Weekend reading links

1. It is a sign of times that the IMF has advocated the once unthinkable idea of governments taking equity stakes in private companies instead of offering them debt. This is what the Chief Economist, Gita Gopinath had to say,

Because there's a bigger insolvency issue here, government support would have to shift more towards being equity-like as opposed to debt-like. Otherwise, you would end up with a lot of firms that exit this crisis with a huge amount of debt over-hang. If the lending takes form more like equity ... then that's less onus on the firms. That will make it easier for firms to recover from the crisis.

2. Ajay Shah writes about the value of informal traditional business relationships (landlord and tenant, lender and borrower, large firm and suppliers etc) in times of crises like the Covid 19. They act as automatic stabilisers, with the parties negotiating revised contracts on leases, payment dues etc.

3. The less discussed migrant problem is one of returning migrants from the Gulf. While Covid 19 has hastened the process, there are also localisation forces at play in the Gulf countries. Kuwait recently took the decision to limit migrant population from 70% to 30%. India received $83 bn in remittances in 2019, the largest among countries. It also creates major labour market concerns,

Since the global financial crisis of 2008, the number of Indian workers travelling to West Asia has fallen from 762,484 to 321,721 in 2018, according to the Ministry of External Affairs. At least part of this has to do with falling wages, which have prompted skilled workers from Kerala and Tamil Nadu to search for jobs in India (since the wage differential has narrowed considerably) even as West Asian locals have moved up the skills value chain to occupy those jobs in their own countries... Kerala accounts for a fifth of remittances... Since 2009, it is the investment-poor states of Uttar Pradesh, Bihar, and West Bengal that have accounted for the bulk of the migration to West Asia. The first two states alone accounted for 145,454 workers in 2018 — mainly for the hard-scrabble blue-collar jobs that locals are loath to do. Many of them come from India’s poorest districts.

4. The Mumbai-Ahmedabad bullet train project faces the usual issues of land acquisition and other delays, with implications of cost overrun, as it races against its 2023 deadline.

Alon Levy had a very informative post which raises questions on the use of standard gauge Shinkansen technology, when Indian Railways runs on broad gauge.  

5. Good Livemint status report on the Covid 19 vaccine development. This is one huge challenge, if precedents are any indication,

An analysis of all vaccine projects in development from 1998 to 2009 found that the average vaccine took 10.71 years to be developed from the preclinical phase, and had a market entry probability of 6%.

6. Very good essay on how Amul managed to ensure that its supply and distribution chains for milk and milk products remained unaffected during the Covid 19 lockdowns. 

The Gujarat Cooperative Milk Marketing Federation or GCMMF, which sells its products under the Amul brand, is owned by 3.6 million farmers. Of these, around 2.6 million farmers bring their milk twice daily to 18,600 village societies from where chilled milk is transported to district milk unions for processing into packaged milk and value-added products. The products then reach over a billion consumers daily via 10,000 distributors and a million retailers.

This is a summary of the basic things that Amuld did right,

Soon after the lockdown was in place, Amul announced cash incentives for dairy plant workers, drivers, sales executives, distributors and retailers. While casual workers received between ₹100 to ₹125 extra cash support for working during a pandemic, distributors got an extra 35 paisa incentive per litre of milk. Food and stay arrangements were made for workers inside dairy plants to avert any labour shortages. Simultaneously, the company reached out to the Union home ministry and state animal husbandry departments to arrange passes for its workers and ensure that empty trucks were allowed to return (after delivering milk products). To ensure uninterrupted supply of packaging materials, it engaged with district collectors where packaging factories were located. Amul even arranged for cattle feed to be transported from states like Punjab and Haryana for its farmers in Gujarat. Close to 45% of its products were moved via freight trains, which cut down transit time.

With hotels and restaurants closed, demand naturally fell. But Amul bucked the trend,

As unorganized trade and small dairies withdrew from milk procurement, Amul received 15-17% more milk from farmers. Demand for Amul’s liquid packaged milk went up by 5-7% compared to pre-covid times as households chose a trusted brand over loose milk. Demand for cheese and paneer is at least 30% more despite closure of hotels and restaurants, while butter and ghee sales are up by 10-20%. Demand for ice creams nosedived during the lockdown but Amul was quick to divert its distribution network for ice creams to other product segments... Amul is likely to gain market share. In 2020-21, Sodhi is expecting an enviable 15-16% revenue growth, only marginally lower than the 17% CAGR seen in the past years.

Amul has several lessons to improving India's agriculture. It has also lessons for the Indian private sector firms, including e-commerce ones which struggled during the pandemic. 

7. As commentators hype up the Indian digital commerce economy in the aftermath of the pandemic, it is useful to keep in mind this,

In 2019, of the 583 million internet users in India, only 232 million people paid for any service or product online at least once (the rest used the internet primarily for messaging and browsing), according to RedSeer. And even among the 232 million, only 135 million bought products from e-commerce platforms, indicating the relative shallowness of the internet economy. According to RedSeer, it is largely the same set of users that has driven the recovery in the internet economy since May. What’s different is that users who were earlier only buying something once or twice a year in the past have now been forced to buy both more frequently and a wider range of goods and services. “There hasn’t been much expansion in the overall number of transacting users, but there is a steep growth in the number of serious or holistic users who are shopping on multiple platforms," said Mrigank Gutgutia, an associate director, RedSeer.

