India, as an industrialising nation, cannot afford to have an engineer with bookish knowledge of an engine without the skill to design it
India went into lockdown mode in March and people in almost all sections of society have been facing socio-economic difficulties since then. The almost insurmountable challenge in front of policymakers has been to balance lives and livelihoods. The uncertainties of the lockdown entwined with health and safety concerns disrupted the market that faced a supply and demand shock. These issues resulted in a historically low Gross Domestic Product (GDP) growth rate of -23.9 per cent in the first quarter of the current financial year, with industrial growth shrinking by 40 per cent. However, it is expected to pick up in the subsequent quarters as stated by the Reserve Bank of India (RBI) and the World Bank. The economic consequences of the pandemic and local lockdowns have been well-discussed and are surfacing in the GDP and industrial production numbers.
However, there is another side of the issue which is quietly creeping up and that is the social consequences arising out of the lack of skill training. Certainly, this social and educational consequence will translate into economic adversity over a period. According to the All India Survey on Higher Education (AISHE), India’s gross enrolment ratio was 27.4 per cent for 2017-18. This is not a great figure as compared to the other developing countries. This is further battered by the possible decline in enrolment this year owing to constrained access to educational institutions and infrastructure for many unprivileged students, particularly in rural India. Given the contagion, the Indian education regime had to shift gear to the online mode. Thanks to the internet that, at least, served an option for continuing education. But the question is: Is this viable on the ground? Will our students contribute to the human capital and participate in the herculean task of reviving the Indian economy? The presence of internet and digital infrastructure along with their significant (about 50 per cent) penetration in the country have come today as a boon for education and for imparting training to aspirants. In this backdrop, the Pradhan Mantri e-Vidya Programme was launched, which unifies all efforts related to digital, online and on-air education. Furthermore, top 100 universities were permitted to start online courses from May 30 without any fresh approval from education regulators. States, such as Karnataka, too, announced policies for online education.
However, there exist certain unprecedented challenges for moving towards online education, which is the need of the hour. It has not only changed the way students from KG to post-graduation learn, but also has significantly altered the methods and materials of teaching for educators and parents. The fundamental constituent to enable online education is digital infrastructure, including high-speed internet and supporting devices (desktop, laptop, tablet or mobile phone). These prerequisites of online education have further expanded the gap between the upper and middle class and urban and rural populations of the country in terms of access to education even after promulgation of the Right to Education.
Education and skill training have always been a two-way communication and feedback process that may not be done in the online mode as effectively as it can be done in classrooms and laboratories. It is difficult to imagine students learning biology, physics and chemistry without actually experimenting in laboratories. It is quite important to differentiate knowledge and skill in this context. Knowledge can be delivered and learned from literature. However, skill-imparting needs experiment and experience that may not be feasible in the online mode of learning.
India, as an industrialising nation, cannot afford to have an engineer with bookish knowledge of a combustion engine without having the skill to design and operate it. Historically, the industry-academia gap has always existed in India. A McKinsey report had flagged the issue, a decade ago, that just a quarter of engineers in India were actually employable. Now, the online education model producing graduates with lack of skills may aggravate the employability issue further. This may lead to a deteriorated human capital and underemployment in the economy due to the fact that a large pool of the present unskilled human capital coming out of the online pedagogy will join the workforce in the future, face employability challenges and take a longer period to be skillful and join the productive workforce of the nation.
Given the necessity of the online education system, at present, we must acknowledge and address these issues, challenges and the consequences associated with it. The lack of digital infrastructure in rural and unprivileged sections has posed implementation challenges on the ground, leading to social inequalities. However, the major worry lies in the outcome of this new regime of online education system in terms of skill and lack of employability of the human capital that will have the great responsibility of putting the Indian economy back on its growth trajectory with equitable development.
It is high time we think about bridging the gap between rural and urban digital infrastructure for online education and imparting employable skills. The National Education Policy (NEP) aims to reform the education system by 2030 in a push towards an Atmanirbhar Bharat. One hopes that the NEP bridges the gap between the industry and the academia in terms of employable skills and gives an equal learning and growth opportunity to all.
(The writer is a Senior Research Scholar, Department of Management Studies, IIS, Bengaluru)
The Centre and States must try to fix all void in GST implementation to achieve buoyancy in tax revenue, thereby obviating the need for continuing with the compensation mechanism
Faced with a dwindling tax revenue since the last financial year of 2019-20, the issue of “full” and “timely” compensation for the shortfall in States’ tax revenue (their own collection plus the amount received as their share in indirect tax collected by the Centre as per the Finance Commission’s devolution formula) vis-à-vis a given benchmark, has been a bone of contention between the Centre and the States. It has acquired gargantuan dimensions during the current year with the Coronavirus pandemic forcing a collapse of businesses, cutting across almost all sectors (barring essential items) and in turn, leading to a steep fall in tax collection of both the Centre and States. During 2020-21, the gap between what can be arranged from a tax pool and compensation requirement of the States is estimated to be Rs 2,35,000 crore (during 2019-20, this was Rs 70,000 crore). The compensation to States is intertwined with the Goods and Services Tax (GST) in vogue since July 1, 2017. The GST Compensation Act, 2017 provides for compensation to the States for five years (2017-18 to 2021-22) for the loss of revenue to be calculated as the difference between their actual collection (including transfer of their share in indirect tax collected by the Centre) and the amount they would have got with annual growth at 14 per cent over the 2015-16 level under the erstwhile dispensation (Central Excise Duty (CED)/service tax/sales tax/Value Added Tax (VAT) plus other local taxes).
To ensure this, the Union Government had also passed an amendment to the GST Compensation Act (2018) to levy a cess on the supply of certain goods and services. The cess is levied on demerit goods (those which fall in the highest tax slab of 28 per cent — other slabs being five per cent, 12 per cent and 18 per cent besides the exempt category) such as automobiles, tobacco, drinks and so on with a proviso to use the proceeds for compensating States. The cess was to remain in force for five years in sync with the Centre’s obligation to compensate States for that period. The rationale behind keeping these arrangements in place for five years was that at the end of this transition i.e. 2021-22, the GST dispensation would have acquired the much-needed “vitality” and “resilience” to yield sufficient resources for the States to meet their budgetary requirements within a prudential limit set under the Fiscal Responsibility and Budget Management Act (FRBM) thereby obviating the need for any extra support beyond 2021-22.
During the first two years, viz. 2017-18/2018-19, collection from the cess was higher than the shortfall in tax revenue faced by States. As a result, there was surplus of about Rs 47,000 crore in the cess pool as on March 31, 2019. This helped the Centre meet the impending challenge during 2019-20 when cess proceeds were only Rs 95,000 crore against compensation requirement of Rs 1,65,000 crore. During the current year, against compensation requirement of Rs 3,00,000 crore, cess proceeds are estimated to be about Rs 65,000 crore leading to a shortfall of Rs 2,35,000 crore. In this backdrop and with the States unwilling to relent on their claim for compensation in full, the Centre is talking of what in legal jargon is termed as force majeure (unexpected circumstances). Put simply, the latter has expressed its inability to pay invoking an event beyond control or what the Finance Minister, Nirmala Sitharaman, has described as an “act of God” (the Coronavirus).
