The solution to every problem can be found only if the problem is first decoded till the first principle. India’s economic slowdown should be treated and decoded the same way. The first thing that needs to be identified is whether the current slowdown in the economy is a cyclical slowdown or a structural slowdown. Cyclical slowdown is one that is characterized as a part of the business cycle, going through a trough which will eventually be followed by a recovery and peak. In gist, it is a short-term problem which can be solved through government’s fiscal and monetary policy. However, what the country is witnessing today is a structural slowdown and in order to garner a remedy for the situation, there needs to be a better understanding of the problem and there after damage control.

India’s growth story has always been driven by consumption. In terms of the components of GDP- government expenditure has been whooping for the economy, however government expenditure forms only around 10% of the GDP. Additionally, the fiscal deficit of the government raises concerns about what extent can the government afford to stretch the deficit to, especially with staggering tax collections. The current fiscal deficit stands at 7.5%, which is a notch higher than all the developing countries, barring Pakistan. Investments have been stalling, even after the corporate tax rate cuts. The reason is that if there is a weak consumption demand, why will the businesses invest even despite the incentives? The consumption demand, which is the most worrying concern, ironically forms around 60% or more of the GDP today. In such a situation, any policies, incentives or break throughs will not revive the economy until and unless there is a boost or rather revival of the consumption story of India. The current situation is worse than the 1991 fiasco, as during that time even though the government lacked the forex reserves, the consumption demand was strong. Today the government has ample forex reserves, but the main growth driver of the country has taken a backseat.

The demand can be broken down into urban demand and rural demand. FMCG sector of India, which is generally known for being the resilient and safe sector for the economy has been under trouble, which clearly highlights the gravity of the situation. There were times when the rural segment used to contribute 1.5times the urban segment for this sector. However, during the past few quarters the rural contribution has fallen to the level of urban contribution, and has dipped even more. Currently, the rural FMCG sales is growing by 5.2% and the urban sales is growing by 7.4%

One of the reasons for the above being, India is divided into an organized and unorganized sector. While the organized sector contributes two-third of the GDP, the unorganized sector contributes the rest, and certainly cannot be avoided. The informal sector is responsible for more than 80% of the job creation in the country, according to economists. The implementation of GST was done with the intent of formalizing the country. There has been interestingly a pattern observed, big firms in the industry that competed with a large portion of informal firms benefitted immediately after implementation of GST. The informal firms bore the compliance costs, many informal firms either shut down or witnessed a large drop in market share. The same firms which benefitted post GST, have now witnessed a decline in sales-reasons being slump in demand arising out of losses of job and high level of unemployment in the informal sector. For instance, biggies like Britannia, Marico first witnessed a plunge post demonetization. They again picked up post GST, due to the lessening of rivalry by their informal counterparts and now again a slowdown, due to their stressed counterparts.  

Additionally, there is an anomaly in the consumption behaviour of Indian consumers. According to the Consumption Expenditure Survey (CES), the expenditure compared between FY 12 and FY 19 indicates that the spending on durables, clothing, footwear, health, travel, entertainment and other miscellaneous good & services has actually increased. However, sectors like automobile and housing have witnessed a haunting slowdown. The anomaly is due to the lack of customer confidence. Customers do not want to spend on items requiring long term commitment in terms of maintenance and payments as they are not confident about their future income and revival of the economy. Hence, segments especially like travel and entertainment have seen robust growth figures as they are one-time expenditures for the customers. Additionally, events like big billion days witnessed e-tailors booking revenues worth $ 3 billion, plus 50% increase in terms of new customers for giants like Flipkart (mainly tier 2 and tier 3 cities). Major retail lending retail products, such as personal loans and credit cards continue to witness strong growth, though the pace may have decelerated. This brings us to the fact that slowdown does not necessarily showcase the lack of disposable income in the hands of urban middle class. These indicators highlight that there is sentiment issue, customers are still spending a robust amount of income in certain segments-segments which require one-time short-term low-ticket size expenditure, however not on those segments which are required to boost the economy.  RBI’s consumer confidence survey for November booked the lowest figure since its implementation back in 2010. The index stood at 85.7, which is even lower than the number observed in September 2013, where the country faced a BOP crisis. A reading below 100 denotes pessimism in the economy.

