Latest Expert Views News
Dec 31, 2020
Dec 31 2020, 3:24 PM December 31 2020, 2:53 PM December 31 2020, 3:24 PM A year dominated by the worst global health crisis in a century, was one where India’s policymaking was tested on all fronts – most directly on public health, the economy, and foreign affairs. Here’s the year seen through a selection of the best op-ed articles, published on BloombergQuint in 2020. A year dominated by the worst global health crisis in a century, was one where India’s policymaking was tested on all fronts – most directly on public health, the economy, and foreign affairs. Here’s the year seen through a selection of the best op-ed articles, published on BloombergQuint in 2020. A vaccine has to pass three tests to be successful – quality, ease of delivery, and public acceptance. Quality, in turn, has three attributes – safety, efficacy, and duration of protection. Beyond the comparative quality measures, operational issues of vaccine production, procurement, supply chain, prioritisation for sequenced administration in the population, and monitoring of impact will pose major challenges. Forget the pointless distractions of equating loyalty to the nation with #BoycottChina and follow this better way to display your patriotism. Wear a mask, save your fellow citizens. Be patriotic, it costs nothing. The marketing possibilities are endless. Since it’s only a scrap of cloth, every citizen can participate. Then all you’ll need is old-fashioned facial recognition to identify a patriotic citizen – even without knowing her religion, gender, caste, class, age or Aadhaar number. In an age when we decide whether or not we hate someone after learning their name or examining their clothes, a new, masked equality might just be our saviour. The average Indian seems bewildered and puzzled at the stock market behaviour. How is it possible that the stock market is behaving like it is festival time when the entire nation is in mourning over the economy? At a time when the global economy is reeling under the pandemic and economic activity in India is among the worst affected due to the extreme nature of the lockdown, when domestic investors are withdrawing their money, why did foreign investors pour so much money into India’s stock markets? Television viewing might be seeing a rapid decline in many parts of the world but video viewing is on a tear. We are seeing a highly-crowded but golden age of content in a streaming world; some would call it a great content bubble. The pandemic has hastened this shift. It has led to almost every TV news network moving its live channels to streaming platforms. While the U.S. elections are giving television networks there a temporary bump, cord-cutting will eventually lead to a change in the economics of news television when the billions of dollars in cable carriage fees, that still underwrite the costs, dry up. It opens up the market for pure-play digital streaming news channels with lower costs and no legacy baggage. In response to the economic crisis induced by Covid-19, the Reserve Bank of India, Securities Exchange Board of India, and the Insolvency and Bankruptcy Board of India have released several, well-intended regulatory guidelines. The clear intent has been to aid business borrowers navigate this period of extreme stress. While the underlying objective is to facilitate timely and low-cost access of credit to businesses and to rev up the economy in the post-coronavirus period, it also results in something else. Relaxations on debt servicing, bankruptcy filings, and reporting deadlines can have the outcome of filtering of important information on credit performance and credit quality. There is a desperate hope that the farm sector will be the engine to drag along a faltering economy this year. This stems from the belief that agriculture is probably the only sector that has not been directly affected by barriers that were erected on the movement of goods in the Covid-19-triggered lockdown. With Kharif sowing being more than steady across almost all crops, there is reason to be sanguine about this sector. That’s the rationale for the attention the rural economy currently finds itself getting. While the storyline is on point more or less in terms of progress and logic, there are some gaps in the reasoning. Entire occupation groups have been thrown out of work for months and are not going to recover any time soon. Think of snack-vendors, bus conductors, cinema-hall attendants, sex workers, band performers, and of course migrant workers. Most of them must be desperately looking for fallback occupations. This situation has given a new lease of life to the idea of an urban employment guarantee law, similar to the National Rural Employment Guarantee Act. An urban counterpart of NREGA would provide the sort of fallback employment option that so many people need at this time, and some people need at all times. But framing an urban employment guarantee law requires more experience with public works in urban areas than we have today. Here is another option – let’s