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

Friday, April 23, 2021

Oxygen supplies can be augmented with logistical and societal innovation (The Economic Times)

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


The severe shortage of medical oxygen (MO) amidst a massive surge in Covid-19 infections pan-India compounds an already grim situation. But it is fully within our resources and skills as a nation to boost supplies: what is required is logistical and societal innovation.


The home ministry notification on ‘uninterrupted supply’ of MO across states, and to divert industrial oxygen output forthwith, is commendable, but not sufficient. Pre-Covid, the demand for MO was barely 700 metric tonnes (MT) per day; it rose to over 2,800 MT daily following the pandemic and is now 5,500 MT/day and rising. But the Empowered Group-II (EG) has averred that domestic production capacity is over 7,100 MT/day. However, it is not sufficient to think in terms of bulk capacity.


Industrial oxygen capacity is concentrated in the eastern region while the demand for MO comes from Maharashtra and Delhi. Oxygen has to be transported, and that traditionally has employed cryogenic containers, of which there is a shortage.


Patients receive oxygen in cylinders. These bottles must be manufactured in sufficient capacity. The shortage of oxygen-carrying cryogenic containers can be offset by transporting truckloads of the bottles, empty ones to the oxygen-producing plants and refilled ones back to where the demand is. What’s needed now is innovative digital solutions and improved logistics to match rising MO demand with supply.


The EG is reportedly floating a tender to import 50,000 MT of MO. Let this go ahead. In tandem, we need measures for local, decentralised production of MO and bottles, apart from a campaign to end hoarding of available oxygen by individuals and institutions. Various companies are chipping in with oxygen and containers. Onsite MO plants at large hospitals can reportedly be built at relatively modest cost. One recent tender for 162 such plants has an outlay of just over `200 crore. The shortage of MO cylinders can be met with creative thinking by startups that make use of available materials and innovative software, if these are challenged to...

Courtesy - The Economic Times.

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Saturday, April 17, 2021

Afghanistan after US Troop Withdrawal (The Economic Times)

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


A complete withdrawal of their troops from Afghanistan by the US and its Nato allies, scheduled to take place by the 20th anniversary of the 9/11 attacks of 2001, will concretise America’s shift of policy focus from West Asia to the Indo-Pacific, strengthen the Taliban and proportionately weaken both the Ghani government and the process of building democracy in a country at home with tribal custom, gladden the hearts of Pakistani generals and their Chinese patrons while creating new headaches for New Delhi and Tehran. The US has sacrificed many lives and much treasure to prevent Afghanistan from becoming a launchpad for terror as it had been under the Taliban before the US ousted them. It has decided to cut its losses and leave, with no guarantee that the original aim will continue to be served.


Despite their agreement with the US, the Taliban have failed to severe their ties with al Qaeda. The Taliban control several parts of the country and launch attacks on towns, held by the government and its security forces. According to the US Intelligence Community, the prospects for peace are low and the Taliban are likely to make gains while the Afghan government would struggle to hold fort, once the US and partners withdraw their support on the ground. New Delhi has material concerns about Pakistan using Afghan territory under Taliban sway, whatever the formal government in Kabul, to continue to provide support to terrorist organisations for their activities against India.


India must persuade the US to continue support for Afghan armed forces using remote-controlled drones, besides through supply of real-time intelligence, to help it counter the Taliban. At the same time, New Delhi must prepare to face additional trouble.

Courtesy - The Economic Times.

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Not at Kumbh, Make Covid Dip (The Economic Times)

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


Manushya sankat mein hai — humanity is in danger. This is a message the Panchayati Niranjani Akhada, one of the three oldest and major sects of Hindu sants and sadhus, has recognised loud and clear, leading to the announcement that its sadhus will be withdrawing from this year’s Kumbh Mela on account of the Covid-19 pandemic. The influential group, comprising at least 13 religious groups, is not short of faith or fervour. But with the death of Nirwani Akhada head Mahamandaleshwar Kapil Dev of Covid-19 on Thursday, the second largest akhada has done the right thing by exiting a super-spreader event.


