The only way to come out of the looming economic crisis is to have large-scale direct cash transfer at least for the next six months to boost demand. This in turn will generate jobs and increase consumption levels to bring the country out of the trough it is in now 

India is facing a humanitarian and economic crisis of epic proportions. As a result of the extended lockdown, millions of hungry and penniless migrant labourers are stranded in cities, desperately waiting for a seat on a bus or a train to take them home. Fed up of the endless wait, the “atma nirbhar (self-reliant)” among them decided to take matters into their own hands and began walking back to their hometowns and villages, hundreds of kilometres away.

These workers, who form the backbone of the informal economy of the country, are generally employed in Micro, Small and   Medium Enterprises (MSMEs), restaurants, retail shops, construction sites and other enterprises which shut their doors during the lockdown or are at the brink of closure, due to it. What a lockdown of over nine weeks would do to the economy of the country and consequently, the lives of daily-wagers is not beyond the scope of the imagination of those who are in touch with reality.

The so-called Rs 20 lakh crore economic package was an exercise in futility, which did not offer anything to the struggling migrant workers. Instead, the Government announced measures to make it easier for Indians to travel to space. Perhaps, the Government got it wrong. People want to travel to their States, not space. Most analysts, rating agencies and banks have placed the size of the fiscal stimulus announced by Finance Minister Nirmala Sitharaman between 0.7 to 1.3 per cent of the Gross Domestic Product (GDP) and not 10 per cent as claimed by the Government. According to the Government’s own admission, a Rs 8.01 lakh crore liquidity infusion by the Central bank forms a part of this Rs 20 lakh crore stimulus.

The outcome of the Reserve Bank of India’s (RBI’s) Monetary Policy Committee (MPC) meeting, which decided to cut the repo and reverse repo rate further by 40 basis points (bps) to four per cent and 3.35 per cent respectively, came as no surprise. The consecutive rate cuts by the RBI are aimed at injecting more liquidity into the market. However, the industry and retail borrowers are not going to benefit from this rate reduction as there is no demand for credit. And for banks, liquidity is not an issue right now but risk aversion is. This risk aversion among banks is creating a hurdle in increasing credit flow and ensuring the transmission of rate cuts to the industry and retail borrowers. But these rate cuts will affect the middle and lower-income classes the most, with an expected fall in interest rates on their savings (Fixed Deposits) by around 0.5 per cent in the days to come.

However, banks alone cannot be blamed for turning cautious on lending. The economy is passing through uncertain times and banks are trying to prevent non-performing assets (NPAs). The primary issue is the absence of demand for liquidity and to generate this demand, capacity utilisation, which was 68.6 per cent (October-December 2019), has to be increased. Here comes the immediate need for additional Direct Cash Transfer of Rs 7,500 to each Jan Dhan, PM-Kisan and pensioner’s account. This transfer will generate demand in the rural and semi-urban sector, which in turn would force India Inc. to use the remaining 31.4 per cent capacity or go for capacity enhancement which may require liquidity support from banks. Just increasing liquidity in its current form by the RBI is not going to translate into higher credit offtake.

Another major announcement by the RBI was the extension of the moratorium on loan repayment by another three months. The RBI also announced the conversion of moratorium interest payment into a term loan, payable in the course of the Financial Year (FY) 2021. These measures could bring relief to borrowers but not for banks, as they will see more pressure on their balance sheets. The Government should ensure that in the endeavour to become atma nirbhar it does not end up making our banks and Non-Banking Financial Companies (NBFCs) “parmatma nirbhar (dependent on God).” In the last few years, we have already seen some examples of this in the likes of PMC Bank, Yes Bank and so on.

Another challenge for the country is the consistent increase in the food inflation rate. The unplanned lockdown resulted in major supply chain disruptions, which in turn increased the food inflation rate to 8.6 per cent in April. If proper planning regarding supply chains is not done before reopening the economy, food inflation will skyrocket. If food inflation does not decrease, we will have an economy with a high inflation rate and negative GDP growth.

Although the RBI has not provided any concrete number for the projected GDP for FY21, it predicted a negative growth rate. Already a few national and international rating agencies have forecast a negative GDP growth rate (minus five per cent), which can also have huge fiscal implications for India.

The only way to come out of this difficulty is to have large-scale direct cash transfer at least for the next six months to boost demand. This in turn, will generate jobs and increase consumption levels. Thereafter, our demographic advantage will accelerate the economic wheel of the country.

(Writer: Gourav Vallabh; Courtesy: The Pioneer)

The Centre should come out with a huge package of about ten per cent of the GDP which might help revive the economy hit by COVID-19

Though India is slowly opening up its economy after a prolonged lockdown, the correction in the downward slide is unpredictable. Therefore, it is important to be conservatively positive about the economy and analyse the situation at a more granular level for making timely public policy interventions. Economists and financial experts worldwide believe that printing money as part of quantitative easing will generate consumer demand, kickstart new projects, support businesses and the workforce. The US, Europe, Japan, Turkey and Indonesia are printing money and implementing measures to bring their economies back to normal. The printing of money as a fiscal measure works as per the Keynesian notion, where you enhance spending and consumption, which in turn increase the income equal to multiplier times. Every economy has its own value of multiplier, which increases the income equal to multiplier times of consumption. It is vital to grasp the functioning of multiplier to understand and propose the printing of notes.

The concept of the multiplier was first formally introduced into economic theory by RF Kahn in 1931and then was taken up by Keynes (1936). The Keynes-Kahn multiplier says that if the government expenditure (G) goes up by one unit, it translates to more than one unit increase in aggregate demand. The initial round of spending stimulates further rounds of spending such that ultimately the effect on output is multiplier times the original increase in spending. For an initial increase in government expenditure DG and marginal propensity to consume (MPC), change in output DY is K times DG, where K is the fiscal multiplier and equals, K = 1/(1-MPC), under the assumption of closed economy. The value of fiscal multiplier is the accumulated effect on output through various rounds of spending. One person’s consumption is the other person’s income.

