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Showing posts with label The Economic Times. Show all posts
Showing posts with label The Economic Times. Show all posts

Tuesday, December 1, 2020

Dispense with the category of promoter (The Economic Times)

Sebi has come out with a discussion paper on reclassifying promoters as public shareholders in certain circumstances. In fact, it is desirable to dump the nomenclature promoter altogether. The real issue is control and who wields it. ‘Promoter’ is a relic from the specificity of India’s industrialising past. As the Sebi discussion paper points out, once a promoter, always a promoter, because the rules and regulations deem it so. People acting in concert to acquire and exercise control is a relevant category. Promoters are vestiges of vestigial glory that modern companies can dispense with.

The same goes for promoter group as well. People acting in concert constitute a more coherent and empirically verifiable grouping. That category would fully overlap with a promoter group exercising or trying to exercise control and extend to others not covered by the term promoter group but relevant in the context of gaining or exercising control. In a company that has grown, expanded and diluted its capital significantly, the badge of promoter simply serves to give some individuals the opportunity to wield control and access information in excess of what their shareholding warrants. That the promoter is more a cultural hangover than an economic category is evident, when we compare ‘founders’ of startups and their evolution in the companies they set up, as the companies grow and expand. They might wield considerable moral authority but cease to be material figures in the running of the company once they have ceded control to professional managers, after having, in many cases, moved on to founding other enterprises. Other providers of capital do not hold them in awe, nor do their family members expect exalted treatment from the company’s professional managers.


‘Promoter’ is inseparably mixed up with ‘personal guarantee’ of directors and the culture of eviscerating limited liability that has marred India’s credit practice. The one should follow the other into that place where stone tools, droit du seigneur and fax machines have disappeared.

Courtesy - The Economic Times.

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Justice for the panel, not just an anchor (The Economic Times)

Last Friday, after stating that, prima facie, the preliminary evaluation of the FIR against Arnab Goswami didn’t establish any charge of abetment to suicide, the Supreme Court extended bail given to the TV anchor earlier. That the court had overruled the Bombay High Court denying bail in less than two days was reassuring. As was the larger point made that courts must ensure the State doesn’t use ‘criminal law as a tool to harass or jeopardise liberty’ of citizens. Now, what’s sauce for the Goswami must be sauce for the gander.

Siddique Kappan, a Kerala journalist, for instance, who had gone to cover the Hathras alleged rape and murder case in UP, was arrested in Mathura on October 5 — under Unlawful Activities (Prevention) Act (UAPA). The Supreme Court deferred that case on October 16 stating there was a ‘spate of petitions’ under Article 32 — relief for human rights violations — pending before it, and that it was trying to ‘discourage’ them. This ‘discouragement rule’ was rightly swept aside for Goswami. Now, it should be removed for all. Prashant Kanojia, a Delhi journalist, was arrested in August by the UP Police for a Ayodhya-related tweet. He got bail only two months later. Kashmir reporter Aasif Sultan was arrested in August 2018 for reporting on insurgents. He has spent 800-odd days in jail while his trial drags on since June 2019.


Regular arrests, jail without bail and other forms of harassment faced by journalists attack a very basic notion of freedom in a democracy and is a severe reputational setback for India. And, high courts haven’t always been on the side of liberty either. The Supreme Court must step in, and clearly enunciate first principles that define a democracy.

Courtesy - The Economic Times.

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Monday, November 30, 2020

Yes, What the Doctor Ordered, Gov Das (The Economic Times)

RBI governor Shaktikanta Das spoke last week on the need for accelerating financial market reforms. It is imperative to do so, to bring about better allocation of resources, mitigate financial risks, and boost transparency across the board. And the way forward is to policy-induce a vibrant corporate bond market, and also put in place a thriving fintech ecosystem. Fintech should be seen as an integral part of financial reform, not just to broaden access but also to improve the quality of mediation. As the governor noted, domestic financial market reforms have traversed a long distance since the pathbreaking 1990s.


