outcome. But that should in no way stop India from taking a sectoral view to re-shore manufacturing to India and to mount a challenge as global factory.

Restriction is not prohibition. India attempting to use targeted and phased tariffs, with an aim to reduce Chinese imports, while helping open the Western export markets is a perfectly legitimate strategy.

Adam Smith had once remarked that “Mercy to the guilty is cruelty to the innocent". Let our trade, commerce and manufacturing policy focus not be to incentivize those who adopt dubious ways while seeking Indian market access. Inflicting that self-cruelty may appeal to textbook perfection, but does not serve either the Indian firms or the Indian citizens.


(Aashish Chandorkar is a public policy analyst and author based in Pune. Views are personal and do not reflect Mint's.)

Courtesy - Livemint.

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Wednesday, November 11, 2020

Who should get the covid-19 vaccine first?

Therese Raphael , Bloomberg


If the Pfizer-BioNTech vaccine gains regulatory approval by Christmas, we can cheer the scientists for heroic work. But it will be the distribution decisions made by governments that will determine how quickly we can all exit Covid confinement. The UK has put itself in a strong position to access early vaccines, but its approach to prioritization and distribution needs careful thought.

The UK’s National Vaccine Taskforce spread its bets early on, putting in orders for 340 million vaccine doses among six different vaccine candidates. Pfizer’s vaccine is one of them and Britain should be an early beneficiary, receiving a total of 40 million doses of the vaccine and possibly a portion of that before Christmas. Given the double-dose requirement for efficacy, that means 20 million Britons can be vaccinated.


That’s great news, but the corollary is that there has to be rationing. The UK health-care system has experience with that, of course. The country’s National Institute for Healthcare Excellence (NICE) evaluates medicines and treatments and sets up protocols for determining who gets what.


How to ration a vaccine, though? The UK’s vaccination strategy, first published in the Lancet late last month, sets out tiers of prioritization, starting with getting the vaccine to the very old and to those working in care homes before moving down the age brackets. Prioritizing the most vulnerable members of society is a common approach. Germany’s strategy is to vaccinate at-risk groups first, along with nurses and doctors. An estimated 40% of the population gets first dibs on a vaccine under the German plan.


But what if vaccinating the elderly first isn’t the best way to minimize fatalities? A recently published (but not yet peer-reviewed) model from three academics at Khalifa University suggests priority should be accorded to groups with the highest number of daily in-person interactions, since that amplifies the vaccine’s effectiveness by reducing infections (and mortality) both among the vaccinated group and those they come into contact with. According to their model, proper prioritization can reduce total fatalities by up to 70%.



If we get more immunity bang for each vaccine dose by targeting those with the highest number of interactions, then we’d want to see health-care workers at the front of the queue, but perhaps next in line should be younger workers and those in the hospitality sector. Perhaps children should be high up on the list too. Even though they seem to be the least impacted by the disease, they can have many daily interactions, especially with schools open.


A similar case is sometimes made with respect to seasonal flu vaccination programs. Younger populations are less likely to suffer severely from the flu but more likely to pass it on to those who will. And flu deaths don’t seem to be decline significantly from vaccination programs just targeted at the elderly. Following this logic, a number of countries (Finland, Latvia, Slovakia and the UK among them) have encouraged flu vaccinations of children to prevent broader transmission.



There are other ethical considerations. Because trials do not include a proportional share of the population who are most at-risk of dying from the disease, the efficacy (and safety) of a vaccine among this group is harder to establish. Vaccinating younger people earlier and faster — even offering financial inducements for it — would help amass more data on the vaccine while also potentially reducing the spread in the population.


Of course, any unknown safety risk may be worth taking to protect the elderly (given three-quarters of deaths are in the over-65 age group) and the immunocompromised. But whatever its calculations, the government needs to be transparent about its models and the assumptions they contain; so far that information has been lacking.


The success of any early vaccination program with limited supply also depends on how effectively the available doses can be deployed. In Germany, 60 vaccination centers are being established nationwide and the Bundeswehr (Germany’s military) is involved in the logistics. Medical workers will be trained on how to store the vaccine and administer it properly. (That’s no easy feat as the Pfizer vaccine must be transported at the ultra-cold temperature of -70 degrees Celsius, or -94 Fahrenheit.) Germany is also setting up a database to keep track of which population groups have been vaccinated, and with which vaccine and specific batch, to aid a broader program.


The UK’s publicly disclosed plans are more vague. It is also talking about creating mass vaccination sites, but the vaccine would also be distributed through doctors offices and hospitals. Health Secretary Matt Hancock has allocated an additional 150 million pounds ($199 million) to support the effort. But it’s easy to worry about whether this rollout will work as planned. Having many points of distribution will make the vaccine easier to access, but it also raises the risk that doses will be corrupted through incorrect storage or that those who are not eligible will receive it. Theft might even be a concern.


The supply constraints should start to ease sometime next year. Pfizer hopes to make its vaccine available in a more transportable powder form. And by the end of 2021, the expectation is that more vaccines that are easier to store should also become available. The more approved vaccines there are, the more sweeping programs can be. The UK strategy also wisely includes therapeutics, such as an antibody cocktail in development from AstraZeneca, that could be useful in cases where people can’t receive a vaccine (such as those who are severely immunosuppressed).