Religious faith is not necessarily always in opposition to reason — it simply operates on a different belief system. So, for people finding the two coming in conflict over Covid protocols — whether it be in the US where ‘mask-wearing’ has been seen in some quarters as ‘un-Christian,’ or in India, where maintaining physical distancing is seen by some as a strategy to target religious communities — this is a false binary. Instead, any perceived conflict is little else but a cover to be apathetic to a mortal crisis. True faith will also provide the courage to do the right thing.


The Kumbh Mela is, in part, controlled chaos. At a time when every effort should be made to batter down the risk of Covid-spread, such congregations — religious or secular — need to be shut down. Over the last five days, Haridwar has reported 2,167 new cases of Covid. In February 2020, Saudi Arabia closed the two holy sites of Mecca and Medina to not expose Haj pilgrims to Covid. But Uttarakhand authorities don’t seem to have the gumption to announce a Kumbh closedown. One of the prime characteristics of religion is providing its faithful the sense of protection. Within the ambit of that function, keeping Hindus safe during a pandemic includes mortal, physical precautions. The Niranjani Akhada decision is, thus, doubly welcome as it serves both its faithful as well as sets an example for others to follow.

Courtesy - The Economic Times.

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Friday, April 16, 2021

Beyond postponing class 12 examinations (The Economic Times)

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


The decision to postpone the Class 12 board examination conducted by the Central Board of Secondary Education (CBSE) and to cancel the Class 10 board examination is the right one, in the given circumstance. It would minimise the disruption for students. Postponing the school-leaving examination — a decision will be taken in June by which time experts expect the current wave to have peaked — will mean that students do not lose out on an academic year. While Class 10 students will have the option of a physical examination if they are not satisfied with the evaluation results. The decision is the best option available given the rise in Covid-19 cases. But it does once again expose the lack of planning by state governments to put in place a system that can address the concerns that have arisen due to the pandemic.


School education is a state subject, and over the year, state governments should have, in partnership with the ministry of education and CBSE, put in place alternative systems for students to continue their education and be evaluated. Minimising disruption for students is critical. Demands to cancel exams or keeps schools shut reflect expedience rather than necessity. With the pressure of school-leaving examinations out of the way, administrations must focus on delivering lessons and evaluating student performance remotely.


Use funds from the Universal Service Obligation Fund to strengthen 4G connectivity in those parts where the signal is still bad. Make use of satellite broadband for remote areas. Devise open-book exam modules that cheat would-be cheaters. Let teachers and school staff be next in line for vaccines, so that schools can be reopened relatively early. Let not a virus hold the education of an entire generation hostage.

Courtesy - The Economic Times.

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Wave II calls for stimulus part II (The Economic Times)

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


If you put two and two together, no one should be surprised if a four emerges. Fresh curbs on normal life, announced to contain the second wave of the pandemic, will take its toll on the economy, already staggering, going by the second month of the decline of the Index of Industrial Production (IIP) in February (over the like period last year), on the trot. The government will have to respond with additional relief measures for migrant workers who once again flee closed cities for the social security of their native villages. At the same time, the government and RBI will have to come up with additional support for the pandemic-struck industry, in particular the small and medium sector and the construction industry.


True, the IHS Markit Services Business Activity Index, while declining from the 12-month high of 55.3 in February to 54.6, marks the sixth month of expansion. However, night and weekend curfews would put paid to any sustained services recovery. Careful and swift implementation of the capital expenditure schemes announced in the budget would buoy demand for a variety of services, whose performance must be managed with careful coordination of personnel, all of whom observe Covid-appropriate behaviour.


The budget had rightly identified infrastructure as a priority investment area. Now, policy and funds must be marshalled to turn proposals into poured concrete and demand for steel, cement, labour, transport, nuts, bolts, wire, screws, paint and labour. Project management must improve. New institutional structures must be created. Further, market design for an active corporate bond market brooks no delay. Note that the National Infrastructure Pipeline (NIP) proposes to raise funds from the debt market. Institutional investors are allowed to invest in infrastructure bonds with at least AA rating. But most ongoing infrastructure projects here are rarely rated above BBB. Hence the pressing need for a credit enhancement fund. Policymakers cannot complain of lack of work.

