It is festival time globally, and not just the religious and fun variety but also the vital festival of democracy or elections. It is for the first time in our lifetimes that festivities, mostly associated with huge crowds jostling to reach the ballot box or bedi (the pedestal on which the idols of deities are kept), are taking place in the shadow of a raging global pandemic. Forced departures from well-known rituals associated with festivals make these times a case study for future generations. Many would have seen a video on social media of an idol being immersed using mechanised trolleys, with least human intervention, in the recently-concluded Durga puja festivities. Now switch to the theatre of democracy in Bihar, where Assembly elections are being held. The common thread between the two festivals is, technology. Bihar, would perhaps be the first State in the country where technological interventions played a key role in the elections.

First, the Election Commission (EC) allowed online filing of nominations for candidates and many political parties chose to reach out to their constituents through virtual rallies and put up huge LED walls for public viewing. Given the absence of many veterans active in Bihar elections for at least three decades, most of the young scions of the colourful, vociferous and politically-influential families were suddenly catapulted to the centrestage of a new narrative. This young brigade of Biharis, technologically more versatile than their parents, sought votes on issues. Something hitherto unheard of in a State, known for its divisive caste and religious biases. It was surprising to see rival candidates promise lakhs of jobs to young voters in a State grappling with the problem of the jobless migrant labourers.

The most welcome aspect of this election has been the reliance on technology in a State which could well be a case study on the digital divide between India and Bharat. Many statisticians will point to a survey which revealed that more than half of Bihar’s women and around 40 per cent men have no access to mass media. This, when extrapolated over digital media, means a significant part of the population can either be completely insulated from the impact of technology or could be the next addressable unconnected millions, who need to be put on the information technology expressway of prosperity.

Now let’s jump across the Pacific to the US, which, too, is about to witness one of the fiercest and cacophonic elections on November 3 amid the Covid threat, deaths and economic destruction. The common binary binding Bihar elections, Durga Puja festivities and US elections is again, technology. After all, the new dominance game and the race to be a global superpower is now increasingly getting defined by your first tap on a smartphone, first digital payment/electronic transaction, first contact-free shopping for world-class brands from the comfort of your home and perhaps the first digital date after months of trying to understand each other’s typos and abbreviated texts.

Therefore, restrictions on digital applications, depending on the country of origin, to applying the same principles to hardware solutions in technical infrastructure, to forming an alliance of like-minded technology fraternity of nations were some of the key highlights in the election campaign of the two presidential candidates of the world’s richest democracy. What it also highlighted was the fact that increasingly, the physical restrictions (read policies) of trade and commerce dominating economic relations between a bunch of nations will now be enthusiastically copy-pasted in the digital arena to prevent loss of sovereign powers and dominance at the global high tables.

Covid has put the spotlight on public policy issues, which, till February, were still in advanced stages of intellectual discourses. It has challenged our ability to adapt and eventually recover from the disease. And the only sector which has truly helped this advancement is technology. It reacted quickly and ensured teachers, parents and children were handed online course materials for seamless academic learning and doctors were given online tools for initial digital health interventions for patients. It gave the Government effective platforms for interaction and empowered it to push critical policy goals. Technology enabled digital live darshans of beautiful but deserted pandals and online delivery of prasad for the religious, too. If the human race has been pushed ahead by three decades in one stroke by the lockdown and technology has taken centrestage, it is also time to think and refresh many global policy challenges and perhaps release an update. Policymakers have to realise that imposing strict restrictions, based purely on case-by-case models, and having a physical worldview of digital policy issues can be self-defeating in the long run. A continued prosperity for nations will only be achieved by allowing and championing a global open market for trade, goods and digital services. It must be kept in mind that the new normal for policy-making at sovereign-level negotiations must be dictated by a set of principles. This must be compulsory in all digital agreements between consumers and technology providers, governments and their counterparts across borders. A multi-lateral approach must be championed. It is time to click on the right button.

(The writer is a policy analyst)

The Indian retail industry is a highly competitive, $800 billion market with a Compound Annual Growth Rate (CAGR) of 12 per cent. Out of that, the share of online retail is $32.7 billion with a CAGR of 31 per cent. Smartphone penetration, brand consciousness, demographics and policy support are the factors transforming and pushing this industry towards omnichannel retailing.