This week brought good vaccine news, but the next steps must be carefully planned. We are still far from the point when a vaccine will be available to all. Until then, prioritization and distribution are key. The scientists who brought us the Pfizer vaccine have shown us the exit door. It’s now up to governments to get people through it.

Courtesy - Livemint.

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Monday, November 9, 2020

Myth and reality about fighting air pollution

Anil Padmanabhan

The Delhi-NCR experience shouldn’t be the standard for tackling the issue nationally

This weekend, the Air Quality Index (AQI) deteriorated sharply in the National Capital Region (NCR). Enough to grab national eyeballs and setting in motion the annual ritual of blame game.


It is that time of the year again when the Delhi-NCR suffers its worst bout of air pollution as winter sets in. The time when civic consciousness comes alive and assumes its most righteous self. And our politicians, in their bid to evade responsibility, are at their best in either kicking the can down the road, passing the blame or packaging tokenism as solutions.


The thing is that with the covid-19 pandemic, which primarily targets the respiratory system, still around, the impact on our health could be much worse—after all pollution too targets the lungs. It is, therefore, time to not just dust up the playbook. Instead this may be the moment to be brutally honest with ourselves and hit the reset. For starters, let us square up to a few myths.



First and foremost is that pollution is neither a Delhi-NCR centric issue nor is it only a winter phenomenon. It happens throughout the year and is a national problem. Just because it is not overtly visible—like stubble burning—doesn’t mean it does not exist. On Saturday, I randomly logged into The World Air Quality Index maintained by a non-profit body (bit.ly/38rtstB) to check the ambient air quality across Indian cities and towns: Was shocked to find that only Tirumala returned good air quality.


Second, vehicular pollution, while being an important contributor to air pollution, is not the biggest villain. As Chandra Bhushan, an environmentalist who heads up iForest, insightfully points out India annually burns about an estimated 2 billion tonnes of substances to either generate energy or dispose waste. Of this, three-fourths is accounted for by burning coal, lignite (for energy), biomass (mostly for cooking) and agricultural residue (waste disposal); the share of oil is about 10%.



Clearly, as Bhushan points out, we are missing the woods for the trees by focusing all our energies in containing vehicular emissions—a necessary, but not sufficient condition to contain pollution.


Thirdly, there is an assumption that policing can resolve the problem. Accordingly, there is renewed expectation of a solution with the creation of a new body to oversee the fight against air pollution in the NCR. It will be unfair to second guess an institution which is still on the drawing board; but one can question the implicit faith in the principle of policing as a solution.


Undoubtedly, policing is a good threat to showcase as a deterrent, but something extremely difficult to enforce. For instance, take biomass burning—the primary cooking fuel in rural India and one of the biggest contributors to air pollution. Not only is it a political challenge, it is inconceivable to levy individual fines for pollution violations.



Connecting the dots it is clear that it is time to stitch together a new narrative. To begin with, the Delhi-NCR experience should not be the standard for tackling the pollution problem nationally. Shaped like a saucer it has a unique topographic challenge which leaves it vulnerable to air pollution.


Simultaneously, the people need to be co-opted as stakeholders in the fight. The difficult trade-offs (like giving up using biomass as cooking fuel) need to be explained. Most importantly, the fight against air pollution needs to be re-prioritized; move beyond convenient scapegoats like automobiles. Reducing the consumption of coal and lignite can be woven into the strategy to green the Indian economy—the only sustainable blueprint for growth.


In short, recognize that there is no quick-fix to the problem. Battling air pollution is like being at war: you have to know your enemy’s strengths and weaknesses. So, will leave you with a thought from the legendary Chinese general Sun Tzu on the art of war:

“If you know the enemy and know yourself, you need not fear the result of a hundred battles.


If you know yourself but not the enemy, for every victory gained you will also suffer a defeat.


If you know neither the enemy nor yourself, you will succumb in every battle."


Anil Padmanabhan is managing editor of Mint.Comments are welcome at anil.p@livemint.com

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Wednesday, November 4, 2020

New deal on wheels

A shift in the way we prefer to travel within urban zones has been a matter of speculation ever since the covid outbreak. Now, signs of it are starting to emerge. Consider this observation by Maruti Suzuki India Ltd, India’s top carmaker. In the second quarter of 2020-21, the proportion of first-time buyers of its cars went up, while that of repeat buyers went down, as Shashank Srivastava, executive director, sales and marketing, reportedly told analysts. Since Maruti accounts for about half the market, its sales patterns are reasonably representative of a broad trend.


The use of public transport is seen as a health risk by many, and Delhi’s rising caseload after Metro services restarted may not have escaped notice. The fear of exposure could have prompted those with sufficient means to opt for their own set of wheels. If the trend sustains, it could provide a boost to India’s auto industry. Worryingly, though, the shift in ratio that Srivastava spoke of could also be explained by a drop in car replacements. Income uncertainty might have held off upgrades, as also a wait for affordable electric cars. Work-from-home has been a demand dampener, too.