The market for government securities has become broad-based, deep and liquid. Yet, while corporate bond issuance has significantly increased in recent years, the vast bulk of it remains privately placed and simply held to maturity. Hence the pressing need for an active and liquid corporate bond market, to shore up transparency in the allocation of funds for big-ticket, long-gestation projects, and also for routine market oversight of the assets. In tandem, what’s required is to complete the markets for better management of currency, interest rate and credit risks.


Banks can now deal in the offshore rupee derivatives market. Norms for foreign portfolio investors have been eased. But financial reforms remain wanting. For instance, while the interest rate derivative market has grown, it remains confined to one product, the Overnight Index Swap, and to a small set of participants.


The recent passing of the Bilateral Netting of Financial Contracts Act, 2020 should rationalise capital exposure for derivative contracts. It could boost the market for Credit Default Swaps, and provide insurance for corporate bonds.

Courtesy - The Economic Times.

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Talk to Farmers, Resolve Dispute (The Economic Times)

The government should not make the farmers’ protest venue a factor in engaging with them, as farmers from Punjab and Haryana in large numbers crowd the outskirts of Delhi, to protest against the three recent farm laws that promise to change the contours of farming for the better.


The prime minister was spot on when he noted, in his monthly radio address to the nation, that every party has contemplated such legal changes to improve the lot of farmers. All the more reason to meet up with farmers’ unions and explain the rationale behind the changes and assure them that farmers would be no worse off as a result of the change to the legal framework of agri-trade in the country.


Farmer unions are different from political parties that oppose reforms because they are not the ones to implement them. There are two reasons for urgency in settling the dispute. One, thousands of people milling around in close quarters is a Covid threat of major proportions. Not just participants in the protest but their families, friends and associates are at risk and those who, in turn, interact with them.


Two, the recently released data on second quarter GDP growth brought out an anomalous feature of the ongoing recession: even as the economy is tanking, prices are on the upswing, contrary to prices and economic growth moving in the same direction in the normal course. Supply disruptions and movement restrictions on produce are part of the reason for this development.


Farm prices are a major determinant of monetary policy in India, and it would be most unfortunate if undue rigidity in negotiating with farmers led to the choking off of a variety of farm produce, a spike in food prices, pushing up the consumer price index that guides monetary policy and, in consequence, elevated interest rates at a time when growth revival calls for lower rates. Further, the Centre should refrain from kneejerk measures such as banning onion exports, if it wants to sound credible when it says that the market orientation of farming would raise farmers’ incomes.

Courtesy - The Economic Times.

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Saturday, November 28, 2020

Can’t afford to lower guard against Covid (The Economic Times)

Success of vaccine trials is good news — for the future. It is not licence to abandon Covid protocols. Till the vaccine is available and a sizeable proportion of the population inoculated, the Covid-era behavioural protocols must be observed.


This is the only way to protect individuals and the collective. There is a need to rethink funeral processions, marriages, protests, celebrations and even how we queue up for public transport.


This week, we witnessed the protests by farmers from Punjab and Haryana. Large groups of people, many of them maskless, gathering, clashing with police, not observing any of the social distancing norms. The right to protest is an inalienable right, but it is the duty of every person not to endanger the health, well-being and life of others. 


Or take the funeral procession for former Assam Chief Minister Tarun Gogoi, who passed away from Covid-related complications. It is expected that people will want to say their final goodbyes to a respected leader or a celebrity, but pandemic requires us to be responsible, often forcing family members to forgo their final goodbyes to their loved ones. It is incumbent on those responsible to avoid situations of mass vulnerability.


Leaders, beginning from the local level, and celebrities need to step up and reinforce Covid-appropriate behaviour. Individuals must strictly adhere to Covid protocols of using masks and social distancing, even in public places. They must do this for their own safety, that of their families and loved ones, the community and the country.


The pandemic has required everyone to make sacrifices, and these sacrifices have been necessary to minimise loss of life and suffering. A vaccine may be within reach but now is not the time to throw caution to the winds.

Courtesy -  The Economic Times.

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GDP: Emerging from Covid slump (The Economic Times)

The good news from GDP numbers for the second, July-September, quarter is that economic contraction has come down to 7.5% from almost 24% in the first quarter.