Omnichannel retailing is a fully-integrated approach to commerce, providing shoppers a unified experience across all channels or touchpoints, including online and offline. It offers consistent merchandise and seamless interaction between online and offline channels, thus combining the benefits of both. However, the pandemic and subsequent national and local lockdowns have greatly impacted both supply and demand. The supply side was hit by administrative restrictions and limited resources while  demand, too, remained subdued due to job-losses, salary cuts and restrictive spending. In such a situation, an agile response is needed for swift operations, customer satisfaction and surviving in the post-Corona era.

Evolving consumer behaviour: Though retail has undergone many significant disruptions in the past, perhaps none has shifted consumer behaviour as rapidly as this contagion has. The changes are happening due to factors like challenges in personal situations, preferences towards local products, precautionary measures against the virus and rising digital awareness — a by-product of promotion of contactless transaction.

Even in the unlock stage, consumers are hesitating to visit stores and while exercising social distancing measures, many uninitiated customers are moving towards online retailing. For example, many senior citizens are opting for online grocery shopping as a precautionary measure. Use of services like contactless digital payments, social commerce and virtual consultation are also seeing a rise.

Many of these behavioural changes will continue even after the pandemic is over. McKinsey and Company cited this as “consumer behaviour shift.” For example, people will get used to the comfort of home delivery, ease of digital payments, varieties offered by online markets and so on. Retailers need to draw insights from these changes and rebuild the consumer confidence as the new normal continues.

Financial skills: Revenue is sharply dropping for many categories. Even though store profit has gone down, retailers need to pay rents, salaries and so on. Hence, at this point it is necessary for them to optimise cost and curtail the offerings to profitable items. In the long-term, as demand picks up, it would be prudent to invest in omnichannel fulfillment as means to financial resilience.

Accept the new normal: Social distancing, safety and hygiene procedures will be here for a while. The best way to go forward is to accept the new normal and the complexity it will bring to decision-making.

Consumer connect: Now more than ever, it is must for retailers to connect and communicate. Consumers will definitely like to know what a business is doing to ensure their safety, for delivery as well as in stores. Despite the pandemic, customers will need timely deliveries of their order. So, in case of item shortages or delayed fulfillment, it is necessary to explain the cause and convey the commitment.

Extra activity: First and foremost, retailers need to adapt to safety regulations, sanitisation procedures and regulatory directives at the country, State and municipal level in various phases of the unlocking. They need more dynamic inventory and logistics planning to meet the fluctuations both in demand and supply, plus a connect with employees regarding their health and financial well-being. This will prevent attrition and business continuity.

Infrastructure: The Indian online retail infrastructure is in an intermediate stage. The pandemic just exposed the flaws and inefficiency which were already there. Retailers should review the location of warehouses, delivery centres and their distributors to compute the risk of supply chain disruptions. The partnership with local grocery stores will help retailers to ensure timely contactless last mile delivery even during a crisis. Retailers also need to re-imagine in-store experience, considering customers’ safety and efficient operation with reduced staff while complying with social distancing norms.

Technology skills: Technology allows retailers to have relevant information and visibility throughout the supply chains, resulting in timely communication with all the stakeholders. Businesses will need secured, informative and intuitive shopping apps, which can balance for the lack of store visits. Also, Artificial Intelligence will continue to make a big impact in this sector to predict real-time consumer demand, optimise inventory and manage backorders, thus ensuring operational agility.

Also, Smart Mirrors and Augmented Reality can help build a store-like environment in the virtual world, ensuring safety. This way, retailers and associated stakeholders need to ramp up technological skills and infrastructure as they enter a post-pandemic era. As of today, India is among the top countries with the highest number of Covid cases and there is no end to the contagion in sight. Even the countries, where the outbreak seemed to be in control initially, are experiencing a second wave. This has caused supply and demand disruption and jolted the market ecosystem.

Hence, it is certain that retailers, that are an integral part of the demand-driven economy, need to be financially prudent, fast in their response to the new dynamics and ready to collaborate through the value chain to hthrive during this crisis and subsequent periods. As with many sectors, it is likely that retail will see a regime shift and consolidation. Smaller and financially-struggling businesses might face difficulty in surviving this crisis. At the same time, retailers with a unique value proposition will come out stronger. This outbreak serves as a reminder for retailers to be more proactive in planning and resilient in their response to unprecedented disruptions in future.

(The writers are Senior Research Scholars at the Indian Institute of Science, Bengaluru.)

