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-Rajeev Kumar (Editor-in-chief)

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

Tuesday, March 23, 2021

Trishul Against Covid: Jab, Open Shop, Mask (The Economic Times)

Quick takes, analyses and macro-level views on all contemporary economic, financial and political events.


To stop eating to avoid being poisoned is a path to suicide. Lockdowns have the same effect, not just on the economy but on its very ingredients: livelihoods and lives. With vaccination underway, there are three major impediments to keeping lives and livelihoods safe — one, shutting down, or severely restricting, means of earning; two, creating a lag between those vaccinated and those yet to be jabbed, the latter running a higher risk of spreading the virus; and three, non-implementation of the two safety measures of mask-wearing and physical distancing.


The direct effects of lockdowns are devastating — income losses, businesses grinding to a stop or slowing down calamitously. Lockdown is throttling by policy. On the vaccination count, India simply has to crank up production and delivery. As Narayana Health chairman Dr Devi Shetty insists in a ToI article, vaccinations must include 20-45-year-olds too — not because they are at high risk, but because they pose the highest risk as ‘super-spreaders’.


For this, vaccine production has to be super-scaled up. As argued in this column before, GoI should buy out Covaxin’s intellectual property rights (IPR) from Bharat Biotech and allow companies with manufacturing prowess to produce the licensed product in large quantities. But it is public disregard for precautions that undermines all precautions.


Whether it’s political rallies, protest gatherings, celebrations or the health ministry’s worry, the upcoming Kumbh Mela, mask and distancing are being thrown to the wind. Penalties for non-implementation must be strict — not wearing masks or congregating in big gatherings must ‘hurt’ far more than fretting over mask-wearing or staying away from crowds.


Measures like night or weekend curfews are not just an eyewash but literally ‘crowd in’ earlier hours and weekdays. Keeping workplaces open with precautions, ramping up vaccinations, and stepping out with masks and keeping ‘do gaz doori’ feed off each other. If one goes for a toss, the risk of everything crumbling is very real.

Courtesy - The Economic Times.

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Can India Grow With Unreformed Power? (The Economic Times)

Quick takes, analyses and macro-level views on all contemporary economic, financial and political events.


There are limits to the viability of financial engineering solutions to what is essentially a political problem. This is what is clear from the legal tussle over an attempt by an Andhra Pradesh power distribution company (discom) to buy power from the spot market, overriding objections by the central government.


The Andhra Pradesh High Court has ruled that the discom can make the purchase and the Union power ministry has decided to contest the ruling in the Supreme Court. The case really points to the fact that there can be no shortcuts to the essential political solution of levying reasonable users’ charges and overseeing a functional market for power nationally.


The Centre issued an order in July 2019, asking discoms to maintain letters of credit in favour of power producers or face curtailment in electricity supply by regional load despatch centres. This is to persuade state utilities to pay for the power they consume.


The fact also is that there seems a sorry lack of political will to walk the talk on distribution reforms. Instead, there seems perverse incentive on the part of the powers that be to curry favour with the electorate, and routinely overlook widespread revenue leakage, sheer non-payment and plain theft of electricity. It has meant rising dues of discoms to power producers, now put at over Rs 1.25 lakh crore.


The constant under-recoveries in power distribution has, unsurprisingly, led to moribund finances of discoms, and a lack of resources to even provide bank guarantees for power purchase.


The way forward is for politicians to muster the courage to say that those who consume power must pay for it. Without that, power would be scarce, electricity would be a major source of financial slippage and growth would be undermined.

Courtesy - The Economic Times.

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Monday, March 22, 2021

Now for the action, Ms Sitharaman (The Economic Times)

Quick takes, analyses and macro-level views on all contemporary economic, financial and political events.


Nirmala Sitharaman struck the right note at the ET Awards last Saturday on growth, the government’s determination to roll out the measures announced in the budget, particularly on agriculture, macroeconomic management to prevent any recurrence of the taper tantrum of 2013, taking care of stakeholder interests while going ahead with privatisation of state-owned enterprises, on containing the pandemic, on guarding against protectionism even while selectively promoting certain domestic industries, on readiness to engage with industry to identify and maximise the overlap between its interests and the government’s goals for the economy, including foreign ecommerce companies.