To contain contraction for the year as a whole to 10%, the fall in GDP for the second half of the fiscal must be contained at 4.5%. The growth that is underway is more than likely to achieve this target, assuring that negative growth for 2020-21would be well below 10%.


Especially if the government makes good on its stimulus promises. A word of caution, though. The pick-up in economic activity in September and October that was led by pent-up festive demand has moderated since. 


The growth in electricity consumption, labour participation and eway bill volumes has softened a shade. This strengthens the case for a stimulus all the more, to sustain momentum. The difference between nominal and real GDP growth is a measure of economy wide price changes.


It is somewhat troubling that this has been a positive 3.5% even as the economy contracted. The change in the wholesale price index has been only 0.9%. Cascading fuel taxes and lockdown-related logistical bottlenecks could be responsible for rising prices in the midst of an economic slump and declining pressure on the currency, thanks to moderate global crude prices and a compression of the current account deficit.


There must be no more talk of lockdowns, and restrictions on movement of goods must be avoided in toto. Gross fixed capital formation as a proportion of GDP, in current prices, has, at 25.7%, recovered from Q1’s disastrous 19.5%, but is still below the levels we saw last fiscal, these themselves being well below the desirable 30%-plus. This, too, brings us to the need for another strong dose of government-led investment.


Expenditure on public administration, defence and other services declined in Q2, compared to Q1: 11.9%, compared to 19.1%. While the tendency is for individuals to cut expenditure when revenues dip, governments cannot afford to follow that logic. It is their job to make countercyclical interventions.

Courtesy -  The Economic Times.

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Friday, November 27, 2020

Pre-packaged: Viable route to insolvency (The Economic Times)

The Insolvency and Bankruptcy Board’s proposal to allow companies to withdraw from the process of voluntary liquidation is pragmatic. It will facilitate revival. This also makes the case for a pre-packaged insolvency resolution all the more compelling. Pre-packs entail a debtor-initiated reorganisation plan beforehand with creditors on board instead of a financial bidding process for resolution of the company admitted in the insolvency court. This will help speed up resolution and ease the burden on the National Company Law Tribunals.


In the US, the pre-pack plan takes effect once the company enters Chapter 11 that allows for a voluntary appeal by the debtor to be given a chance for a turnaround that the bankruptcy court can grant, if found feasible. The incumbent management retains control of the company until a final agreement is reached, thereby maintaining business continuity. India is weighing the UK system of bringing in a group of professionals to review the plan, which could include the sale of assets. It will make the process more transparent and ensure a market-based price discovery. The appointment of an insolvency professional to oversee the pre-pack process is workable too. Restructuring as a going concern would require operational creditors to be paid.


About 52% of the Corporate Insolvency Resolution Processes that were closed yielded orders for liquidation, compared to just 13.6% ending up with a resolution plan. Successful restructuring to turn around the company, rather than liquidation, underscores the need for the government to swiftly amend the law to allow pre-packaged plans. It would also enable the debtor to negotiate concessions with vendors, improve the health of banks and get the wheels of the economy moving.

Courtesy - The Economic Times.

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Vexatious Dragon, Resolute India: Strong India, to keep China’s rise peaceful (The Economic Times)

It is going to be a long and hard winter on the northern front, given that disengagement talks have stalled over Beijing’s demand that India vacate heights in Chushul and aggressive patrolling in Bhutan. But India cannot flinch, not just for India’s own security but for the world’s security as well. Global powers should be reminded, if such a reminder were required, that Beijing would feel free to flex its muscles across Asia and beyond, were India to buckle under China’s pressure. As US President-Elect Joe Biden prepares to take office, his team should recognise India’s role in an effective China strategy.