The bid to take over the remaining assets and brand of Jet Airways by Dubai-based real estate entrepreneur Murari Jalan and American private equity firm Kalrock Capital has been accepted by the lenders. Even though they will have to accept a massive 90 per cent haircut on their outstandings from the airline, the fact that they will get something is a lot better than what they faced with Kingfisher. Former employees of the now grounded airline as well as other unsecured creditors, everyone from those who provided taxi and catering services to passengers with tickets for flights that never took off, are hoping that the new management will clear their dues as well. Unfortunately, while the new management might absorb some old employees and even executives, it does not hold any obligation to clear these unsecured dues. The new owners could clear some dues in order to build goodwill but of the estimated Rs 40,000 crore owed by Jet Airways to various creditors and employees at the time it suspended operations in April 2019, much of it will never be seen again.

This deal is being spoken about as a success of the Insolvency and Bankruptcy Code (IBC) that was introduced by the Government in 2016. Some even suspect that the Government pushed this deal through to highlight that the IBC can be a success as several other high-profile cases are stuck. That said, the proof of the pudding is in the eating and the proof of an airline is in the flying. With few details public, there are no firm dates on when this ‘new’ Jet Airways can fly again. As the aviation market globally is in the doldrums, one also questions whether this is a smart time to launch an airline when customer demand is less than half of what it was this time last year. Yes, it will be easier than it would have been in February to get slots and even lease new planes but the new management should not have misplaced optimism about “customer loyalty.” Restarting a brand, any brand, and particularly a service brand after a period of not operating is not easy and customers are extremely fickle. And with the likelihood of one, maybe even two airlines in India potentially falling victim to the pandemic, thanks to stretched balance sheets,  things might actually get very difficult for the new ownership. That said, we wish them all the best and hope that they can succeed, and hope is a very powerful thing these days.

The Finance Ministry is building pressure on the 15th Finance Commission (15th FC) to allow greater flexibility while fixing the fiscal deficit (FD). It wants to adopt a flexible, range-bound FD target instead of a fixed number. With this aim in mind, the Modi Government is reviewing the Fiscal Responsibility and Budget Management (FRBM) Act. The issue was discussed at the Economic Advisory Council (EAC) of the 15th FC, wherein the chairman, NK Singh, cited a similar practice followed by the Reserve Bank of India’s (RBI) with +/- two per cent inflation target while deciding its monetary policy. The immediate prompt for this is the sharp contraction in the Gross Domestic Product (GDP) by about 24 per cent in the first quarter of the current financial year (FY) and a corresponding steep reduction in tax collections even as the expenditure commitments are on the upswing (courtesy the two stimuli already given). As a result, on May 8, the Government raised its gross market borrowing target for the FY 2020-21 to Rs 12,00,000 crore, up from the Rs 7,80,000 crore provided for in the Budget on February 1.

  Of this, the Government had already borrowed Rs 7,66,000 crore during the first half of the current FY and plans to borrow the remaining Rs 4,34,000 crore by January 2021. At Rs 12,00,000 crore, the borrowing limit is already set at about 5.8 per cent of the GDP — 2.3 per cent higher than the budgeted FD target of 3.5 per cent. With this and demand for yet another Stimulus III gaining ground, it is not surprising that the Finance Ministry is building pressure on the 15th FC. During the current year, we have an extraordinary situation, so one can understand the desperation. But it is important to recall here that in his budget speech for 2016-17, the then Finance Minister Arun Jaitley had announced the Government’s intent to review the FRBM Act (2003) with a view to make the target flexible (that the announcement was made following the year 2015-16, when it had achieved the FD target of 3.9 per cent, sounds a bit anomalous). He had set up  a committee under NK Singh (it included among others, the then Chief Economic Adviser, Arvind Subramanian, and the then Deputy Governor, RBI, Urjit Patel) to examine the issue.

The committee recommended a “glide path” for the next six years, beginning 2017-18. It recommended a FD target of 2.5 per cent, revenue deficit 0.8 per cent, combined Centre-State debt ceiling of 60 per cent and a Central debt ceiling of 40 per cent for 2022-23. Further, it fixed three per cent FD to be achieved during 2018-19. It also allowed the Government to breach the target — by up to 0.5 per cent — in case of “far-reaching structural reforms with unanticipated fiscal implications.”

In the amendment to the FRBM Act vide Finance Bill 2018-19, even while retaining the “escape clause” to cover unanticipated events, the Government adopted the glide path of achieving three per cent FD by 2020-21 instead of 2018-19 mooted by the committee. Further, it set the debt limit of 40 per cent for the Centre to be reached by 2024-25 instead of the committee’s mandate of 2022-23.