The only surprise was the government not having made up its mind against extending the suspension of the Insolvency and Bankruptcy Code that ends on March 25. We make three suggestions to nuance the FM’s goals.


One is on increasing the supply of vaccines. Every quality production facility capable of producing any of the approved vaccines must be put to work to produce as many doses as is possible, to vaccinate not just India but the entire world. The longer the virus runs amok unchecked, the greater the probability of mutant strains emerging, calling for new vaccines.


Urge governments to buy out the intellectual property of vaccines and transfer knowhow to any vaccine producer anywhere in the world, set an example by New Delhi buying out the IP of Bharat Biotech’s vaccine. Two, urge the US to revive the nuclear deal with Iran fast, to break the Opec cartel’s chokehold on oil output: Iran can add 2.5 million barrels of crude a day.


The world does not need expensive crude to add to its growth and inflation anxieties. Three, global ecommerce firms could be persuaded to set voluntary targets for additional exports, through their channels, of micro, small and medium industry output. In recognition of such export promotion, they could be accorded mutually beneficial concessions. The move would yield positive political economy benefits.

Courtesy - The Economic Times.

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Garment Exporters Do Have A Point (The Economic Times)

Quick takes, analyses and macro-level views on all contemporary economic, financial and political events.


Indian garment exporters are right to worry about losing orders due to the uncertainty on the rates of reimbursement under the new scheme to refund exporters duties and taxes embedded in the value of the export.


The delay restricts their ability to price competitively, hurting the garments sector that is dominated by micro, small and medium enterprises. The same holds true for other export sectors as well. The government should swiftly announce the reimbursement rates on the so-called Remission of Duties or Taxes on Export Products (RoDTEP) scheme effective from January 1.


The WTO-compliant scheme will reimburse central and state taxes, duties and cess on petroleum products and electricity, and levies other than the goods and services tax (GST) that are embedded in the value of the export. This is in sync with the principle that countries export goods and services, not taxes.


Export bodies (such as the Cotton Textiles Export Promotion Council and the Garment Exporters and Manufacturers Association) want the Centre to remove the 10% import duty on raw cotton, saying it will make imports of extra-long-staple cotton, particularly from Egypt, expensive.


Basic customs duty is out of the GST chain, unlike countervailing and special additional duties. However, drawback of customs duty should be routine on exports. Clearly, the audit trail that is necessary to link the import duty paid on import of raw cotton to the subsequent stages of spinning into yarn, weaving into fabric and tailoring into garment is faulty. The point is to fix this problem. All indirect taxes must be brought under GST so that exporters only need to claim a refund of the input taxes paid. This would be far more efficient than separate reimbursement schemes.

Courtesy - The Economic Times.

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Saturday, March 20, 2021

Don’t Trivialise Laws of the Land (The Economic Times)

Quick takes, analyses and macro-level views on all contemporary economic, financial and political events.


Sections of India’s judiciary trivialise crimes against women, especially sexual violence, and this must be corrected. That is the prime message the Supreme Court delivered to judges across courts on Thursday, a message that needed to be told in so many words.


Quashing a Madhya Pradesh High Court order that linked an accused molester’s bail application to his victim tying a rakhi on his wrist, the apex court found such ‘extra-judicial suggestions’ unacceptable. If making bail subject to a murder accused sending an ‘I’m sorry’ card to the victim’s family is rightly considered ridiculous — and ridiculing the gravity of the crime — then the same rule applies to crimes and criminals against women.


Trivialisation of gender violence is rife in our society at all levels. This requires not just gender sensitisation — a larger, longer process from homes, schools, communities and workplaces, as suggested by the Supreme Court for judges — but also by diktat ‘from above’ via the law.


Which makes the comments and observations of so many courts in so many cases especially pivotal to how seriously such crimes are to be considered. To this effect, language plays a critical part — whether in overt judicial pronouncements that suggest the victims ‘asked for it’, or covert hints that the victim’s behaviour was ‘unbecoming of an Indian woman’.


The deadly cocktail of ignorance and institutional sexism needs to be stamped out. The apex court rightly deplored the proclivity of judges to explore mediation and community service as expiation. The crime of sexual violence is neither dissolution of marriage that can be ‘settled outside court’ nor a misdemeanour for which social service can serve as penance.