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Tuesday, November 3, 2020

Lockdowns, working from home can make you less creative

  Ferdinando Giugliano , Bloomberg

Not only does virtual and distanced working risk loneliness, it is also bound to reduce on-the-job learning, creativity and innovation — all of which are often tied to serendipitous encounters

As Europe struggles with the second wave of the virus and faces a new round of lockdowns, governments and businesses must ask themselves whether people will cope with more restrictions as well as they have striven to do so far.

For many white-collar workers, the pandemic has already made remote work the new normal. But for all of its advantages, like saving on commuting time, there is also a price to pay — one that increases the longer we are out of the office and not able to meet others in person. Not only does virtual and distanced working risk loneliness, it is also bound to reduce on-the-job learning, creativity and innovation — all of which are often tied to serendipitous encounters.

The case for having people work from home, if they can, is relatively straightforward. Governments and businesses have a joint interest in containing outbreaks to keep the pandemic in check. Politicians want to relieve pressure from the health-care system, while employers want to prevent disruptions to their workflow. Local authorities also want to limit the use of public transport to those who really need it. For employees, remote working means a smaller chance of catching the virus and spreading it to their own families.

The costs are harder to quantify. Several businesses simply can’t be run remotely. For occupations in which staying at home is an option, the impact on productivity remains an open question. A number of executives, such as Jamie Dimon at JPMorgan Chase & Co., had warned in September that efficiency was bound to suffer unless employees came back to the office. The evidence, however, is less negative: Although productivity for some businesses can suffer, employees seem to compensate for it by toiling longer hours. In some cases, efficiency actually increases when employees stay at home.


Unfortunately, lockdowns bring additional complications. For starters, when governments require most people to stay home, remote working is no longer a choice for one’s preferred work environment but an obligation. This becomes even more problematic when schools are also forced to close, as parents have to juggle work alongside taking care of their children and helping them with distance learning.


Another peril comes when compulsory work-from-home is protracted. For example, it may be relatively straightforward to carry on performing the same tasks you did in the office from your living room. But what about starting new tasks or improving processes, which at some point will need to happen?

It becomes much harder to organize and innovate when people can only exchange ideas through mostly scheduled phone calls and teleconferences. It’s even harder when dealing with new hires who are not used to a company’s culture and ways of working. As for the idea that boredom can spark genius, this may be true for a few lone writers or mathematicians, but it seems less relevant for larger organizations.

Andy Haldane, the chief economist at the Bank of England, gave a thoughtful speech last month, arguing that excessive working from home can have a damaging effect on two important aspects of professional life: creativity and developing social connections. “Whether it is creative sparks being dampened, existing social capital being depleted or new social capital being lost, these are real costs and costs which would be expected to grow, silently but steadily, over time," Haldane said. He added that these disadvantages reduce the benefits of home-working and raise doubts over whether it can be a permanent solution for employers.

Haldane concluded that, as the pandemic recedes, the future will look like a combination of our past, in which clerical workers were always at the office, and our constrained present, in which they are stuck at home. The hope is to achieve some flexibility, for individuals to be able to choose where they work best. But it’s looking like this will have to wait until after winter.

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Wednesday, October 28, 2020

New eyes in the sky

The signing of Beca, or the Basic Exchange and Cooperation Agreement for Geo-Spatial Cooperation, between India and the US, could not have taken place at a more critical time. Recent Chinese hostilities against India along the border have raised the risk of a military conflagration. While a full-blown war is improbable, a limited engagement cannot be ruled out, given the prevailing tensions. And, with China upping its armed deployments, we cannot afford to blink.


On this score, Beca could be of immense value. The sharing of geo-spatial information would give India access to US intelligence inputs on military activities in the Himalayan theatre. If a battle were to break out, this could prove crucial in identifying targets and launching counter responses. Similarly, activities across our border with Pakistan could also be better monitored. For the US, Beca, together with two other agreements it struck with New Delhi to smoothen military cooperation (if need be), could expand its strategic options in containing China. Beijing, of course, will seethe, but then it has only itself to blame for turning the democratic world against it.


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Tuesday, October 27, 2020

Unravelling the relation between wealth, politics

Shashi Shekhar


British Prime Minister Boris Johnson has expressed his intention to resign. Politicians usually do this when they find that the political ground is slipping under their feet, but Johnson has a different reason. He said that he can’t survive on the salary and allowances he gets as a prime minister. He thinks he can earn much more through his lectures and writing.


Perhaps you know, yet there is no harm in saying it again that as Johnson earns £150,402 as salary and perks from the UK treasury. If calculated in Indian rupees, this is close to ₹1.45 crore. According to Johnson, he is financially strapped since he has six children and, according to the divorce agreement with ex-wife Marina Wheeler, he has to pay a hefty alimony. Right now his salary is not enough even for the education of his children. Before becoming the leader of the Tory party, he used to get £275,000 a year from The Telegraph. Also, if he had given two lectures in a month, he would have earned an additional income of £160,000. Apparently, Johnson ‘misses’ those days and now wants to return to the world of writing and lectures.


