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)

Madhya Pradesh is at a very crucial juncture where it has to focus on the future while living through the present

The word “migrant” in the term migrant workers is not only distressing but also exhibits the hard reality and high level of uncertainty of their lives. Lack of skills in these workers for the kind of opportunities that are available has been a primary concern. It has not only created but has significantly increased the gap between work and the worker.

Irudaya Rajan, one of India’s leading experts in population studies, says: “The one thing that the 2008 global economic crisis taught us was that jobs matter.” As India is battling CoVid-19 and the widespread economic havoc caused by the outbreak, issues related to migrant workers remain to be addressed. Right from the movement to their respective villages, to generation of work opportunities for them post the lockdown, are some of the big challenges that have emerged.

The Government of Madhya Pradesh, under the leadership of Chief Minister Shivraj Singh Chauhan, has become one of the first States to address the post-lockdown challenges with respect to migrant workers. He launched the Shram Siddhi Abhiyan on a virtual platform while interacting with sarpanches and labourers from across the State. Under this scheme, the workers will be categorised into skilled and unskilled, depending upon which the State Government would provide job opportunities. Unskilled workers would be provided with job opportunities under MNREGA whereas skilled labourers would be provided with work according to their ability. Elaborating upon the meaning of the word, sarpanch, Chauhan said, “‘Sa’ means samandarshi (impartial), ‘ra’ means ratna (gem), ‘pa’ means hardworking and ‘ch’ means watchman. The sarpanch plays an important role in protecting the village.” According to Chauhan, these local institutions and their representatives will play a major role in the effective execution of various policies of the scheme and in reaching out to the last man in the village.

The State Government has also decided to provide five months’ free ration to people who don’t have ration cards. This will not only help the poor people tackle present-day challenges but will significantly reduce the burden on  supply in rural parts of the State, as the consumption in rural areas would increase with the rise in the number of returnees.

According to the 2011 census, 72.3 per cent of the State’s population is from rural areas. Therefore, the return of around five lakh migrant workers to the State would eventually increase the pressure on the rural economy, which is largely dependent on agriculture. The only way to ease this burden on the rural economy is by creating more jobs through increased investment opportunities in the State.

The State Government recently made 32 amendments in four State laws and 13 Central laws, which not only reduce the regular interference of Government officials but also create a healthy environment for investment in the private sector. Though a part of these reforms have been criticised by various trade unions and associations, the major focus should be on the output that would benefit the labourers as well. A reform does not necessarily mean complete scrapping of the law. Investment would help in creating more job opportunities in the State.

As per data, out of 22,809 gram panchayats in the State, MNREGA projects are going on in 22,695. So far 21,01,600 labourers have found employment. This is almost twice as compared to last year. Not only this, the State Government has also decided to restart the Sambhal Yojna, which was scrapped by the Congress-led Government.

This scheme primarily used to focus on workers employed in the informal sector but now it will be extended to migrant workers, too. Monetary help will be provided to the workers, right from the birth of a child to the death of a labourer. This not only highlights the proactive approach of the State Government in addressing futuristic challenges but also underlines the importance of social development for the deprived classes. Therefore, recent amendments to the labour laws and introduction of schemes like Shram Siddhi Abhiyan would collectively address the challenges faced by the migrant workers and unemployed population of the State in the post-CoVid phase.

Like the rest of the country, Madhya Pradesh, too, is at a very important juncture where it has to focus on the future and live through the present. So far, bringing the migrant workers home has proved to be one of the greatest efforts by the State Government. But the major challenge lies in effective implementation of policies. That depends on the systematic coordination between the executives and the locally-elected representatives. It would not only benefit the migrant and unemployed workers but also provide a sense of social security to them. Eventually, it would also revive the rural economy. As is often said, “The greatest opportunities lie in the most difficult challenge.”