Any recourse taken outside laws, such as Section 375-376 of the Indian Penal Code (IPC) and the Criminal Law (Amendment) Act, 2013, not just trivialises crimes against women but trivialises the law itself. The court did right by telling India’s judiciary not to confuse itself with a khap panchayat. That applies to the apex court as well.

Courtesy - The Economic Times.

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Stabilising Options Of Renewable Power (The Economic Times)

Quick takes, analyses and macro-level views on all contemporary economic, financial and political events.


Reports say that Greenko Energy’s upcoming Rajasthan project, a solar and wind power hybrid facility, would have a 2,520 MW pumped-hydroelectric plant as well. It would provide costeffective and utility-scale energy storage in synergy with solar and wind power.


The solar-wind-pumped hydro hybrid model needs replicating. Power from renewable energy sources is both intermittent and variable, and we do need innovative storage that is both energy- and cost-efficient. The idea is to provide power round-the-clock for grid stability and reliability.


Pumped hydro would make perfect sense at Greenko’s project site at Shahpur, Baran district, which has three large rivers. Note that utility-scale battery storage for grid power remains a costly proposition, although costs have fallen substantially over the years. India’s first grid-scale Li-ion battery power storage is at a substation located at Rohini, New Delhi, operated by Tata Power since March 2019, with capacity of a modest 10 MW.


The way forward, surely, is to boost research and development efforts for more efficient energy storage solutions, with new materials, better electronics and improved power technologies. But we do need to better leverage well-established technologies such as pumped storage to hugely step up capacity to bring down energy costs while securing grid security.


Innovations like using solar energy to heat salt and use that trapped heat to boil water and generate steam must be explored. In tandem, we need to rev up grid analytics to optimise and make efficient use of our energy storage systems as we duly raise power from renewable energy sources considerably going forward. Policy tools like renewable purchase obligations and time-ofday tariffs need strengthening. India must explore all options.

Courtesy - The Economic Times.

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Friday, March 19, 2021

More power to SEBI to check misconduct (The Economic Times)

Quick takes, analyses and macro-level views on all contemporary economic, financial and political events.


Assorted malpractice is rife in our capital markets, say insiders. Markets regulator Securities and Exchange Board of India (Sebi) is understaffed and under-armed to deter or penalise the culprits. This must change. Sebi must be able to deploy surveillance and levy fines that are large enough to deter, to protect the interest of investors and the integrity of the securities market. Sebi can access call records, but does not have the powers to ask for interception of telephonic conversations. The regulator has mandated asset management companies to talk only on recorded lines between 9.00 am and 3.30 pm on trading days. Modern digital communications can make such methods of surveillance infructuous. But the ability to summon surveillance must be at the regulator’s disposal.


Sebi has been seeking powers for wire-tapping after Rajat Gupta’s conviction by a New York court for insider trading in 2012. In this case, the US Attorney’s Office produced its wiretap evidence on Gupta passing on insider information to hedge fund chief Raj Rajaratnam. India must also take a leaf from the US that has strong safeguards, with the Title III statute outlining in detail the steps that a federal prosecutor must take before obtaining a court order allowing the interception of communications. Sebi must also swiftly deploy technology such as artificial intelligence and machine learning to augment surveillance capabilities. In the US, the State is held to account by a committee of the legislature on every such act of violating a citizen’s right to privacy. Effective sharing of information among enforcement agencies will also help.


Insider trading attracts a fine of Rs 25 crore or three times the ill-gotten profit, whichever is higher. Continuing default such as failure to furnish information or defaults of mutual funds attract a penalty of Rs 1 lakh each day or Rs 1 crore, whichever is less. Adjudicating officers are empowered to decide on the quantum of penalty. These sums are too puny to have any deterrent value. Sebi needs greater tech savvy and the power to levy stiffer fines.

Courtesy - The Economic Times.

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Give and take of poll promises (The Economic Times)

Quick takes, analyses and macro-level views on all contemporary economic, financial and political events.


It is election season and promises of material munificence fly thick and fast. Minimum income to every family and student credit cards figure in the east. Down south, voters run the risk of taking nasty knocks on their heads from more tangible things like television sets and tablets being showered down on them. With so much and competitive give, what is there to take? Governance is the short answer.