The issue was discussed during a marathon meeting of the GST Council on August 27, 2020. Ruling out a hike in tax rates or the Centre making good the shortfall from either the Consolidated Fund of India (CFI) or borrowing against its balance sheet, Sitharaman presented two options for consideration by the States. Under option one the Centre, in consultation with the Reserve Bank of India (RBI), will provide a special window to the States to borrow Rs 97,000 crore (this is the amount attributable to implementation of the GST, while the rest is apportioned to the pandemic — as informed by the Revenue Secretary, Ajay Bhushan Pandey) at a “reasonable” rate of interest. The loan won’t be treated as debt in the books of the State Governments and will be amortised (both principal and interest) from the cess collection. An additional FRBM limit of 0.5 per cent of State Gross Domestic Product (SGDP) will be allowed.
Under option two, the States will borrow the entire GST compensation gap of Rs 2,35,000 crore (including Covid-19 impact portion) from the market. The collection from the cess will only pay for the principal amount. As regards the borrowing treatment, only an amount up to Rs 97,000 crore won’t be treated as debt. No additional FRBM limit is allowed under this option. The GST Council also decided that the above borrowing arrangement would be for the current fiscal and a review would be done at the beginning of the next financial year. By putting the above options, the Union Government has made four things abundantly clear. One, it is not legally bound to pay the compensation when there is no money in the cess pool; second, it won’t borrow on its balance sheet but is willing to help States raise a loan; third it does not want the tax pool to fully cover the cost of servicing the loan and fourth, the cess on demerit products will continue beyond 2021-22. On option one, it can’t be faulted. The two provisions in law, namely one relating to compensation and the other levy of cess (and collection thereof) have to be viewed in conjunction with each other. In other words, the discharge of the constitutional obligation to compensate States for the loss of revenue would be possible only when there are enough funds available in the cess pool. Since the pool is denuded, the Centre is under no obligation to pay (this position is even confirmed by the Attorney-General). By the same logic, there is no case for it to borrow on its balance sheet and pay to the States.
Even so, going for it will have a catastrophic impact on its budgetary position. Already, the Centre has increased its borrowing programme from the budgeted level of around Rs 8,00,000 crore by 50 per cent to Rs 12,00,000 crore. This does not include Rs 90,000 crore towards additional allocation for MGNREGA and employment schemes for migrant labourers. Now, if it has to borrow Rs 2,35,000 crore to cover deficit in the cess pool, its total borrowings will gallop to Rs 15,25,000 crore or eight per cent of the GDP — more than twice the budgeted 3.5 per cent. Apart from casting a shadow on India’s ability to protect its macro-economic fundamentals and inviting the wrath of rating agencies by way of downgrade, borrowing by the Centre on such a mammoth scale will crowd the market, harden yield and increase the cost of borrowing by States even for their normal borrowing programme (apart from making things difficult for the private sector). In this backdrop, the proposal put forward by Sitharaman to help States raise loans at reasonable rates makes sense. However, disingenuous bureaucrats in the Finance Ministry have designed the borrowing options in a manner so as to make it unviable for the States. Under option one, the loan will be available at low interest rate and there won’t be any burden of servicing on them but this covers only 40 per cent of the shortfall. So, they will be forced to think of option two.
Under this option, States can raise a loan for the full amount of the deficit i.e. Rs 2,35,000 crore but the Centre won’t facilitate this. They will have to borrow from the market at a higher rate. No additional FRBM limits for these borrowings will make them less credible, thereby adding to the cost of raising them. Adding salt to injury, States will have to bear interest cost from their own resources as the cess pool will only pay for the principal amount. The Centre should stop this skullduggery. It makes no sense to make a distinction between a shortfall arising from the GST implementation or the pandemic. Whatever may be the cause, the fact remains, there will be deficit of Rs 2,35,000 crore in the cess pool and all of it needs to be addressed. The States should get to borrow this amount from the “special window” at a low interest rate and the cost of amortising it (principal plus interest) must be funded from the cess pool. The cess on demerit products will have to continue beyond 2021-22 till such time the loan-related liabilities are fully cleared. However, this will require that States refrain from pursuing their demand — made before the 15th Finance Commission — for continuing with compensation for three more years (beyond 2021-22) as that will jeopardise the chances of servicing this loan. Meanwhile, both the Centre and States should endeavour to remove all void in GST implementation to achieve the desired buoyancy in tax revenue, thereby obviating the need for continuing with the compensation mechanism.
(The writer is a New Delhi-based policy analyst)
The framework of Govt spending right now focusses more on increasing consumption and demand instead of reducing the impact of a fall in demand
The neo-Keynesian pressure on the Union Government to spend more and more and generate purchasing power among the largest segment of the Indian populace has been counteracted by a strong monetarist lending policy. The economic gap between the people who need cash and wage support and those who take loan to run their businesses is so wide across India that a monetarist policy can hardly overturn the situation of falling demand. A perceptual illusion about a rise in demand for small cars, pharmaceutical drugs and online sale of several consumer products no doubt raised consumption indices with the unlock phases of the economy but it could not offset the fall of demand in food, milk and cereal markets. The rise in consumption spurred by lending activity is limited to specific sectors, while larger demand still remains dependent on a rise in income and employment.
This brings us to two parallel streams of lending activity by banks and other financial institutions and generation of income and wages by larger sectors of production and distribution. The seeming disjunction between the two reflects a certain kind of weakness in the overall framing of economic stimulus package and other policies to revive the economy. Market-directed moves of expanding the credit market by the RBI and the Government, irrespective of the fiscal deficit of all kinds like revenue deficit, GST shortfall, non-availability of revised estimate of funds for critical healthcare and education, are a kind of provisioning that RBI earns through various financial instruments.
The expenditure policy is getting determined by instant availability of funds, for which the RBI is taken to be the most resourceful institution, re-fuelling the Government over the last few years. This presents a paradoxical situation of fund crunch, austerity and internal borrowings on the one hand and credit and lending activity to generate a large part of fiscal expenses on the other. The tax exemptions granted to the rich and the corporates by the Modi government capture the gross reduction in tax revenue, which lead to higher public debt in relation to the gross domestic product (GDP). In effect, credit expansion in the financial sector is risked against shortfall in revenue generation, which as a policy measure, further contracts targetted Government expenditure supposed to counter the falling demand.
This perpetual imbalance between monetary and the fiscal sides leaves the Government with very little policy options except the so-called God’s hand. If Atmanirbhar Bharat is taken into account, the Government’s spending as assistance towards MSME and agriculture cannot generate sustainable trade and employment as the most important product market remains sluggish. The local chain of markets for agri and MSME products is still to develop into a continuous supply chain, for which the local governments need to have sizeable interventions. This brings one to the role of State Governments in generating demand activity, which again is dependent on MNREGA, developmental work and building up a vibrant human capital. Homeward migration during COVID lockdown placed an added responsibility of finding productive work for at least four crore returnees, who are still struggling.