Budget 2020. The budget 2020 is imperative to bring the country out of a turmoil. There is a consensus view that the budget is likely to bring reforms which will stimulate demand and confidence of revival in the mind of Indian consumers:

With the corporate tax down to 25%, the next expected move of the government is a reduction in the income tax slab to leave more money in the hands of consumer. The current exemption of no tax for income up Rs. 2.5 lakh is expected to be increased to Rs. 5 lakhs. Slab of 5-10 lakh subject to a tax rate of 10% (20% currently), 10-20 lakh subject to a tax rate of 20% (30% currently) and above 20 lakhs subject to a tax rate of 30%. Next is increasing the deduction limit under section 80C from current Rs. 150000 to Rs. 250000. In order to revive investment and promote the housing sector, deduction for housing loan interest for self-occupied property is expected to increase from current Rs. 2,00,000 to Rs. 3,00,000. The rural economy needs to be given a priority; hence the budget should be focusing on bolstering the NREGA programme and funding rural road construction.

While all this may or may not work for the country, certain imperative deep-rooted measures need to be addressed to bring a long-term solution the country. One of the main forces believed to be positively linked to the consumption in an economy is the demographic dividend. India is believed to be the fastest growing country and unanimously agreed that it will reap the benefits of a “large working-class population” in the coming years. While there is no doubt of authenticity in the statement, what we fail to realize is that the above statement will materialize only when the current young population is provided with an environment of quality education and up scaling of skills. India is much behind this aim. Reforms in education and healthcare will pave the path for economic development in India. Successful Asian economies like China, Japan, South Korea, first focused on bringing reforms in the agriculture sector by promoting full-scale efficiency. Similarly, India should focus on reforms in agriculture in terms of access to seeds, technology, power and finance. They should look for ways to improve connectivity and facilitate easier leasing of land. Focus on such areas would not only solve the current problems but also cater to the problems the country has been facing for years but have been left unaddressed.

A Case For Corporates As Banks

The state of the economy of any country is reflected in the health of its banks and financial institutions. The impact of any economic or financial crisis is that Non Performing Assets (NPA) or bad loans shoot up. If the bad loans do not get resolved very quickly, banking system becomes credit averse and the economy of a country starts slowing down. Weak banks and financial institutions start collapsing This is what we are witnessing in India. Indian banks are not willing to lend. The last few years has seen many banking and NBFC (Non-banking financial company) failures. In September 2018, IL&FS, the infrastructure lending NBFC giant collapsed, followed by PMC Bank and Yes Bank, DHFL, a housing loan NBFC, was put on the block and recently Lakshmi Vilas Bank was taken over by DBS after RBI superseded the board. When a bank collapses, it causes a lingering instability in the financial system. To arrest this instability, RBI has been ensuring the takeover of any large bank or financial institution that has collapsed such as IL&FS, Yes bank and the recent kid on the block, LVB. Recently, RBI’s internal working group came up with a proposal to allow corporates to run banks. While RBI is yet to respond to this proposal, the proposal has been met with strong criticism.

NPAs and the banking sector

To help the banking sector in spreading credit availability, 14 banks were nationalized in 1969. In 1980, six more banks were nationalized. With this, more than 70% of the banking sector became state owned. After the 1991 economic reforms, RBI started providing banking licenses to private entities. According to the latest data of RBI, the market share of Public sector banks (PSBs) has been dipping and the private sector bank’s share have been surging in both loans and deposits. This has been attributed to the rising number of Non-Performing assets (NPAs) in the balance sheets of the PSBs. A lot of NPAs are attributed to mid-2000s period, when the economy was booming, and loans were available more easily. Post 2008 crisis, after economic growth stagnated and corporate profits decreased, the repayment capability of the corporates decreased. This caused the banking sector to come under duress. The proportion of NPAs went from 2% in 2008 to over 10% in 2018. As seen below, private sector banks have lesser NPA as a percentage to their loan books as opposed to PSBs.