His predecessor, Theresa May is probably motivating him in this matter. Theresa earned £1 million by delivering speeches and writing in just one year after resigning. There was a time when politicians used to make solitude their home after taking leave, but the world is changing. People want to know everything. They believe that those who have spent time at the helm of power know the secret of decision-making at the top. Such dignitaries also have a lot to tell beyond the scope and limitations of the constitutional oath of office and secrecy. May is just one example. This has been now a favourite pastime of most former US presidents, the world leader in business and trade. It has been four years since Barack Obama left office, but he is still one of the world’s most expensive orators. According to The Bogotá Post, last year he earned $600,000 for lecturing at ‘Exma’ in Colombia. Even before Obama became president, he used to earn a lot of money as a writer.



Obama has maintained the popularity and elegance for a long time, but Bill Clinton, who retired with some kind of disgrace, made a lot of money from his autobiography My Life. It has sold more than 2.25 million copies and he earned about $20 million from it. He and his wife, Hillary Clinton, had made more than $153 million from 729 ‘paid lectures’ until Hillary’s election as US senator in February 2001. Lectures and books account for about 60% of Clinton’s total earnings.


It is not that the former American presidents have always filled their bag with so much money after leaving the White House. Ronald Reagan, who as a president raised the flag of abject nationalism, was greatly reprimanded in this case. After completing his tenure at the White House, he went to lecture in Japan. He was reportedly paid $2 million for the two 20-minute speeches and some public appearances. Suddenly he became a target of fierce criticism in the media and among the American Intellectuals. As a result, Reagan swore that he would no longer be part of any public lecture.



Now, this trend is also gaining momentum in our country. It is a different matter that we have a shortage of politicians who can give thoughtful lectures. Most do not even need it to earn money. Their income tax returns bear witness that in politics they had entered with the cry of penury and over a small period of time became millionaires. Voters are also their fans only because politics is still considered a means of feudal power and its associated glory. There is no need to go too far, right now the assembly election is being fought in Bihar. The data released by the Association for Democratic Reforms (ADR) claims that about 60% of the candidates from the two main alliances are millionaires. They have assets of ₹1-60 crore. Besides, on the basis of the affidavits filed with in the Election Commission last year, the ADR stated that 439 members of Parliament out of the 539 members in the Lok Sabha are crorepatis.



Let me make one thing clear. There is no harm in the influx of millionaires in Parliament and state legislatures, provided the people of the country are as affluent as they are. However, India ranks 94th in the ‘Global Hunger Index’ of 107 countries and our per capita income is just ₹1.35 lakh annually. More than 250 million people live below the poverty line. It should also be remembered that a person spending ₹32 a day is not considered poor by our government. With this much money, a person can’t fill his stomach twice a day. We can’t even think about spending on education and health. India has been different in this case, where people are poor and their representatives are rich.



Can I plead with such politicians to do some soul searching on the pretext of Boris Johnson?


Shashi Shekhar is editor-in-chief, Hindustan The views expressed are personal.


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Monday, October 26, 2020

It’s Beijing that will eventually rescue the world from China

V. Anantha Nageswaran


The Zhengzhou Information Science and Technology Institute, judging by the number of publications in which it is cited, is one of the world’s leading centres of computer science and communications engineering. Its scientists have published over 900 papers in major science journals, at times in collaboration with American researchers." Except that it isn’t. The name is a cover for a university that trains China’s military hackers and signals intelligence officers—the People’s Liberation Army Information Engineering University—based in Zhengzhou. Many such priceless pieces of information make The Hidden Hand: Exposing How the Chinese Communist Party (CCP) is Reshaping the World, written by Clive Hamilton and Mareike Ohlberg, an invaluable read.


In India, a study that comes close to resembling the efforts undertaken in that book has been done by Ananth Krishnan. His paper, ‘Following the Money: China Inc’s Growing Stake in India-China Relations’, published by the Brookings Institution India Center in March 2020, is useful. His book, India’s China Challenge is next on my reading list. He wrote, unsurprisingly, that Chinese companies had escaped the kind of scrutiny in India that their investments attracted in the West. That needs rectification, as the “separation between the Chinese state and private business is blurry". Well, that qualifies as the understatement of the century, especially in the light of a recent Chinese government decision to embed party officials in all decisions made by a so-called “private sector" entity.


A speech by Ye Qing, vice-chairman of the All-China Federation of Industry and Commerce, on 17 September reminds us of what Professor Aaron Friedberg wrote: “In today’s China, there is no such thing as a truly independent think tank, foundation, university, or company" (‘An Answer to Aggression’, Foreign Affairs, Sept/Oct 2020). That suggests a path for redemption for the rest of us, and for China too.



The pathology of global hegemony and dominance always reveals two underlying maladies: hubris and insecurity. They seal the fate of empires and hegemons. But for China’s clashes with India in Ladakh this summer, India would not have woken up to the China challenge to the extent it has.


The Hidden Hand suggests that Canada has been ensnared in China’s web, as has Sweden. Zhang Bin, a Chinese billionaire and Communist Party official, donated C$50,000 to Montreal University for a statue of Canadian Prime Minister Justin Trudeau’s father, Pierre. For good measure, he threw in C$200,000 for the Pierre Elliott Trudeau Foundation. But, the remarks of the Chinese ambassador to Canada on the safety of 300,000 Canadians in Hong Kong has undone years of work in capturing mind, body and wallet.