The bleak picture does not deter economists from producing their own variety of green shoots of economic theory. In a recent piece, Kaushik Basu argued for revival of the Indian economy through IT, outsourcing of digital economy, higher education, all of which ironically lack any labour-linking technological innovation. Seemingly the demand side is taken to be a suo moto available thing by Basu. In contrast, economists Anu Abraham and Mohd Imran Khan in their paper—Covid-19: How long can consumption be sustained in lockdown?—had shown that nearly 33 crore poor people cannot sustain consumption-to-income ratio at a satisfactory level and can at most sustain themselves for six to seven weeks. Combining Basu and Abraham and Khan, one gets a rather contrarian picture of growth in the service industry versus a total deceleration in basic income-generating sectors, which monetarist interventions cannot alter. This does not address the disequilibrium between cash flow, capital formation and demand generation at the levels of macro-economics or meta theory. One interesting way of looking at this knowledge gap is what Economics Nobel prize winner Robert J. Schiller considered as creation of a mainframe narrative to drive growth in an economy. In the case of the American economy, borrowing from medical sciences, Schiller considered a trending curve as an “art of narrative” by which an economy develops certain demands and succeeds in generating money. He further showed the role of a variety of narratives in sustaining macro-economy and most notably an epidemiological narrative that goes viral, in which income is the most contagious element that resembles the hump-shaped epidemiological models. For example, the distress sale of foreign securities in the Indian stock market due to the pandemic, resulting in outflow of capital, when combined with fiscal deficit due to the stimulus package, looks just like a COVID-synchronised model of economic losses that Schiller had predicted as an “epidemic of fear.”
India’s highly priced US treasury holdings of $ 162.7 billion at two per cent with equally huge foreign currency-based loans worth $105 billion from the World Bank at 9.5 per cent result in a massive loss of Rs 50,000 crore per annum from India’s coffers. Combined with short selling of bonds and securities, India’s attempt to hold foreign government securities has resulted in a cost worth a million crore in the capital account, leading to a challenging trend of capital account deficits and current account surpluses. Capital account deficits worth Rs 139 crore in 2020 show a trend of excessive financial outflow while current account surplus to the tune of 0.1 per cent of the GDP shows sharp fall in import as well as export due to recessionary conditions. The monetary management by adjustment of rates and control on money market by the RBI is not able to bring sustainability in the balance of payment. This is how India’s balance of payment looks more like a rising epidemiological curve that shows no sign of receding. The demand management through Atmanirbhar Bharat or the “Made in India” narrative cannot match the pandemic-induced fall in demand.
The other narrative of self-reliance in key sectors like space and defence production has nothing much to do with capital outflow or demand contraction. A futurist narrative of companies off-shoring them to India in digital technologies with a positive impact on job creation gets blunted by privatisation of the ordnance industry involving substantial job losses. One-time revenue generation through selling public sector giants in contrast with past nationalisation of key industries is an impact of the pandemic hump. The rising death rates in India combined with restrictive lockdowns spawn new gaps between overburdened health infrastructure and overall fund crunch. In the absence of a plausible narrative, one could look at sustainability economics. Advocated by environmental economists like Giorgos Kallis and institutional economists like Kate Raworth, this shows how economies can sustain themselves through an equitable contraction of demand. In a Corona-hit economy, such a contraction certainly reduces pressure on natural and material resources. At the same time, it does not create a steady state economy of equilibrium between income and employment; rather it increases the bullish behaviour in stocks and securities.
Sustaining degrowth by decoupling employment and growth could be a fiscal alternative in which a contraction in demand could release an extra or reserve fund for giving cash to poor and middle classes as a “political right.” On the other side, a contraction of demand has resulted in unemployment and job loss to the tune of five million salaried employees in July alone. Altogether 1.8 crore salaried people have lost jobs since April, as stated by CMIE data. This certainly requires what degrowth theorists proposed, a universal basic income and job guarantee decoupled from economic growth. The policy framework of government spending right now focusses more on increasing consumption and demand instead of reducing the impact of a fall in demand. This can be made possible by way of distribution of resources in a socially co-operative manner. This is how we can grow the green shoots.
(The author is a political economy analyst based in Shillong)
Our economy contracted by a massive 23 per cent. Things might be looking better but there could be long-term damage
Patients who have ostensibly recovered from a bout of Covid-19 are reporting strange traits. CNN’s flamboyant business correspondent Richard Quest, who fought off the disease during its initial days, recently said that he has not felt quite the same. The virus might have made him more clumsy. Others tormented by the disease are reporting reduced lung function, some have been left diabetic and yet others afflicted with brain damage. But what about the patient called the Indian economy? Although mortality rates, we are told, are under check, it seems those hit by the economy going into a tailspin will soon outnumber those directly impacted by the disease. With demand taking a tumble, economic activity in the first quarter of the current fiscal dropped a scarcely believable 23 per cent.
Were matters made worse by the seeming ineptitude of the doctors treating the economy? To be fair, no doctor, medical or economic, has really managed to conquer the disease and its effects, but some have dealt with it better than others. Could those overseeing the Indian economy have done a better job? Much has been written about this and many constructive as well as several idiotic suggestions have been made. However, it is no secret that our economy was already close to stalling before the virus from Wuhan spread across the world. While Narendra Modi’s appeal remains strong with the masses, there is a growing degree of frustration among many about the handling of the economy by him and his team of ministers, bureaucrats and even bankers. Make no mistake, the Reserve Bank of India, by holding onto its cash reserves, even though what the economy is going through is the archetypal definition of a ‘rainy day’, has not helped the situation.
Yes, there has been an uptick in demand in July and August and some believe that by the end of September we will get a clearer idea of the situation for better or for worse. Wholesale dispatches by the larger automobile manufacturers have picked up of late. While the retail offtake has remained steady, the expectation is the festive season will see a pick-up in consumer demand powered by the rural economy. But even then, the damage might be long-lasting. Millions of white collar and blue collar workers from the formal economy have lost their jobs and many of those will not return, as some sectors such as aviation and hospitality are almost certain to require years to recover to 2019 levels. Others like the media might never be the same again. That said, there is opportunity in adversity. After all, a bounce-back in 2021 even to 2019 levels will mean that the 23 per cent decline might become a 30 per cent climb next year. It is darkest before the storm ends.
Courtesy: Editorial: The Pioneer
The idea of ending fratricidal tax competition among States and creating a common market in India across State borders was mooted by the Bhairon Singh Shekhawat Committee (1995). If sovereign nations of Europe could do it, we could do as well. So the Goods and Services Tax (GST) was implemented from July 2017 with the underlying vision of “one nation, one tax, one nation, one market.” The States had agreed to an all-India common slab for particular items, thereby surrendering the power to tax the items at a rate of their own choice.
GST changed the principle of indirect taxation from originating/producing States to the destination/consuming States. The benefit of GST collection accruing to the State, where the final sale takes place, was seen as a loss by the producing States. The GST took so long to materialise mainly because the States were apprehensive not just about the loss of power to tax but also of revenue. It was challenging to convince all the Governments to agree to a common tax rate on a particular item, superseding multiple Central/State/local taxes like Central Excise Duty, Central Sales Tax, Value Added Tax, Sales Tax, Purchase Tax, Tax on Works Contracts, Entry Tax, Octroi and so on, which were discontinued and subsumed in GST.
To assuage the anxieties about potential loss of revenue, a revenue protection guarantee backed by law was agreed to. The revenue to be protected is calculated by assuming 14 per cent per annum growth over the tax collection in 2015-16 from the taxes subsumed in the GST. Accordingly, the GST (Compensation to States) Act, 2017 mandates the Centre to levy a GST compensation cess over and above the GST. The cess is at present levied on certain luxury and sin goods such as cigarettes and tobacco products, paan masala, caffeinated beverages, high-end passenger vehicles and so on. The guaranteed compensation period is five years from the commencement of GST (July 1, 2017).