(Writer: Rohit Kumar; Courtesy: The Pioneer)

To emerge stronger in the medical devices sector, we need to collaborate with the global med-tech industry for its R&D-driven approach

The outbreak of the pandemic has considerably highlighted the need for India to redefine its goals and priorities for the future. It has paved the way for necessary amendments required in the country’s health infrastructure at the primary and secondary level. It is often said that the experiences and lessons of the past shape our future. One relevant question to be raised in the status quo would be how much a country like India, that houses a population of 1.3 billion, has learnt from the outbreak? And what measures is it taking to battle the ongoing crisis at a time when the world order seems to be away from the normal?

With the push for “Vocal for local” gaining momentum in the country, many experts have time and again pointed out the gradual shift in global supply chains, highlighting India as one of the most favoured destinations for investment and growth in the world. However, one question remains unanswered. Will India be able to provide a stable business environment to drive future investments in manufacturing and other services, without being willing to provide market access to global firms? Also, is the Indian health technology sector sufficient to cater to the needs of the domestic market?

The answer to this question remains ambiguous. As per Invest India, the medical device and equipment market in India is only worth $5.5 billion, further highlighting the nascent stage it is in. While the domestic industry has the capacity to manufacture and export low-risk medical devices and equipment, India still lacks an adequate supplier ecosystem and thus the capacity to manufacture high-risk, life-saving, critical care medical devices and equipment. At a time when India imports nearly 80 per cent of its medical devices and has an unstable policy environment, it is important for the country to build capacity within the existing subsets of the health infrastructure, rather than just focussing on becoming self-reliant by adopting a one-sided approach.

The Government, in its action plan to fight Covid-19, recently announced an exemption on basic customs duty and health cess on the import of select medical equipment. This includes surgical masks, ventilators, personal protection equipment and Coronavirus-related test kits till September 30. This comes at a time when the Government in its 2020-21 Union Budget had claimed that the intention to impose a five per cent health cess was to boost the growth of the domestic industry and generate resources for health services. With an additional health cess in place, many health experts speculated that companies would pass on the additional burden to patients with an expected pressure of three-five per cent on pricing.

Another pressing concern is whether India needed a pandemic as a wake-up call to understand the need for adequate medical equipment in the country. It is not a hidden fact that the medical devices sector has always been the backbone of the health infrastructure. The med-tech sector has always shown its commitment towards public health and has ensured uninterrupted supply of medical devices despite numerous challenges. Therefore, it may prove to be disastrous for India’s public health if the Government were to adopt an inward-looking approach and only boost domestic manufacturers. This, even after being well-aware of how most of the domestic industry players are not even close to their global counterparts when it comes to research and development (R&D) facilities, manufacturing units and matching up to the universal quality and safety standards.

To emerge stronger in the medical devices sector, India needs to globally collaborate with the med-tech industry for its innovation and research-driven approach. Considering the nascent stage the Indian medical devices industry is in, it becomes important to look beyond the surface and understand how investment from trusted players can help the small and medium industries of the country to contribute to R&D so that they can do value-addition to their medical devices. India cannot aim to achieve its goal of becoming self-reliant overnight with no significant presence of local manufacturers and products that measure up to global quality and innovation standards.

Although the Government is doing everything it can to strengthen its resolve to make affordable healthcare available to its citizens, the approach to solve the affordability issue without laying emphasis on quality healthcare is not the right way forward. What India needs right now is better access to quality healthcare, with an innovation-driven approach. Just like the Government exempted customs duty on Covid-19-related medical equipment, it should also consider removing the additional cess from high-risk and critical care medical devices so that there is no supply issue in the country at large. With the progress India is making, it would not be wrong to say that with the right long-term vision, there is no stopping it from becoming self-reliant. However, till then, India should take one step at a time, starting from focussing on bridging the gaps in its existing healthcare infrastructure and drawing inspiration from what the global med-tech sector has to offer.

(Writer: Tanu priya; Courtesy: The Pioneer)

The Railway Ministry wants to run private trains by 2023 but why will any operator bid?