The government has infused over 3 lakh crores in the last decade to help PSBs deal with NPAs. The pandemic is expected to increase NPAs. Although the Indian economy has witnessed a significant improvement by narrowing down from 23.9 % contraction in the April -June GDP Quarter (Q1) to 7.5 % contraction in the July-September GDP Quarter (Q2), demand from corporate sector is still muted, hence credit offtake has remained stagnant. Gross NPAs may jump 8.5 % in March 2020 to 12.5 % by end of the current fiscal year according to RBI.

 In 2019, 10 PSBs were merged into 4 entities in order to increase the global competitiveness of the banks. There have been calls for privatization in the light of increasing NPAs several scams coming into light over the last few years. It is argued that if the government equity is reduced to less than 50% in PSBs, senior management of PSBs will have more autonomy and will function like private sector banks. The largest bank of India, SBI, has a balance sheet four times the size of HDFC bank yet its market capitalization is just 1/3rd of HDFC’s, perhaps reflecting the state of management of PSBs vis-à-vis Private sector banks.

Corporates in Banking

Corporates were not given banking licenses because of fears of connected lending, lack of supervisory mechanism for the corporates, but they have a good presence in NBFCs, in fact the NBFCs run by corporate houses like Bajaj, Tata are counted as part of the top 10 Indian NBFCs. In November 2020, an internal working group of RBI, recommended that large corporate houses/industrial houses may be permitted to run banks. It also recommended that large NBFCs with an asset size of above Rs 50,000 crores be allowed to convert themselves into a bank. This recommendation has received backlash from central bankers and economists. This proposal comes when India’s banking and financial sector has been passing through choppy times.

In a joint article, former RBI Governor, Raghuram Rajan and former Deputy Governor, Viral Acharya, called this proposal a ‘bombshell’. Opposing it vehemently, they argued that a conflict of interest would emerge (i.e, an industrial group borrowing from its own bank) and this would cause the weakening of bank’s due diligence which could eventually cause rise in bad lending (NPAs). In the case of borrower defaulting, there could be a contagion effect (as both the borrower and lender are from the same industrial house in this case). They point to how PSBs were forced to lend to government entities against conventional banking practices and how it has affected them. Also, this would result in concentration of economic power in certain entities. They also added that PSBs should not be sold to large corporate houses and instead should be professionalized and made more robust.

S&P, the global rating agency said, it was skeptical of allowing corporate ownership in banks given India’s weak corporate governance and pointed out the same risks stated by the former central bankers. But, it also added that the conditions in the proposal, i.e., minimum paid up capital of Rs 1000 crores for setting up a bank, would enable only deep pocketed corporates to set up such a bank and that would provide stability in the capitalization of the banks. It also added that top NBFCs have a head start in converting themselves into banks.

Yay or Nay

The larger picture that emerges from the opinions of the central bankers and S&P is, that a conflict of interest emerges. A bank run by an influential corporate would come under pressure to lend to them even if the lending is against the interests of the banks. Even the PSBs have faced allegations of lending to influential corporates under directives from their political masters. India’s top business groups have faced allegations of corporate mis governance and giving banking licenses will raise a few eyebrows. No changes in corporate governance has been felt that such a time tested strategy of not allowing corporates in the banking sector can be changed.

The recent banking collapses and the scams such as PNB have raised questions over the effectiveness of RBI’s supervision itself. It is generally accepted that RBI is one of the least autonomous Central banks despite having enormous powers. Before such a proposal is accepted, RBI must be given more supervisory bandwidth and it must tighten its oversight on banks.