Courtesy - The Economic Times.

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Monday, April 12, 2021

If it’s remote work, do it from India (The Economic Times)

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


Covid has seen an uptick in the relocation of people from larger cities to smaller ones in the US: remote working is seen as being practical in a great many sectors that previously had not been considered amenable to it. At the same time, several industries struggle and would love to cut costs further. Together, these combine to offer India’s information technology (IT) and IT-enabled services industries new global opportunities. The challenge is to take creative advantage of such openings.


The pandemic has speeded up the societal shift towards digitisation in India, and globally too. Large Indian IT companies posted double-digit growth after a long time, with their workforce swiftly adapting to WFH to service global clients. Rightly, demand from client’s customers has surged in the sector that is the most successful model for remotely provided services even from Tier 2 cities. Last year, a report by Goldman Sachs anticipated the third wave of outsourcing — after the previous waves 2000 (post-Y2K) and 2008-09 (post-global financial crisis) – and an increasing number of technology roles globally finding their way to India, benefiting Indian IT services companies. The order books of Indian IT firms are overflowing now.


Thanks to digitisation, e-commerce companies and the healthcare industry are doing well. Insurance has had to take big hits, as the pandemic materialised assorted adverse events against which the industry had offered protection. Most developed world airlines stay afloat only because of state aid by the billion. Travel and hospitality, too, would love to squeeze out costs. All of them have already outsourced chunks of their activity. The pandemic has helped identify other bits of work that can be performed remotely.

Courtesy - The Economic Times.

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Saturday, April 10, 2021

Ethanol in fuel a transient high (The Economic Times)

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


The timeline for blending of ethanol in automotive fuel up to 20% has been moved to 2025, from 2030. And this year’s target is 8.5%. The way forward is to step up usage of biomass, agricultural residue and municipal solid waste as feedstock for ethanol, so as to gainfully reduce crude oil imports, cut down on tailpipe emissions and also boost our energy security in the bargain.


However, there is an ongoing change in the technoeconomic paradigm in transport and mobility away from the internal combustion engine, and towards electric vehicles, which can only accelerate. So, while 20% blending of ethanol with petrol can make economic and ecological sense in the here and now, it cannot really be a long-term solution to shore up energy supply.


Yet, it is notable that ethanol blending has picked up speed lately. Back in 2019, the blending rate was about 5.8%, up from less than 1% in 2014, against a target of 5%. The aim now is to go for 10% blending by 2022, by using damaged broken grain, rice straw and biomass generally as ethanol feedstock, although the bulk of ethanol production today is very much a by-product of the sugar industry.


And, sugarcane is hugely water-intensive; stepping up cane output is clearly avoidable in water-stressed India. Hence the need to innovate and use new enzymes to produce syngas from biomass that can then be used to make ethanol, or produce hydrogen, the promising new sustainable, green, non-polluting energy source of the future. Bioethanol can be a huge economic opportunity.


For 20% ethanol blending by 2025, 1,000 crore litres would be needed, which, at current prices, would be worth Rs 60,000-65,000 crore. It also has the potential to put paid to crop residue burning, a source of air pollution.

Courtesy - The Economic Times.

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Moscow, New Delhi in a changing world (The Economic Times)

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


The wolves are full and the sheep, intact — that Russian saying about reconciling seemingly contradictory goals fits the foreign policy challenge before India and Russia, as they renew tried and tested bilateral relations, even as India meshes into the Quad, along with the US, Japan and Australia, to keep the Indo-Pacific tranquil, and Russia draws closer to China.


The challenge is less daunting than it might appear at first blush. As India’s policy shifts from non-aligned to multi-aligned, traditional ties will have to be recast. The past should inform policy, not block its evolution. Russian Foreign Minister Sergey Lavrov’s two-day visit to India is part of the evolution of what has been a long and time-tested relationship.


