Burden of Bad Loans

The economy shrank by nearly one-fourth during the first three months of this fiscal year. Much of this was due to the harsh lockdown initiated in March. Roughly three-fourths of the economy was practically shut for a month, after which there were a series of renewed lockdowns with partial relaxations. For this quarter, the economy suffered a triple shock, like demand, supply and finance collapsed. Unemployment rose close to 30 per cent in April, rendering nearly 122 million people jobless. In cities, whose workforce consists of 40 per cent migrants on an average, the toll on livelihoods was severe. With the loss of jobs and income, it soon became a food crisis for many urban households, necessitating emergency measures from state governments. The Central government’s initial relief package was to enhance food security by doubling the rations and extending this up to November.The big 20-lakh-crore package announced by the Central government in May consisted largely of liquidity support. For instance, micro, small and medium enterprises are eligible to guaranteed loans up to Rs 3 lakh crore. Of this amount, roughly half has been sanctioned and loans are being disbursed. It is no wonder that the demand for loans is muted since small businesses already hit by zero demand are not keen to take on any additional debt burden. But those small businesses which have a cash management mismatch, i.e., they have pending invoices that have not been paid by their customers, are quite willing to take loan support to tide over their crisis. In effect, such small businesses face a problem of illiquidity; not of insolvency.Read More 

Weekly vouchers will boost demand

The economy is in a deep hole, having contracted by one-fourth in the first three months of the lockdown. Hopefully the speed of contraction is slowing, but we will be lucky to see positive growth of the economy before December. So what is to be done? Everyone is crying hoarse for a fiscal stimulus. There are many suggestions. Most of them involve distributing cash from the central treasury. We may need around 5 per cent of the GDP, i.e. nearly Rs 10 lakh crore. But the central government says we don’t have that much to spare. The coffers are running empty, since tax collection has fallen steeply. Why not borrow? The government is already neck deep in debt, and its debt mountain is so huge, that merely paying interest on past debt costs it Rs 6 lakh crore annually. There is such a thing called sustainable debt, beyond which it is simply not affordable.For an average person the debt that you take on depends on how much EMI you can afford. Similar logic applies to government too. But surely they can ask the Reserve Bank of India to print money, and then distribute it to everyone’s Jan Dhan Yojana account? Not quite. Such automatic ‘monetisation’ of government debt has been prohibited by a contract that it signed with the RBI back in 1997. If that prohibition is not in place then it is tempting to all governments who get elected to use this ‘easy’ option of printing money to finance the deficit. Reckless use of monetisation will simply result in hyperinflation.Read More 

Yes, every generation must debate secularism. School textbooks aren’t enough

Many people were upset last week that NDTV 24×7— even NDTV — decided that secularism ought to be a topic of debate. Amid the prevailing climate of deep political polarisation, prejudice and suspicion, some saw this debate segment, which asked panelists whether “Secularism Is Essential To Democracy”,as a sign that this media house, too, was caving in to the Bharatiya Janata Party’s line of thinking. Others were outraged that there should be a debate on the topic at all — for isn’t the need for secularism self-evident? Isn’t the principle non-negotiable, being part of the basic structure of the Indian republic? It is understandable that the beleaguered advocates of secularism should feel this way. But you don’t have to be a BJP supporter or religious Right-winger to argue that a debate on secularism is not only a good thing, and not only necessary at this time, but something that needs to take place regularly.Read More

Passing GST Buck

The past week has been dominated by Finance Minister Nirmala Sitharaman’s remark  alluding to an “act of God”. She was referring to the Covid-19 pandemic which is now seen as the main cause of the unprecedented recession in India and the world. Never mind that the slowing of GDP growth, or investment ratio or the stagnation of exports, or the rise in the bad loan ratio in banking, preceded the pandemic. Naturally the fiscal stress was rising, and the  pressure of the inadequacy of tax collection was tangible even before the full fury of the pandemic.The FM referred to “an act of God” as a Force Majeure clause in a commercial contract. The “contract” in this case is actually an Act of Parliament of 2017 which guarantees compensation to the states from the Centre, in case of a  shortfall in tax collection from the Goods and Services Tax. The compensation clause says that any revenue growth  falling below 14 per cent annual growth from year to year will be compensated from the Central treasury fund for a period of five years – i.e., till 2022. Meeting this legal obligation was becoming difficult, thanks to the slowing GDPgrowth even prior to the pandemic.Read More 