The Ministry of Railways wants private operators to run a few long-distance express trains in India. Last week, it expressed its intent to invite participation for 109 pairs of routes for a project that would entail private sector investment of about Rs 30,000 crore. The announcement has brought out the usual suspects, both for and mainly against the proposal. But this offer could be stillborn simply because it makes no sense for any private operator. The railways has put a cascade of conditions without any iota of responsibility. This proposal is as silly as the railways’ ill-fated idea that shifted to an airline pricing algorithm, minus any proper maths, which would have allowed for prices below average as well.

The problem is quite simply that Indians have tasted cheap airfares on long distance routes. And while rail fares could still be fractionally cheaper, travelling by train will only be an option for those going to places that are far removed from the aviation map. How can one justify the 17 hours taken to travel between Delhi and Mumbai on a train when an aircraft takes just two hours and a couple more to get home for more or less the same price? The value of time has certainly hit train travel across the country. It is doubtful that the Railways will recover anytime soon. However, private train operators could manage interesting high-end luxury travel concepts where the value of time is less than that of the travel experience. It is unlikely that new private operators will be allowed on India’s new high speed line. So it is curious why the Railway Ministry thinks it has a product that others will want to buy. Luxury is the only way. Train operators across large countries in the world are doing just that: Moving from being mass transport operators to becoming purveyors of luxury. Sure, limited passenger operations might remain but railways are moving to being commuter options in urban areas or moving the whole hog to high-speed. This idea might be praised or criticised but the realities of the world mean that it is an idea whose time passed a decade ago.

(Courtesy: The Pioneer)

In the deflationary pressure induced by the pandemic, what remains inexplicable is the hoarding of funds by the Government, which creates a suffocating liquidity trap in the market

As the Indian economy witnesses a major downturn, predictably a negative growth, the dichotomy between monetary and fiscal policy becomes an irritant. Monetary management by allowing for a nearly Rs 13 trillion loan to the corporate, MSME, agriculture and other sectors of the economy is a huge release of capital stuck in the banking and non-banking sector. Arguably this would have turned the wheels of industrial production but COVID-19, with its multiple slowdown effects, won’t allow it to happen. Critics have pointed out that the absence of open chest financing of Government debt and securities, as well as no last- resort cash support to about 14 crore jobless migrant workers, have depressed the economy both in the short and long-term. This impacts productive activity negatively in the secondary and tertiary sectors of the economy with falling demand.

In the absence of fiscal stimuli, distressed and risk assets in the market stand in the way of any attempt at recovery. Monetary stimuli in the absence of effective demand cannot boost the business cycle. A huge shortfall in revenue, from both tax and non-tax sources, has only created a spurt in public debt and the consequent rate cut for controlling debt has created a precarious imbalance between real output and interest rates. Failing interest rates create a vicious cycle of inducing stress in  asset-based funds that now have to look for stimuli from financial institutions to survive from debt. In effect, resources of the Reserve Bank of India (RBI) and the available Government funds for loans run the risk of turning into NPAs even in the short-term. So circulation of higher liquidity in situations of Corona-induced insolvency presents a slippery slope for the management of the macroeconomic policy.

The stimulus package of Rs 20 lakh crore for macroeconomic management has not shown signs of  much-needed neutralisation of the liquidity trap by raising demand for credit. The package establishes that there is no liquidity crunch and indeed India’s foreign reserve reaches a peak of over $500 billion, covering much of its import bill. In such a situation, the demand for Government securities and bonds should have gone higher but the demand situation is such that it prods the investors to hold back such securities. In contrast, the Reliance JIO deal, by raising funds through rights issues in the stock market, received a preferential treatment from the Ministry of Corporate Affairs to only offset its huge debt without corresponding expansion of the credit market, which could have helped the banks to offset the situation of a liquidity trap. Had the Government issued new bonds and securities using the cut in the rate and generated some additional funds like its blue-eyed boy Reliance, that would have probably eased excess liquidity. Instead, given the increasing rate of macroeconomic unemployment, almost at 14 per cent, the need for additional funds for employment generating activities by way of stimulus packages announced by the Government got immobile in the widening liquidity trap. The Government has already printed currency notes worth Rs 1.6 lakh crore and only succeeded in creating a good accounting ratio between its income, expenditure and debt instead of flinching itself out of the liquidity trap.