That Lavrov’s visit overlapped with that of former US Secretary of State and now Special Presidential Envoy for Climate Change John Kerry encapsulates the transition of India’s foreign policy. The India-Russia relationship must be able to factor in the changing context and requirements of both countries. Russia’s reservations about India participation in the Quad, or India’s concerns about Russia’s cosiness with China, must be understood in context.


Moscow must understand that the changing geopolitical dynamics of the region will find expression in India’s strategic choices. Likewise, New Delhi, too, must factor in the narrowing of choices for Moscow in the face of financial pressures from the West. Yet, the basic fabric of the relationship has not changed. India has stood its ground against US pressure, to drop, for example, India’s purchase of the S-400 missile defence system. Strategic relationships are not zero-sum games; rather, they are partnerships for, rather than against, something. Strategic partnerships with other countries must not be seen as undermining the time-tested India-Russia relationship. The two countries must deepen their partnerships in existing areas of nuclear and space technologies, defence, and add new areas arising out of challenges such as climate change.

Courtesy - The Economic Times.

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Friday, April 9, 2021

Welcome Move for Pre-Packed Resolution (The Economic Times)

The government has done well to allow pre-packaged insolvency resolution plans for micro, small and medium enterprises (MSMEs) with defaults up to ₹1 crore. This debtor-initiated reorganisation plan in advance with creditors on board will give MSMEs a chance to rehabilitate themselves, rather than get liquidated. And those that cannot be restored would have their assets efficiently redeployed. Essentially, pre-packs underline the fundamental purpose of the Insolvency and Bankruptcy Code (IBC): swiftly bring back into a productive framework assets trapped in failing companies, rather than help banks and vendors recover their dues. Speed is vital when a company goes into distress to better the chances of its turnaround as a going concern. So, the time limit of 120 days for completion of a pre-packaged resolution plan is in order. It will help reduce the load on the National Company Law Tribunals.


When the pre-pack process is underway, the management and control will continue with the promoters and directors of the MSME. This will cause minimal disruption in the operations and is, therefore, welcome. However, the Committee of Creditors (CoC), by a 66% vote, can vest the management with the resolution professional (RP) after seeking court approval. If the plan proposed by the MSME is rejected by the CoC or where operational creditors’ dues are impaired, the RP can invite applications for a competing plan (read: akin to Swiss challenge). So, the CoC will be in the driver’s seat. Also, a pre-pack process initiated with an intent to defraud will attract a penalty.


Hardwiring pre-packs into the IBC (through an amendment) to prevent any misuse is fine. This is the first step, and pre-packs should be opened up to bigger MSMEs once the process stabilises.

Courtesy - The Economic Times.

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Thursday, April 8, 2021

Right Move to Look Through Inflation (The Economic Times)

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


The decision of the Monetary Policy Committee (MPC) to keep RBI’s key policy rates unchanged and stance accommodative, despite a rise — transient, it is hoped — in inflation is pragmatic and forward-looking, following a pandemic-induced growth contraction. The MPC has rightly surmised that the inflationary pressures emanate from high global commodity prices and logistics costs, and that softening crude oil prices should reduce cost-push inflation.


It is also welcome that the monetary policy statement has a series of measures to shore up liquidity in the banking system, arrest rising bond yields and also boost credit offtake across the board, but also for specific sectors such as warehousing of agricultural produce, to purposefully tackle the supply-constrained inflationary spiral. The MPC’s accommodative policy stance amounts to flexible inflation targeting so as to policy-induce growth, which makes perfect sense. RBI’s move to step up open-market purchases of government securities would shore up liquidity and hasten the ongoing recovery. The g-sec acquisition programme, or G-SAP 1.0, for ₹1 lakh crore can well be augmented. A similar programme for corporate bonds is surely warranted, for an active and thriving corporate bond market. Next, the extension of RBI’s targeted long-term repo operations (TLTRO), designed to raise credit flow to stressed corporates, is also business-like and efficient.


The specific measure to provide additional liquidity support for all-India financial institutions such as Nabard, Sidbi and NHB would better allocate resources for modernisation of agriculture, small enterprises and housing. And, a new committee on the role and function of asset reconstruction companies is timely, indeed.

Courtesy - The Economic Times.