The US-China tech war is being fought across a bamboo curtain

It is becoming clear that the ongoing “tech war" between the United States and China is taking place along five fronts: semiconductors, network infrastructure, operating systems, platforms and content. While it was Beijing that first erected a defensive Great Firewall around its internet users over 25 years ago to censor content, it is now Washington that is on the offensive on all fronts. The ostensible reason for this, as cited by officials of the Donald Trump administration, is national security—to prevent espionage, surveillance and influence operations by the Chinese government, as also its corporate proxies and agents.

The deeper and less-articulated reason is strategic: the US wants to increase its relative technological advantage over China. It is doing this by containing China’s progress and by rejuvenating its own high-technology industrial base. Both sides of the partisan divide in Washington have recognized that three decades of globalization resulted in the relocation of high-tech industrial capacity away from its soil, and that even if American firms and investors reaped the benefits of free trade, the strategic consequence has been the empowerment of an economic competitor and political adversary in the form of China. Nation-states are sensitive to changes in relative power, and the US has decided that China is too close for comfort.

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Pandemic and exam stress

Sometimes it feels as if the Supreme Court is running the country. Otherwise why does everything escalate all the way? The SC’s main job is to examine constitutional issues, but it is often and increasingly embroiled in commercial disputes. For instance, an engineering company in Chennai had registered the trademark ‘Coronil’ back in 1993, as an industrial cleaning product. When Patanjali started using the same name for its Covid-19 product, the Chennai firm said you are infringing on my trademark.Patanjali subsequently toned down its claim, and said it was an immunity boosting product. But this infringement case went all the way to the Supreme Court wherein it ruled the commercial dispute in favour of Patanjali. “In these pandemic times it would be terrible if we restrict the use of the word Coronil,” said the court. Technically the apex court has asked the parties to abide by the decision of the Madras High Court, which is in favour of Patanjali. Of course, there was another issue of the misleading claim in the earlier advertisements of Coronil being a ‘cure’. That too was looked into by the apex court.Read More

Reining in platforms like Facebook

In December 2015 the founder and Chief Executive of Facebook, Mark Zuckerberg, wrote passionately in The Times of India why it was important to give free access to internet. He was promoting the idea of ‘Free Basics’ launched by Facebook. It would give free access to basic internet services to all Indians. No charge would be applied for data use by the telecom company to access Facebook and a few other sites. Facebook would pay directly to the telecom company for the data. It was what he called a bridge to full internet access. It would close the digital divide. It would lead to digital equality. He claimed that full internet access would lift millions out of poverty. He compared this free service to provision of free basic health or education. It was a persuasive pitch.Unfortunately for him, the Telecom Regulatory Authority of India (TRAI) turned it down. Why would TRAI turn down a free service being offered by the social media giant? The answer is subtle but very important. While some free access to internet is better than no access, the Facebook free offer was giving access to only certain websites. Thus the poor who opted for Free Basics would be able to roam only where Facebook allowed them to roam. This curtails a more basic kind of freedom, i.e. freedom to roam the internet. And all other smaller websites would have to pay Facebook to enter this “walled garden”. This is opposite to the principle of net neutrality. A profitmaking organisation like Facebook was offering “free services” because it hoped to make those free customers become sticky and paying customers, in the future. It was like a “foot in the door” policy, giving freebies in the beginning, that any monopoly uses to oust competitors. Once it has hundreds of millions of users inside the “walled garden”, it would charge monopoly pricing to those who wanted to access those customers. It would become a gatekeeper to a privately owned corner of the internet. Thanks to a nationwide people’s campaign for net neutrality, the Facebook plan for Free Basics failed. Read More