Suppose the government spends Rs 1 lakh crore through printing of notes and the MPC of the economy is 0.75, the value of the multiplier will be four. It means for Rs 1 lakh crore of spending, income will increase to Rs 4 lakh crore if other assumptions are fulfilled. Moreover, it doesn’t stop here only and the super multiplier will also work. In a situation where investment is determined by the growth of income itself, we have the operation of what Lange (1943) had called the “compound multiplier” and Hicks (1950) had called the “super multiplier.” Conceptually there is a difference between the multiplier and the super multiplier that subsumes the effect of increased spending on investment via the accelerator (A). However, when we talk about the empirical estimation of the aggregate effect of changes in fiscal variables on the aggregate level of activity, we usually consider the combined concept of super-multiplier as the fiscal multiplier. It can further multiply the income and employment manifold depending upon the capital-output ratio in the Indian economy. Suppose the value of acceleration is again three, this will increase the income many times as the value of A which is A= I/Y, and K=DY/DI and so on. The investors can also be induced with the increase in aggregate demand. The Indian Government’s revenue will also rise with the increase in income and employment.

The fiscal multiplier will work inversely if spending is reduced, which is happening right now in the Indian economy due to the huge job losses and even salary reductions. It will negatively affect the economy, which is already in turmoil. So, the Government should not use the measures which can reduce consumer spending.

Critics will say that prices will rise with the printing of notes. Well, the economy is in huge deflation and there is a scope of the economy hotting up to some extent. Moreover, interest rates are going down to reduce the cost of production. In short, the multiplier effect will be larger when some conditions are fulfilled: The propensity to spend extra income on domestic goods and services is high, the marginal rate of tax on extra income is low, consumer confidence is high and businesses have the capacity to expand production to meet demand. The leakages in the form of imports are already low, which makes multiplier more effective.

Quantitative easing will help generate “helicopter money” to empower the public with money to buy things and boost the economy. Obama did it for the US economy during the 2008 crisis. This concept can be re-invented into a “Drone Drop Money” (DDM) for us. This money should directly go to the individual. The difference between DDM and “helicopter money” is that due to COVID-19, you cannot opt for spending in public works to a major extent. It is the best time to go for printing of money and much-needed, too. There should be a reduction in direct and indirect taxes to boost consumption further, which will increase the tax revenue as per the Laffer Curve. In the current crisis, everyone needs support. Vulnerable people need cash transfers. Large companies need support on liquidity. Small companies may require protection from bankruptcy. Those nations which take timely measures will fare better in reviving the economy. The Centre should come out with a huge package of about ten per cent of the GDP immediately, which might help revive the economy. It could be a V-shaped revival as soon as the lockdown ends.

(Writer: Pradeep S Chauhan; Courtesy: The Pioneer)

With a vast range of options for funding available today, the selection of a suitable source is quite tricky for founders. With a detailed, compelling pitch, they can ride the tide

In India, start-ups are growing at an astounding rate with a record fund raising of $3.9 billion for the first six months of 2019. Last year, they clocked more than 100 per cent growth with funding doubling from $2 billion to $4.2 billion, from 2017 to 2018, according to NASSCOM. The country is on its way to becoming a startup hub with more than 1,200 new businesses coming into existence in 2018, including eight unicorns, thus taking the total number to 7,200 start-ups last year. When compared to the first six months, investments this year across 292 deals saw a 44.4 per cent jump from the $2.7 billion received by domestic start-ups in the first half of 2018, according to Venture Intelligence.

Private funding through private markets like equity, venture capital and angel investing, is the reason for this phenomenal growth of start-ups in India. In the past, private firms often went public when their need for capital exceeded what investors could provide. However, in the last decade, firms have found a good alternative in private markets. This because of two reasons. First, drawn by the potential of high returns, more investors have entered the space, thus creating an influx of available capital. This has in turn altered the trajectory of private companies because they are no longer forced to raise capital on public markets. Second, as more investors pour money into private markets, it has now become easier for new private companies to get funding needed for growth. As a result, there has been a sharp influx in the number of Venture capital (VC)-backed startups and PE-backed companies in recent years. In other words, as more money flows into this space and as more firms stay within, private markets will continue to grow in value and opportunity.

Even though the private funding market is booming, it is not easy for start-ups to raise funds. They require several things — capital, strategic assistance and introduction to potential customers, partners and employees among other things. Entrepreneurs will be better prepared to obtain funding if among other things, they understand the basic difference between distinctive type of private funding available. VC is the finance that investors provide to start-up companies and small businesses. These are believed to have long-term growth potential and can be provided at different stages of the companies evolution. VC generally comes from well-off investors, investment banks and any other financial institutions. However, it does not always take a monetary form; it can also be provided in the form of technical or managerial expertise. It is basically a subset of Private Equity (PE), which focusses on emerging firms seeking substantial funds for the first time. PE tends to fund larger and more established firms that seek an equity infusion or a chance for company founders to transfer some of their ownership stakes. Apart from the stage of investment, PE firms make investments in a few companies only and provide funds to matured firms that have a good record while VC firms make their investments in a large number of small companies, who may not necessarily have the desired track record.

Third, PE investment can be made in any industry as opposed to VC in which investment is made in high growth potential industries like energy conservation, biomedical, quality upgradation, information technology and so on. Fourth, the risk profile in VC is comparatively higher than PE. Lastly, the use of funds is different in both cases. In PE, funds are utilised in financial or operational restructuring of the vendee company. On the other hand, VC funds are utilised in streamlining business operations by way of developing and launching new products or services.

While the roots of PE can be traced back to the 19th century, the birth place of VC was in the US. It developed as an industry only after the Second World War. Georges Doriot, Harvard Business School professor, is generally considered to be the “Father of VC”, who raised $3.5 million fund to invest in firms that commercialised technologies developed during WWII. ARDC’s first investment was in a company that had ambitions to use X-ray technology for cancer treatment. The $200,000 that Doriot invested turned into $1.8 million when the firm went public in 1955. In a VC deal, large ownership chunks of a firm are created and sold to a few investors through independent partnerships that are established by VC firms. Sometimes these partnerships consist of a pool of several similar enterprises.

Another important way of raising funds, particularly for small business and companies in emerging industries, is through angel investors, which is typically a diverse group of individuals, who have amassed their wealth through a variety of sources. However, they tend to be entrepreneurs themselves or executives recently retired from the business empires built by them. Self-made investors providing VC typically share several key characteristics. The majority look to invest in companies that are well-managed, have a fully-developed business plan and are poised for substantial growth. These investors are also likely to offer to fund ventures that are involved in the same or similar industries or business sectors with which they are familiar. If they haven’t actually worked in that field, they might have had academic training in it. Another common occurrence among angel investors is co-investing where one angel investor funds a venture alongside a trusted friend or associate, often another angel investor.