This cherry-picking may be seen in the backdrop of the Government missing the FD target for 2017-18 by 0.3 per cent and seeing no hope of achieving three per cent during 2018-19 as recommended by the committee. While presenting Budget 2020-21, Sitharaman has already invoked the escape clause of the FRBM Act to relax the FD targets for FY 2019-20 from 3.3 per cent Budget Estimate (BE) to 3.8 per cent in the Revised Estimate (RE) and for FY 2020-21, from three per cent as per the glide path required under the Act to 3.5 per cent. The one big thing that she did last year was reducing the Corporate Tax rate, which meant a revenue loss of close to Rs 1,50,000 crore annually. The reform was far-reaching and structural but one wonders whether this was an event not anticipated by the Government.      

Ironically, the above numbers do not give the true picture of the FD as a lot of expenses, despite being a liability of the sovereign Government, are kept off its balance sheet. These are deferred subsidy payments (DSPs) and extra-budgetary resources (EBRs), a nickname for borrowings by Public Sector Undertakings (PSUs) and other agencies of the Government on its behalf. Including these off-balance sheet items, the FD for 2017-18 and 2018-19 would be about 5.9 per cent and 5.7 per cent respectively. For 2019-20, including DSPs alone, FD would be 5.1 per cent. Add EBRs and the deficit will gallop. For 2020-21, the likely deficit of 5.8 per cent is exclusive of DSPs and EBRs.

There is a short provision in the Budget: Food subsidy about Rs 1,03,000 crore and fertiliser subsidy around Rs 80,000 crore. Plus, there will be a huge shortfall in proceeds from disinvestment by at least Rs 1,50,000 crore as big ticket sales such as Bharat Petroleum Corporation Limited (BPCL) and Life Insurance Corporation (LIC) are unlikely to go through during the current year. This adds up to two per cent, taking the total to 7.8 per cent. Including EBRs, the FD could touch 10 per cent.  Already, under the existing dispensation of FD being a fixed number, the Government has a lot of leeway — explicit as well as not so explicit. On the explicit side, we have seen the fiscal consolidation glide path made fairly liberal to suit the budget math as also the revised FD being significantly higher than the target — yet going unpunished (for instance, during 2008-09, the actual FD was six per cent against the target of three per cent as per the FRBM Act, 2003). On the not so explicit side, DSPs and EBRs have been used to camouflage the true deficit.        

If the FD range gets embedded in the FRBM Act, this will amount to giving legal sanction to slippages. It will defeat the very purpose of fixing a target which is to obligate the Government to keep the excess of its expenses over revenue within a specified limit. The moment the law itself prescribes a range, say of three per cent-3.5 per cent, even the most discerning Government will take the higher end of the range as the benchmark as from a legal standpoint, violation will happen only when the actual exceeds 3.5 per cent.

To put it differently, providing for a range is a more subtle and sophisticated way of embedding in the legislation a more relaxed target without catching the attention of the not so discerning eye.     

The comparison with inflation targeting under the monetary policy to justify FDI range is not all fours. While, the FD target has a direct bearing on budgeting by the Centre (a swing of 0.1 per cent either way makes a difference of Rs 20,000 crore in its borrowing limit), inflation targeting by the RBI does not impact the finances of banks. For a proper comparison, we need to look at the RBI mandated “provisioning” for a loan that becomes an NPA. That is a fixed number, say 25 per cent (for an account remaining unpaid for up to one year), not a range.              

It is argued that a range brings an element of predictability in knowing how far the Government can go in expanding its borrowing programme and the resultant impact on crucial parameters like bond yields, interest rate; hence helpful in boosting investor confidence. This is a frivolous argument. Whether it is one fixed number or a range, there is predictability in both the scenarios. The difference is notional as in a range, one looks at the upper end. Unpredictability arises when things such as DSPs/EBRs are done outside the FRBM framework; sadly, those are swept under the carpet.  

Another argument in support of range is what some experts describe as reinforcing “counter-cyclical” objectives. Put simply, when the economy is on a downswing, then the Government needs to undertake major investment to rein in the slide and put the economy back on the growth trajectory. It is primarily to tackle extraordinary situations such as during the current year that a 0.5 per cent cushion is permitted as per the 2018-19 amendment to the FRBM Act.     

The incorporation of FD range does not offer anything better than what is already there in the FRBM law, i.e. fixed number FD target plus escape clause, unless it is the intent of mandarins in the Finance Ministry to have both, namely range as well as the escape clause. That would be disingenuous. The 15th FC should refrain from going for a range-bound FD. The extant arrangement should continue with suitable increase in the permissible breach under the escape clause. All hidden slippages such as DSPs and EBRs should be prohibited.

(The writer is a policy analyst)