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Wednesday, April 7, 2021

Welcome Uncle Sam To Global Tax Reform (The Economic Times)

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


US Treasury Secretary Janet Yellen wants a minimum rate of global corporate income tax. It shows US readiness to join the global effort to reform corporate taxation, led by the Organisation for Economic Cooperation and Development (OECD), which has been trying to rally support for ending base erosion and profit shifting and to forge a multilateral pact on digital taxation. Yellen cites a ‘30-year race to the bottom’ in which countries have slashed corporate tax rates to attract multinational companies. MNCs often use differences in tax rates between countries to lower their tax outgo. It erodes the tax base and deprives governments of revenues.


Rightly, Yellen says that competitiveness is a whole lot more than how companies fare against rivals in global M&A bids. Rather, it is about making sure that governments have stable tax systems that raise sufficient revenue to invest in essential public goods and respond to crises. This would entail curbing sharp tax practices. A global minimum tax would level the playing field, somewhat, in the taxation of MNCs. However, it is not the optimal solution. Pillar 1 of the OECD’s reform blueprint, which apportions global profits to the countries in which their customers are located, based on the principle that companies must pay tax in every market where they generate value and make profits, makes eminent sense. Yellen’s wish is what OECD has tagged as its Pillar 2. But that is likely to be redundant, if Pillar 1 becomes operational.


Taxation is a sovereign right, and countries need to reconcile differences in their tax systems to arrive at a consensus. The same holds true for taxing the digital economy, much of it without any physical presence in a jurisdiction to generate revenue and profit.

Courtesy - The Economic Times.

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Mine Stalled Real Estate for Growth (The Economic Times)

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


The latest figures suggest that growth is stalling yet again. Policy must respond by stepping up expenditure from the budget, and prioritising resumption of stalled real estate projects, as these can absorb investment without delay and have the capacity to generate downstream demand for cement, steel, paint, furniture, fittings, curtains, cushions and lots of labour.


Greenfield projects are, indeed, important, but shovel-ready projects are imperative to give the economy the stimulus it requires. The size, structure and scope of the stressed real estate fund surely needs to be promptly revisited on concrete terms, to absorb capital fast. The core sector, which comprises eight segments, has posted its steepest contraction in six months; manufacturing output has hit a seven-month low as per the Purchasing Managers’ Index (PMI) data.


Back in 2019, Nirmala Sitharaman had announced the setting up of a `25,000-crore Alternative Investment Fund (AIF) to gainfully provide funding for stalled incomplete housing projects. Focused policy measures to shore up funding for the stalled projects now would pay rich dividends and sooner rather than later.


The funds under the special window for affordable and mid-income housing can well be raised from the current Rs10,000 crore to at least twice the figure to better coagulate resources on the ground. Further, the Centre surely needs to open up the stressed real estate fund to overseas investors, on the lines of the National Investment and Infrastructure Fund (NIIF).


In tandem, foreign direct investment (FDI) norms for real estate require to be liberalised to increase cross-border funds flow. Foreign investments should be exempt from requirements such as a minimum built-up area of 50,000 sq m for development projects or 10 hectares for plotting schemes. Speed is of the essence in unlocking the value in builtup assets identified for a monetisation pipeline, and channelling the funds into fresh projects that fill gaps and create demand for capital and intermediate goods.

Courtesy - The Economic Times.

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Tuesday, April 6, 2021

No More Lockdowns, Shed Covid Fatigue (The Economic Times)

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

A man steps in the same river twice, held Greek philosopher Heraclitus, on the ground that constant flow has changed the water of the river and that the man himself has changed. It is futile to try and contain the second wave of Covid visible now in some parts of the country with the lockdown that was imposed to contain the virus in the initial phase of the pandemic outbreak. Containing the virus now calls for not lockdowns but a combination of rigorous enforcement of Covid-appropriate behaviour and intensification of the vaccination drive.