What can extricate the economy from the liquidity trap is the generation of demand, demand and more demand. Significantly, two correlated and yet highly-fluctuating monetary instruments, like India’s foreign reserve touching a record $500 billion as external trade falls and the Government’s internal borrowings from the market plummeting only to pull down repo rates, present a hard picture of control of fund flows. It is not clear how the RBI shall channelise reinvestment of cheaper borrowings into production, while such investments in the stock market at present do not ensure gains. It is in this grim scenario that the Centre’s declaration of flexibility in tax slabs to industries, as part of the stimulus package, only helps the businesses to keep afloat. Deflationary pressure continues unchecked in the product market as the Government scampers for attracting investment through floating rate bonds.

The recent increase of employment in agriculture with the Centre’s Rs 1.5 trillion package has generated some demand, yet it does not show signs of revival. Reverse migration from cities to rural areas is an immediate cause of such increased demand but last-mile delivery issues do not allow it to be an impact of the Government’s Rs 1.5 lakh crore package. In effect, if one combines a stalemate in foreign trade and piling reserve with falling rates of investment and profit, the stimulus on the demand side cannot overcome this simultaneous fall in both supply and demand. Restarting the economy to offset the slump in income and demand, combined with fresh doses of investment in greenfield areas through stocks, are still to gather much momentum against the early signs of a recession. Recessionary trends in the manufacturing sector combined with a deflationary fall in the Wholesale Price Index produce a cascade of compression in the economy, making rating agencies predict negative GDP growth for at least the next two years.

A very paradoxical question to ask is, does a programmatic infusion of demand as the stimulus package enforce austerity and fund crunch arising out of an inherited fiscal deficit at the level of nearly five per cent of the present GDP? The question could be further teetered by asking whether recessionary trends at the macroeconomic level require an open chest funding for every sector of the economy, starting with the most distressed. The behaviour of risk assets such as Franklin Templeton and DHFL withdrawing $25 billion from the Indian stock market further depresses the already sluggish demand. Does this recessionary symptom cause a decrease in the capacity of the State and the Government to respond to the chain of fiscal demands without saving its back by generation of additional income through revenue and extra-revenue routes?

Possibly this question brings out the reason why the Centre is raising the prices of petrol, diesel and other fuels when crude prices are at the lowest. Could this be the only means to generate extra revenue so that fiscal deficit can be covered up and profits made by oil companies could be used for funding a longer crisis? Given the lockdown-induced loss of capacity, the Government is adopting this easy route in spite of its deleterious impact on the prices of essential goods. The situation returns to the same vicious cycle as fall in income, investment, interest, wage and demand make it impossible to revive the economy despite good supply side management in terms of monetary policy. Post lockdown, the economy then looks like a quicksand that eats up the stimulus without the desired impact. The economy continues to move in the trajectory of decline in real GDP and rates of profit. This lies beyond the scope of monetary and fiscal readjustments as the Centre struggles to maintain the fundamentals of the economy.

Nothing could have been more treacherous than the Chinese aggression at this time of crisis. Though the Government is able to make large payments for defence purchases such as Rs 3 billion to the US, Rs 2.1 billion to Israel, Rs 16 billion to Russia, yet there is a seeming lack of funds for medical preparedness to fight COVID-19 and defence preparedness to fight China. With a heady mix of growing income inequality, falling consumption and revenue and stressed assets in money markets, a Government with its hands full of funds does not have many options to spend. As a result, the much- needed panacea of Direct Cash Transfer to 25 crore migrant workers and other rural labourers has not been taken up by an internally and externally-shaken Government.