call it a Decentralised Urban Employment and Training or DUET scheme. Companies base their investment decisions on many things: decent infrastructure, efficient logistics, a vibrant domestic market, transparent official procedures. They also prefer a healthy, educated, productive workforce. It is such a workforce—rather than a poorly paid, badly fed, unhealthy set of people working in terrible exploitative conditions—that delivers higher productivity and therefore lower unit wage costs, which are generally seen as relevant for ‘competitiveness’. The low road to industrialisation has never led to development success. Instead, it has typically condemned countries to being stuck in a low-level equilibrium characterised by poverty, lack of diversification, and tremendous inequality. It will be tragic if, at this crucial juncture, India actively chooses that foolish route. The politics of Bihar matters, for Bihar is a neglected part of the ‘India Story’. Tragically though the discourse scarcely dwells on why Bihar is, well, like Bihar. Beyond the opera of emotional eloquence and riveting rhetoric, Bihar matters because it vividly represents the other India. It illustrates the shadow of demographic disaster and the potential of possibilities. So what explains the persistence of backwardness? The answer has much to do with the template of power politics, the leverage of identity politics, particularly in the post-Mandal era. This led to the socialisation of the Bihar brand of socialism where the rule of law depends on the law of who is ruling, ensuring the allocation of resources for electoral efficiency – essentially enrichment of the few was presented as the empowerment of the many. Broadly speaking, there are two kinds of roster systems which are now prevalent for recruiting government employees: the “200-point roster” and the “13-point roster”. The 200-point roster system applies to cadres in which there are 14 or more employees, while the 13-point roster applies where there are between 2-13 employees in the cadre. In the 200-point roster, all the reserved categories get seats by the 14th post. In other words, the last reserved category to get a seat is ST which gets a post at the 14th point in the roster. This means that the 200-point roster cannot work in a government department which has 13 employees or less. For example, if a government department has only three employees in it, then if the 200-point roster were to be followed, all the posts would go to the unreserved category and there would be no reservation. In order to remedy this problem, the “13-point” roster system is followed for departments which have 13 employees or less. The problem with the 13-point roster is that reserved categories have to wait a long time in order to get their turn. The new policy has tried to please all, and the layers are clearly visible in the document. It says all the right things and tries to cover all bases, often slipping off keel. To be aware and proud of past glories is excellent, to be able to build future glories is better. There are big gaps such as lifelong learning, which should have been a key element of upgrading to emerging sciences. Transitional structures, such as bridges between school and higher education, or gateways to opportunity such as community colleges find no room. Homeschooling is relegated to the less-able rather than being an actual example of flexibility in learning. In a way, the policy is honest about its limited understanding of what has not been mainstream in its experience. Retreating in the face of an enemy’s onslaught may be a tactical necessity. Withdrawing in anticipation of the situation getting sticky is, inherently, bad strategy but, as the record shows, it is one the Indian government reflexively follows when dealing with China. Maybe it is too much to expect the country’s political leaders and their handmaidens manning the apparatus of state—the generalist civil servants and diplomats with only passing knowledge of military affairs—to be mindful of, and learn from, the country’s own historical experience of dealing with China. It is inexcusable, however, for the Indian armed services to act innocent of the methods that fetched them success against the People’s Liberation Army in the past. A part of the answer lies in the strikingly different colonial infarctions suffered by each country. History may have been different if an informed queen had clamped down on the British East India Company’s illegal intentions. In 1839, after a decade of aborted anti-opium campaigns, the Chinese monarch ran out of patience. The events escalated into the world’s first drug war, known as the First Opium War (1839–42), between the Qing dynasty and the British East India Company. France, Russia, and the United States jumped in to rain more blows on a down and out country. Even today, China calls the ensuing century full of ‘national humiliations’. Surprisingly, the British East India Company authored an utterly different edition of colonial rule in India. On April 18, 2020, the Government