Although angel investors and venture capitalists have a number of similarities like catering to innovative start-up businesses, there are also a number of differences between them. First, an angel investor works alone. Venture capitalists are part of a company. Angels are rich, often influential individuals, who choose to invest in high-potential companies in exchange for an equity stake. Given that they are investing their own money and there is always an inherent risk, it’s highly unlikely that an angel will invest in a business owner who isn’t willing to give away a part of their company. Venture capital firms, on the other hand, comprise a group of professional investors. Their capital comes from individuals, corporations, pension funds and foundations. These investors are known as limited partners. General partners, on the other hand, are those, who work closely with founders or entrepreneurs; they are responsible for managing the fund and ensuring that the company is developing in a healthy way.

Second, they invest different amounts. While angel investing is relatively limited in its financial capacity, this mode of investing can’t always finance the full capital requirements of a business. Venture capitalists, on the other hand, can raise large amounts of fund.

Third, they have different responsibilities and motivations. Angel investors are primarily there to offer financial support. While they might provide advice if asked for or introduce to important contacts, they are not obliged to do so. Their level of involvement depends on the wishes of the company and the angel’s own inclinations. A venture capitalist looks for a strong product or service that holds strong competitive advantage, a talented management team and a wide potential market. Once venture capitalists are convinced and have invested, it is then their role to help build successful companies, which is where they add real value. Among other areas, a venture capitalist will help establish a strategy and recruit senior management. He/she will be on hand to advise and act as a sounding board for CEOs. This is all with the aim of helping a company make more money and become more successful.

Fourth, angel investors only park funds in early-stage companies. They specialise in early-stage businesses, funding the late-stage technical development and early market entry. The funds an angel investor provides can make all the difference when it comes to getting a company up and running. Venture capitalists, on the other hand, invest in early-stage companies and more developed firms, depending on the focus of the venture capital firm. If a start-up shows compelling promise and a lot of growth potential, a venture capitalist will be keen to invest.

A venture capitalist will also be eager to invest in a business with a proven track record that can demonstrate it has what it takes to succeed. The venture capitalist then offers funding to allow for rapid development and growth. Lastly, they differ in due diligence. Venture capitalists focus more on due diligence. These are some of the differences between PE, venture capital and angel investors and the decision of which to approach is personal. To improve the odds of securing investment and appealing to an investor, a start-up company should take the time and consideration to create a detailed, compelling pitch. With sufficient luck, it can end up with the financial and entrepreneurial support to skyrocket its business.

(The writer is Assistant Professor at Amity University)

Writer: Hima kota

Courtesy: Pioneer

China’s ‘Taobao’ model is worth emulating by Indian policy-makers to revitalise the e-commerce industry and harness multiplying effects of digital technology in rural areas

Soon, the din of a bitterly fought, fractious election, where the discourse veered around some of the most irrelevant issues, will recede  and the focus of the new Government will revert to policy interventions and formulating the forthcoming Budget. Economic policies of an elected Government have the single largest bearing upon the destiny of its polity. An increase in per-capita disposable income is one of the most vital indicators of successful governance and one that invariably favours the incumbent. Undoubtedly, the predominant electoral issue, which was relegated to the background, hinged on declining rural and urban income, decreased savings and slowing consumption. Conversely, closer to voting, poll dynamics showed that by March 2019, “net future expectations about the economy clocked a positive 48.6 per cent” as people were more optimistic about the larger economic course of the country in the likely event of Modi’s second coming.

With the median age of India’s population being 30 years, this aspirational demograph has gone past the roti-kapda-makaan basics of the last century to mobiles, internet and entrepreneurship. As forward planning yields results only after gestation periods of a three to five year lag, policy-makers will have to find ways to leapfrog job creation once the new regime is in place by June. India’s consumption story has been losing momentum in major sectors like FMCG, cars and two-wheelers and services activity — slipping to multi-quarter lows as income stagnates — which is reflected in declining rural demand. The next Government will be confronted with the challenging task of lifting investment sentiments by remonetising the economy as consumption fuels jobs and income from job-earnings fuels consumption in turn.

Policy-makers have a key role to play in fostering an enabling environment that supports innovation for both agri-entrepreneurship and micro-entrepreneurship. Consider this: The combined market cap of the three largest IT companies of the US — Apple, Microsoft and Amazon — equals India’s GDP and importantly, just the Chinese e-commerce major Alibaba’s m-cap equals 20 per cent of our GDP. These growth models necessitate that policy-makers fire on all cylinders with newer paradigms to kick-start innovation and growth in the IT enabled sectors as also focus on the nascent digital platforms as job-creators.

The focus of this article is specifically on rural e-commerce as a propeller for job-creation. This will need public private-partnerships with the likes of Amazon, Walmart, Reliance Retail and other e-commerce platforms on a national scale. The nascent e-tail market in India is projected to grow at 30 per cent annually, targeting $73 billion by 2022. Herein lies the biggest untapped job-creation potential, a prerequisite for which is deepening electronic payments through smartphones in order to reduce cash payments and encourage digital mode of transactions for online commerce.

China embarked on creating rural jobs a decade ago by implementing the ‘Taobao’ model for expanding employment avenues, alleviating poverty and vitalising the rural economy by harnessing multiplying effects of digital technology in rural areas. Consequently, e-commerce grew rapidly in China as trade volumes increased from less than 1,000 billion yuan ($120.8 billion) in 2004 to nearly 30,000 billion yuan ($4.44 trillion) in 2017.

The prototype has thrown surprising results for India to emulate: Though e-commerce is always more developed in urban areas, surprisingly online retail sales in rural areas grew faster than the national average. From 2014 to 2017, online retail sales in rural China increased from RMB 180 billion to 1.24 trillion, a compound annual growth rate of 91 per cent, compared to 35 per cent nationally. So, replicating this model in India, we can just imagine how this surge can alter the rural job-scape, which is in need of policy interventions. The experience in Taobao villages has sparked strong interest among policy-makers to tap the potential of e-commerce as a tool for poverty alleviation, financial empowerment for stay-at-home employment and rural vitalisation. The breakthrough was seen most in the ratio increase of women-to-men entrepreneurs in e-commerce being at near parity, compared to a ratio of 1:3 in traditional businesses.

The Alibaba Group initiative of the Rural Taobao Programme, in collaboration with the Government, supported rural clusters with real-time access to a wide range of goods and services, replacing the expensive brick and mortar shop-floor business model. This helped farmers earn more for their produce as they could directly sell their produce to urban consumers in online platforms. The programme required job-stepping multiple initiatives to streamline cross-country linkages in infrastructure by laying the ground work for service networks in counties and villages; providing training in e-commerce and promoting entrepreneurship; and developing rural financial services through the Ant Financial subsidiary of Alibaba.