One requires a proper framework to understand such a dysfunctional state of the economy. Economist Thomas Piketty’s famous thesis on India’s growth story, in terms of the falling contribution of people at the bottom and an artificial attempt by the Government to keep rate of interest lower than the rate of return from capital, seems to dominate the money market. The absence of an appropriate scheme for re-distribution of profit and income for social good turns advantages in the money market ineffective as prognosticated by Piketty and Paul Krugman.

In the deflationary pressure induced by the pandemic, what remains inexplicable is the hoarding of funds, which creates a suffocating liquidity trap in the market. Piketty’s suggestion that India should initiate a universal basic income scheme could have balanced out this excess liquidity in favour of increased demand had the Government succeeded in kicking off the economy at the level of pre-lockdown productivity.

Instead, the Government’s austere move to curtail public expenditure due to revenue shortfall is in sync with the existing recessionary trend in the economy. The Chinese perception of this economic recession is the salient factor that prompts China to create a war-like situation with India in the interest of augmenting its own internal demands.

(Writer: Prasenjit biswas; Courtesy: The Pioneer)

There are alternative vendors but costs would go up. We must encourage equipment manufacture with innovation and now

Yes, the economic realities of China dominating much of our product supply chains, from electronics to drugs, weigh heavy on us. Yes, we are deeply aware of sudden disruptions, litigation and fair trade violations if we take a dramatic step of boycotting China overnight. And while building self-sufficiencies is a long-term and sustained effort, there is no reason why we cannot begin taking atma nirbharata seriously while we can. For the latest Chinese ambush at Ladakh has cost us 20 soldiers and over-tested our patience and strategic responsibility in the region. China continues to eat into our territory as it always has. It won’t settle as long as it doesn’t get what it wants and this presumed supremacy has finally got the Government thinking about reducing our dependencies on it. For the summit diplomacy, which has yielded nothing on the ground except encouraging more hostilities, has been a colossal waste of time that smartly sidestepped contentious border issues and helped China deepen its market access as part of trade deals. So Union Minister for Road Transport and MSMEs Nitin Gadkari has said that no Chinese company will be allowed to participate in any highway or MSME project either directly or indirectly, the latter implying outsourcing consultancies by the bidder company. He even suggested alternative technologies that would help us compete on cost effectiveness and gave the example of PPEs, something which we thought would have to come in bulk from Chinese factories and something which we are exporting now. The shrinkage of trade volume to India won’t impact China much, which can only be upset about being denied entry to a future vibrant market, and it is not that current commitments are not being honoured. It is just that manufacturing our own is a sovereign decision and COVID-19 and the Galwan attack have just been accelerators. Similarly, the Department of Telecommunications cancelled the much anticipated 4G upgradation tender of Bharat Sanchar Nigam Limited (BSNL) to avoid participation by Chinese companies like Huawei and ZTE. Local operators such as Airtel, Vodafone and Jio have been asked to reduce dependence on Chinese companies. Meanwhile, the Indian Railways has already cancelled a Rs 471 crore contract with the Beijing National Railway for a project on the Eastern Dedicated Freight Corridor. Of course, the US, too, has been red flagging concerns about Huawei and ZTE being a “national security risk” because of their data mining and surveillance operations while working their telecom grids. It is even exerting pressure on its allies, India now getting top billing, to comply by banning them.