President Donald Trump took on China on the trade front, but also staged an America-first retreat from global leadership, giving Beijing the room to set its expansionist agenda in motion. As the Biden administration works to reasserting US leadership, it must evolve a China strategy that recognises this threat and work with allies and partners to strengthen the liberal world order. India’s role in this partnership is critical. A long, unsettled boundary with China, Chinese illegal and unlawful occupation of Indian territory, aggression in the South China Sea, and Beijing’s diplomatic cover for Pakistan’s use of terror as an instrument of strategic depth, whether in India or in Afghanistan — all give India a strong reason to face up to Beijing. India has done well to consolidate the partnership with the US, Japan and Australia, constituting the Quad. As the Chinese endeavour to convert Beijing’s debt leverage over nations in the Indo-Pacific into distributed access to military facilities, not just the Quad but also the EU and Britain must pool financial and diplomatic resources to help the nations indebted to China to stand up to pressure.


At the same time, the world, including India, needs to engage with China on subjects like climate change and proliferation of dual-use technologies, to make the world more secure. Strength and resolve on India’s part must be matched by the liberal world’s active solidarity.

Courtesy - The Economic Times.

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Thursday, November 26, 2020

Make use of successful coal auctions

The response to India’s maiden auction of coal blocks for commercial mining seems to have been fairly good: of the 38 blocks up for auction, 19 received multiple bids, and were successfully auctioned. We need to speedily operationalise the mines, step up efficiency in coal beneficiation and transition to net zero emissions along a low-carbon path.


The 19 blocks have a combined peak-rated capacity of 51million tonnes (MT) per annum. Domestic coal output is about 700 MT, but we also imported nearly 200 MT of coal in 2019, the bulk of it non-coking steam coal readily available in our large reserves.


The heavy reliance on a coal monopoly for years has clearly stultified production, and at a huge national cost. Note that coal imports add up to over Rs 1.5 lakh crore annually. The target is to raise domestic coal output to just over 1,100 MT by 2023. In tandem, we need to gainfully boost capacity for coal beneficiation at pitheads and streamline evacuation for heightened productivity in supply.


In the auction, 76 bids were received and revenue share was the bidding parameter. As many as 65% of the bidders were from non-end-user sectors such as real estate and infrastructure.


The way ahead is to have independent regulatory oversight for coal mining. In parallel, we need to proactively raise thermal efficiencies in power, steel, cement and other coal-intensive sectors, with fast-paced diffusion of high efficiency coal technologies such as coal-gasification combined-cycle plants.


The US-India Strategic Energy Partnership needs better leveraging, to gain from the US Department of Energy’s Coal FIRST (Flexible, Innovative, Resilient, Small, Transformative) initiative to develop 21st-century energy systems, including via coal gasification.

Courtesy - The Economic Times.

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Make good use of capital inflows (The Economic Times)

The government’s move to add to the equity capital of National Investment and Infrastructure Fund is welcome, as it would allow that institution to mobilise additional capital with which to implement new projects.


As the Biden transition in the US moves ahead smoothly and the US economy’s growth trajectory reveals itself to be less disastrous than feared, investor confidence returns and fund flow resumes in earnest to emerging markets such as India. The additional liquidity created to combat the Covid-slump will add to the volume of these flows.


For India to absorb these funds into the real economy, instead of suffering harmful asset price inflation, a slew of projects must be implemented that would add to the nation’s infrastructure, spending some of the foreign exchange inflows on imports.




RBI has been compelled to keep buying dollars, as cross-border portfolio flows and direct investment accumulate. India’s foreign exchange reserves stood at $572.7 billion on November 13. The reserves have gone up by over $4 billion in just one week, $95 billion since end-March, and $124.5 billion over the year.


This year, India could end up with a current account surplus, further adding to the pile-up of dollars. The export-weighted real effective exchange rate of the rupee has been creeping up, despite RBI’s valiant efforts to prevent export-corrosive appreciation of the rupee, by purchasing dollars as they flow in.


Dollars need to be spent on raw materials, capital equipment and intermediaries that add to India’s productive capacity, raise output, productivity and exports. Direct investment inflows go generally into fresh capacity or brownfield expansion, unless it is for takeover of a domestic company with no immediate plans for expansion.


Portfolio inflows bring in additional liquidity, putting upward pressure on interest rates as RBI sterilises the rupees released while purchasing dollars. The additional liquidity must find its way into new capital formation, by means of accelerated project implementation.