The book reveals that Sweden’s Beijing ambassador Anna Lindstedt was alleged to have aided attempts to silence Angela Gui in January 2019. Angela’s father, Gui Minhai, a Swedish citizen, was working as a bookseller in Hong Kong in 2015 when he was kidnapped by Chinese authorities in Thailand. Sweden has closed down Confucius Institutes and banned Huawei from its 5G network. Similar is the story with Britain, which the authors contend had passed a point of no return because of the CCP’s influence network among British elites. Yet, a UK Parliamentary Committee has concluded that Huawei colluded with the Chinese state.


The Trump administration’s stellar efforts to get the rest of the world to cast off the China spell has clearly paid dividends. However, Trump would not have succeeded without China’s active “cooperation". He may also have to ‘thank’ the Bush and Obama administrations and, of course, Goldman Sachs.



In 2006, Henry Paulson, chief executive officer of Goldman Sachs, became treasury secretary under George W. Bush. He visited China about 70 times during his tenure. Citing Paul Blustein, the book notes that “had he responded more forcefully to Beijing’s currency manipulation, tight control of state-owned enterprises, mistreatment of US enterprises in China, and program of technology theft, then the conditions that led to the trade war might not have arisen". Try too hard and it backfires.


History reminds us that the best antidotes for excess and overreach are excess and overreach. That lesson has eluded many, including China. It’s no surprise that it has eluded Twitter and Facebook. Therein lies the hope.


Finally, America has paid the price for its hubris that the more closely it engaged China, the sooner it would embrace American values, ignoring the possibility that China could ensnare its elites in a web of corruption. Zhigang, a Manchu mandarin, wrote after a visit to America in 1868 that the love of God was less real than the love of profit there (John Pomfret: ‘What America Didn’t Anticipate About China’, The Atlantic). In summary, The Hidden Hand is a tale of not only American but also the Western love of profits bestowed by China.



There is no room for doubt left over what is at stake for America and the rest of the world on 3 November.

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Saturday, October 24, 2020

The absurd need to push school children into software coding

Sugata Srinivasaraju

India’s National Education Policy 2020 (NEP) is an omnibus document. It tries to embrace all the change that it sees unfolding before it. Various keywords that construct and advertise the 21st century have been woven into it. Phrases like “artificial intelligence", “machine learning", “big data" and “computational thinking" are sprinkled around. One of the bridges that it builds to what it assumes to be a damn-sure future is a proposal of lessons in computer coding for middle-school children. Those in class VI, that is, at the threshold of their adolescence.


For some strange reason, the NEP’s proposal for “coding activities" reads like Macaulay’s minute for English education in the early 19th century, when the focus was to develop Indian clerks for the progress of the East India Company and British Empire. However outrageous it may sound, to push children into coding so early in life may be about developing clerks for the digital age. There is nothing wrong in learning something new, but the question is: Should code writing, an act of instructing computers in clipped languages that convert to binary codes, be seen as a basic skill like reading or a life skill like swimming? Or, should it remain a vocational skill, based on aptitude? Coding is not to be confused with computer literacy, which children anyway pick up very early, given the gadgets all around.


It’s not hard to see where the push for “catch them young" is coming from. There is a romance about the Silicon Valley school/college dropout billionaire that has entered our new world mythologies, one that the NEP clearly subscribes to. Examine advertisements from teaching factories that prop up on the social media feeds of parents. Here’s a sample proposition: “Kickstart your kid’s journey to create the next billion-dollar idea of the tech world." It also promises to send “handpicked passionate early coders to Silicon Valley..." The course, it adds, will teach “foundational understanding of logic, structure, sequence, commands and algorithmic thinking." The industry’s campaigning is strong. We may desire many skills that would help our children handle their emotional well-being at that age, but those skills may not receive such a push because there is no industry to promote them. There are no stocks to be traded, nor profits to be made.



Yet, we should have far more serious concerns. Coding, as ads claim, pushes a child towards precision, logic and structures of a binary kind. What if this early training creates a linearity in their thinking patterns that may weaken or erase other ways of thinking? What if it even partially shuts a child’s ability to read the diversity and complexities of human ideas, histories, justice and life itself? In other words, what if coding surreptitiously overrides every other possibility, and flattens the child’s world? Coding is not critical thinking. For that, it would be instructive to read the National Curriculum Framework released in 2005. Coding is technology masked as pure science, which it is not.


The classic question is this: Should we teach our children to be bricklayers in middle school or should we allow them to evolve as architects with a broad overview of the world? It may be better for a child to acquire broader frames of reference to knowledge at age 11 before they get into vocational specifics. In the US, as The New York Times reported in 2017, it was the tech industry that was pushing coding into classrooms. It said Apple chief executive Timothy Cook had brought it up during a meeting of tech titans at the White House: “But even without [Donald] Trump’s support, Silicon Valley is already advancing that agenda—thanks to the marketing prowess of Code.org, an industry-backed nonprofit group", the report said, adding Code.org had raised more than $60 million by 2017 from tech companies.