of India announced changes to the FDI policy followed by a notification on April 22, 2020, to amend the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, to “curb the opportunistic takeovers/acquisitions of Indian companies due to the current pandemic”. In taking this step, India took a leaf out from the United States’ CFIUS regime and mimicked the spate of protectionist legislation introduced by other jurisdictions. China, increasingly peeved at being isolated internationally, has claimed discrimination and a breach of WTO rules by India. Notwithstanding the geopolitical machinations, the FEMA amendment is not free of ambiguity. Two conversations over the last two years have led me to believe that the use of credit as a product in mutual funds was a ticking time bomb. First, a successful manager lamented about the asset-liability mismatch inherent in such products. While the underlying investments are long-term in nature and often illiquid, the investor can redeem at net asset value in just a few days. Second, an investor, a sophisticated, international one, spoke about the lack of data and analytics regarding credit in India. As opposed to an investor in equities, who expects a possible loss, a typical investor in debt and credit mutual funds, who is risk-averse, is looking at returns beyond the return of principal. In a wide-spectrum debt market like India, it is easy to be tempted by the returns offered by credit funds. The small exit load gives these debt instruments an additional flavour of liquidity. This is a wrong construct on two counts. Franklin Templeton – the fund house that taught a whole generation of advisors and investors what mutual funds are; in many senses, it is a group of best practices in the industry. For it to pull the curtains down on such a large quantum of assets seems almost like a bad dream. Even in the very small portion of the market that does cater to corporates, there is hardly any depth – most people like to deal with only AAA or AA rated bonds. Given this environment, constructing credit risk funds is a challenging task, to begin with. Creating an open-ended structure that declares a net asset value every day is adding another layer of complexity. When there are defaults, mutual funds have to take haircuts and the funds have to be marked to market. Contrast this to what banks do when they extend a loan to perhaps the same entity. Troubles in the economy and credit markets were already showing up. So yes, the external odds were stacked against the schemes. There seem to be, however, some internal malignancies too. The Yes Bank experience should also make people sceptical about comparisons of public and private sector bank performance that are used to tout the supposed superior efficiency of private banks. These comparisons are often based on relatively short periods of time. As we know from Yes Bank and other private banks, private sector firms can dazzle briefly and then bite the dust. Failed private banks disappear from the data set whereas the public sector failures remain. This creates what is called ‘survivor bias’ in the data on PSBs, one that distorts the comparison of performance. Worse, public sector performance is dragged down where PSBs are forced to absorb failed private banks. The evil that private banks do lives after them – in PSBs. The good that PSBs do is oft interred in their financials. Some of the most inspiring entrepreneurial stories are written when professionals venture out on their own. Building on their education and/or experience, these professionals usually strive to build product-centered businesses, forever changing the utility of the product in the eyes of the consumer. The key challenge in building path-breaking products is balancing the economics of making a making a business out of them with the perfection/aesthetics related to the product. One of the great joys of being an equity investor is studying and learning about the history of businesses and companies. The genesis of a company offers fascinating insights into the motivation of the founder/promoter to get into business. The ‘Why’ of a venture often tells you about the foundational principles of a company, an insight that is immensely valuable in understanding what makes a business tick. Taxation is considered boring by most, and inevitable—as the cliche goes... like death—by all. Yet, every now and then comes a court ruling that takes the mundane out of tax and makes for a story that goes down the ages. In this one, the characters involved are the GST Authority for Advance Ruling in Karnataka and a Bangalore-based company that produces and retails a wide range of ready-to-cook meals including parottas. Remember, parottas, not chapatis or rotis. This is not the first tax ruling worthy of internet memes and social media headlines. Nor is India the only country to draw a tax chuckle or raise a tax eyebrow. Classification of a product to fit into specific categories devised by tax laws, GST or VAT, or any indirect tax, is always a vexed issue. And sometimes a comedic one.