Assume political parties are serious about fulfilling their election promises when they are voted to power. They would then bankrupt the exchequer by spending ever-larger amounts on giving away the things they promised. They would not be left with much to do the things they have been elected to office for. Governments do carry out redistribution. But that is not their main job. Their main job is to allow orderly progress of society, so that growth can happen and more and more people can take part in that growth process, earn enough to acquire not only the material things that are now being promised by politicians but also the dignity of acquiring them on their own, by dint of hard work. If a government fulfils its poll promise to make monthly payments of a few hundred rupees but then cannot afford to build or run hospitals or police stations or functional courts, the result would be growing dysfunction.


Ultimately, only democratic maturity can salvage a polity from the ravages of competitive populism. That, too, comes from competitive politics. If a government elected to office on the strength of tall promises fails to fulfil those promises, the Opposition is happy to call out the failure. If promises are fulfilled and that leaves a gaping hole in governance, calling that out calls for political spine.

Courtesy - The Economic Times.

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Thursday, March 18, 2021

Repurpose Existing Dev Finance Arms (The Economic Times)

Quick takes, analyses and macro-level views on all contemporary economic, financial and political events.


The Cabinet nod for an infrastructure-focused development finance institution (DFI) is noteworthy, given lacklustre credit growth in the backdrop of stepped up capital expenditure in the budget. But it would surely make better sense to repurpose an operational DFI, such as IFCI or IIFL, to boost project funding, with special focus on project vetting. Reports say that the National Bank for Financing Infrastructure and Development (NaBFID) is to be set up with a corpus of Rs 20,000 crore and an initial grant of Rs 5,000 crore from the Centre.


The National Investment and Infrastructure Fund (NIIF) has a corpus of $4.3 billion, is functional and can well provide arm’s-length funding for long-gestation projects. India Infrastructure Finance Company Ltd (IIFCL), agovernment enterprise, could reportedly be merged with the new DFI.


The former can be quickly put to task and instructed to hit the ground running; the value of speed in this time of rising Covid infections is enormous and we simply cannot afford delays and dither that would surely afflict a greenfield institution. Credit growth in India today is in the low single digits; it would be a tall order, indeed, to policy-induce double-digit economic growth without requisite credit availability, especially long-term funds.


Hence the pressing need for focused funding of infrastructural investments by existing DFIs, preferably in a consortium approach, so as to transparently boost project finance. Ideally, of course, we do need a vibrant corporate bond market together with attendant risk-mitigation instruments to hedge credit, currency and interest-rate risks. But given the absence of an active and liquid corporate bond market, existing DFIs should fit the bill for now.

Courtesy - The Economic Times.

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Vital to Prevent A Second Wave (The Economic Times)

Quick takes, analyses and macro-level views on all contemporary economic, financial and political events.


It is imperative to avoid a second wave of Covid-19. It is entirely doable with determined, coordinated action, and must be achieved. This message resonated in Wednesday’s meeting of the Prime Minister with state chief ministers.


A year of restrictions and the fact that vaccines are finally available have resulted in a level of laxity when it comes to observing Covid protocols. The Prime Minister’s call to not let confidence become overconfidence is spot on. He did well to call for stepped up genetic profiling of the virus, to identify mutations, if any.


While rolling out vaccination is important, to prevent uncontrolled mutations in the wild, strict adherence to safety norms while that happens is vital. Stepping up vaccination will require better outreach to eligible population and ramping up production. Without the requisite vaccine production, opening up vaccination for all of the population would result in shortages, price gouging, as demand would likely outstrip supply, and chaos.


It is important to understand that no one is safe till everybody is protected. It is necessary to ensure increasing numbers of eligible population groups are getting vaccinated. Faster uptake of vaccines in the currently eligible groups will allow the government to open up the drive to newer segments of the population. Deviating from systematic vaccination roster is likely to result in groups of unvaccinated people. India should take a leaf from the Pulse Polio campaign to reach out to populations that are either unable to access the vaccine for reasons such as trouble with the CoWIN app or are vaccine-hesitant.


It is incumbent on central and state governments and local authorities to step up their outreach to address concerns relating to the vaccination, and to avoid vaccine wastage. India’s hard-won success with child immunisation should pave the way. For the time being, it is critical to ensure that Covid does not spread, particularly to remote areas, where the healthcare system does not have the capacity to deal with the severe infection.

Courtesy - The Economic Times.