India’s corporate governance, although relatively weaker than US’s and Europe’s, has kept evolving for the better. India does need more banks, despite the bank nationalization, setting up of Regional Rural Banks, increasing number of NBFCs, introduction of niche banking like payment banks, financial inclusion has remained low. The government’s decision to limit public sector entities to just four in critical sectors means the role of PSBs will decrease in the future and as it is, private sector banks are stealing a march over the PSBs. The banking sector bears the brunt of any economic or financial crisis. It is important to keep this in mind before making changes to the banking sector especially in a country like India.

– From Shubhang Sunkara (Editor, TJEF)

The Impact of COVID-19 on India’s Female Population

Amongst all the hullabaloo over the economic impact from COVID-19, Financial Times asked a pertinent question for the world and especially for India- Is the coronavirus crisis taking women back to the 1950’s?

For India’s 600 million women, the crisis has heightened the pre-existing gender imbalances. According to a World Economic Forum (WEF) report, India ranked 112 out of 153 countries on gender parity even before the pandemic. It takes the 149th position in terms of Economic Participation and Opportunity, 112th in Education and 150th in Health and Survival. The female labour force participation is a mere 24.8% and 90% of these women are involved in informal employment. [1]The service sector, which includes retail and hospitality industry has been the hardest hit and unfortunately employs a large proportion of women. This put millions of women at the risk of a permanent exit from the labour market or doing vulnerable jobs. The reverse migration crisis of labourers from cities to villages has translated to reduction in economic opportunities for rural women. This includes both private agricultural jobs and social protection schemes such as the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA). This will lead to greater income poverty among women and a sharp fall in their command over market income — both key predictors of household wellbeing and food security.[2]

The National Family Health Survey (NHFS 4) talks about the non-economic aspects of gender parity in India. Almost 33% of married women have experienced physical, sexual or emotional spousal violence. The COVID pandemic which forced India to implement the strictest lock-downs in the world has heightened vulnerability of gender-based violence as both the partners are stuck at home. The economic and non-economic frustrations along with no exit options for women has led to an increase in the number of emergency calls to helplines between 25%-300%.[3]

Food and nutrition insecurities worsen during economic crises. As per Indian societal norms, women and girls are supposed to prioritize the health and well being of men and boys. Hence, the first to experience hunger when resources are in short supply — even in normal times are females. Indian women consume nutrient-rich foods less frequently than men. Short-term malnutrition can lead to permanent exclusion from the labour market and government workfare schemes, contributing to a new cycle of poverty among working-class women.[4] Among other things, the pandemic ruptured the service delivery of key welfare services. According to a survey, only 75% of pregnant and lactating women and 13.75% of adolescent girls suffering from malnourishment received ration from the 1.3 million ICDS Anganwadi centres.[5]

The pandemic has already seen the scrapping of labour laws which the respective state governments believe is the only way to attract private investment. Without policy reinforcement, COVID-19 will only deepen existing social and economic inequalities for Indian women. So, what should be done to help women as the Indian economy prepares to open further?

Every crisis presents an opportunity and it is imperative we do not let this crisis slide into a ‘she-cession’. One solution could be to increase the involvement of women in the COVID recovery plans. For example, Kerala’s Health Minister, K.K. Shailaja has been honoured by the United Nations for her efforts to tackle the pandemic. Under her guidance, The Gender Park, an autonomous body under the Kerala Government, is all set to partner with the United Nations Women to further the cause of women empowerment and function as a South Asia hub for gender equality. She has been featured in Vogue’s Women of The Year andonFinancial Times Most Inspiring Women among other tributes.