The most important freedom we cherish

It is our 74th Independence Day. What is the uppermost thought on this day? It is of freedom. What kind of freedom? It is freedom to speak, to think, to express an opinion, to assemble as a group (without arms), to roam the country, to earn a living. After we gained independence from our colonial rulers, we gave ourselves a constitution as a democratic republic. That constitution is our sacred document, which protects our freedoms. It enshrines them as fundamental rights. There are both positive and negative rights. The right to free speech and expression, to dissent, to move freely and reside anywhere in the country, are all examples of positive freedoms.The negative freedoms are the right not to be harassed, coerced and illegally detained or incarcerated by the state, or the government. We also have the right to a clean environment, right to food, education and rural employment (NREGA). Soon we may have the right to internet interpreted as a basic right.Read More 

Building temples of modern India

The Bhakra Dam in Himachal Pradesh, on the River Sutlej, is one of the largest gravity dams in the world. Thereservoir it creates, spread over 168 square kilometres, is the third largest in India. The waters of Bhakra provideirrigation for 10 million acres of agricultural land across Punjab, Haryana and Rajasthan. It also generates about1500 megawatt hydroelectric power, which is used across six states. When Jawaharlal Nehru poured the firstbucket of concrete during the construction phase of the dam, he said: “This is a gift to the people of India and tothe future generations”. And he insisted that a memorial be constructed for workers who built the dam. The hugeconcrete dam took a total of 15 years to build and Nehru dedicated the dam and irrigation project to the nation inOctober 1963, with these famous word: “This dam has been built with the unrelenting toil of man for the benefitof mankind and therefore is worthy of worship. May you call it a Temple or a Gurdwara or a Mosque, it inspiresour admiration and reverence.”Read More 

NEP 2020: A Lot to Look Forward to in the Indian Education Sector

After several consultations on the draft National Education Policy 2019 with stakeholders in the education sector, the Government of India announced the National Education Policy (NEP) 2020 on Wednesday, 29 June. The NEP 2020 envisages commendable changes in the way education will be delivered in India.

It does so by emphasising on universal Early Childhood Care and Education (ECCE) and foundational literacy and numeracy, capacity building of teachers, and making the system more flexible for students by allowing them to to choose their subjects.However, a few points of concern remain. These include the emphasis on mother tongue as the language of instruction till fifth grade, which if brought into effect, might infringe the autonomy of parents. It may also force all universities and colleges to become multidisciplinary, while their potential for such transition remains unclear.The real test lies in how the provisions in the policy will be supported with the envisioned budget.Read more

A national vaccination campaign ought to be run like an election

Sometime over the next 12 months, a vaccine against COVID-19 is likely to be available. The task of administering it to few hundred million people—perhaps even over a billion—so that India acquires herd immunity appears daunting. That is, until you realise that India routinely carries out a task of the same scale and similar complexity fairly regularly. I’m referring to elections. If you think about it, a national vaccination programme is like a general election, but at much lower temperatures. It is a good idea to approach it as one because our elections involve a combination of administrative machinery, mindsets and behaviours that are ideal for a rapid national vaccination programme.Read more

That magic potion called education

Take one swig of this magic potion called education, and you will become invincible, like the Gauls of the Asterix comics. It is the secret to a better quality of life for yourself and family. It is also the foundation for sustained growth of the economy. Future growth will depend not so much on expanding the area of cultivation of crops, or building bigger factories and buildings, or faster cars or microchips. It will depend on building a large stock of “human capital”.That human capital is nothing but a culmination of education. That capital creates future innovations, productive ideas, creative products and processes, which in turn contribute to economic growth.So our biggest investment priority for the future should be education. How to plan for the future? A Confucian proverb answers it best. It says: If you want to plan for a year, plant some rice. If want to plan for the next ten years, plant a tree. If you want to plan for a hundred years, then educate your children.The New Education Policy (NEP) announced this week is not too soon. And it is also not the first one. The first one was passed by Parliament in 1968 based on the recommendations of the Kothari Commission. The second one was passed in 1986, which was revised in 1992. The present one is the third one. In essence it is a paradigm, a framework, which lays downs certain key focus areas and priorities. It is to be implemented jointly with the states in the next 20 years.Read More 

iPhone 11 is now ‘Made in India’, but Modi govt must see it doesn’t get too taxing for Apple