In 2018-19, the Centre had collected Rs 4,57,535 crore as Central GST, Rs 28,947 crore as Integrated GST and Rs 95,081 crore as GST compensation cess. For 2019-20, the corresponding figures (all provisional) are Rs 496,699 crore, Rs 9,186 crore and Rs 95,551 crore. A total amount of Rs 81,141 crore was released as compensation to States in 2018-19 but the compensation requirement for 2019-20 has nearly doubled to Rs 1,65,000 crore. GST revenue was already below target even before Covid-19 and the pandemic is set to further enhance the compensation requirement for 2020-21 and beyond. The States’ monthly protected revenue, which was Rs 49,020 crore for 2018-19 and Rs 55,882 crore for 2019-20, has risen to Rs 63,706 crore in 2020-21.
A prolonged lockdown, suspension of train, metro and air services, and subsequent behavioural changes are expected to seriously dent demand for goods and services in various sectors, especially exports, tourism, hospitality and outdoor entertainment. Estimates of likely compression of demand vary widely depending on the observer’s outlook, pessimistic or optimistic.
The Government expects to collect a total GST of over Rs 1,00,000 crore per month but GST collections during April-July have been Rs 32,172 crore, Rs 62,151 crore, Rs 90,917 crore and Rs 87,422 crore. In FY21, GST shortfall left uncovered by existing compensation cess is assessed to be Rs 2,35,000 crore. The scope for an extraordinarily large increase in GST compensation cess to cover the whole GST revenue loss is limited as it may adversely affect sales.
When the States were given a five-year revenue protection guarantee in 2017 with an assured 14 per cent increase, such a large reduction in revenue could not have been foreseen. Hence, it can be argued that Covid-19 is an “Act of God” and the States should not insist on getting fully compensated.
In the law of contracts, the courts refuse to enforce a contract when the performance becomes “impossible” (Section 32 of the Indian Contract Act, 1872). What is impossible is open to judicial interpretation. In the Tsakiroglou vs Noblee Thorl case, defendants had contracted to supply Sudanese peanuts to Hamburg but the Suez Canal was closed, blocking the customary shipping route (In July 1956, the Egyptian government nationalised the Canal earlier owned by UK and France causing a crisis). The defendants sought to renege on supply commitment, citing the canal closure. The House of Lords held that peanuts could have been transported via the Cape of Good Hope, a four-time longer alternative route. It would have become commercially onerous but not impossible! In the Alopi Parshad & Sons, Ltd vs Union of India case, the Supreme Court did not allow a supplier of ghee to wriggle out of his pre-war contract merely because World War II had upset his whole economics. Increased commercial difficulty did not amount to impossibility to perform, the court held.
Most contracts, therefore, have a standard clause of “force majeure” detailing extreme situations of war, natural calamities, change of laws or other governmental actions and so on. But the compensation to States for GST revenue shortfall is not part of any contract and not amenable to examination with the lens of “force majeure.” It is basically a legal commitment arising out of a political settlement to arrive at a common taxation framework in a federal polity. The obligation flows from an Act of Parliament. The Parliament can very well change, prospectively or retrospectively, or even scrap the 2017 Compensation Act. The amended law can reduce 14 per cent assured growth to a lower level or introduce additional fiscal measures to compensate the States.
In the present circumstances, a review of the 2017 Act could theoretically be an option but that can potentially re-open settled issues on GST.
The financial interests of the Centre and States are not adversarial but closely inter-connected. The States’ dependence on Central financial support is significant. Central transfers to States constitute about 20 per cent of total Central government expenditure. In 2017-18, the combined expenditure of Centre and States was about Rs 45 lakh crore — Rs 21 lakh crore by Centre (including transfers to State governments of Rs 4 lakh crore) and Rs 28 lakh crore by the States (including expenditure against transfers from Centre of Rs 4 lakh crore). States realise that the Centre itself is facing financial crunch and insisting on full GST compensation as promised can potentially mean cut in other discretionary Central assistance to States if the Centre is asked to go beyond compensation cess to cover the shortfall.
On August 27, the GST Council discussed the vexed issue of compensation to States for huge loss of GST revenue. States have been given two options to borrow additional money. Borrowing is nothing but deferred taxation. Today’s government borrowing is tomorrow’s tax. May be tomorrow’s tax will become tomorrow’s borrowing and day after tomorrow’s tax and so on. More than 20 per cent of total government expenditure is financed through borrowings. This is how the governments have been piling mountains of debt and there is no visible exit from this trap, not in the immediate future, certainly not in crisis time. Crisis justifies borrowings, to be repaid/serviced in better times.
If GDP at factor cost (proxy for total base of indirect taxes) is assumed to be Rs 160 lakh crore and 60 per cent of this GDP pays average GST of 15 per cent, then the GST revenue should be Rs 1.2 lakh crore per month, almost 10 per cent of GDP. The revenue from taxes subsumed in the GST was about six per cent of GDP in 2016-17. Obviously, GST revenue is below expectation and potential. Strong facilitation and anti-evasion measures can reduce the revenue loss and concomitant compensation requirements.
The great federal bargain on GST among governments is facing an acid test. The hard-won political consensus needs to be preserved and nurtured and no cost is big enough to make GST a grand success, by removing the pending irritants, mostly on the implementation side.
(The author is an IAAS officer, superannuated as Special Secretary, Ministry of Commerce and Industry)
At the end of 2019, the total global Foreign Exchange(FX) currency reserves stood at $11.7 trillion, of which $6.7 trillion were in dollars or dollar-denominated assets. Nearly 60% of global trade and 40% issuance of worldwide debt is also denominated in the US Dollar. The dollar’s dominance in FX reserves enables America to borrow large amounts at low interest rates without fear of disruption in flows. A currency becomes globally acceptable and dependable based on the size of the economy and free convertibility on both trade and capital accounts, the country’s education standards and quality of its manpower, the innovation and IPR creating ability, the competitiveness of its businesses, the established and demonstrated rule of law, and a very strong defense capability. In world history (as analysed by Ray Dalio of Bridgewater Associates), nations held the title of “reserve currency of the world” for no more than 50-100 years, and had a recurring boom to bust cycle which led to its rebirth in the form of another currency.
Intertwined history of the dollar and the federal Reserve Between 1781 -1907 the dollar was directly linked to gold and was convertible. In 1913, the Federal Reserve was created.
The USA does not own its Federal Reserve. It is a privately owned body which originally had 300 shareholders with a profit motive. The stockholders were to get a fixed dividend of 6% of profits and 100% of the balance belonged to the US Treasury. By 1919 this 100%REDUCED to 90%, and in 1933 the stockholders delivered a stroke of genius. They made a one-time cash injection to create the US Deposit Insurance Corporation, and in lieu of this they now owned 100% of profits with no share for the US Treasury. In 1947 the Fed realized that a massive outcry was expected in the US Congress, and they pre-empted it by agreeing to pay an annual franchise tax to the Treasury, but the quantum would be decided exclusively by the Board of the Fed (as per reports of the Brookings Institute). The Fed conducts a self-audit and is not subject to US Congress or Senate scrutiny as per media reports.