The Rural Taobao Programme has now expanded from 212 villages in 12 counties in 2014 to more than 30,000 villages in 1,000 counties in 2018, spreading from the coast to inland. It focussed on improving rural e-commerce supply chains, promoting connectivity between agriculture and commerce and enhancing e-commerce training. The scheme grew rapidly and by 2018, had supported 1,016 demonstration counties, covering 737 poverty-stricken counties (89 per cent of the total), including 137 counties with extreme poverty (41 per cent of the total). The experience in China offers a compelling model to pursue as a ‘Global Best Practice’ prototype for India. The report demonstrated how digital technology has the potential to harness inclusive growth, unlike previous revolutions, especially when policies and public-private sector work in synergy. Experience in other developed countries has made for a compelling case to adapt and integrate digitally enabled ecosystems as an engine for transformational growth in providing jobs and enhancing livelihoods to the rural population at their doorstep, without the need to migrate to bigger cities.

Achieving inclusive growth is a vital pillar to achieve Sustainable Development Goals of the United Nations. To achieve this, digitisation has been proven to have had a multiplier impact on inclusive growth in China as its e-commerce market has become the largest in the world within a span of just 10 years, moving millions out of poverty. To further this model, it needs collective collaboration with best research minds globally to work together and evolve paradigms that will optimise the power of digitisation in order to bridge income and opportunity inequalities.

The data coming out of the Chinese model offers great insights into how India can integrate open e-commerce platforms with mobile payments and digitally based financial services “in order to support SMEs access larger potential markets than the gravity model for trade in the physical world.” Why this model is best adaptable in India is because the platform-centered ecosystem has low entry barriers for capital requirements and also because education and digital skill requirements are minimal, which is a perfect fit to India’s rural demographics, where people with low literacy levels can be gainfully employed.

China, too, was earlier a high-cash economy until the mobile payment revolution happened. Before the advent of digitisation, in the pre-digital commerce era, only proximity to a well-developed commercial area afforded residents access to an array of physical marketplaces and consumer products. Now through Alibaba’s Taobao and Tmall e-platforms, the average shopping distance on these platforms is close to 1,000 kilometres, compared with a few kilometers in traditional retail markets. And in less developed regions, people are buying a wider variety of consumer goods online, offsetting the disadvantages of their local markets. This has enabled 10 million SMEs and start-ups in remotest of villages to start businesses from home and work on flexi-timings, shrinking urban-rural income disparities.

As China leads the world in mobile payments and online money transfers with 1.25 billion internet users, digital footprints, Artificial Intelligence (AI) and algorithms are helping in risk-assessment in real time. “So now, Chinese startups have access to credit without collateral via the innovative ‘310’ credit model: 3 minutes to apply for a loan, 1 second to get it approved, with 0 manual interference,” signifying speed, precision and efficiency.

Digital platforms have evolved into an institutional form where they act as the nodal institutions to create an enabling environment for SMEs with support in marketing, product management, online operations, customer service, cash management, logistics, business advisory and data analysis, covering essentially every aspect of running a business. The Tao Factory platform on Alibaba connects 40,000 factories from more than 30 industries with Taobao sellers to form an integrated supply chain market. This calls for well-tested pilot-modules if the Chinese experience has to be successfully Indianised. Once disadvantaged groups can participate in the modern digital economy, positive results could follow in a sustainable way.

I personally anticipate unprecedented rapid structural and growth oriented reforms to gather pace under Modi 2.0 because ‘Team Modi’ will be on performance overdrive in his follow-on term. Modi has the pulse of the nation right, knowing too well that emerging India strives to enter the middle-income category, with a per capita income of $2,000, wherein the aspirational classes seek empowerment through an honourable livelihood instead of welfarist handouts by the State.

(Multiple references have been made from the Digital Technology and Inclusive Growth Report of the Louhan Report 2019. The writer is an author, columnist and chairperson for the National Committee for Financial Inclusion at Niti Aayog)

Writer: Bindu Dalmia

Courtesy: The Pioneer

India is home to abundant non-conventional energy sources such as the sun, water and wind that can be harnessed to supply reliable electricity to households and micro-enterprises

The pandemic and the resultant lockdowns put a temporary stop to economic activities across the globe, impacting millions of people and their livelihoods. The Asian Development Bank (ADB) estimates this loss to be around $4 trillion, which is nearly five per cent of the global Gross Domestic Product (GDP). As a young, developing nation with 65.97 per cent of the population still residing in the villages, the pandemic not only tested India’s economic resilience but also exposed the growing urban-rural divide and income inequality. As we continue to step up our fight against the Coronavirus, we are certain that the post-pandemic world would be different from what we left behind. The rebuilding exercise should, therefore, begin with rural India — where, as Mahatma Gandhi said, “The soul of India lives.”

Rural India has always found it challenging to unleash its economic potential due to a variety of fiscal and social factors. A major reason among them is the continued unavailability of reliable power. Per capita electricity consumption in rural areas still remains significantly low due to erratic power supply. Research data show that there is a strong positive correlation between economic development and electricity consumption. For example, China started growing at double digit when the demand and consumption of power in rural areas doubled and the small-scale businesses expanded rapidly. Similarly, rural India, too, has a growing demand for reliable electricity but due to supply side constraints, this demand remains partially unfulfilled.

How do we address the challenge and ensure reliable power for all? We must strengthen the last-mile power delivery system, which is largely dominated by State-run Distribution Companies (DISCOMS). But as DISCOMS continue to remain trapped in mounting losses and operational inefficiencies, last-mile power delivery has taken a backseat. The DISCOMs, therefore, need to streamline and strengthen their distribution networks with greater focus on enhancing customer satisfaction, timely complaint redressal, regularised billing processes and transparency in finances at all levels. Addressing challenges such as power theft and billing inadequacies can help DISCOMS enhance their delivery efficiency.

In addition, the proposed amendments to the Electricity Act, 2003, particularly the unlicenced sub-distribution and payment security mechanism, will boost private sector investments in the distribution sector, reduce their losses and strengthen operational efficiencies of DISCOMS. Private investments will not only help DISCOMS deal with financial stress but will enhance the quality of services and healthy competition. This will ultimately have a transformative impact on last-mile power delivery and ensure access to reliable power for rural households.