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Wednesday, March 17, 2021

No in through the out door with IBC ( The Economic Times)

Quick takes, analyses and macro-level views on all contemporary economic, financial and political events.


The Supreme Court’s ruling to bar defaulting promoters from hanging on by hook or by crook reaffirms the spirit of the Insolvency and Bankruptcy Code (IBC). The law is meant to ensure quick creditor seizure of defaulting companies followed by a resolution, or a conclusive auction of assets. The verdict has held that a person ineligible under IBC to submit a resolution plan can’t take recourse to the companies law to file a plan.


This is logical. If he were to do so when the company is undergoing liquidation under IBC, it would mean circumventing the code’s restrictions. By upholding the constitutional validity of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, the court authenticates the supremacy of the bankruptcy law. Market players often complain that many companies suffer, as their promoters divert money out of the company in questionable ways or choose not to find ways to repay their dues. IBC forbids promoters of defaulting companies from taking part in any stage of the resolution process, bidding included.


However, keeping defaulting promoters out limits the bidders, and depresses the successful bid below its potential high. ‘It would lead to manifest absurdity if the very persons who are ineligible for submitting a resolution plan, participating in the sale of assets of the company in liquidation or participating in the sale of the corporate debtor as a ‘going concern’, are somehow permitted to propose a compromise or arrangement under Section 230 [of the Companies Act],’ held the bench. Courts must also be guided by the goal of maximising returns from the resolution process. By rejecting backdoor entry, the court underlines that defaulting promoters stand to lose their companies.

Courtesy - The Economic Times.

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Courts should relax on vax details ( The Economic Times)

Quick takes, analyses and macro-level views on all contemporary economic, financial and political events.


With the prime minister and chief ministers meeting today to develop a plan of action to tackle the surge in Covid-19 cases, it is critical that the Supreme Court does its bit to enable the executive to focus on the job at hand. The court must direct high courts and lower courts to transfer all Covid-related cases to it, and encourage them not to entertain cases that prima facie appear to transgress into the executive’s domain. The danger posed by the pandemic is far from over. Central and state governments must not be encumbered by demands, some of which appear to be frivolous in nature.


The judiciary, on its part, must restrict its observations to points of law. The Delhi High Court’s observations on the use and allocation of vaccines, the decision to provide vaccines to countries as grant assistance, maintaining a control on the levels of export, are clear instances of the court going beyond its jurisdiction. The courts can ask GoI for clarification and explanation, but asking vaccine manufacturers Bharat Biotech and Serum Institute of India to provide details about their production capacity and inventory is literally not their business, but only serves to add confusion.


The roll-out of the biggest vaccination drive to date is a massive logistical exercise. It is also a critical one, as central and state governments have to ensure a steady pace of vaccination to safeguard against new strains and resurgence of Covid-19. At the same time, GoI has to ensure that vaccine production keeps pace with demand, and that the country is meeting its various export obligations. GoI needs to make it clear that one of the driving forces behind its vaccine grant programme is understanding that no country is immune till the world is. So, ensuring vaccine availability in low-income and low-middle-income countries and in our neighbourhood is in enlightened self-interest. Beating Covid-19 requires all stakeholders to work together in common purpose. Efforts to divert attention and confuse do no one any good. Instead, it dangerously detracts from the common goal of tackling the pandemic.

Courtesy - The Economic Times.

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Tuesday, March 16, 2021

Adding Momentum to Sound Urbanisation ( The Economic Times)

Quick takes, analyses and macro-level views on all contemporary economic, financial and political events.


It is welcome that the micro foundations for competitiveness in urban centres across India and attendant rankings are now a regular feature in policy circles. The Ease of Living Index (EoLI) 2020, which ranks 111 cities on 13 parameters, has placed Bengaluru and Pune as the top performers in the million-plus population category; while Shimla and Bhubaneswar are like-wise in the less-than-a-million list (as per 2011 census).


Our urban areas do provide the bulk of economic growth, by far, and cities matter. The EoLI is an assessment tool to evaluate the quality of living and economic ability of a city, together with its sustainability and resilience.


It has a citizen perception survey component with 30% weightage in the index, with the rest 70% weightage distributed across categories such as education, health, economic opportunity, green spaces and city resilience.