In 1929, when the economic depression peaked, the Fed reached its currency printing limit. President Roosevelt passed a law making it mandatory for all American citizens to sell their gold to the Fed at $29 an ounce. He bought gold globally at higher prices, and once the targeted quantity was acquired, reset the price at $39 an ounce (upping the value of Fed’s holding and cheating his own citizens!). During World War II, the US lent a lot of money to the Allied nations. In 1944, 44 nations met at Bretton Woods in New Hampshire, and decided that their currencies would be linked to the US Dollar, and the Dollar would be linked to gold. In 1966 multiple countries were concerned that the Fed was printing more cash than the gold they held, and insisted that their USD holdings be repaid in gold. In 1971, President Nixon and the US reneged on their commitment and said that the USD was not linked to gold, would become a Fiat currency i.e. paper which acts as a store of value based on Trust. It signaled that henceforth the US was the “global sheriff” and the work on dismantling its challenger - the USSR started. It took from 1913-1982 for the US national debt to reach 1 Trillion (T), In 2006 it reached $8 T when Ben Bernanke became chairman of the Fed, and in tandem with the Obama years it ended 2016 with $20 T. The reality is that PRE-COVID19, the US Government debt had already hit $25 T, and post CovID19 it could add another $3.5 T for the year. Interestingly since Reagan, every American President has contributed to running up the debt book and mortgaging their future generations.
The US Government pays an approximate $400 Billion (B) annually towards interest costs alone. Then there is the unfunded liability of $45 T on a present value basis of Medicare and Social Security. What could possibly fund this? More debt every year of course!! In any crisis, every politician finds a reason to evade fixing it and thereby defers the problem. As a consequence, using the 1913 USD as a benchmark, the buying power of the 2020 USD is now just 2.7%. So any holder of US Dollar denominated debt has an implicit 2% per annum devaluation built into their holdings as the real value declines due to printing of more and more cash by the Fed.
Who is the US federal Reserve?
The Federal Reserve Board of Governors, the main policymaking body, is appointed by the President of the United States and confirmed by the Senate. However the ownership of the Fed remains in private hands. ”‘Then there are also twelve regional Federal Reserve Banks, whose presidents participate in the committee that sets monetary policy. These Reserve Banks operate as private corporations owned by member banks in their districts, even though they also regulate the same banks. (It is worth noting that their websites have a .org, not a .gov, suffix).
The Question that arises is who then owns the fed and through it controls the Global financial System?
These are excerpts from what Dean Henderson researched and wrote in the Herland Report on 27th March 2020- “Controlling equity (nearly 80% control by eight families- JW Macallister in the Grim Reaper) of the US Federal Reserve resides with- Goldman Sachs, Rockefellers, Lehmans and Kuhn Loebs of New York; the Rothschilds of Paris and London; the Warburgs of Ham- burg; the Lazards of Paris; and the Israel Moses Seifs of Rome. Many of the bank’s stockholders reside in Europe. CPA Thomas D. Schauf corroborates Macallister’s claims, adding that ten banks control all twelve Federal Reserve Bank branches. He names N.M. Rothschild of London, Rothschild Bank of Berlin, Warburg Bank of Hamburg, Warburg Bank of Amsterdam, Lehman Brothers of New York, Lazard Brothers of Paris, Kuhn Loeb Bank of New York, Israel Moses Seif Bank of Italy, Gold- man Sachs of New York and JP Morgan Chase Bank of New York. Schauf lists William Rockefeller, Paul Warburg, Jacob Schiff and James Stillman as individuals who own large shares of the Fed. The Schiffs are insiders at Kuhn Loeb. The Stillmans are Citigroup insiders, who married into the Rockefeller clan at the turn of the century. Eustace Mullins came to the same conclusions in his book The Secrets of the Federal Reserve, in which he displays charts connecting the Fed and its member banks to the families of Rothschild, Warburg, Rockefeller and the others. The control that the families exercise over the global economy cannot be overstated and is quite intentionally shrouded in secrecy. The Four Horsemen of Banking (Bank of America, JP Morgan Chase, Citigroup and Wells Fargo) own the Four Horsemen of Oil (Exxon Mobil, Royal Dutch/ Shell, BP and Chevron Texaco) along with Deutsche Bank, BNP, Barclays and other European old money behemoths. Companies under Rockefeller control include Exxon Mobil, Chevron Texaco, BP Amoco, Marathon oil, Freeport Mc- Moran, Quaker oats, ASARCo, United, Delta, Northwest, ITT, International Harvester, Xerox, Boeing, Westing-house, Hewlett-Packard, Honeywell, International Paper, Pfizer, Motorola, Monsanto, Union Carbide and General Foods. According to company 10K filings to the SEC, the Four Horsemen of Banking are among the top ten stock holders of virtually every Fortune 500 corporation.”
Based on the above and comments made by former Congressman Dr. Ron Paul and a few US Senators, there are three obvious questions that arise:
Firstly, did the Fed take any business risk in the monetizations related to COVID19 now, or the debt crisis in 2008, while its balance sheet expanded to 7 T dollars? Secondly, does the Fed also act as an instrument of state for the US government and of course get paid in both cases? Lastly, is there a conflict of interest in the ownership of the Federal Reserve and the entities that do business with the Fed and earn fees. The reality is that the Fed and its shareholders smartly push the fiscal risk onto the US taxpayers, and as the US Treasury Secretary stated that all losses related to the COVID19 lending program would be paid out of the national budget.
The “influence” aspect is a very strong stick that they wield giving the US Government and the key stakeholders in the Fed immense coercive power to tame unfriendly governments. The US can print its dollars, but with 60% of trade denominated in it, the world excluding a few well-managed country treasuries is always short of dollars. The US can also bail-out its allies in a crisis by giving them Credit Swap and Currency Swap lines. The Levy Institute actually crawled through over 30,000 documents to discover that post 2008, European Banks were given nearly $ 9 T through this structure to survive. There were no data points available whether this facility needed any formal approval from the US Government or was the US Congress or Senate ever looped in other than the Fed Board of Governors being appointed by the Government, and whether this facility still exists 11 years later or has been wound up. Interestingly, the intended beneficiaries are foreign companies who now have access to USD and can compete with American companies. To stabilize Europe, does America undermine its own competitive advantage, or is it the cost of being the “Reserve Currency? ”
Looking at the intertwined ownership structure of the Fed and the banks through which it operates in markets, the answer to the conundrum is a no brainer. The dominance in global affairs including American politics and trade on the face of it certainly gives an advantage to businesses owned by eight families. It is no surprise that many aspiring countries are wanting to break- out of the dollar hegemony.
China has over the last decade positioned itself as the principal challenger to the US. Its economy is larger in Purchasing Power Parity terms, its aggregate Debt/GDP ratios very similar, its supply line of quality STEM students nearly five times that of the US, its unicorns rival those of the US in number and valuations, its huge investments in Artificial Intelligence, Machine Learning, Education Tech, Fin-Tech are bearing fruit. Its legal and regulatory framework is weak, but has improved substantially and money always loves strong dictatorships. They are the largest gold mining country and export no gold. They have steadily built their gold reserves, and a lot of it may be kept off-book to avoid undue attention. The Chinese are also the “lender of last resort” to countries whose projects get rejected by the World Bank and multi-laterals. They now have a $ 5.5 T portfolio of global investments, though most of them illiquid. Certainly they are the most dominant players in Africa, and emerging very strongly in Europe. Their plans of trying to move their non –US foreign trade out of the USD had been progressing steadily.