Immunity kicks in within a couple of weeks of receiving the first dose of the vaccine. Millions of people have been vaccinated and are immune in the regions where the virus is running amok now. Instead of a generalised clampdown on activity, what is called for is getting those vaccinated to lead the country’s journey to a post-pandemic world, and to increase the numbers of those vaccinated, by enhancing vaccine supplies. Those infected must be treated at home, if their symptoms do not warrant hospitalisation, and those homes must serve as micro containment zones, to prevent Covid spreading further. Wearing a mask and maintaining social distance have been sacrificed in the election campaigns. It is time for the same politicians who did not bat an eyelid while addressing unmasked crowds to now demand that their followers wear masks and avoid forming large groups. Political parties and their associated youth and student organisations should campaign for shedding Covid fatigue and community adoption of masking, social distancing and frequent sanitisation of one’s self and surroundings.

Increasing vaccine supplies is key to stepping up the pace of vaccination. Regulators must grant emergency authorisation to vaccines that have found approval in jurisdictions with sound regulatory practices. The government must issue compulsory licences to manufacture some of these vaccines at scale. The EU is fighting to corner a larger share of the vaccine output. But the real challenge is to increase the supply of vaccines.

Courtesy - The Economic Times.

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Making Alternatives Mainstream Investment (The Economic Times)

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


The recent move of capital markets regulator Sebi to amend norms for Alternative Investment Funds (AIFs) is forward-looking, designed to shore up transparency and boost efficiency. The alternatives typically tend to perform differently than stocks and bonds, and adding them to an investment portfolio can well provide broader diversification of risks and, in tandem, enhanced returns.


An AIF is a privately pooled investment vehicle that is supposed to collect funds from savvy investors. Note that Category I AIFs include venture capital funds (and angel funds), infrastructure funds and small and medium enterprise funds, while real estate funds, private equity funds and funds for distressed assets are classified as Category II AIFs.


The new Sebi norms, for starters, harmonise the definition of startups with that of the Centre for the purpose of investment by early-stage angel funds. Next, the list of restricted activities or sectors for venture capital undertakings has been removed, to duly provide investment flexibility for VC funds. And AIFs, including funds of AIFs, now have the go-ahead to simultaneously invest in units of other AIFs, and can also do so directly in the securities of investee companies. The policy intention is to diversify investments, better manage risks and augment returns.


Further, Sebi has prescribed a Code of Conduct for AIF trustees and directors, as also members of the investment committees of the funds. The norms also provide clarity on the scope of responsibilities of managers of ICs, to stem opacity in private investment vehicles. In India’s maturing capital markets, revamped rules for AIFs would raise inflows into them, better allocate resources, diversify risks and gainfully rev up overall returns.

Courtesy - The Economic Times.

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Monday, April 5, 2021

Time to shift gears in the Covid battle (The Economic Times)

A second wave of Covid is washing across certain parts of the country. There is no cause for panic or knee-jerk lockdowns. But there is every reason to shift gears and change the strategy followed hitherto. Intensifying efforts to modulate everyday behaviour to Covid-appropriate conduct is just one part of the solution. Scaling up vaccination is another. However, changing the pattern of vaccination in the select few regions where new Covid infections are concentrated might be even more relevant. Focus the vaccination drive in the most vulnerable areas, and saturate the population, not just those of any age group, with inoculation.


This will mean diverting vaccines from allocations that correspond to an equitable distribution of vaccines among states. The reasons for this must be articulated, and communicated effectively to the relatively lightly affected regions, where people might need to wait a tad bit more to receive their vaccination. At the same time, the government should take appropriate steps to increase the supply of vaccines. Vaccines that have applied for authorization must be approved for emergency use, based on approvals granted in other jurisdictions, particularly the US, whose sizeable Indian diaspora has seen largescale vaccination without any indication that people of Indian origin are at any special risk from the vaccines already in use. The Johnson & Johnson vaccine, of which a single shot suffices, and the Novavax vaccine, which can be stored in a normal fridge, are of special interest to India.


The time is past for India to keep waiting for the World Trade Organization to heed calls to waive intellectual property rights on Covid-related therapeutics and vaccines. India should issue compulsory licences to Indian vaccine makers who have or can build additional capacity to manufacture vaccines. It is vital to secure herd immunity for the global population to prevent virus mutations into strains that are ever more difficult to contain. Long Covid can maim lives even of those who manage to survive an infection.