India is home to abundant non-conventional energy sources such as solar, water and wind that can be effectively harnessed to supply reliable electricity to rural households and micro-enterprises. Renewable energy provides low-cost power models and can be deployed even in remote areas despite the geographical barriers. Expansion of renewable energy-based mini-grids in rural India can be further incentivised and be provided additional policy support for generation and distribution of electricity at affordable rates to rural households.

Mini-grids serve as the primary source of electricity in regions where grid-connected power has not found its way yet. A recent survey on the impact of COVID-19 in mini-grid villages of Uttar Pradesh (UP) and Bihar revealed that 90 per cent of the rural households trust mini-grids for reliable power supply. However, despite mini-grids becoming a trusted source of reliable electricity for rural India, they often run the risk of reverse migration of customers to centralised grids when the necessary infrastructure is available.

This concern, however, can be addressed by integrating mini-grids with centralised ones to provide enhanced access to electricity supply. A fully-integrated power system is an optimal solution for electrifying un-electrified villages with reliable power. Integrated power supply models can minimise the cost by introducing efficient planning, investment and operation of assets with significant economies of scale. Ghana, for example, built an integrated grid, providing power to 85 per cent of its urban population and 41 per cent of the rural population. Integrated power systems can speed up the rural electrification process and ensure reliable supply.

The health and economic crises triggered by the pandemic clearly underline the significance of providing reliable power for all critical rural infrastructure such as health centres, micro-enterprises and schools. Productive uses of energy such as for irrigation, small businesses, tailoring, food storage and so on will further ensure adequate livelihood options for rural communities with greater economic resilience.

How will reliable electricity help rural India rebuild its economy?

Rural healthcare: This is a key area that will lead to a new economic revolution in the post-pandemic world. India’s healthcare preparedness was found to be inadequate during our fight against the COVID-19 pandemic. Primary health centres, which approximately serve 65 per cent of the rural populations, need to be modernised with state-of-the-art infrastructure, especially uninterrupted power supply. Reliable supply can provide crucial support to critical functions of these health centres, especially during medical emergencies. The survey also revealed that a majority of the rural households depend on community health centres for their medical needs. Inadequate and irregular supply of electricity may affect their functioning with critical implications for rural populations. Electrifying and modernising the health centres will, therefore, be a key step towards rebuilding the economy and reshaping the lifestyle of rural populations. Millions of dollars can be saved if rural populations have access to high quality healthcare services. This will not only have a lasting economic impact on  health delivery but will lead to better social outcomes such as improved health and hygiene.

Modernising agriculture: Farming remains the primary source of livelihood for nearly 65 per cent of Indians. Yet, agriculture productivity is significantly low in India and accounts for only 15.4 per cent of the GDP. The growth in agriculture has been moderate in the past decade at nearly three per cent per annum. Critical functions such as irrigation, harvesting, post-harvest handling and storage, all require reliable power supply. In regions where rainfall is scanty, groundwater is the main source of irrigation. Electricity demand in rural India is majorly driven by irrigation. Villages with access to electricity have seen an uptick in agricultural productivity with availability of low-cost irrigation technologies. For example, rural households that would sell paddy at a low price earlier sell hulled rice as there is an electricity-powered rice huller in the village. These are few of the examples of the transformative impact of reliable electricity supply. Modernising agriculture will unlock myriad employment and business opportunities for rural India.

Big push to micro and small businesses: Formalisation of the rural economy is an essential step in providing necessary infrastructural support to budding micro and small businesses. Reliable electricity supply encourages creation and expansion of new businesses in rural areas and can potentially open the door for greater economic activity and investments. Villages with access to reliable electricity have already seen the emergence of micro enterprises such as training centres for computer skills, coaching institutes and travel agencies. The income levels of households engaged in small business have witnessed a steady increase, too. These are replicable models that can be extended to other villages and reliable power can help rural India unleash its economic potential.

As we seek to rebuild the rural economy, reliable electricity will play a crucial role in promoting micro-enterprises, doubling farmer incomes and creating sustainable job opportunities. The cumulative impact of improved healthcare, modernised agriculture practices and rise in rural enterprises will be significant and will enable rural India’s transformation into a hub of economic activity. A new India is waiting to be born out of the COVID-19 pandemic.

(Writer: Jaideep Mukherji; Courtesy: The Pioneer)

Vijay Mallya lived it up once. The liquor tycoon owned India’s biggest beer brand, which he leveraged into starting an airline by the same name. Simultaneously, he started a calendar that featured India’s top models, including some well-known Bollywood faces of today, whom he gave a break. He was famous for his parties in Mumbai, Goa and Monte Carlo that featured tens of nubile models around his arm and many suspected much more. He called himself the biggest brand ambassador of his airline and booze brands but as the old saying goes, the fastest way to become a millionaire is to be a billionaire and establish an airline. And Kingfisher Airlines cost Mallya a lot — he was forced to sell his brewery and spirits firms to foreign players. The airline collapsed in a mountain of debt, employees lost jobs and a few even committed suicides. It also crumbled with billions of dollars worth of debt with the Indian public sector banks holding the can.

Today, the ruins of Kingfisher Airlines are still visible in Chennai and Mumbai where the once-serviceable planes are rusting away. The impact of the collapse of the airline is also evident on the huge non-performing asset crisis that has overtaken Indian banks. Unlike many other non-performing assets though, Kingfisher Airlines collapsed with nothing left to sell — most of the planes were owned by leasing companies — other than a few buildings and a private jet. To be fair, businesses collapse all the time and to hold people criminally liable for a business failing is unfair. However, to claim that there was no criminal negligence in Kingfisher Airlines’ case is wrong. Mallya used his airline’s brand valued at an obscene amount of money, he was forwarded loans under strange circumstances, leading to speculation that a quid pro quo deal had happened. So, Mallya’s imminent extradition from the United Kingdom should be welcomed and he should be questioned and face criminal proceedings for some of the fraudulent activities that took place. However, to blame Mallya alone would be wrong. Indeed, if he goes to jail, so should the bank officers who lent him money, the consultants that boosted his brand value as well as those politicians, who ensured that banks lent him the money. Mallya should pay if he has committed any crime. The Government’s aggressive new law officers should be commended but Mallya should not become a scapegoat.

Writer and Courtesy: The Pioneer

When it comes to investments, the adage, ‘Don’t put all your eggs in one basket’, comes to mind. Diversification essentially means the strategic allocation of investments among different assets and their categories to spread the money around so that exposure to any one type of asset is limited. This helps manage risk and reduce volatility of portfolio over a period of time. One of the keys to successful investing is to learn the art of maintaining fine balance between comfort level and time horizon.