However, in the post COVID19 world, the Chinese have very few friends who are significant in global trade. They also have serious territorial disputes with 23 of their neighbours by land and sea. The Chinese RMB is not fully convertible on capital account and China’s capital controls make it difficult for foreigners to hold the onshore version. While this remains the case, the RMB’s share of global FX reserves may continue to be low, and Asian countries may continue to rely more on the yen and the dollar than the RMB. But given their intrinsic strengths as a manufacturing hub, a fast emerging technology hub, and an important military power, the RMB continues to gain market share in world trade, perhaps in a creeping acquisition mode for a few years.
The Euro flattered to deceive! It arrived as a challenger, threatening to take the denomination of the oil trade away from the USD. The Saddam balloon was floated, the US cleverly converted it into a “WMD issue”, took out Iraq and Saddam, and oil was back in the Dollar camp. Even though 20% of global central banks reserves are currently in Euros, the absence of a “safety net” other than Germany, and England’s Brexit have exposed its underbelly and inherent contradictions even more. The 2009 bailout by the US Fed exposed the fragility of Europe’s banks and the ECB. With just the French and Germans to keep the EU afloat, it ceases to be a viable option, and some of this 20% may flow out into other currencies.
The rise of Cryptocurrency
Since US laws forbid anyone from printing currency/money, “Satoshi Nakamoto” created Bitcoin in 2008 out of Amsterdam and then disappeared or changed identity. Bitcoin is a virtual currency, stored/traded on the internet, created on an open-source platform. Hundreds of programmers globally have improved the original software over the last decade. A finite quantity of 21 Million bitcoins were mined/to be mined. All Bitcoins reside in a publicly distributed ledger called Blockchain. Every holder of a bitcoin owns a wallet, the bitcoin ledger is always balanced as every debit/credit is within the system. Each holder accesses their account with their own created unique password, and their money is not retrievable if the password is lost. This is a financial system that replaces middlemen i.e. the banks. A mobile phone with an internet connection becomes a bank. To get mainstream adoption Bitcoin questions whether users are happy using plastic credit/debit cards created by technology companies who collectively add $200 Billion annually in transaction costs. The value proposition being offered is that by eliminating the middlemen the savings would accrue to merchants and consumers.
Till 2016, the Fed treated Bitcoin lightly, as just one more technology experiment, and the traded price of one bitcoin hit USD 20,000 i.e. a monetary system now worth $400 B. They woke up in 2017 and along with China debarred banks from accepting Bitcoins. However now every major player in the Financial Sector has jumped on the Bitcoin gravy train (The Fed’s owners) realizing that making it illegal would just make it move offshore. The Fed by default accepted that every year over $2 T gets laundered and they can’t crack it successfully, therefore fighting Bitcoin would be futile. Today Bitcoin is a contrarian investment, but 5 years hence it might be a “must have” what with people like Antony Pompliano forecasting a price of $100,000 in that time, a ten-fold growth from the current price of $10,000. There are other cryptocurrencies around too, and at a future date the world may collectively be forced to move to a financial reset, or a different format of digital currency backed by a mix of underlying assets.
The dollar is not exhibiting an underlying weakness. Between January 2008 and 2020, the dollar index has strengthened by 30%, from 89.2 to 115. The Corona event strengthened it a further 10%, rising as high as 126.4 on March 23, 2020. A collapse couldn’t occur without a triggering event that destroys confidence in the dollar. Altogether, foreign countries own more than $6.7 trillion in U.S. debt. The two largest are China and Japan. If they dump their holdings of Treasury notes, they could cause a panic leading to a collapse. The economies of Japan and China are dependent on U.S. consumers. They know that if they sell their dollars, their action would further depress the value of the dollar. So their products, still priced in RMB and yen, would cost relatively more in the United States and hence their economies would suffer. Right now, it’s still in their best interest to hold on to their dollar reserves. China and Japan are aware of their vulnerability. They are selling more to other Asian countries that are gradually becoming wealthier. But the United States is still their best market in the world, and would remain so unless US citizens start consuming/ importing much less.
The USA now faces very strong pushback from China, Russia, Germany and Iran and on currency issues can only be sure of the UK, Japan, Australia, South Korea and Israel to provide blanket support. Countries like India, Brazil and Saudi Arabia would prefer a currency solution that is neither US or China centric. Today, as nearly 50 Million Americans file for unemployment claims, the Government and US Congress response is to print more cash. This approach is the greatest disservice to any honest, hardworking citizen anywhere in the world who values thrift and saves for the future, as a giant unseen force destroys the value of his/her hard labour by printing even more cash. We are moving forward into an arena of likely financial chaos and uncertainty. Eventually economies and societies survive on the goods and services they produce and sell, not on a race of competitive bankruptcy. I wonder if the US think-tanks have gamed what happens if another 30% of global trade moves out of the dollar into a barter system, and the potential hyperinflation it would unleash in America and what rising interest rates will do to the aggregate American debt? Will the world see a sequel to 1971 WHEN America reneged on its debt to the world and to its citizens? Only time will tell!
(Writer is Managing Partner S&S Associates)
The ailments afflicting PSBs won’t go away so long as majority ownership and control remain with the Government. There is a dire need to unshackle them and grant autonomy to the management
The Reserve Bank of India (RBI) has recommended to the Centre a reduction in shareholding of the latter in six top Public Sector Banks (PSBs), namely the State Bank of India (SBI), Punjab National Bank (PNB), Bank of Baroda (BOB), Canara Bank, Union Bank of India (UBI) and Bank of India (BOI) to 51 per cent in the next 12-18 months. At a recent meeting with the Ministry of Finance (MOF), the RBI had argued for reduction in stake to 26 per cent. But, observing that this might not be possible in the near term for now, it has settled for lowering the Government’s shareholding to 51 per cent. Given its precarious financial position and looking for all possible avenues for increasing revenue, the Narendra Modi Government has promptly latched on to the idea. It is aiming to garner about Rs 25,000 crore by shedding its stake in the six banks which could even go up to Rs 43,000 crore (according to an estimate).
The PSBs in question have already started gearing up for this as they have decided not to take any lumpy credit exposure and are taking steps to reduce their non-performing assets (NPAs) by one-third by the end of the current financial year March 31, 2021 — all aimed at improving their valuation and getting a good price from the sale. The Centre (besides, the RBI) is closely monitoring the situation. At the end of the day, it may re-fill its denuded coffers somewhat. But the larger question still remains unanswered.
Is the Modi Government really serious about bringing down its stake in PSBs to as low as 26 per cent? Is it committed to their privatisation? Does it have anything credible to show? The idea was first mooted by the NDA dispensation under the then Prime Minister AB Vajpayee (1999-2004). It had proposed reduction in the Government’s shareholding in PSBs to less than 50 per cent initially and eventually to 33 per cent. That remained on paper.
In 2015, a RBI committee headed by P Nayak made sweeping recommendations to bring about structural reforms of PSBs in sync with the requirements of an economy on an accelerated growth trajectory and to make it globally competitive. It recommended (i) setting up of an autonomous Bank Boards Bureau (BBB) with a mandate to select the top management; (ii) setting up of a bank investment company (BIC) where all Government shares in PSBs will be vested and (iii) divestment of its shareholding in all PSBs to below 50 per cent.