Courtesy - The Economic Times.

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Tuesday, November 24, 2020

Contain Covid, not economic growth (The Economic Times)

Even as the nationwide tally of fresh coronavirus cases is trending down, there are regional surges of Covid-19 and that is being met with the kind of response that India needs to avoid — lockdowns and curfews. While in absolute numbers, India has the third-largest number of Covid infections, behind the US and Brazil, relative to the population, the incidence of the disease and resultant casualties are low in India, as elsewhere in South Asia. The strategy to check the disease must rely on testing, treating those infected and quarantining their known contacts, while allowing the rest of society to get on with life.

In terms of the economic damage wrought by Covid, India is one of the worst-hit among major economies, the pandemic wiping out about a tenth of the nation’s GDP. Even if India were to grow in 2021-22 at the same rate as at which the economy declines in 2020-21, GDP at the beginning of 2022-23 would still be lower than what it was in 2019-20. This must have a bearing on the strategy to contain the pandemic. When large numbers of people live at the margins of subsistence, loss of economic opportunity can swiftly translate into loss of lives and severe degradation of the quality of life, regardless of the direct impact of the pandemic. Tax revenue for the Centre and the states combined just a little over 17% of GDP, economic woes can amplify fiscal frailty and compromise government action to act against the pandemic and provide relief to the pandemic-affected. Conserving growth and economic activity must be a prime goal of governments at the Centre and in the states when they tackle surges in the disease.

The RT-PCR test developed by IIT-Delhi, which costs a few hundred rupees and gives a result in three hours, must be deployed extensively. Mask wearing, social distancing, sanitisation and personal precautions must be evangelised and enforced. Ad-hoc intensive care units must be improvised to augment capacity. Focus on containment and treatment of Covid, instead of choking off economic growth.

Courtesy - The Economic Times.

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Marriage is a private enterprise (The Economic Times)

Rajasthan BJP chief Satish Poonia is quite the communist. His understanding of marriage as being ‘not just an individual choice, but also encompassing approval of religion and society’ is as good a promotion of the collective over the individual as any Stalinist’s. Don’t let his mention of religion make one think otherwise. It is about finding the notion of the private business of two partners unacceptable, and insisting that society at large — religion being one part of it — has to be an active stakeholder in any private enterprise.

Poonia’s ‘critique’ is specifically a defence of state laws being planned in Madhya Pradesh, Haryana, Uttar Pradesh and Karnataka against marriage of Hindu women to Muslim men —the idea of such an activity followed by conversion to Islam being ‘foisted’ on Hindu women, or being ‘tricked’ into it, forming the pillar of this intended paranoia-fuelling law. In Article 25 and 26, the Constitution equally entitles all persons the right to freely profess and practise their religion, and manage their own religious affairs, so long as they stick to the law. The Special Marriage Act, 1954, allows two individuals irrespective of their faith( s) to marry, without renouncing their individual faiths if they choose.


There are too many instances of ‘community’ resistance to such legitimate, lawful unions leading to illegitimate, illegal practices like ‘honour killings’. It is the duty of the State to protect individuals against such mob sentiment presented under ‘our culture’, not to goad them on. A marriage is not a matter for a commune, khap, jamaat or tribunal; it’s a private matter between two people who seek, at best, society’s sanction. A senior member of a right-liberal party should understand that.

Courtesy - The Economic Times.

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Thursday, November 19, 2020

Don’t be scared of love marriage (The Economic Times)

It may be fallacious to presume what exactly has made the state governments of Madhya Pradesh, Haryana, Karnataka and Uttar Pradesh have sleepless nights and decide that they need to bring in a law to ‘tackle’ conversion of Hindu women to Islam.


Is it marriage to Muslim men, with its deeper notions of ‘cultural purity’ being diluted, or worse? Or is it the act of conversion to Islam, making the marriage merely a means to a bigger conspiratorial, demographical end? Or both? Madhya Pradesh — still an undisputed part of India that constitutionally protects the right of every Indian and (non-Indian) resident of India to practise any religion she chooses —seems to be ahead among petrified states. The shaitan here, too, lies in the perceived details. The state plans to bring in the Dharma Swatantrya Bill 2020, under which ‘coercing someone into marriage by cajoling or pressuring will be made punishable by five-year rigorous imprisonment’. For voluntary conversion for marriage, an application will have to be made a month in advance. Liberty to choose one’s life partner, in other words, is for a babu to grant or refuse.