If you purchased an iPhone 11 recently, chances are that you have in your hands a smartphone assembled in India. After over a year of speculation on whether or not Apple will assemble its top-of-the-line product from a factory in India, news emerged last week that the iPhone 11 has indeed been “Made in India” at its contract manufacturer Foxconn’s plant near Chennai. This is good news that the Narendra Modi government can well claim as a success. But it’s important to understand why it is good news and what kind of success it is, to ensure that new government policies do not undermine this achievement. Read more  

The environment and economy can be friends

Are economic development and environment preservation antithetical to one another? The clear answer is no. It is possible to have clean air and water, less pollution and still be a prosperous country. Indeed the evidence is compellingly on the other side. The hallmark of a developed country is when you can drink water from the tap without worrying about filter or aqua guards. The municipal water supply is potable. Even the air quality in most advanced economies is much better than some of the poorer economies. Germany boasts of producing more energy from wind and solar than by burning coal. The United Kingdom will abolish all coal-fired electricity in the coming decades. One of the oldest articulation of the compatibility of development and environment was the speech given by Indira Gandhi at the United Nations Conference on Human Environment in Stockholm in 1972. She said: “We have to prove to the disinherited majority of the world that ecology and conservation will not work against their interest but will bring an improvement in their lives.” She meant that the fight against poverty was consistent with sustainable and ecologically responsible development.Read More

Avoid that sink(ing) feeling before you do the dishes. Dishwasher is the new washing machine

After booming sales over the past couple of months, dishwashers are in short supply in many Indian cities. The waiting period for some of the reputed brands is as long as two months. Dishwasher detergents have disappeared from supermarket shelves and online retailers. The Covid-19 pandemic has given the dishwasher its moment in India. If it leads to a greater adoption of dishwashers in Indian households, it will be a good thing for Indian society.

It’s easy enough to understand why the demand for dishwashers has surged. The lockdown and social distancing considerations have increased the number of meals cooked and eaten at home. At the same time, access to domestic workers is limited. The additional load of cooking and eating at home has literally piled up the dirty dishes in and around the kitchen sink. Many people have come to realise that dirty dishes don’t get cleaned merely because they have been left near the sink — someone needs to do them. If the falling apple triggered Isaac Newton to theorise about gravity, it could be unwashed dishes that led him to his first law of motion, or Émilie du Châtelet to the law of conservation of energy.

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India’s struggle to impose a ‘Google Tax’

India introduced a tax on e-commerce companies in the February Union Budget. What’s unusual about it? Don’t all companies have to pay a tax on their profits? Yes, but this is about e-commerce companies, which do not have a permanent establishment in India. For tax purposes, they are non-residents and hence not subject to income tax. Obviously we are not talking about Flipkart, Big Basket, Swiggy or Zomato, which are all desi companies with a presence in India – although it is possible that they ‘moved’ their head office out of the country after getting acquired by global giants. We are talking about companies like Google, Amazon and Netflix. All of them happen to be American companies. Hence the new tax, which is actually called a ‘levy’, is often referred to as the ‘Google Tax’. It is 2 per cent of revenues, if your aggregate revenue from India is more than Rs 2 crore.A company like Google makes money from advertisements, which show up on the right-hand side of your search. Or when you watch YouTube. Or sometimes even in Gmail. For users all these services, and many more such as Google Maps, are free. But the company makes money from those tiny ads that keep popping up now and then. Their customer is the advertiser, not you, the user of those services. In fact, a company like Google is selling you, or rather your ‘eyeballs’, to the advertiser. Since the ads can be small and truly micro-targeted, i.e. they show up only based on what you are searching, the ad rates are small.Read More 

The final-year exam fiasco

The University Grants Commission is the top boss governing policies of all universities in India. It oversees about 800 universities encompassing about 40,000 colleges. Of these, 49 are central universities, i.e. run by funds from the central government, 367 are state universities run by state government funding and 123 are deemed universities, i.e. UGC has blessed them with that status, although they are largely run with their own funds. The rest are private universities, established under laws passed by respective state legislatures. Until 1976, education was on the States’ List as per the Constitution of India. So all policies were governed by state governments. Due to an amendment passed during the Emergency, education was shifted to the Concurrent List, which meant that the central government could now legislate policies that would be binding on all.Of course, the UGC has existed since 1956, with a mandate to maintain the standard of higher education in the country. It provides grants and funds, and also regulation to maintain standards. Its decisions are binding on all universities of all states and Union Territories.Read More 