The committee had contemplated the Board as an interim arrangement — to serve as a precursor to the BIC. In 2016, the Government approved the constitution of the BBB as a body of eminent professionals and officials to make recommendations for appointment of whole-time directors and non-executive chairpersons of PSBs and State-owned financial institutions (FIs). The BBB was also mandated to engage with the board of directors of all PSBs to formulate appropriate strategies for their growth and development besides, encouraging them to restructure their business strategy and suggest ways for their consolidation and merger with other banks based on requirement. Initially headed by Vinod Rai, former Comptroller and Auditor-General (CAG) till April 2018, the BBB has been under a part-time chairman (a retired bureaucrat) and other part-time members. Recently, the term of the BBB was extended for a period of two years beyond April 11 or until further orders, whichever is earlier. How much importance does the Government give to the BBB? Being headed by a part-time chairman and part-time members, this by itself conveys a lot. On the other two recommendations, while (ii) is not even on the radar, as regards (iii), the only action seen thus far is the Government’s decision to divest its majority stake in IDBI Bank.
But things didn’t work out as planned and during 2018-19, the Life Insurance Corporation (LIC) was roped in to acquire 51 per cent controlling stake in IDBI Bank. The acquisition was completed on January 21, 2019 with LIC being re-classified as promoter of the bank with management control and the Centre continuing to be the co-promoter without management control. While it is normal to see LIC in the role of a financial investor, for it to be owning and running a business enterprise is anomalous.
Meanwhile, most of the ills that go with majority ownership of the Government continue to afflict PSBs. The political brass appoints the CMD/MD and deputes bureaucrats as its nominee on the bank board. For appointment of directors, until last year, the nomination and remuneration committee (NRC) included the Centre’s nominee. In August, 2019, the RBI tightened the fit-and-proper criteria to exclude him/her. But, this is only cosmetic with CMD and MOF nominee — both handpicked by the Government — calling the shots when it comes to taking policy decisions or even in its day-to-day running.
In the past, meddling in the affairs of the PSBs took the form of what came to be known as the cult of “crony capitalism.” The businessmen patronised by the ruling establishment managed loans on considerations other than merit and got them ever-greened (taking a new loan to pay back the earlier one). Neither the banks insisted on repayment, nor the defaulters had any sense of fear as those who were expected to take action chose not to act. The political brass also rides piggyback on PSBs for absorbing liabilities created by populist policies such as supplying power to farmers and households at subsidised rates (or even free in some States).
Be it a spate of bailout packages given to power distribution companies (four bailouts have been granted so far) or loan waiver given to farmers and now moratorium on loan repayment extended to all and sundry, all have inflicted heavy losses on PSBs.
No wonder the country is grappling with high NPAs. In March 2018, gross NPAs (GNPAs) had reached a high 11.5 per cent (14.5 per cent for PSBs). These declined to 8.5 per cent as of March; courtesy a number of measures, including resolution of accounts under the Insolvency and Bankruptcy Code (IBC). But the ratio may worsen to 12.5 per cent by March 2021 under the optimistic baseline scenario (14.7 per cent under a severely-stressed one). For PSBs, it would be much higher at 15.2 per cent (16.3 per cent under severely-stressed).
The Government has put investigation and prosecution agencies in top gear to nab fraudsters and the Prime Minister is allegedly against “crony capitalism.” But these exhortations and central agencies seen in action mode do not seem to be yielding the desired result. The proof of the pudding is in eating. To get a sense, we only need to look at the value of bank frauds in recent years. During 2014-15 and 2015-16, the value of bank frauds was Rs 17,000 crore each. During 2016-17 and 2017-18, this went up to Rs 20,500 crore and Rs 22,500 crore respectively. Thereafter, the value galloped to Rs 64,000 crore during 2018-19 and further to Rs 110,000 crore during the first six months of 2019-20.
The message is loud and clear. The ailments afflicting PSBs won’t go away so long as majority ownership and control remain with the Government. There is a dire need to unshackle them and grant autonomy to the management. The RBI’s recommendation that the Government’s stake in six PSBs be reduced to 51 per cent won’t achieve the desired objective. To get the intended results, the Nayak Committee’s prescription should be adopted in totality.
The Government should set up a BIC with eminent professionals as members. While the position of chairman should go to a professional, the member-secretary can be drawn from the bureaucracy. All of the shareholding of the Centre in all PSBs should be transferred to the BIC.
The company should be given necessary authority to take all decisions on behalf of the sovereign Government and allowed to work with full autonomy — at arm’s length from the latter.
The BIC should guide the management of individual banks to improve their working, prepare the roadmap for divestment of majority ownership and control and see through its execution. It should determine the timing of sale so as to realise maximum value. The shares should be so distributed as to avoid concentration in a few hands and ensure greater accountability to the public.
It is also crucial for the RBI to strengthen its “supervision” over banks to guard against irregularities and mismanagement to prevent the fiasco of the kind we have seen in the case of Yes Bank — a private bank. It should maintain strict vigil over the auditors to ensure that they do their job diligently.
(The writer is a New Delhi-based policy analyst)
With Reliance buying out Kishore Biyani, how will the retail market in India play out and compete with online majors?
Say what you will about Mukesh Ambani, one can certainly not accuse India’s richest man of chilling out during the lockdown. While millions of Indians have been contemplating their lives, Mr Ambani has been on an overdrive. First, he got a host of investors onto his Jio telecommunications platform, and now having secured his group’s future in that industry, he is pivoting to retail. By picking up the assets of India’s largest home-grown retail chain, Future Group, Reliance Industries is doubling down on its already ambitious retail play. What will this mean for retail wars in the future? Whether consumers will benefit as more of them choose to buy products online is something that remains to be seen. However, it is the end of a dream that Kishore Biyani had set himself. Saddled with debt and ill-advised expansions over the years, the man, whom business magazines called the “Rajah of Retail”, will use much of the money he gets to pay off his loans.
The Future Group might have brought in the big discount sales on national holidays but unable to pivot to the increasingly online world of consumers, it was swamped by the likes of Amazon, Flipkart (now Walmart) and other start-ups such as BigBasket and Grofers. The question remains if Reliance Industries will be able to make that shift as well or will it need to shop around a little more. Much has slipped between the lip and the cup when it comes to Reliance and its operations, as ground realities and the customer experience seem disconnected from the grand ambition of the promoters and management. The integrated telecommunications and services play that is being aimed for might work on paper but will the notoriously fickle Indian consumer bite? With incomes devastated by the pandemic, the consumer might ditch brand loyalty for the cheapest prices. That said, by buying a ready group with an established front-end network of stores, often in high-footfall areas and a clockwork back-end logistics chain, Reliance Retail has certainly not done itself any disfavour. As for Kishore Biyani, unfortunately he had to sell his kingdom, but he did create a tremendous network and several high-profile brands and left his mark in Indian corporate history.
Courtesy: The Pioneer
After a boom run lasting decades, is Reliance Industries finally admitting that growth is slowing down?
If there is anything like a sure shot on the Indian bourses, it is the Reliance Industries’ scrip. Even after being pummelled by the Coronavirus lockdown and crashing oil prices, its share price has recovered smartly over the past few trading sessions as investors believe that India’s largest private company will emerge from the crisis stronger than before. That faith was redoubled after American technology giant Facebook made an unprecedented $5.7 billion investment into Reliance Jio, the telecommunications arm of the conglomerate. So why is the firm raising Rs 53,125 crore from the markets through the largest rights issue in Indian history? On the face of it, things are not going too bad for the company as despite the negative economic sentiment even before the Coronavirus impact, its consolidated profit was stable and revenues rose by over five per cent.