[1] http://www3.weforum.org/docs/WEF_GGGR_2020.pdf

[2] https://blogs.lse.ac.uk/southasia/2020/07/08/tackling-indias-deepening-gender-inequality-during-covid-19/

[3] https://www.thehindu.com/opinion/op-ed/fighting-a-double-pandemic/article31884170.ece

[4] https://blogs.lse.ac.uk/southasia/2020/07/08/tackling-indias-deepening-gender-inequality-during-covid-19/

[5] https://assets.kpmg/content/dam/kpmg/in/pdf/2020/06/anganwadi-report-2020.pdf

COVID-19: From Pharmaceutical And Economic Prospective

COVID-19 also known as Novel Coronavirus is an infectious disease caused by a newly discovered coronavirus. It is one of the three diseases which occur from the corona viruses. The other two are commonly known as Severe Acute Respiratory Syndrome [SARS] Middle East Respiratory Syndrome Corona virus [MERS]. The novel coronavirus that first reportedly emerged in the city of Wuhan, China in December 2019. The severity and causality created a worldwide panic and World Health Organization declared it a Pandemic in the month of March 2020.The name COVID-19 simply comes from corona virus disease. The number 19 stands for the year when the disease was first reported.  The virus that causes the disease is named Severe Acute Respiratory Syndrome Corona virus 2 acronym as SARS-CoV-2. Corona virus is zoonotic [spread from a relatable animal reservoir to another and when it meets humans there is community spreading] which means they are first originated in animals before they are developed in humans. However, world is aggressively debating its origin as natural or genetically engineered. Public genome sequence data from SARS-CoV-2 is under analysis to establish its origin in a laboratory. Fingers have been pointed towards certain countries and also on its sponsorship studies. Possible origin of virus could be –

  1. The virus evolved to its current pathogenic state through natural selection in a non-human host and then jumped to humans. Studies made till date are suggesting BAT as a source of origination of the virus for SARS-CoV-2 combining to an intermediate host in order to jump to humans.
  2. A non-pathogenic version of the virus jumped from an animal into humans in order to evolve to its current pathogenic.
ScenariosOrigin VirusIntermediateHost  
Scenario1Non HumanLikely evolvedHuman  
Scenario 2Batarmadillo-like mammals / Pangolin  Human
Scenario 3pangolincivets or ferretsHuman  
Scenario 4Genetically Engineered for biological warfare.  

Figure 1: Structure of Corona virus

Disease Symptoms

The symptoms prominently reported in human, affected by this Virus are -sore throat, tiredness, headache, dry cough Shortness of breath, excessive cough formation [ leads to the destruction of the alveolar capillary walls of the lungs which could lead to a severe case of Pneumonia ],Fever, Chest congestion /pain, drowsiness, running nose, loss of smelling capability. Further research is also suggesting that COVID patient is having digestive system discomfort as their primary complaint.

Figure 2: Symptoms-Corona virus -On Human

Key Points:

  1. Coronaviruses are a large family of viruses that can cause illnesses ranging widely in severity.
  2. SARS-CoV-2 can enter humans in its current pathogenic form from an animal source.
  3. Strain of the virus could remain circulating in the animal population and might once again jump into humans.
  4. The COVID-19 virus spreads primarily through droplets of saliva or discharge from the nose when an infected person coughs or sneezes.
  5. It is not proven that if a person can get the virus by touching an infected surface.
  6. Corona virus family of viruses can survive between four to five days on various materials like aluminium, wood, paper, plastic and glass.
  7. Some of veterinary coronaviruses could even persist for longer period.
  8. Low temperature and high air humidity further increase their lifespan.
  9. COVID patient may have digestive system complaint as their primary complaint.
  10. COVID -19 virus is actively shed in the stool of infected patient apart from nasal and respiratory secretion.
  11. To reduce the spread of corona viruses, the surfaces are recommended for cleaning with solutions like  sodium hypochlorite ,hydrogen peroxide or ethanol.
  12. There are no specific vaccines or treatment currently available for COVID-19.
  13. This is asymptomatic.