Courtesy - The Economic Times.

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Saturday, April 3, 2021

Against senseless e-commerce terms (The Economic Times)

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


Certain proposals for a new ecommerce policy, backed by lobby groups, are currently doing the rounds. The government would do well to reject them in the interest of systemic efficiency, promoting small and medium enterprises and defending their interests against the domineering influence of big retailers, and fairness in the treatment of foreign investment in the country. Some of the proposals conflict with the government’s desire to modernise the logistics of agricultural produce, for which it has brought in new farm laws at a significant political cost.


One proposal is to bar companies in which foreign companies that operate ecommerce marketplaces have any economic interest from selling on these marketplaces. Already, the rules cap, at 25% of total sales on the ecommerce platform, the volume of a seller in which a foreign ecommerce platform has a stake. The proposed change would defeat the essential gain for the economy from bringing in organised retail: to enable investment in the facilities and processes of modern logistics. If a foreign retailer is barred altogether from owning any stake in a company that invests in modern logistics to procure, process and sell on the ecommerce platform, that would rule out the possibility of realising the core efficiency that modern retail brings to the table. Unless, of course, retail is understood by policymakers as the science and art of attractive display of merchandise in the store, electronic or physical.


Another proposal is to permit foreign ecommerce firms to invest in logistics operations and to make their services available to one and all at fair and undifferentiated prices. This suffers from two deficiencies. Trade offers different rates to different customers, based on scale and regularity of custom, to begin with. Further, certain activities are too complex to be contracted out without loss of efficiency, and have to be internalised within a firm. This insight was awarded a Nobel prize in economics, and so, perhaps, is too highfalutin to inform government policy.

Courtesy - The Economic Times.

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The clean water and fuel opportunity (The Economic Times)

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


Budget 2021 talks of Swachh Bharat Mission (Urban) 2.0, and allocates Rs 1,41,000 crore for wastewater treatment and solid waste management (SWM). The Mihir Shah committee report on water reforms had brought out the startling fact that only 2% of our urban areas have both sewerage systems and sewage treatment plants. The government must draw up multi-year projects for sewage treatment via public-private partnerships (PPP), and also to boost municipal capacity to that end.


India ranks 120th among 122 countries in the water quality index, one significant reason being that we have given short shrift to investments in modern sewage systems for decades. A holistic, integrated approach is clearly required. Take, for instance, SWM. India generated 62 million tonnes of municipal solid waste in 2019, but the vast bulk of it was simply dumped at landfills without any scientific processing and treatment. Worse, given the hugely inadequate capacity in sewage treatment plants, it is par for the course for urban wastewater to simply flow into local water bodies. True, in recent years, there has, indeed, been sharp increases in budgetary outlays for the urban sector both at the Centre and in the states. But there appears to be little or no commensurate improvement in the institutional and financial capacity of local bodies that can purposefully equip them to discharge urban services in an effective and business-like manner.


Hence the need to step up investment in SWM and sewage treatment plants in the PPP mode, to tide over the inefficiencies of urban local bodies, including by way of innovative financing mechanisms such as value capture finance, so as to boost public health. Sewage treatment has synergies with plans to produce biogas and cut methane emission at scale, too.

Courtesy - The Economic Times.

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Friday, April 2, 2021

Let inflation-indexed bonds fix oversight (The Economic Times)

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


The government was wise to hastily withdraw the order slashing interest rates on assorted small savings schemes, not so wise to have announced such rate cuts during vital state polls. The government tweeted that the orders (read: to cut interest rates) were issued by ‘oversight’. Elections are underway in five crucial states, inflation is rising, and the country is facing the second wave of the pandemic that has hurt incomes and livelihoods. A crucial policy decision on cutting the administered interest rates on small savings ought to have been thought through and not the subject of any oversight.