Well, Mukesh Ambani has stated time and again that he wishes the Reliance Industries reduces its debt load. After the Government first stalled the potential $15 billion investment in Reliance’s uber-profitable oil and gas business by the Saudi Arabian oil major, Aramco, it was speculated that things might not be all kosher between Prime Minister Narendra Modi and Ambani. While that is just speculation, the fact is that today, with a collapse in oil prices, Saudi Aramco may not be able to invest in Reliance in the first place. And while Reliance can raise debts across the world, even in India, with its stellar record of repayment, Ambani realises that it will likely be easier for him to capitalise on his company’s reputation to raise funds much more easily. At the same time, raising money from investors will not increase the debt burden on the company, particularly when the economy will most likely be fragile over the next few quarters. At the same time, Ambani also likely realises that the world is pivoting away from oil and plastics, the two cornerstones of his business. The current pandemic might just be a turning point as to how the public consumes these products. Raising money now will likely keep Reliance’s war chest ready as the company starts new consumer ventures over the next few years and prepares for a new world, a more sustainable one. But what impact will Reliance Industries’ rights issue have on the overall capital market? It will almost certainly reduce the appetite for any new public issue over the next few quarters as it will suck a huge amount of money out of investors’ pockets. That would have been the case in a healthy market, but in this market, it means that any other public offering will probably have to offer a deeper discount than earlier planned to get the public to bite.
(Courtesy: The Pioneer)
Given the region’s rich tradition of innovation and adaptation, we have immense potential to re-tool our cities, surroundings and services
COVID-19 is a direct threat to the health and well-being of all people in the World Health Organisation’s (WHO’s) South-East Asian Region. For as long as the virus spreads, the lives of the region’s nearly two billion people will be at risk, whatever the transmission scenario. The WHO and its member States in the region must continue to dig deep and aggressively minimise transmission, responding to every case, cluster and evidence of community transmission. But to complement such measures, we must also adapt our cities and surroundings, especially as public health and social interventions, including physical distancing, are relaxed or re-applied based on local epidemiological evidence.
The need of the hour is for all to think innovatively and retool our environments to meet the many demands of the new COVID-19 normal. For example, hand hygiene facilities can be installed at the entrance to public or private commercial buildings and at all transport locations. Workplaces can stagger hours, increase ventilation and encourage staff to work from home as much as possible. Plus, we can all take personal measures to minimise the risk of bringing infection home, which is especially important in multi-generational households.
Proactive efforts to protect vulnerable groups, including internal and returning migrants, are especially needed. Challenges associated with inadequate housing and access to water exacerbate the risk of the disease spreading. So does inadequate community engagement and communication. Key WHO guidance on protecting and engaging vulnerable groups can help local authorities implement high-impact measures that are equity-oriented and which can be integrated into emergency planning ahead of the monsoon and flu seasons. Health services, too, should be modified and strengthened, not only to treat COVID-19 but to address the many indirect health impacts the virus has, quite apart from its adverse effect on the provision of essential health services, which the WHO is vigorously supporting member States to minimise.
Take mental health for instance. The economic uncertainty the pandemic is causing, in addition to the fear of contracting the disease, has increased the prevalence of mental health issues, which may be exacerbated by substance use or difficulties accessing mental health services and psychiatric medicines.To help all people access the mental healthcare they need, health leaders can invest in appropriate services and ensure existing mental health services continue to function. Psychiatric care can be provided over the phone or online. Community support groups can continue to meet in person while observing physical distancing guidance or they can meet virtually. Health facility administrators can ensure that all health workers know where and how to access the care they need to stay mentally well and resilient.
Services for intimate partner violence require similar attention. COVID-19 has increased stress, disrupted social and protective networks and decreased access to services, all of which can exacerbate the risk of intimate partner violence. With families spending more time at home, the likelihood that a woman in an abusive relationship will be exposed to violence has dramatically increased.To help provide the necessary care, health facilities can identify and offer information on locally-available support services such as hotlines, shelters and counselling services. Health workers themselves can make a difference, for example by listening empathetically and without judgement, in addition to providing appropriate medical treatment. Plus, the use of telemedicine to safely address violence against women must be urgently explored.
Nutrition remains a core concern, too. Across the region, broken supply chains, loss of livelihoods and truncated incomes have the potential to severely impede access to healthy diets, rich in whole grains, fruit and vegetables. School closures have resulted in many underprivileged children missing out on school meals. Disruptions to nutrition services — especially those supporting maternal and child health and nutrition — could impact millions of vulnerable people in ways both chronic and acute. It is the duty of all stakeholders in the region to protect the nutritional status of the most vulnerable and to strengthen the health services and programmes on which they rely. Stakeholders can adapt existing nutritional services, for example by providing digital counselling or additional take-home supplies. They can also streamline referral pathways for nutritional services and expand nutrition-sensitive social protection and community programmes. Given the region’s rich tradition of innovation and adaptation, we have immense potential to re-tool our cities, surroundings and services to meet the many demands of our new COVID-19 normal. There is not a moment to lose. The WHO and its member States in the region will continue to strategically respond to the pandemic, fully committed to controlling and suppressing its spread, strengthening and maintaining health services and empowering individuals and communities to stay safe, healthy and well. Our battle continues, as it must.
(The writer is Regional Director, WHO South-East Asia.)
With India having created “air bubbles” with some countries such as France, the UAE and the US and advanced negotiations on with Germany and other nations, it is heartening to see that international commercial air travel is restarting. An “air bubble” is a form of a bilateral air traffic agreement but one that follows the entry rules set by various nations related to registration and quarantine protocols. In India, for example, travellers from abroad are still mandated to undergo one week’s institutional and a week’s home quarantine. The “air bubbles” also prevent direct “sixth freedom” air traffic, a connecting one. International travellers will not, for example, be able to connect through Dubai or Paris airports while coming to India unless specifically allowed by the Indian Government. However, one wonders how an immigration-free zone such as Europe’s “Schengen” area will be managed. The increased flights will hopefully see better utilisation of air fleets and present airlines an opportunity to make some money. However, if experience from India’s domestic flights resuming operations is any indication, the volume of passengers might be minimal after an initial rush as few people have an urgent non-personal reason to travel this time.
So these “air bubbles” could be a start as it remains to be seen whether commercial air traffic can ever re-emerge from the pandemic. For example, many airlines made significant volumes of connecting air traffic but with restrictions as well as the risk-averse nature of most people to deal with another large airport, how will airlines like Emirates and Singapore Airlines cope? Emirates, for example, has already retired the earliest of its A380 superjumbo aircraft and laid off thousands of employees as the Indian air traffic that sustained that carrier has vanished overnight. Even storied airlines like British Airways have announced that they will retire their entire Boeing 747 fleet, joining Australia’s Qantas and Dutch airline KLM in retiring the “Queen of the Skies.” While airlines highlight how safe travel onboard is, drastic reductions in service, thanks to the pandemic, and the lack of passenger confidence have made certain that many of them will not re-emerge from the crisis. Bubbles or not, the aviation industry itself sits on a precarious bubble.
(Courtesy: The Pioneer)
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