But that’s not the reason why India is going for a drastic decision on telecom. It is choosing sectors where either an alternative supply chain exists or where it is possible to magnify home-grown capacities. Compared to the mobile handset industry, where replacing Chinese supply chain and products is almost impossible, in the telecom equipment market that is very much possible. There are European nations, too, in the business though supplies from here would come at a cost. The size of the telecom equipment market in India is around Rs 12,000 crore and the share of Chinese products is currently around 25 per cent, simply because their prices are attractive to operators. That’s why the 4G network of big players like Airtel and Vodafone have been built by Huawei and ZTE. Huawei alone has aggressively made inroads into nearly 25 per cent of the total telecom equipment market in India. While Bharti Airtel uses up to 30 per cent Chinese telecom equipment, including Huawei, for its networks, Vodafone Idea uses as much as 40 per cent. Reliance Jio is the only operator functioning without a Chinese vendor as its network is fuelled by South Korea’s Samsung. But replacement, be it from South Korea, Taiwan or any other Southeast Asian nation, can only work in the short-term if self sufficiency is our ultimate goal. Remember that despite the “Make in India” launch in 2015, there has been no impetus for localised equipment production. The ban comes at a time when India is seeking to raise $84 billion from a sale of airwaves, particularly for new technology, which would revolutionise connectivity. So we need to immediately ramp up existing electronic manufacturing facilities and divert them towards 5G equipment manufacturing if we are to exclude Chinese firms from 5G trials. Indian innovation has always risen to the top during crisis and we could leverage our home-grown talent to re-engineer receivers and emitters in discarded mobile devices to make 5G equipment in a cost-effective manner. We should be as enthusiastic about announcing innovations and encouraging R&D than just announcing a ban that spooks markets.

Employers need to be humane and must be dealt with strictly if they fail to take care of workers in emergencies, like they did during the pandemic

India went into a nationwide lockdown on March 24 to combat the Coronavirus pandemic and the entire Government machinery was galvanised by invoking the National Disaster Management Act. However, the sudden shutdown announced by Prime Minister Narendra Modi created a serious governance and humanitarian crisis as panicked migratory workers in metro cities like Delhi, Mumbai, and Ahmedabad set out for their home States on foot. The Government, before announcing the lockdown, should have asked the Labour Ministry to plan an exit route for migratory workers who are the backbone of urban India’s economy. But that was not done, leading to endless suffering for the migrant workers.

Bureaucrats enjoy tremendous clout in running the Government and advising politicians, but in this case the Government machinery, from top to bottom was in deep slumber and failed to visualise the enormity of the problem. The district-level bureaucracy however, did extremely well in properly visualising and enforcing the lockdown and contained the pandemic to a certain extent. Had the migratory workers been tackled carefully, the virus would not have spread to rural India. For over two months there was chaos on the roads as nervous labourers and daily wage workers, who lead a hand-to-mouth existence, decided to go home and cover hundreds of kilometres on foot. As a result, many died midway due to hunger, thirst, fatigue and some died in horrific road and railway accidents.

The Prime Minister and the Centre realised their mistakes quite late in the day and started running special Shramik trains to ferry the migrant workers to their hometowns, just as they began a phase-wise easing of the lockdown. As a consequence, the returning migrant workers spread the virus in their respective States. For example, in Uttarakhand there were only a few cases of COVID-19 in Dehradun and Haridwar earlier. But now the whole State is witnessing a daily spike in cases. This could have been avoided with foresight.

Most of the migrants fall in the category of the unorganised workforce and are employed by enterprises owned by individuals. Some are self-employed workers engaged in the production, sale of goods or provide services of any kind. This also includes a worker in the organised sector who is not covered by any Acts mentioned in Schedule II of the Unorganised Workers’ Social Security Act, 2008. The Government enacted the Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996 to protect them but the mandarins of labour and other Ministries failed to implement the provisions. It is estimated that `31,000 crore is available under this Act for building and construction workers. Similarly, labour welfare funds are also available.

Before announcing the lockdown, the Central Government should have asked all the migratory labourers to register at the nearest Government office and prepared an online list of such people living in the cities with the help of the State machinery. Based on this list, the funds available for the welfare of labour could have been utilised to retain them at their work stations. The employers should have been asked to pay their salaries for at least three-four months, with some support from the Government. Now, the Centre has announced a `20 lakh crore stimulus package for the economy, which also includes a package for migrant workers who have returned home. Had it been done at the start of the lockdown, economic activities would have assumed without a hitch. After all, without workers, the industrial and manufacturing economy cannot work. Now the Government has eased the lockdown but people are finding it difficult to find manpower to restart manufacturing units.