The California caste atrocity

The constitution of the United States does not recognise discrimination based on caste. It bars discrimination based on race, religion, gender, ethnic or national origin, and even sexual orientation, but not on the basis of caste. Why so? Because caste as a category was unknown to the founders of the American republic. That is now to be changed thanks to a landmark case last week.The California State Department of Fair Employment and Housing has filed a lawsuit against a Silicon Valley giant, Cisco Corporation. It has charged the company with caste-based discrimination. Cisco and others in Silicon Valley employ thousands of engineers and professionals from India. The department has said that Ciscoviolated the Civil Rights Act of 1964 and also California’s own Fair Employment Act. The lawsuit also names two engineer managers who used to work at Cisco, and who discriminated against a fellow employee at Cisco, who is a Dalit. The two defendants are Sundar Iyer and Ramana Kompella. As per the charges, they being uppercaste, denied the Dalit employee his promotion, and gave him lesser pay and opportunities. They revealed his ‘Dalit’ caste to their co-workers at Cisco and also that he had got admission to IIT based on the caste quota. They were trying to enforce caste hierarchy at the workplace. When these complaints were taken to the HR department in Cisco, they ignored these. The state charges that Cisco failed to protect the employee against harassment, discrimination, and humiliation. If you ask around in private conversations or hushed whispers, such caste discrimination is quite widespread if not rampant in America.Read More

The unbearable burden of oil tax

On April 20 there was a historic drop in oil prices in Texas. The price of West Texas Intermediate (WTI) crude dropped all the way, not just to zero, but $37 below zero. That means the seller was giving money to the buyer to buy oil. Unthinkable and unprecedented.Since then oil prices have recovered and WTI is trading at around $38+ per barrel. Its European cousin, called Brent Crude, is priced at $41 per barrel. This is roughly the import price that India pays. When the price was near zero, why didn’t we simply book an order for the entire year’s requirement? That’s called booking a future(delivery) contract. Alas, it doesn’t quite work that way. Besides, India’s oil refining companies, which import crude, aren’t really geared up for doing such sophisticated futures contracting. For instance, if they book a large futures contract at a low price, who’s to say the price won’t fall even further? The manager who booked such an advance contract may be hauled up by the anti-corruption vigilance guys for having defrauded the company. So India’s oil imports are done somewhat old-fashioned way, without too much speculation into the future. So whenever crude oil prices change in the world, the oil refining companies in India pay less or more depending on the fluctuation. Obviously, since the cost of refining crude oil into petrol or diesel is fixed, the price that they should ask at the petrol pump should also fluctuate according to global oil movements.Read More 

Separating economic and border issues

As we exit the lockdown and resume economic activity, we will have to observe certain protocols. Like social distancing. Or using hand sanitisers in office, public places, or even at home. These sanitisers are alcohol-based and usually come in dispenser pumps. The pump minimises human contact, unlike a tube or bottle. It is made of plastic, has 16 components, and costs less than Rs 20 if produced at scale. Here’s the rub: As reported by an online news outlet, we have not been able to find domestic manufacturers who can produce dispensers at a large scale, at this cost. We are facing a health crisis, and urgently need large quantities of dispenser pumps. There’s no alternative but to import from China.Take pharmaceuticals. We are the world’s leaders in bulk drug formulations, used by leading medicine makers of the world. But these formulations need crucial active pharmaceutical ingredients (APIs) as inputs. Without APIs, our pharma industry, both domestic and export, will be crippled. And 65 per cent of APIs are imported from China, worth $3.5 billion (i.e. about Rs 25,000 crore). When imports were halted in April and May due to the lockdown and stoppage of the sea and air cargo, there was near panic in the Indian pharma industry. This could threaten even our internal supply situation for medicines. And there is no realistic option of switching to any other supplier, at this cost or scale. Unless we risk rising medical costs.Read More