The index can well provide guidance for evidence-based policymaking and peer learning. In tandem, the Municipal Performance Index (MPI) 2020, which has been undertaken for the first time, places Indore and NDMC as the top performers. The MPI seeks to measure governance, including of the digital variety, in areas such as municipal services, fiscal responsibility and expenditure management, so as to shore up transparency and accountability in urban local government.


The index provides a ranking, but a relative ranking is no guarantee of adequacy. India must plan for the huge influx of rural folk to urban areas that is bound to follow in the wake of, and drive, prosperity. Policies on releasing land for urbanisation without conflict, making land losers stakeholders in the prosperity that is built on their erstwhile land and sound urban planning to optimise energy consumption are key.


Courtesy - The Economic Times.

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Monday, March 15, 2021

For plain English, not gobbledygook (The Economic Times)

Quick takes, analyses and macro-level views on all contemporary economic, financial and political events.


The Supreme Court of India has referred a judgment of the Himachal Pradesh High Court back to the court on the ground that it is incomprehensible. In support of this description, Justices D Y Chandrachud and M R Shah quoted three paragraphs from the high court judgment. A painstaking reading of the quoted text reveals letters of the normal English alphabet arranged to form English syllables, some Latin words favoured by judges, a profusion of commas and missing sense. We commend the Supreme Court bench for what amounts to its public admonition of the high court judge. Remedy is required not just in the matter dealt with by the petition on which the inscrutable order was passed but also on deficiencies in the selection of judges and the persistence of an archaic lingo in the legal profession.


Delhi-based lawyer Jyoti Sagar, among others, has been campaigning for long to get the legal profession to modernise the legal register. American courts are paradigmatic in using the language of the common man to sift through arguments, pronounce on legal principles and issue verdicts that anyone familiar with standard English can understand. There is every reason for judges at all levels, law-drafting departments of legislatures and lawyers to adopt a similar approach to the language of law. Clarity and comprehension should be the guiding principles and that would subserve both democratisation of access to the law and avoidance of ambiguity in verdicts. This is the second time that a judgment by the same judge of the Himachal Pradesh High Court is being returned for lack of clarity.


How does someone whose writing does not make sense at least to fellow judges get elevated to the high court? Clearly, the matter calls for judicial attention and reform.

Courtesy - The Economic Times.

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Press forward with mission vaccination (The Economic Times)

Quick takes, analyses and macro-level views on all contemporary economic, financial and political events.


The stubborn refusal of Covid-19 numbers to stay low and the emergence of new virus strains make mass vaccination urgent: the longer the virus is allowed to multiply and mutate, the harder it would be to tame it. Vaccination success in individual countries is useful for those nations’ political leaders, but not effective for virus control: it can mutate in the unvaccinated regions and re-enter vaccinated populations. Global supplies of vaccines must go up, delivery networks created and vaccine hesitancy overcome.


Countries will need to work individually and collectively. So far, high-income countries representing 16% of global population have blocked 70% of available doses in 2021 through pre-orders of five leading vaccine candidates. Ensuring that vaccine availability for poor developing countries will require augmenting production of existing vaccines and new ones. India, the only low-middle-income country to have developed a vaccine, is in the process of indigenously developing six others. The regulator should monitor the process to ensure safe and speedy availability. India and South Africa, now supported by 57 developing countries, 31 US lawmakers and 115 members of European Parliament, must step up the pressure on wealthy countries, including Japan, Canada, the US, UK and EU, for a temporary IPR waiver on vaccines, drugs and equipment. A waiver would mean that IPR holders lose out. India wants its fledgling IP developers to thrive and so must compensate the likes of Bharat Biotech, while demanding waiver at the WTO. The US government should not find it difficult to reciprocate, having funded vaccine development with billions of dollars under its Operation Warp Speed programme.


At home, India must increase output and strengthen delivery, particularly for poor and rural communities. Corporate social responsibility can chip in. Glitches in the CoWIN software must be removed, to keep tabs, keep records and issue certificates. To beat Covid-19, it is critical that no one is left behind.

Courtesy - The Economic Times.

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Saturday, March 13, 2021

Add an NFT to your Hussains and Souzas (The Economic Times)

Quick takes, analyses and macro-level views on all contemporary economic, financial and political events.