If one invests conservatively for retirement at a young age, he/she may run the risk of investment growth not keeping pace with inflation. Conversely, if one invests too aggressively, when one is older, they may face a situation where their savings are exposed to market volatility. This can erode the value of their assets at an age when one has fewer opportunities to recoup losses.

One way to balance risk and reward in an investment portfolio is to diversify assets. Although diversification does not ensure profit or guarantee no losses, it may help mitigate risk. It does help in reducing the number and severity of ups and downs. Diversification does not aim to maximise returns but limits the impact of volatility on a portfolio. To better understand this concept let us look at the table along with this article which contains hypothetical portfolios with different asset allocations from 1926 to 2017.

The most aggressive portfolio shown in the table comprises 60 per cent domestic stocks, 25 per cent international stocks and 15 per cent bonds. It has an average annual return of 10.02 per cent. The best 12-month return stood at 134 per cent, while its worst 12-month return lost nearly by 61 per cent. This is too much of volatility for investors to endure.

However, as we can see, a slight change in the asset allocation tightened the range of those swings. It is also clear that additional fixed income investments to a portfolio slightly reduces one’s expectations for long-term returns. But this may significantly reduce the impact of market volatility. This is a trade-off many investors feel is worthwhile, particularly as they get older and more risk-averse.

Factoring time into diversification strategy: People are generally accustomed to thinking about their savings in terms of goals —retirement, college, a down payment or a vacation. But as one builds and manages his/her asset allocation, regardless of which goal he/she is pursuing, there are two important things that must be considered: First, the time horizon ie the number of years when one would need the money back and second, attitude toward risk.

To take an example, a young adult may think of a goal that is 25 years away, like when he/she retires. Since the time horizon is fairly long, he/she may be willing to take additional risk in pursuit of long-term growth. The investor may be under the assumption that there’s enough time in hand to regain lost ground in an event of short-term market decline. In that case, higher exposure to domestic stocks may be appropriate.

However, risk tolerance plays a crucial role here as well. Regardless of the time horizon, one should undertake risk with which he/she is comfortable. So even if one is saving for a long-term goal, or is more risk-averse, he/she may want to consider a more balanced portfolio with some fixed income investments. Regardless of the time horizon and risk tolerance, even if one is pursuing the most aggressive asset allocation model, he/she may want to consider including a fixed income component to help reduce overall volatility of the portfolio.

The other thing to remember about time horizon is that it keeps changing constantly. So, let’s say one’s retirement is 10 years away, he/she may want to re-allocate their asset to help reduce exposure to higher-risk investments in favour of more conservative ones like bond or money market funds. This can help mitigate the impact of extreme market swings on portfolio, which is important when one needs the money relatively soon. Once they enter retirement, a large portion of the portfolio should be more stable. Lower-risk investments can potentially generate income. But even in retirement, diversification is key to help manage risks. So just as one should never be 100 per cent invested in stocks, it’s probably a good idea to never be 100 per cent allocated in short-term investments if time horizon is greater than one year.

After all, even in retirement one needs exposure to growth-oriented investments to combat inflation and help ensure that the assets last for what could be a decades-long retirement. Regardless of the goal — time horizon or risk tolerance — a diversified portfolio is the foundation of any smart investment strategy.

(The writer is Assistant Professor, Amity University)

Some updates:

NSIC sub branch opened in Goa

The joint secretary of the Ministry of Micro Small and Medium Enterprises (MSME) and the CMD of National Small Industries Corporation (NSIC), Sudhir Gar, inaugurated the NSIC sub-branch office at the New Building at Verna Industrial Estate in Goa recently in the presence of the president of the Verna Industrial Estate, Damodar Kochkar, their Executive Committee Members and various other MSME Units

NHPC-NTNU collaborate to research on hydropower

The NHPC Limited, India’s premier hydropower company, has signed a memorandum of understanding (MOU) with the Norwegian University of Science and Technology (NTNU), to facilitate cooperation in research and education of hydropower during the India-Norway Business Summit 2019 held at New Delhi recently. This collaboration will allow for research that is of mutual interest and will aid in undertaking studies in the areas namely dam construction and safety, sediment handling, variable speed operation, pump turbines in existing power plants, future market structures and prices, optimal hydro design in the future power system and hydrology models.

SECL registers growth in coal production in Q3, 2018

The South Eastern Coalfields Limited (SECL), the largest coal producing subsidiary of Coal India Limited, has registered an impressive growth heading towards the coal production target of the year. During the period from April to December 2018, SECL’s coal production and off-take grew by 8.89 per cent and 4.06 per cent respectively. During the same period, SECL’s coal production was 110.751 Million Tonnes (MT) and the Off-take was 115.433 Million Tonnes (MT). The Over Burden Removal was 137.796 MT during this 9-month period. The coal production in the third quarter itself was 38.517 MT.

The Lieutenant Governor of Delhi Anil Baijal, accompanied by the CMD of NBCC Dr Anoop Kumar Mittal, visited the NBCC’s East Kidwai Nagar Redevelopment project in New Delhi. Dr Mittal apprised the LG on the project which is equipped with world class amenities and an eco-friendly and zero waste system.

The students of Guru Gobind Singh Indraprastha University, Dwarka, participated in the All India Inter University Championship 2018-19 held at KIIT, Bhubaneswar. They won 1 Gold Medal in 560 Kg outdoor mix category, 1 Gold Medal in the 600 Kg beach men’s category and 1 Silver Medal in the 540 Kg beach mix category. The vice chancellor of GGSIPU Anil Kumar Tyagi, the pro-vice chancellor Phusplata Tripathi, the registrar Satnam and the director of student welfare C S Rai, felicitated the winners for their achievements

Writer: The Pioneer

Source: The Pioneer

The rapid snowballing of debt defaults by IL&FS and its group entities into a system-wide liquidity crunch has exposed well-hidden fault-lines in the workings of both non-banking finance companies (NBFCs) and the Indian bond market. All that IL&FS needs to do is, drift with the temporary liquidity crunch to boost the confidence of its shareholders and investors.

Infrastructure Leasing & Financial Services (IL&FS), originally promoted by HDFC, Central Bank of India and Unit Trust of India in 1987, operating via 169 subsidiaries, special purpose vehicles and joint ventures, has pioneered the infrastructure revolution in more than one way, with path-breaking projects such as the Zoji La tunnel Pass, Delhi-Noida toll bridge, GIFT, Gujarat International Finance Tec-City and umpteen others. LIC, Orix Corporation of Japan and ADIA, Abu Dhabi Investment Authority, that hold 25.34 percent, 23.54 percent and 12.56 percent each in IL&FS, are today its top three shareholders.