Consider this. In the 20th century, when manufacturing was in boom, education policy did not think of training kids to be car mechanics. But software and coding has a special cultural context in India, where what we do with our head and what we do with our hands is intricately inflected by notions of caste and class. There is an attempt to stratify skills. In the NEP, electric work, carpentry, etc, find mention as “fun courses".


Kenneth Keniston, the late social psychologist at MIT, told me in 1998 why he was studying the cultural implications of software: “Software is not merely a way of solving problems or writing texts or transferring data, but it also carries implicit or embedded or hidden cultural assumptions." The debut of coding in our curriculum also has deep cultural assumptions.


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Sunday, September 6, 2020

India needs an open capital account by 2025

Harsh Gupta Madhusudan



India's 10-year government bond currently trades around 6%, China 3%, and the US less than 1%. The average of the last two annual (2019 and 2018) GDP deflator: India would be around 3.5%, China around 2.5%, the US around 2%. If India’s average weighted sovereign debt yielded 5% instead of 6% say (still more than the Chinese in both nominal and real terms), then over time the government could spend almost 1% of GDP more on railroads, education and healthcare for the same fiscal deficit. In five years, that would be an annual difference of around $50 billion! My guess is that Indian yields will fall even more.


But it is fair to say that right now both nominal and inflation-adjusted yields follow a clear descending order: India, China and US. That also aligns with their broad sovereign ratings, and the general expectation that governments of richer/developed economies can borrow at lower rates. Indeed per capita income is one of the key factors in bond ratings along with inflation, growth, and debt to GDP ratio.


Focusing on per capita income may make sense because for the same GDP, a smaller population could mean more tax intake since a rich country is likely to have a more developed and formalised economy. But then again, a lower per capita income scenario could also mean higher growth. So, it is not very clear cut.



What is perhaps more interesting to explore is that could a larger absolute GDP, irrespective of per capita income, mean lower borrowing costs? Or more technically, could more sovereign debt - especially in local currency - actually reduce borrowing costs? Of course, GDP still matters as the total debt cannot be completely unlinked from the economy’s size. Also, one has to ignore very small states or chronic defaulting ones.


Now this cannot be easily answered by econometrics because there are not too many large states or economies around. In other words, ‘n’ is small. China and India are the only billion plus populations in the world, and no one else comes close. Other ~$3 trillion or more economies such as the US, Japan, Germany, UK or France already have ‘developed economy’ status and hence near zero or negative borrowing costs.



In fact, recent divergence between Indian and Indonesian yields is partially because of this ‘size’ factor (along with the Indonesian over-reliance on foreign denominated debt). Even the gloom and doom about Chinese debt seems a tad overdone as they have created an entirely new debt category between emerging and developed markets in the mind of some money managers!


Before we continue, I want to comment on what being large means in another economic area: trade. Since the West largely followed free trade over the last few decades for geopolitical reasons as much as economic, the relatively mercantilist approach of China came as a shock to many even though all the now-rich countries had also used this strategy earlier. Which is that when you are relatively large, you can use your monopsony power to implement moderate protectionism and industrial policy to get others to invest to access your markets with the surplus being exported -- in effect reshaping global supply chains.



India is now trying the same. Trade policy that may have seemed silly at $1 trillion GDP (2007) seems worth considering at $3 trillion (2021), especially given excess capacity domestically and globally, and may be even more attractive at $5 trillion (say 2025) though one has to be very careful about the crony capture of industrial trade policy mechanisms. Moreover, at some stage it is rational to switch to evangelising free trade yourself. Let us not get ahead of ourselves though.


But this same $1T-$3T-$5T framework also helps us understand why India now needs to gradually give up its old fears about volatile global flows when the capital account is more open and convertible. In any case, without deliberately thinking about it as such, it is the size of the economy and its current state of development that is making India become less open on trade and more open on capital. The latter needs to be strategically accelerated while the former should be dealt with more tactically.



Now pre-corona or around end of FY20, India’s combined sovereign debt was 70-75% of GDP. Say post-corona, that goes to 85-90% and in an effort to reflate our economy since underlying inflationary pressures are low (going by producer price indices), we take this to 90-95% by FY23. To many, this is sacrilege! The NK Singh panel had recommended this number to be 60% (40% for Union, 20% for states, 2.5% fiscal deficit). One can almost hear Viral Acharya complain while he talks about undemocratic fiscal councils! Of course, those were different times: BC or Before Corona.


Not only is Modern Monetary Theory and Average Inflation Targeting being talked about in New York and D.C. (along with Tokyo and, gasp, even Frankfurt), the up phase of the 15-18 year down and up dollar cycle seems to have peaked in 2020 making this decade much easier to approach an open capital account than the last one, though in some ways also trickier.



In any case with say $3.5 trillion combined debt by end of FY23 or $4.5 trillion by FY25 and with no or much fewer capital controls (thanks to continued building up of foreign exchange reserves, which should not be slowed significantly), who would be in a position to hurt our debt markets? The rupee remains floating and India has never defaulted ---who would even dare to break the Reserve Bank of India? Even the Chinese could not if they wanted to during any future tensions -- we will just print or sell more as needed.