Here is one more reason for the government to regulate, rather than ban, cryptocurrencies. The underlying technology, the blockchain, has many versatile uses, one of which sold for $69.3 million in an auction by Christie’s. The development is significant on two counts. One, a new form of authenticating uniqueness in works of artistic creation has found full maturity and reached the stage of transaction; and, two, Christie’s, a traditional auction house for objects of high value, has adapted itself to claim its pre-eminence in the new digital world.


An American digital artist, Mike Winkelman, has put together a collage of the 5,000 works of digital art he has been posting every day since May 2007 and assigned it a non-fungible token (NFT). The artwork itself is a Jpeg file, 21,069 × 21,069 pixels, and can be copied. A Rembrandt or a Souza can also be copied, but the original remains the original and retains its value. The token that comes with the Jpeg file is what denotes its originality and uniqueness. The token is created using the blockchain — a bitcoin is also a token created using the same technology. Christie’s has auctioned digital art in the past as well, but the uniqueness was attested to by paperwork. In the present case, everything is digital. In the recent past, a music group, the Kings of Leon, also issued a new album along with a few tokens authenticating limited edition launch copy uniqueness. These could go on to become collector’s items and add value in time. We can expect many more things to come with NFTs assigned to them.


Cryptocurrencies are not identical with bitcoins and the blockchain is not reducible to cryptocurrencies. Regulate products, do not ban them, for bans could stunt underlying technologies.

Courtesy - The Economic Times.

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Resolve fast, do not postpone IBC (The Economic Times)

Quick takes, analyses and macro-level views on all contemporary economic, financial and political events.


The government should restart the Insolvency and Bankruptcy Code (IBC) process, suspended since March 25, 2020, to revive the economy. Simply extending the moratorium will only add to the stress in the system, without bringing relief to companies or banks. Resuming insolvency resolution would give companies a chance to rehabilitate themselves, when they have worked out plans to that end with creditors and file for voluntary insolvency, without government agencies or utilities throwing a spanner in the works with their efforts to recover their dues. Those that cannot be rehabilitated would have their assets efficiently redeployed.


Speed is of the essence when a company goes into distress, to improve the chances of the company’s turnaround or being sold as a ‘going concern’, maximise the value of the asset being resolved, lower haircuts for lenders and reduce the burden on the taxpayer. All Covid-related debt is exempt now from the definition of default under IBC, and banks will not count the moratorium period for classifying a loan as non-performing. Small enterprises have been fortified on account of an increase in the threshold for invoking insolvency to Rs 1 crore from Rs 1 lakh. So, lifting the moratorium is unlikely to result in a huge surge in the number of fresh insolvency resolution cases — around 4,008 insolvency cases were raised over December 2016-September 2020. Lenders also have other options that include RBI’s prudential framework that gives banks the leeway to draw a resolution.


Prepackaged insolvency resolution, instead of the financial bidding process, makes sense for MSMEs, and will reduce the burden on bankruptcy courts. The government must operationalise the fund of funds schemes to infuse equity in troubled small companies, and find alternative ways to help the vast majority of non-incorporated entities in the MSME universe. It should also quickly operationalise the proposed bad bank, institute third-party valuation of assets to be transferred and stop criminalising actions taken in good faith.

Courtesy - The Economic Times.

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Friday, March 12, 2021

Withdraw This Valuation Directive (The Economic Times)

Quick takes, analyses and macro-level views on all contemporary economic, financial and political events.


The Securities and Exchange Board of India’s (Sebi) directive that mutual funds value perpetual bonds with special characteristics as if they would be redeemed in 100 years is disruptive and should be withdrawn. The present value of a bond’s maturity value 100 years from now would be a fraction of the value imputed on the assumption that the bond, which comes with call and put options, would be called by the issuer in the foreseeable future.


The Sebi directive would force mutual funds to book losses, once it kicks in from the beginning of April. Investors would seek to redeem their units and the funds, to dump the bonds, causing a major slump in unit values for no adverse development in a recovering economy.


Bonds that abate in case of specified developments — Additional Tier 1 bonds issued by banks to comply with Basel norms on loss-absorbing buffers in addition to core equity capital, catastrophe bonds issued by insurance companies to pay for natural disasters — carry explicit risk and a risk premium in their coupon. They serve as a high-yield chunk of a diversified portfolio of assets, not as the entirety of retirement savings.