Congress president Rahul Gandhi, who has been tweeting feverishly in the last few days, questioning the need for any potential bail-out by LIC, has conveniently forgotten that it was under the erstwhile Congress-led dispensation that LIC acquired significant stakes in IL&FS in 2005, 2006 and, picking up as many as 19.34 lakh shares in 2010. The fact that LIC pumped in Rs 41,000 crore in 2007-08 and Rs 35,000 crore in 2008-09, with its outstanding exposure to the Indian equity markets at a whopping Rs 20,0000 crore by January 2009, amidst the Lehman meltdown, is a testimony to the fact that LIC used its reinvestible surpluses to stabilize markets, then.

If anything, a series of measures by the Narendra Modi Government to instill confidence in the money markets, which had seen the commercial paper (CP) yields rising by 20-40bps for even top-rated issuers, in the aftermath of the IL&FS imbroglio, deserve praise. For instance, the interbank liquidity deficit was addressed by allowing banks to carve out 15 percent holdings from their statutory liquidity reserves, against the earlier 13per cent to meet liquidity coverage ratio (LCR) requirements, thereby boosting systemic liquidity by an additional rupees two lakh crore.

This, coupled with an open market operation’s (OMO) announcement of Rs 36,000 crore for the month of October by the Reserve Bank of India (RBI), calmed the bond markets, with benchmark 10-year bond yields retracing from 8.23 percent last week to 7.99 percent on October 1. Three group companies of IL&FS are listed on the Indian bourses, namely, IL&FS Investment Managers Ltd, IL&FS Engineering and Construction Company Ltd and, IL&FS Transportation Networks Ltd. Importantly, many mutual funds, banks, insurance companies, non-banking financial companies (NBFC) and housing finance companies, have direct or indirect exposure to IL&FS.

Hence the National Company Law Tribunal’s (NCLT) decision to allow the Government to take-over IL&FS and supersede the erstwhile 10 member board, vide Article 241(2) of the Companies Act 2013, is a prompt and timely one that saved the Indian financial system from any potential cascading effects, limiting the collateral damage, if any. The alacrity, decisiveness and sheer professionalism with which the Modi Government took charge of IL&FS, is unmatched in Indian financial history.

The current embattled state which IL&FS finds itself in, thanks to gross mismanagement by the erstwhile board, is a temporary one arising out of asset-liability mismatch (ALM). In sharp contrast, the Lehman crisis in 2008, with Lehman filing for Chapter 11 Bankruptcy on September 15, 2008, was one of the insolvencies. Hence, desperate attempts by a disjointed Opposition to draw parallels between IL&FS and Lehman, smack of ignorance and a vested agenda to discredit the Modi Government that has been repeatedly praised by the likes of the IMF and the World Bank for turning around the Indian economy into the sixth largest, globally, from a fragile state it had been pushed to in 2012-13.

Do note, the size of debt assets under management of mutual funds in India is over Rs 18 lakh crore, with roughly 17per cent of that invested in NBFCs. Hence, IL&FS is simply too big to fail. Again, IL&FS is a huge borrower accounting for two percent of the outstanding CP market, one percent of the debenture market and roughly 0.7per cent of banking system loans. Interestingly, despite the sheer scale of numbers involved, the resilience of the Indian financial system shone through, with Indiabulls Housing Finance raising more than Rs 500 crore at 8.36 percent via CP market, and a Tata group company raising Rs 3,488 crore via non-convertible debentures (NCD) for the first time in 10 years at a rate of between 8.70-9.1per cent last week, even as the IL&FS issue raged on.

Coming back to the IL&FS fiasco, what triggered nervousness was a default by IL&FS on repayment of a Rs 1,000 crore short-term loan from Small Industries Development Bank of India (SIDBI) on September 5, 2018, followed by a series of defaults. The fact that in less than a month of the IL&FS crisis and barely within 48 hours of the IL&FS Annual General Meeting that was held on September 29 this year, management take-over had been affected by the Modi Government by October 1, 2018, speaks volumes of  the current Government’s commitment to the millions of retail investors who have parked their money in debt funds that invariably have some kind of exposure to IL&FS.

Do not forget that in a rather similar incident in 2009 wherein a promoter, Ramalinga Raju of Satyam Computers was summarily removed for defrauding and cooking up the company’s books. The erstwhile Congress-led UPA Government back then had allowed the entire Satyam crisis to fester for seven long months from January till July 2009, before reaching a tentative solution, doing irreversible damage to the Indian financial markets in the bargain.

The IL&FS issue, however, raises questions about ‘conflict of interest’ plaguing credit rating agencies. In this entire issue, while the Modi Government and the RBI showed exemplary nimble-footedness in limiting collateral damage, the credit rating agencies had assigned investment grade ratings till as recently as August 2018, which was then reduced to junk status by September 2018 in a classic knee-jerk reaction.

That the IL&FS group was over-leveraged and rumored to have borrowed between 10-18 times its equity, to fund its infrastructure projects, most of which bring in returns over 20-25 years, was known to the credit rating agencies. They simply refused to even blink till things reached an inflection point.

Making things worse, IL&FS’ borrowings were all repayable in the short to medium-term of roughly eight to 10 years. What abetted the asset liability mismatch was cost overruns and inability to roll over short-term obligations. However, as things stand now, on October 31, 2018, the new board will submit a resolution plan to the NCLT. That could involve monetization of unviable assets, reducing stakes in 25 odd projects being operated by the company, possible Rights/NCD issues, raising authorized capital, deleveraging the balance sheet by 38 percent or roughly Rs 30,000 crore, bringing in new partners for some projects and the like.

At the core, IL&FS is an inherently strong company with assets worth Rs 1,15,815 crore as of fiscal 2018, with a standalone reported gearing ratio of 3.04 and a regulatory gearing ratio of 2.30. It has umpteen profit-making subsidiaries like the Khed Sinnar Expressway, Amravati Chikhli Expressway, Barwa Adda Expressway, Fagne Songadh Expressway, and others. Thanks to the Narendra Modi dispensation, by choosing not to hide the IL&FS issue by fraudulently evergreening its loans, but by tackling the problem head-on, including ordering a Serious Fraud Investigation Office probe to get to the bottom of things, the confidence in money markets has been restored.