Haryana home minister Anil Vij has included ‘tempting someone… or trying to do so in the name of love’ as coercion. Does this include buying flowers or saying sweet nothings? Religious conversion is a ‘free market’ choice, protected by Article 25 that inherently provides the right to profess any religion of one’s choice. By using rather alarming terms associated with Islamic ‘striving’, visions of a vast conspiracy that isn’t here are being conjured up. The secular central government should firmly ‘suggest’ that state governments put a lid on this extreme form of ‘arranged marriage’. We are in India, not Pakistan.


Courtesy - The Economic Times.

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Now that LVB is out of harm’s way (The Economic Times)

At the outset, let us be clear that a troubled Lakshmi Vilas Bank (LVB) merged with another bank strong enough to recapitalise it adequately is better for the banking and payments systems of India than a bank continuing to flounder.


That said, was the amalgamation with Singapore-based DBS (via an Indian subsidiary) wiping out the equity of existing shareholders the best option possible? Unless the Reserve Bank of India (RBI) clears the air, existing shareholders of the Karur, Tamil Nadu-based bank will continue to feel sadly let down. True, there were some sharp operators among the bank’s new crop of investors, who probably deserve what has come to them, but its traditional shareholders should have got a better deal.


It is possible that the government wanted to send multiple signals through the move: one, that India remains attractive to foreign direct investors; two, that a foreign bank that sets up an Indian subsidiary, instead of operating through a branch in India without a separate capital structure of its own, is welcome to buy out Indian banks, complete with their extended branch network; three, that the government is capable of solving a banking problem without putting taxpayer money at stake; and, four, India might have opted, at least for the time being, to stay outside the newly launched trading bloc, Regional Comprehensive Economic Partnership, but remains committed to deepening financial ties with Asia, particularly, the Association of Southeast Asian Nations, of which Singapore is a leading member.


LVB has some 560 branches. This is a valuable asset. It could hold enormous attraction to other foreign banks as well, apart from DBS. It would have been worthwhile for RBI to sound them out, besides potential Indian investors.


Why, for example, was Clix Capital deemed an unworthy suitor? RBI would do well to abandon its old-fashioned stance that, for a regulator, silence is golden. It should state its reasons for taking a drastic step such as the present one. Arbitrariness in a regulator is not good advertisement for a how investor-friendly a country is.


Courtesy - The Economic Times.

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Tuesday, November 17, 2020

Damage truculent Trump wreaks abroad

US President Donald J Trump’s refusal to concede that he lost to his rival Joseph R Biden Jr has disrupted the practice of peaceful transition after elections from one administration to the next. That matters. With his refusal to accept that he has lost the election, President Trump is undermining democracy not just in his country, but far beyond, especially in places where democracy is of more recent vintage and often fragile.


This propensity of politicians in mature democracies to question the election process and institutions when outcomes are or appear to be unfavourable is unfortunate. While their target is their political opponent, their questioning of the integrity of the electoral process and the refusal to accept an adverse verdict serve to undermine not the opponent but democracy. The system, be it in the US or any other democracy, is far from perfect. Every now and then, it throws up a result that shakes up the system, not always in a good or desirable way.


Questioning the system simply because it delivers a verdict that is not to one’s liking is not acceptable. The harm done is incalculable when the person doing the questioning is the president of a democracy that is more than 200 years old. It bolsters authoritarian regimes and those subverting democratic norms. It undermines fledging democratic efforts.


A big difference between polities that have gone farther down the road towards democratic maturity compared to nascent democracies and the rest is how developed their institutions are and how resilient these stay under overbearing but popular leaders. There is little doubt that, in the US, these institutions will work and that, come January 20, President-Elect Biden will become President Biden. That must not be lost sight of.