Covid 19 and the banning of the Chinese apps means that there cannot be a opportunity for Indian developers to bring out something original or global scale in the digital domain. This will be a test for the much hyped Indian start-up eco-system. 

The race seems to have started in great earnest. An Indian TikTok or Facebook, but which is not a mere clone?

8. Shyam Saran makes the case for India to devise a strategy to respond to the Chinese two steps forward, one step backward approach at the India-China border.

9. Jugal Mahapatra and Siraj Hussain argue in favour of extending the additional allocation under National Food Security Act (NFSA) till March 2021 and also expanding its coverage by another 10 million. This is an important point to be borne in mind,

If there are no reports of starvations, even from the poorest districts of India, despite loss of income of crores of people, the credit should go to National Food Security Act, 2013.

10. Far too often policy targets are completely unrealistic. But even by those standards, this needs revision big time,

The production target in the electronics sector for 2025 is $190 billion, with a 30 per cent share in global value creation, as distinct from the current figures of $29 billion and 5 per cent, respectively. This is massively ambitious, and can only be achieved through export promotion.

11. Important area for expediting policy action is the regulatory space on digital economy, especially on data protection and privacy. This from a Business Standard editorial highlights the concerns,

The draft legislation has been pending since 2018, when the B N Srikrishna Committee submitted it, and has been amended by a Parliamentary committee. The new draft has no safeguards against blanket surveillance by government agencies. In addition, the government is pushing for complete access to non-personal data, which means the commercial secrets of businesses would be at risk. It would also like access to source codes of telecom equipment, including mobile devices, and has reportedly asked for social media data to be stored on local servers and deciphered on demand, breaking end-to-end encryption. These demands might retard the development of this huge market and put citizens’ privacy at risk. Therefore, the government should get the data protection law passed with adequate protection. A more robust legal framework will increase activity in the sector and attract investment.

12. Madan Sabanvis makes the important point about exiting the stimulus in India, especially on the liquidity support and debt forbearance side measures. These will not be easy and the government and RBI will have to carefully plan for them.

13. Bari Weiss (HT: Ananth), an editor with the New York Times has a scathing indictment of the culture of self-sensorship and political correctness within the Times. Her resignation letter captures the issues nicely.

A new consensus has emerged in the press, but perhaps especially at this paper: that truth isn’t a process of collective discovery, but an orthodoxy already known to an enlightened few whose job is to inform everyone else... Stories are chosen and told in a way to satisfy the narrowest of audiences, rather than to allow a curious public to read about the world and then draw their own conclusions... Why edit something challenging to our readers, or write something bold only to go through the numbing process of making it ideologically kosher, when we can assure ourselves of job security (and clicks) by publishing our 4000th op-ed arguing that Donald Trump is a unique danger to the country and the world? And so self-censorship has become the norm.

What rules that remain at The Times are applied with extreme selectivity. If a person’s ideology is in keeping with the new orthodoxy, they and their work remain unscrutinized. Everyone else lives in fear of the digital thunderdome. Online venom is excused so long as it is directed at the proper targets. Op-eds that would have easily been published just two years ago would now get an editor or a writer in serious trouble, if not fired. If a piece is perceived as likely to inspire backlash internally or on social media, the editor or writer avoids pitching it. If she feels strongly enough to suggest it, she is quickly steered to safer ground. And if, every now and then, she succeeds in getting a piece published that does not explicitly promote progressive causes, it happens only after every line is carefully massaged, negotiated and caveated.

In this context, this from JS Mill assumes relevance (via Walter E Block)

“He who knows only his own side of the case, knows little of that. His reasons may be good, and no one may have been able to refute them. But if he is equally unable to refute the reasons on the opposite side; if he does not so much as know what they are, he has no ground for preferring either opinion. . . . Nor is it enough that he should hear the arguments of adversaries from his own teachers, presented as they state them, and accompanied by what they offer as refutations. . . . He must be able to hear them from persons who actually believe them; who defend them in earnest, and do their very utmost for them.”

14. Sanjaya Baru writes about the brain drain problem facing India. This may turn out to be true for a majority of elite-children,

Children of business leaders, politicians, government officials, diplomats and just about every influential section of society are seeking exit visas. The next generation of the Indian elite is increasingly domiciled overseas.

15. Andy Mukherjee examines Reliance's plans to become a competitor to Tencent (digital platform), Huawei (5G equipment and telecommunications), and Xiaomi (mobile phone). In the context of the 5G race, The Economist writes,

On July 15th Reliance Industries, an Indian conglomerate, announced that its Jio network, which uses a Samsung 4G network, will be building its own 5G infrastructure and selling it to others. Jio is likely to follow in the steps of some other carriers, most notably Rakuten Mobile in Japan, which are betting on networks based on advanced software, off-the-shelf hardware and open standards, thus side-stepping the need for systems integrators like Ericsson, Huawei or Nokia.

This is a sceptical look at Reliance's claims. V Sridhar feels that Reliance may be talking about 5G-like network. It is likely to be the case.

16. Interesting that the UK government and Bill Gates Foundation are the largest funders of WHO in 2020-21.