Treatment Methodology:

This virus is air borne and highly contagious. As per medical review, the virus can live up to five days on metal, glass, ceramic paper and wood. Lesser time on plastic, steel and cardboard and up to few hours on nonferrous material. Doesn’t seem to spread through food and has not been detected in water. The best method to prevent the spread of the infection is by following social distancing and to avoid or limit contact with people who are showing the symptom of COVID-19. Washing hands is another essential part to be safe. Disinfecting the usable items, washing the hands, social distancing and lukewarm water usage for drinking and bathing could be a control measure. Herbal / spices like turmeric with hot milk (boosts immune), garlic in raw form (high antimicrobial property) might be booster for immune system. Chirata (Swertia Chirayaita) is also considered as potential immune and metabolic stimulator for human specially those who are diabetics. Many immune stimulants can be taken in order to help the human body to be away from the disorder.  According to studies high dose of intra venous Vitamin C may improve the lung function in the patients who have are undergoing the treatment for COVID-19. Evidences of Vitamin D intake may reduce the risk of COVID-19 is negligible, but Vitamin D levels can enhance immune health. Vitamin D supplements have a general effect on protecting respiratory infections.

Convalescent- Plasma therapy, the treatment aims at using the immune power gained by are covered person to treat a sick person is also proving very potent.

Medications and method of treatment of COVID-19:

As of now, there are no specific therapeutic agents or vaccines have been developed for as SARS-CoV-2, thus no specific treatment for the given disorder. However, many of the symptoms can be treated separately and are therefore treated with the medicines available such as Paracetamol, Hydroxychloroquine, however antiviral efficacy of such drugs still to be established.

Blood Serum Treatment Method

The technique was used previously in Spain during Spanish Flu pandemic around eighty years back. In this a patient who has recovered from covid-19, is drawn and is screened for virus neutralizing antibodies. The serum containing these virus neutralizing antibodies are administered to prevent infection in high risk cases. The serum could potentially be used in individuals with clinical diseases to reduce symptoms and mortality.

Step1Recovered Patient 
Step2Blood screening for virus neutralizing agentRecovered Patient blood
Step3Virus neutralizing antibody 
Step4Serum to new patientInject

As the world is still far way in finding the vaccine for this virus, we need to relook the vaccine development protocol and the time required for that. The food and drug administration’s three phase rule for clinical trials is mandatory to confirm – is  new vaccine is safe and effective and benefits outweigh risks. Also, manufacturer must test all lots to make sure that they are potent, safe and pure. Statutory bodies monitor the vaccine’s safety after the public starts using. Considering all the norms of   research and development period it can well be understood that the journey is long and this virus is going to stay for longer. Certain medicines are being used currently to treat the patients are Hydroxychloroquine, Azithromycin, Paracetamol etc.

Why Hydroxychloroquine?

Hydroxychloroquine (HCQ), is an immunosuppressive, anti-autophagy and anti-malarial drug widely being prescribed for the treatment /prevention of malaria (Viral load reduction), rheumatoid arthritis has been found to have an anti-SARS-Coactivity. It is likely to suppress immune function by interfering with the processing and presentation of antigens and the production of cytokines. As malarial parasites target human red blood cells and HCQ actions to prevent breaking down of haemoglobin in human red blood cells. It raises intralysosomal pH impairing autophagic protein degradation.   It is a chemotherapeutic agent that acts against erythrocytic form of malarial parasites.  It also accumulates in WBCs stabilizing lysosomal membranes and inhibits the action of many enzymes. Though unproven, but currently it is widely been used globally. All India Institute of Medical Sciences has a caveat saying – like any other drug, HCQ also has side effect. It can do more harm than good for general public. Hydroxychloroquine suppresses the immune system and is not recommended in combination with drugs that also suppress the immune system. The combinations of Hydroxychloroquine and Azithromycin have shown encouraging clinical result.

Global health scenario as of today.

Corona Virus casesDeathRecoveredActive cases
Leading: US Min : Yemen  Mild: 1,300,00 Serious :251,000

*Figures are rounded off to lower value.