Courtesy - The Economic Times.

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India is better off joining RCEP

Now that the Regional Comprehensive Economic Partnership (RCEP) has been formally launched without Indian participation, it is vital that New Delhi join the world’s largest trade bloc sooner rather than later. This is not just because gains from trade are significant but also because membership is a prerequisite to having a say in writing RCEP’s rules to safeguard India’s interests and the interests of several countries that are too small to stand up to the largest member, China. That would be a strategic error.


After all, opting to stay out of RCEP would mean passive acceptance of the trade pact’s norms, and worse. Indian goods and services would face mounting trade and non-trade barriers in the entire Asia-Pacific, even as our competitiveness takes a beating from a lack of economic openness. In the world’s most dynamic region, 15 nations have now signed up for RCEP: the 10-member Asean group, plus their free-trade partners, China, Japan, South Korea, Australia and New Zealand. India does have a free trade agreement with Asean, for both goods and services, but we did opt out of RCEP talks last November, citing ‘significant outstanding issues’. New Delhi surely needs to be more forward looking in terms of trade and openness. Note that RCEP nations already account for about 30% of the world’s economic output, and the figure is likely to grow substantially in the next 2-3 decades. And Indian economic growth would clearly be suboptimal without purposefully leveraging Asia-Pacific demand.


It would be a while before RCEP is officially ratified, and longer still for country-specific tariff reductions to be fixed. Services are outside RCEP — all the more reason for India to be in RCEP and seek access in services. Keeping environmental and labour norms outside RCEP might seem smart, but would deny companies of RCEP members easy access to Europe and the US. Intellectual property (IP) norms are included, and it would be very much in India’s interest to seek transparency in IP and ‘rules of origin’ issues in RCEP.

Courtesy - The Economic Times.

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Monday, November 16, 2020

Higher minimum wages to boost demand

In the US elections, Florida voters approved 60:40, a proposal to raise the state’s minimum wage rate to $15 an hour by 2026. President-elect Joe Biden supports an increase in the national minimum wage, unlike Trump. In high-income economies, a national minimum wage policy does raise incomes of low-wage workers, given better enforcement and governance standards. It also increases demand, with the propensity to consume higher at lower income levels. And that is crucial in the pandemic-struck economy.

Florida is the eighth state in the US to raise its hourly minimum wage to $15. The change would be incremental. Employers are required to raise the minimum wage, currently $8.56, annually by $1 for the next several years; once the $15-mark is reached, subsequent wage hikes would be inflation-adjusted. In the past, free-market economists like Milton Friedman have argued that a national minimum wage would lead to unemployment as firms would be unable to pay workers.

But empirical evidence suggests otherwise. Britain, for instance, has had a national minimum wage policy since 1999, but the “effect on unemployment has been negligible”. Britain also has a much lower minimum wage rate for under 18s, a higher rate for 21-24-year olds, and the full minimum wages for those 25 and above. The Indian Constitution defines a ‘living wage’, and we have the Minimum Wages Act, 1948. Minimum wages are fixed state-wise, given huge disparities, which are mostly above market rates. But compliance has been weak, as abundant underemployed farm labour depresses wages. This constrains aggregate demand while hurting welfare.

Courtesy - The Economic Times.

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Covid is not the lone killer disease

The nationwide figures for fresh Covid cases are on the decline. However, there are regional surges, with increasing pressure on hospital capacity, particularly, for beds in intensive care units. In Delhi, the government has ordered reserving 80% of ICU beds for Covid cases. This is wrong.


If people with non-Covid diseases require intensive care, they would have nowhere to go. Considering that the number of ICU beds in place are calibrated to the demand for ICU beds in non-pandemic times, pre-empting 80% of ICU beds for Covid patients is going to place a severe shortage of intensive care facilities for non-Covid patients. Mortality could rise sharply, although not on account of Covid.


Covid is a relatively shortlived emergency, which would last till some 60% of the population is vaccinated or even before that, if the population acquires herd immunity in the natural course. The hospital capacity needed to tackle its requirements must be improvised, as the equivalents of field hospitals. As happened in different places, indoor stadia or schools can be converted into hospitals with ICUs.