Needless to add, the big message for companies and investors from the IL&FS issue is, not to go overboard in “borrowing at the short end and lending at the long end of the market”, as asset-liability mismatches can be a vicious cycle. That said, those indulging in fear-mongering by saying that IL&FS’ lenders will have to take a haircut of Rs 15,000-20,000 crore in a bid to save it, are completely wrong. IL&FS has deep pockets, strong capital base with good operational parameters, net assets higher than net liabilities, and all it needs is, the renewed confidence of its shareholders and investors, to tide over the temporary liquidity crunch.

If push comes to shove, even selling a minuscule stake in one of its subsidiaries, from the umpteen profitable ones it has in its kitty, can replenish its net worth and generate between Rs 20,000-30,000 crore, giving it the firepower to have the cash flows to service its debt obligations, without erosion in its core capital base.

And once market sentiment stabilizes, given its excellent track record in executing and financing some of the toughest infrastructure projects in the country, IL&FS, with a new board at the helm, should be able to continue to access the financial markets at competitive rates and get back to doing what it does best… (—)powering India’s superlative infrastructure growth story with projects like the Chennai-Nashri road tunnel project, that is a befitting example of what political will under the Narendra Modi dispensation has been able to accomplish.

(The writer is an economist and chief spokesperson for BJP, Mumbai)

Writer: Sanju Verma

Courtesy: The Pioneer

The government is facing a stand-off with the Reserve Bank of India on the issue of latter’s autonomy.

The Narendra Modi Government just cannot seem to catch a break when it comes to dealing with statutory bodies and officers. And opinion is divided on whose fault that is. After a revolt in the Central Bureau of Investigation, it now appears that the Government and the Reserve Bank of India are at loggerheads. This is because the Government is reported to have invoked Article 7 of the Reserve Bank of India (RBI) Act which allows the Government in some manner to supercede the autonomy of India’s central bank. Of course, the conspiracy theorists are out in force on their websites — allegations are rife that the Government has taken this step at the behest of friendly industrialists who are being forced to borrow money at higher rates; by invoking Section 7, the Government can ‘force’ the RBI to order Indian banks to loosen their purse-strings.

There is an argument to be made that while the RBI has been extra strict with banks, especially public sector banks, in a crackdown on Non-Performing Assets (NPA), this has followed a period of over-lenient central bank supervision loans to all and sundry. As a result, now all financial institutions whether in the public or private sector have had the fear of God instilled in them when it comes to disbursing loans as they are petrified of possible NPAs. This, in turn, has virtually brought economic activity in India to a standstill.

According to media reports, Section 7 has been invoked three times already over the past few weeks at least in part to reclassify the massive NPAs plaguing India’s power sector. Invoking Section 7 is, for better or for worse, a vote of no-confidence in the RBI Governor. It is not as if the RBI and the Government cannot work together. But when the Government compels the RBI to act in a certain way, there are few options in front of the RBI Governor.

Urjit Patel was widely thought to have expressed his displeasure at Government interference through a media interview given by his deputy V Acharya. His position seems to be untenable and the odds are that Patel may have no option but to resign. But that’s not a done deal, yet. After all, we are in an election year and the Government would not want another once-hallowed institution to be seen to be imploding on its watch. But there is also a view emerging in Government that it has no option but to demolish the ‘deep state’ established by the ‘Congress System’ if it is to fulfil what it thinks is its mandate from the people of India.

Courtesy: The Pioneer

As the vale of Indian rupees is depreciating with an increasing rate, policy-makers require to thoroughly analyze the performance of the currency, export earnings and import payments.

The value of rupee against US dollar has depreciated to an all-time low of Rs 70, the causes for which have been attributed to external factors, which are, of course, not under our control. The Indian economy must, however, not look too far to sail through testing times. The solution lies in history. Empirical research may provide the best direction to use international trade as the path for rapid development in taking advantage of the depreciation.

Globalisation has rapidly transferred from one sector to the other, and is now growing its pace to the financial sector. This certainly benefits India in terms of growth of investment bonds and equity investments. But chances are ripe that it may also backfire in the form of transmitting poor performance of other currencies to India, as it happened in a case where the Turkish Lira adversely affected the Indian rupee via non-deliverable forwards.

It is, therefore, essential to study the real reasons for the continuous depreciation of the Indian rupee as also find out ways to cure the economy. A wise approach would be to roll out precautionary economic policies to protect the Indian currency and use the depreciation to the hilt. Answer also lies in a through analysis of the performance of the Indian currency, export earnings and import payments of the country.

As per World Bank data, with the depreciation of the Indian currency by 55.81 per cent (2007-2018), export earnings of India increased by 70.1 per cent and import payments increased by 61.42 per cent. This signifies that India’s export earnings increased faster than import payments. Even then, India is still grappling with trade deficit. This because India has a huge backlog of trade deficit to clear.  With the growth of import payments catching up to the growth of export earnings, trade deficit in July 2018 reached five-year high, despite vigorous growth in export.

The solution lies in a long-term plan and in taking advantage of the depreciation. Policy-makers need to focus on four broad aspects. First, India’s elastic export market should be destined to the developed countries, where Indian currency is performing poorly (depreciating) as compared to the destined country’s currency. This will enhance India’s export earnings as and when the Indian currency depreciates — exports will increase at a speedy rate as export commodities are elastic.

Second, India’s inelastic export market should be destined to countries where the Indian currency is performing stronger (appreciating) than the trading partner. This will be beneficial for the Indian economy when an increase in export earnings of our country from elastic exports is more than reduction in export earnings of inelastic exports.

Third, India’s elastic imports must originate from countries where the country’s currency is depreciating with respect to the trading partner. This will ensure that as imports become costlier, demand for import reduces.

Fourth, inelastic imports of India should be originated from countries where the Indian currency is the stronger relative (appreciating) to the import-originating country. This will ensure that when the Indian currency is depreciating, demand for goods will not increase, as they are inelastic. However, this will be fruitful if reduction in payment of elastic imports of India is more than the growth of import payments of inelastic imports.

Thus, India needs to carefully look at the international trade matrix of exports and import commodity basket and strategically identify the elastic and inelastic exports and imports. At the same time it must analyse the performance of the Indian currency with respect to its export destination and import origin and then allocate efficiently in the international trade. Although it’s easier said than done, only sound international trade policies are the linchpin for a strong and stable India.

(The writer is Assistant Professor, Delhi University, and a PhD scholar of Economics)

Writer: Tripti Sangwan

Courtesy: The Pioneer