Possibility for a person to be infected by COVID-19 twice:

As of now when no vaccines and medications are prepared for the pandemic doctors and scientists and Para-medical staffs are not fully convinced about someone getting fully recovered. From the perspective of it being a viral disease the person might be temporarily be immune to the disorder but in the long run there is a chance that the person might become even prone to the virus due to unavailability of the vaccines and medications. A study also predicts that if the human can maintain immunity for a prolonged period for instance of 12 to 24 months post recovery they could be able to return to public spaces even when the virus is prevalent ad continues to spread itself.

Global Economic Effect:

As we review the human health condition due this pandemic, it is vital to get a glance how it has affected the world economy and has proved to be a tough time for developing countries. The monetary debts on industries are increasing at a considerable rate and companies are starring bankruptcy. The sectors which may suffer the most from these are the leather, gems and jewellery, textiles, handicrafts, carpets and engineering sectors. These sectors employ largest number and which are having a the highest risk of them all.  The major concern for these sectors is the labour, liquidity and logistics which is going to be a key concern for the stake holders. Coronavirus lockdown may impact real estate price drop substantially. As per a simple estimate around 15 million export jobs may succumb only in India, to COVID blows, mainly in handicraft exports and textile. India foreign exchange reserve plummet by 900 million within seven days after declaring the lockdown. Growth projection of Indian economy for FY 21 as projected by World bank stands at 1.9%, Standard and Poor says 3.5%, ICRA research put it at 2% and Fitch also @ 0.8%.

Graph 1: GDP Growth Revision for Financial Year 21-India

Organization for Economic Cooperation and Development (OECD) predicts China growth projection with reduced percentage just below 5 for the year 2020, which will be the weakest growth, and for world at 2.5%. USA, UK, Germany and other giants will be having around or below 2%. The Middle East and North Africa economy is likely to contract by 3.3% in 2020. This damage to the economy is likely to be severe than all previous slumps. The global economic outlook is heading towards the deep recession as the epidemic is getting severe. The sweeping lock down in Arabian region has significantly dented the local economies. The oil revenues is on deep turn down and even with OPEC+ decision to curtail the output the  scenario will remain grim. The extreme uncertainty surrounds as the fallout of the pandemic depends on the pathways of the diseases and the intensity of containment efforts.

Graph 2: Middle East & North Africa Growth Contraction

Global oil demand is seriously affected due to lockdown across the world. The US energy information administration reported the least gasoline consumption for at least 30 years. The US oil demand has fallen to 14.4 Million barrel (a drop of 30%), UK gasoline sales dropped by 60%. Crude demand in India collapsed by 70 %, Spain by 23 %, Canadian Oil production reduced by 325,000 barrels a day. The global oil price (Brent) stood at $ 20 across the world, where as WTI has slipped in the negative zone.

US jobless claims reached a record high of 6.6 Million in the month of March- April. India’s unemployment rate stood at 24%.[ March =8.4% ,April 26.2 % ] Joblessness is likely to surpass financial crisis rates in some countries like Greece .

Job losses due to Pandemic in India (Projection)

 Sectors Projected Job loss
Tourism & Hospitality20 Million
Aviation and allied sectors2.9 Million
Manufacturing9.0 Million
Textile18 Million
Restaurant7.3 Million
Automobile1.0 Million
All Sectors Total [ Projected ]- India140M
All sectors Total [ US ]7.0M
All sectors [ EU]3.0 M

Graph 3: Loss of Jobs in India and Worldwide

Chinese industrial production fell by 13.5% in first two months of the year. Car sales in China fell by 86%. The value of gold jumped to a record high of $1650 and is projected to reach $4000 in near future.

World leading Browses dropped drastically.  A sharp decline of major financial stock markets was recorded across the globe. Three months data of major stock market / index review reflects the loss of almost 33%. Thus all major advanced economies will be in recession in year 2020.