Since hospital capacity across the land is grossly inadequate, if some swift construction of hospitals is undertaken in areas well-connected to large towns but not necessarily within them, they could cater to both the pandemic emergency and normal requirements thereafter. There is little point in adding permanent ICU beds in a city already well-endowed with such beds. If the fresh hospital capacity comes up in the hinterland that normally sends patients for critical care to the city, some reverse flow in pandemic times would make perfect sense.


What we certainly do not need is any more lockdowns —total, partial or localised. Recommended precautions such as social distancing, wearing masks and frequent handwashing could be supplemented with possibly beneficial measures such as inhaling steam and gargling with salt water that works with the normal flu or cold virus. Mask wearing has to be mandated, evangelised and enforced, everywhere.

Courtesy - The Economic Times.

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Friday, November 13, 2020

Stimulus 3.0: Good, Odd, & Not Enough

The good thing about the stimulus package announced by Finance Minister Nirmala Sitharaman on Thursday is that the government is open to the idea of a stimulus. But it would have been much better news had immediate impact not been limited. Of ₹2.65 lakh crore support announced on Thursday, ₹1.46 lakh crore is for the production-linked incentive (PLI) scheme, whose funds will trickle into the economy over a period of years, meaning the current stimulatory effect is slight. The ₹6,000 crore equity infusion in the National Investment and Infrastructure Fund’s (NIIF) debt platform is, again, a good idea, for the future. Its immediate impact is slight. The ₹65,000 crore increase in fertiliser subsidy is puzzling: why increase input subsidy when market-oriented farm reform calls for expanding generalised income support and investment in farm and farm-market linkage infrastructure? And how does that stimulate the economy?


The additional outlay on rural employment is a genuine boost to rural consumption, the outlays on housing and industrial and defence infrastructure would add to investment. More income-tax breaks for housing will skew saving choices in favour of one kind of saving, which is suboptimal. The ₹3,000 crore for project exports could also help in the medium term — India’s credit lines to foreign countries have a track record of taking forever to translate into disbursals. The rozgar yojana is well-intended but needs to be supplemented. But it has flaws. It should have been more thought out so as to ensure that employees are unable to siphon money in the form of a scam. The extension of the emergency guaranteed credit scheme for micro, small and medium enterprises (MSMEs) is welcome, but not the retention of the conditionality that has constrained loan eligibility.


The economy is in recession. It needs investment, not subsidy tweaks. State-funded and State-guaranteed investment in shovel-ready projects is the priority. Let’s have some real action, please.

Courtesy - The Economic Times.

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Kudos, RBI, for the new Activity Index

It is welcome that the Reserve Bank of India (RBI) is essaying real-time data analyses for more-accurate forecasting and better-informed policymaking. Its latest monthly bulletin presents an Economic Activity Index that incorporates 27 high-frequency indicators to gauge the dynamics of growth and output.


The maiden attempt at constructing a composite and dynamic economic index for India needs to be fine-tuned, to duly optimise policy decisions. The number-crunching reveals quick recovery in manufactures post-Covid lockdowns; however, contact-intensive sectors like hospitality remain stressed. Leading central banks have lately been using new econometric modelling techniques and computing power to integrate continuously flowing information into their forecast models. And RBI has now followed suit to ‘nowcast’, or conditionally forecast, the current quarter growth by factoring in real-time activity across sectors to identify consistent economic patterns.


The idea is to use machine learning tools and artificial intelligence to project GDP numbers going forward, taking into account high-frequency data releases. The 27 indicators include the monthly Index of Industrial Production, rail freight, tax collections, oil prices, power supply and steel output, besides Purchasing Managers’ Indices. The omission of the Google Mobility Index is odd. There has to be a greater focus on GST data, apart from gross collections.


Growing digitisation lends itself to more and more sophisticated analytics. The new index needs to be standardised, formalised and continuously constructed to be useful for policy purposes. It is time the Central Statistics Office identified a set of leading, concurrent and lagging economic indicators to project growth.

Courtesy - The Economic Times.

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