The people at the helm of affairs must ponder over the fate of the 45 crore unorganised sector workers who are the backbone of the `10 lakh crore construction, industrial and agriculture sectors. The Government should constitute a committee to identify the sector-wise strength of the unorganised sector workers and their problems of finding a livelihood. The Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996 had made adequate provisions for accommodation, crèche, canteen, education and healthcare. But these were never implemented by the contractors, Government engineers and other supervisors, though there is provision for penalty and punitive action. In the absence of unions, workers are not aware of their legal rights and are exploited and shunted out at the slightest protest.

The Government ought to direct all stakeholders and create an enforcement regime to ensure welfare measures for the unorganised sector workers. The recent package announced should be used to create all facilities in urban localities as per the 1996 Act provisions. It would be desirable to frame a new comprehensive Act covering all migrant/unorganised sector workers. The employers need to be humane and must be dealt with strictly if they fail to take care of workers in emergencies, like they did during the present pandemic. Labourers deserve to live with dignity. We must remember the words of Mahatma Gandhi who once said, “Man becomes great exactly in the degree in which he works for the welfare of his fellow men.”

(Writer: VK Bahuguna; Courtesy: The Pioneer)

Even as States expect full and timely compensation for the shortfall in their tax revenue, vis-à-vis a given benchmark, the Union Govt has been making short payment and that too after a time lag

The dwindling tax revenue of both the Centre and States since the financial year (FY) 2019-20 has led to a piquant situation. Even as States expect “full” and “timely” compensation for the shortfall in their 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, the Union Government has been making short payments and that too, after a time lag. The compensation to States is intertwined with the Goods and Services Tax (GST) in vogue since July 1, 2017. In fact, the passage of the Constitutional Amendment Bill (August, 2016) leading to the launch of GST was predicated on the Centre giving a legally-binding commitment that it would compensate the States for the loss of revenue they would incur under the GST vis-à-vis the revenue they would get under the subsisting dispensation of excise duty, sales tax or Value Added Tax (VAT) plus other local taxes (GST was first mooted in 2006 by the then UPA Government but did not bear fruit during its term as it was unwilling to give this commitment).

Accordingly, the Modi Government enacted the GST Compensation Act (2017) to provide for compensation to the States for five years between 2017 and 2022, 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.

However, to ensure that the Centre has enough funds to pay for the shortfall faced by States, it 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 at 28 per cent, with the other slabs being five per cent, 12 per cent and 18 per cent, besides the exempt category) such as automobiles, tobacco, alcohol 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 the prudential limit set under the Fiscal Responsibility and Budget Management Act (FRBM), thereby obviating the need for any extra support.

Before we proceed to do the number crunching and analyse the situation on ground zero, it should be abundantly clear that two provisions in the law viz. 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.

During the first two years (since the launch of GST) viz. 2017-18/2018-19, the collection from cess was higher than the shortfall in tax revenue faced by the States. During July 2017-March 2018, the cess collected was Rs 62,600 crore against Rs 41,150 crore needed for compensating the States. During 2018-19, the cess collection was Rs 95,000 crore against Rs 69,000 crore distributed among States as compensation. As a result, even after fully meeting the compensation requirement of the States, at the beginning of 2019-20, the Centre had a surplus of about Rs 47,000 crore in the tax pool.

During 2019-20, the situation deteriorated. Against the requirement of over Rs 1,35,000 crore, proceeds from the cess were just about Rs 95,000 crore leaving a deficit of about Rs 40,000 crore. Notwithstanding this deficit, the Centre could have drawn upon the surplus from previous years to ensure timely release of the compensation amount. But, that was not to be and there was considerable delay. For instance, the compensation for October/November, 2019 about Rs 34,000 crore was released in February/April, 2020.