The interest rate on small savings is benchmarked to the yield on 10-year g-secs, that is around 6.17% now. But the revised rates on five-year post office fixed deposits (5.8%) and National Savings Certificate (5.9%) that have now been withdrawn were lower than what this benchmark would have warranted. This is absurd. Higher inflation would also lead to negative real return for investors, hurting small savers further, many of whom depend on income from investments. Most bank fixed deposits too offer only about 6% or so for senior citizens. Where will scores of small savers and pensioners, whose returns have dipped over the years, invest?


The best way the government can help them is to launch inflation-indexed bonds that protect both the principal amount and the interest from the harsh effect of inflation. This makes sense as the appetite for risk in this segment to invest in equity is low, and some savings can be invested in bonds. Preserving the value of the principal and offering a positive rate of interest in real terms, after netting out the rate of inflation, will be a decent savings option for savers.

Courtesy - The Economic Times.

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Target inflation? Just smell as sweet (The Economic Times)

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


As sweet cometh the hour, cometh the policy, whether clothed as inflation targeting, recession fighting or financial sector stabilising. What the conduct of the central bank has shown in the recent past is that whatever the nominal rigidity in the objective of monetary policy conduct, the policy, in practice, flexibly targets the immediate problem at hand. While the bimonthly setting of policy rates continues as a ritual, open market operations to increase or lower the supply of liquidity and correspondingly bend rates lower or higher and manoeuvres such as Operation Twist to alter short- and long-term rates make repo rates far less critical than they ought to be in a strict inflation-targeting model. And this is all to the good.


In a world of high levels of capital mobility across borders, financial stability is a very major consideration. Fiscal policy, monetary policy, exchange rate policy, export and import policy and capital controls must all move together to the choreography of macroeconomic stability in such a world. This is more than a little beyond simple-minded inflation targeting. The remarkable thing is that these individual policies have, indeed, been dancing as a practised ensemble, without necessarily being conscious of the coordination one has with another. Therefore, it matters little if the government retains the fiction that the goal of monetary policy is inflation targeting or not. More than setting policy rates, what must preoccupy the central bank is developing the market for corporate debt, complete with all the instruments required to mitigate the assorted risks that accompany the bond market.


Managing supply constraints is beyond the task of monetary policy. Whether the supply is of food commodities or of energy, policy would need to look through their first round price impact. The good news is that India’s monetary policy has been far less dogmatic than labels for methodology suggest. Inflation forecasting must become more realistic, however, to avoid unrealistic expectations sending policy rates too high.

Courtesy - The Economic Times.

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Thursday, April 1, 2021

May GoI live up to spending boasts (The Economic Times)

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


As the new financial year begins, all eyes are on the government living up to its brave expenditure commitments. No spring of recovery is guaranteed to trail behind a winter of economic distress.


A vigorous recovery that brings comatose businesses back to life, restores jobs and generates new ones, while filling the government’s coffers with taxes, depends on effective delivery of the promised growth stimulus. The world’s largest economies — the EU, the US and China — are all focused on generating domestic growth with big State-led spending: on infrastructure, climate resilience, digitalisation of government services and, in China’s case, strengthening the internal circulation, that is, domestic demand, in contrast to the mainstay of past Chinese growth, the external circulation, meaning exports.


Much depends on central banks. The central banks of the US, the EU and Japan have created large pools of liquidity and sent out waves of money washing across the world’s capital markets. This has depressed interest rates, lowered the discount rate for assessing the net present value of future earnings on company stocks, sending price/earning ratios to heights where the oxygen is thin. The prospect of coordinated fiscal expansion focused on infrastructure promises a surge in demand for metals, fuel and other materials.


This could spell cost-push inflation, especially given the liquidity sloshing around the world. Anticipation of inflation has been sufficient to send the 10-year US Treasury yield up by more than a third to over 1.7% over a few weeks. Unless central banks carry conviction, inflation expectations will perform their self-fulfilling harm, and force central banks to raise rates and dampen growth. India’s central bank must look through temporary price surges and keep its attention on boosting growth. Some pricing power will help firms make up their minds to invest, to supplement State spending on infrastructure. At the same time, RBI has to focus on financial stability in a world of footloose capital.

Courtesy - The Economic Times.

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