With Indian debt finally being pushed into global indices and India more clearly aligning with the West and Japan geopolitically, now is the right time to bravely reimagine what capital account convertibility could do for India. Not only would the gap between our revenue and fiscal deficits fall, Indian industry and consumers would finally have more rational borrowing costs. With due respect to the great Jagdish Bhagwati who has always been more supportive of free trade over free capital, for India -- at least right now -- the opposite is required.



(The author is an investor and co-author of two books: Derivatives (Cambridge), A New Idea of India (Westland). The views are author's own and do not reflect Mint's)

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Thursday, July 9, 2020

A crash to watch : LiveMint Editorial

According to data issued by the Amfi, net flows into equity funds crashed 95% in June to under ₹240.6 crore, while debt funds had a similar tumble, falling to ₹2,862 crore


Indian stock markets have rebounded from their lows, but mutual funds saw a massive drop in inflows last month. According to data issued on Wednesday by the Association of Mutual Funds in India, net flows into equity funds crashed 95% in June to under ₹240.6 crore, while debt funds had a similar tumble, falling to ₹2,862 crore. A relief, though, was that the money went into systematic investment plans (SIPs), which fell only a marginal 2.4% to ₹7,927.1 crore last month. SIPs make up a large chunk of India’s retail outlay on shares.

Overall, market participants seem to be in a purchase mode. The BSE Sensex rose 7.7% in June. Share prices have been on an incline, a rally that largely seems to be led by foreign portfolio inflows. With cheap money available in the West, it was inevitable that some of it would go into Indian equities. Usually, retail investors join such rallies, even if they look fragile. But this time, many of them seem either short of money or were unwilling to put more of their savings into relatively risky assets. Some have been liquidating their mutual funds to make up for income shortfalls. Others may simply have chosen to book profits.


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Saturday, July 4, 2020

LiveMint Opinion | Importance of insurance sector makes case for independent supervisor

Insurance is a federal subject as it is listed in the Indian Constitution under the 'Union List'. This means that insurance can be legislated only by the central government.

In 1993, with the beginning of liberalisation of the Indian economy, the then government set up a committee under the chairmanship of RN Malhotra, former governor of RBI, to propose recommendations for reforms in the insurance sector. The committee recommended that the private sector be permitted to enter the insurance industry and that foreign companies be permitted to participate, preferably through joint venture with Indian partners. Following the recommendations of the committee in 1999, the Insurance Regulatory and Development Authority (IRDA) was constituted as an autonomous body to regulate and develop the insurance industry.

The IRDA was incorporated as a statutory body in April, 2000. The key objectives of the IRDA include promotion of competition so as to enhance customer satisfaction through increased consumer choice and lower premiums, while ensuring the financial security of the insurance market.


Indian insurance sector

The total number of insurance companies in India are just 58, of which 24 are life insurers and the rest non-life insurers. The other stakeholders in the Indian insurance market include agents (individual and corporate), brokers, surveyors and third-party administrators servicing health insurance claims. FDI up to 49% is allowed in insurance companies while 100% FDI is allowed in insurance intermediaries.

The measure of insurance penetration and density reflects the level of development of the sector. While insurance penetration is measured as the percentage of the insurance premium to GDP, insurance density is calculated as the ratio of premium (in US $) to the total population (per capita premium).

Insurance penetration in India is only 3.7%, compared to a global average of 6%. The life insurance penetration level is only around 2.75% in India, whereas the non-life insurance penetration is less than 1%. Compared to advanced economies, India lags in terms of density. The global average of density is $682 compared to $74 in India; the highest density in the world is in Hong Kong with $8,863.


Indian demographic aspects of the rising middle class, increasing awareness of the need for protection and a young insurable population will drive insurance sector growth over the next many years.

With the formal opening of this sector only 20 years ago, most of the learnings and business assumptions are from the public sector enterprise. While they have served consumers for long before the sector opened up, it would be fair to mention that they served the consumers when it was “licence raj" and pricing & product choice was determined by the government. The concept of inclusion started only when the sector started having competition and more product choices developed. Also this sector historically built the sector as combination of ‘Protection’ product and ‘investment’ product. This issue of treating and even selling insurance products as “investment product" is not a correct one and the industry needs to understand that the concept of insurance is “to protect". Some of these have led to challenges of mistrust between consumers and the industry.


Functions and duties of IRDA:

The critical regulatory & supervisory functions of IRDA, amongst many objectives it is tasked under the IRDA Act of 1999, are:

-protection of the interests of the policy holders in matters concerning assigning of policy, nomination by policy holders, insurable interest, settlement of insurance claim, surrender value of policy and other terms and conditions of contracts of insurance

-calling for information from, undertaking inspection of, conducting enquiries and investigations including audit of the insurers, intermediaries, insurance intermediaries and other organisations connected with the insurance business

-regulating investment of funds by insurance companies

-regulating maintenance of solvency margins

Philosophy of supervision

The regulatory role is to develop any legislation to address the objectives of rule-making for the sector, including promoting innovation in the industry to address consumer needs. Whereas, the supervisory role is to ensure compliance with rules & regulations and to taking punitive action against any breaches.


A well-run supervision should contribute to the wider financial stability. As more issues keep cropping up about the irregularities in the sector or consumer-trust issues, the need for stronger vigilance and supervision is needed.