Now, the devastation triggered by the lockdown has led to a steep decline in tax collection of both the Centre and States (for instance, GST collection during April and May was less than 50 per cent of the amount collected during April/May, 2019). The collection from cess is also expected to go down drastically. Against monthly compensation requirement of over Rs 20,000 crore, proceeds from the cess are estimated to be just about Rs 9,500 crore leading to a deficit of Rs 10,500 crore or around Rs 1,25,000 crore for the whole of the current year.

Unlike last year when the surplus available from the previous years helped in salvaging the situation, during the current year, the Centre has nothing to fall back upon. In this backdrop and with States unwilling to relent on their claim for compensation in full, the Centre is talking of force majeur. Put simply, the latter may have expressed its inability to pay invoking an event beyond control or an “act of God” (Covid-19).

Whether or not force majeur can be invoked, thereby absolving the Centre of its obligation to compensate the States is for legal luminaries to decide. However, the latter need to appreciate that in the absence of adequate funds in the tax pool, even if the former is willing to compensate them, it may still not be able to do it. It can take recourse to additional borrowings or ask the Reserve Bank of India (RBI) to print more currency but these options entail serious risk.

As regards borrowings, already the Centre has increased its borrowing programme for the current year by 50 per cent to over Rs 12,00,000 crore. While this factored in the liabilities arising from the Aatma Nirbhar Bharat Abhiyan announced by Finance Minister Nirmala Sitharaman during May, thereafter, the Government has taken onto itself an additional expenditure commitment of Rs 90,000 crore (Rs 50,000 crore on employment scheme for migrant labour and Rs 40,000 crore additional allocation for MGNREGA).

If, to this we add Rs 1,25,000 crore required to cover the deficit in the tax pool, the Centre will need to borrow another Rs 2,15,000 crore, taking the total to more than Rs 14,00,000 crore. This will further crowd the market and increase interest rates.

Alternatively, monetising the deficit has inflationary implications; besides, it sends a wrong message to stakeholders especially rating agencies about India’s ability to protect its macro-economic fundamentals. What then is the way forward? How can the States and the Centre wriggle out of the riddle without undermining India’s economic fundamentals?

Going strictly by the spirit of the two constitutional amendments relating to compensation and cess, when there is not enough money in the tax pool, the compensation amount to the States needs to be reduced to balance the two. This means that the States should be content with what is available in the tax pool; instead, they should fund the Rs 1,25,000 crore deficit through additional borrowing on their own or rationalise their expenditure to bring about savings.

An alternative which is expected to give comfort to all stakeholders is to continue the cess on demerit products beyond the five-year period (this will require further amendment to the GST Compensation Act, 2018). The deficit in the tax pool during 2020-21 should be met from additional borrowings by the Centre with a clear stipulation that these will be serviced from the proceeds of cess during the extended period say, three years starting from 2022-23.

The States should desist from pursuing their demand made before the 15th Finance Commission for continuing with compensation for three more years. This is not only out of sync with the original intent of the amendment Act on compensation (it was meant to be a stopgap aimed at protecting their revenue till such time GST starts yielding the desired buoyancy in revenue) but also will come in the way of servicing the loan taken to fund the current year’s deficit.

When, an overwhelming portion of the proceeds from the cess during the extended period is dedicated to giving compensation to States, there won’t be any money left to service the loans taken now. Considering a special dispensation (as proposed above) to bail out the States during the current excruciating year, the GST Council should impress upon States to take urgent steps, like bringing more businesses under the tax net, reining in evasion, eliminating fraudulent claims of input tax credit and so on, to ensure that tax revenue under the new regime is self-sustaining, obviating the need for compensation at least during normal times.

(Writer: Uttam Gupta; Courtesy: The Pioneer)