A fund that specialises in investing in only such instruments is conceivable, with investors allocating to it thin slices of their varied mutual fund holdings. There would be nothing wrong with such an arrangement, provided the risk involved is clear to investors and the risk of heavy penalties in case of failure to disclose such risk is clear to mutual fund distributors. After the justified decision to write off Yes Bank’s Additional Tier 1 bonds, there is greater appreciation of the nature of such bonds. Sebi would do well to ask investors to value special bonds using their specific risk factors.


Sebi’s move to protect investors is likely to dent the market for bonds with special features. That is bad news for efforts to innovate ways of distributing risk across society’s capacity to bear such risk. Sebi, in its wisdom, should revisit its directive and withdraw it.

Courtesy -The Economic Times.

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Mining AcquiresAn Emerald Sheen (The Economic Times)

Quick takes, analyses and macro-level views on all contemporary economic, financial and political events.


A recent Economic Times ‘Live’ CEO Breakfast Series cast a hopeful light on the mining and metals corner of the economy normally associated with grime, age-old techniques and work practices, and carbon emissions. It turns out, mining companies could be among the early movers in the bold new hydrogen economy.


And, innovation in mining is not just confined to green fuels. Advanced analytics, automated mining platforms, robotics and electric earthmovers and other vehicles are, increasingly, par for the course in the Indian mining industry.


Steel and cement have traditionally had high carbon-emissions intensity. However, producers like JSPL are already taking the coal gasification route to make steel via the energy-efficient direct reduced iron (DRI) process.


The target now is to produce hydrogen from coal in the next two years to operate DRI plants. Abundant hydrogen has very high energy content by weight, and using renewable energy to produce hydrogen that, in turn, can be used as fuel in a great many places, displacing hydrocarbons, is a major way to cut the economy’s carbon emissions and to reduce our oil import bill as well.


Meanwhile, Tata Steel has been able to significantly reduce its coking coal imports in this pandemic year by upping domestic sourcing, shoring up beneficiation and revving up attendant logistical efficiencies. Steel output per annum nationally is set to rise by 20% to 120 million tonnes.


However, taxation, levies and royalty on mining surely need to be rationalised. And, we clearly need to remove opacity from the proposed ₹46,000 crore District Mineral Development Fund and its allocations. Extended bans, such as on Goan iron ore, thanks to judicial foot-dragging, are another obstacle the industry faces.

Courtesy -The Economic Times.

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Wednesday, March 10, 2021

Diversify, EPFO, don’t burden govt (The Economic Times)

Quick takes, analyses and macro-level views on all contemporary economic, financial and political events.


The Employees’ Provident Fund Organisation (EPFO) should waste no time in changing the way it deploys employees’ savings. The 8.5% rate of return it has recommended for 2020-21, the same as in 2019-20, is above the interest rate on bank deposits and small savings schemes, but lower than that generated by the National Pension System. EPFO invests 85% of its corpus in debt, mostly public, its exposure to equity being capped at 15% of the corpus. That it is able to pay 8.5% rate of interest shows that the government is paying too high a rate of interest on its borrowing from the EPFO. Instead, it should mandate EPF to invest in a wider array of asset classes to diversify risk and maximise returns.


The yield on the 10-year g-secs is about 6.23-6.25%, around 200-225 basis points lower than the return on EPF. And there is no long-dated paper that yields higher returns. The wrong-headed, ultra-conservative investment rule is the main reason for the EPFO’s failure to maximise returns. That must change. Instead of the government subsidising the return for over six crore contributing subscribers, the EPFO must provide greater flexibility in the allocation of funds across asset classes. The EPF corpus — of about ?15 lakh crore — is sizeable enough to expand across asset classes and get the right trade off between risk and return.


The one-year return of the NPS even for government employees, who have the option now to invest up to 50% in equities, is about 400-440 basis points above the EPF’s. The exchange-traded funds purchased in the first two quarters of 2017 have been lucrative, according to the EPFO. Rather than bonds varnished with equity, the EPFO must invest in private equity, venture capital, even set up special situation funds that invest in distressed assets to establish claims on broader segments of the economy’s productive capacity while diversifying risk. A separate fund under the EPFO for contributions from individuals who voluntarily join the scheme would be to duplicate the NPS model, without its flexibility.

Courtesy - The Economic Times.

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