Due to the complexity of insurance entities and the nature of long-term monies that they handle, it is important to maintain a tight watch over anything that could bring in a systemic impact to the insurance market. Risk-based supervision might help in this need for early warning system of flagging off potential issues. For an efficient and unbiased Insurance supervision, the supervisory body should be empowered with adequate powers; including the ability to revoke licences and / or merge a weak entity with a stronger one, the ability to change key management of an entity.


An insurance supervisory body should have executive independence and should be seen by the stakeholders as a truly independent and fair entity. Without this, the confidence in the sector consumers seeking redressal and the industry entities wanting to share their learnings would drastically reduce. Also for a good supervisory body, the ability to take punitive action is critical. In short, the stakeholders should see the supervisory body as having authority and the willingness to take bold decisions; which in turn, builds their credibility and reputation.

Supervisory independence:

As a best practice, in case of unified regulatory & supervisory bodies, the teams that handle supervision (which is almost an audit function) are not involved in rule-making function. A strong sense of collaboration between the supervisory and regulatory functions is prime.


Supervisory independence is the core idea for any independent financial supervisor. And to achieve its role, it needs to safeguard the integrity of the supervisory function. An insurance supervisor should be independent in deciding enforcement actions based on rules-based interventions, and for this, statutory protection of supervisors should be established. Supervisory independence should have adequate legal protection for the supervisory cadre and also from political and industry persecution, to ensure that they can take action without fear of legal action being taken.

Case for new-age talent & new-look supervision

From regulatory body’s institutional vintage perspective, IRDA is quite young and has done tremendous work in the short time. It’s also short-staffed to handle the size of potential consumer grievances, given the wide geographic reach, volume of insurance holders and the complexity of this specialised sector.


It is but natural, in early stages of its presence, for a regulatory & supervisory body, to have a large amount of expertise available from those experts, who built this sector as part of the state owned entities. As the industry expands , it would need more openness, in learning from across the industry players and to building additional capability in supervision. The supervisory body needs to invest in latest digital technologies and to keep pace with the industry players. It needs to have global connectedness with insurance regulators around the world as India allows more foreign players to invest into the insurance sector.

This is a good time to bring the concept of separate supervision vertical or to outsource supervision to outside entity owned by the government, when the insurance sector is set to increase its business volumes and the assets under management of its premiums collected. It would be easier to make the switch now when the industry is at the cusp of growth. With bulk of the insurance companies based out of the commercial capital of the country, it might also be efficient to have the supervisory teams located out of Mumbai. A good supervision is not just routine inspection but also advance indications, which being based in commercial capital could help with market inputs and chatter.


The Human Resource initiatives and capacity building generally takes a long time to be efficient, if it is organic way of nurturing those skill sets. IRDA should invest in enhancing its bench strength. Being a regulator and supervisor of a critical sector that is essential part of the Indian financial stability, it is critical to have sufficient number of experts from various functions in its talent pool. It cannot afford to have lesser than requisite talent. Institutionally it might be the right time to allow for lateral hires to bring in requisite skill-set that are unique and contemporary. It has been observed that cross-pollination of talent between regulatory bodies & industry entities, has added value across the sector, as long as nepotism is not allowed.


A recent example of separate regulation and supervision done by separate entities is that of RBI regulating housing finance sector while the National Housing Bank (NHB) supervising the industry. IRDA might want to explore such an idea as an alternate to the option of having policy development vertical separate from supervisory inspection vertical.

To having an independent approach to supervision and regulation, to addressing growing complexities, size and inter-connectedness of larger financial system, and dealing more effectively with potential systemic risks that could arise due to possible supervisory arbitrage and information asymmetry, it might be prudent to have a separate insurance supervisory organisation.

(The author is an independent markets commentator. The views expressed in this article are his own)

Courtesy - LiveMint.
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India’s snappy I-Day vaccine : LiveMint Editorial

The novel coronavirus has left the world reeling. It acquired pandemic proportions in February, and has convulsed the global economy since. Even as fears of contagion continue to stalk societies in badly hit countries, such as India, scientists and labs have scrambled for a vaccine. Hopes were pinned on Oxford’s clinical trials, an exercise expected to offer corona relief only by year-end or so—the earliest it could get a go-ahead if all went well. On Friday, news broke that the Indian Council of Medical Research (ICMR) was aiming to launch a vaccine jointly with Bharat Biotech by 15 August, much earlier than anyone had anticipated.

In what seemed like a leaked internal ICMR memo, the state-run agency’s head Balram Bhargava said that a vaccine for public health use was envisaged by August 15, “after completion of all clinical trials". This timeline looks either unrealistic or excessively rushed. Every vaccine must be tested thoroughly and widely for safety and dosage efficacy, step by step over months, and this process cannot be fast-tracked without risking a medical mishap. Little wonder, then, that experts have raised eyebrows over this state-backed joint venture. The national significance of the target date does not help win much confidence in the project either.

It may actuallybe doable, for all we know. Maybe British standards are too cautious. But, still, ICMR should consider opening up all its trial records to scrutiny. Let there be peer review. A vaccine is too important a matter for suspicions to arise of corners being cut in a quest for glory.

Courtesy - LiveMint.
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