Graph 4: World Index Growth in Percentage

As it can be seen that inverse of healthy economy signals are quite active where business productivity, jobs, consumer confidence, spending have taken a beating. The future of start-ups, medium and small enterprises and most of the economy growth is linked to the pandemic. Unless the spread is controlled no amount of stimulus will work. All new development project will be stalled. States have suffered a hefty loss of income due to mass closure and everywhere austerity measures are being applied. The public sectors investment in capital projects, expansion, revamping, modernization of units, salaries, wages all are on anvil for slashing. Release of grants, waiver of loans all are likely to be stopped, lay off and scale back the production are the certain measure commonly taken.

Economy revival requirement / Methodology:

The global business cycle contraction will ultimately lead the economy to recession. Spending will drop and the effect could be longer. All economic indicators like GDP, Retail, Manufacturing, Employment and individual income are under severe stress. This pandemic may cascade the economic recession and no one knows how long it will last. World my see a drastic policy changes in the coming days which might/ should include the following actions-

  • Reduced interest rates in banking sectors on saving and deposits. Focus on protecting the health of real economy.
  • Pushing of money (Stimulus) in economy through infrastructure program.  To be careful of the fiscal packages and structuring the schemes that should not shake the currency and hike rates.
  • Review of the taxation system to develop a program to attract funds.
  • Cut on imports of gem and jewellery / Change in Foreign Direct Investment (FDI) policy.
  • Recalibration of the currency.
  • Wage cut / lay off. Companies to retain employees even if at moderate wages.
  • More focus on agriculture sector and engage with the world on goods- food exchange tie ups. Protection of small and medium enterprises.


Human is fighting for survival. Research and development has become temporarily muted. So called economically superpowers are exposed.  Who knows what will be the outcome, if this is a genetically engineered war and what will be fall out in future? Will it lead to new threats? Sorry Einstein, you are proved wrong…. People will not fight with stone…. They are fighting with virus!!

From Yashaswee Raman (PGP 1, Section 6)

Beggars Are Not Choosers

“The rich get richer”- This is a statement that we come across very often. But have you ever wondered why this is true? How the socioeconomic unfairness leads to this is something we will talk about in this article.

There are different types of goods available for every income group. But what is the difference between these commodities and why do they cost different? What impact does it have on the short term and long-term income and saving stream of the consumer?

An observation that lead to a theory gave answers to most of these questions was given by a person named Samuel Vimes. He studied and observed closely the spending habits of the rich and the poor. It was noticed that if two people, a rich person and a relatively poorer person with a lesser disposable income require boots, they would spend on different quality of boots. The richer person who has a higher disposable income would spend it on good quality boots that costs, say Rs.3000; whereas the relatively poorer person with a lesser disposable income would spend a lesser amount for the same commodity, say Rs.200

Although they both get the same commodity, the quality of the boots would differ. The Rs.200 boots would get worn off very easily and would become un wearable very fast due to wear and tear of the low-quality material used. This would arise the requirement to buy boots again for the person with the lesser amount of disposable income. Within a month, the poorer person would have to spend Rs.200 to buy boots again. All this while, the richer person spent Rs.3000 on boots once and they would stay intact for years.

This observation gave rise to the argument that the rich get richer because they spend less over time by making better decisions because they have access to capital. Higher capital and a higher disposable income help the rich to make better decisions, whereas the poor cannot exercise this option due to less capital access.

This was known as the “Boots Theory”

The same can be applied to any commodity. Say a second-hand car that has been repaired without a good warranty and gives a bad mileage as compared to a new car that relatively costs higher will eventually cost less over a longer period as it will give a good mileage (less variable cost) and also is less likely to break down.

Economics believes all consumers are rational consumers and take the best decisions. But these decisions can only be taken with access to capital or effective access and use of credit. This would result in savings overtime and eventually lead in less spending over a longer period of time.

— By Harsimran Kaur Chawla , PGDM, TAPMI

US Elections and Indian Economy- A New View

A global pandemic, economic slump, unprecedented times; some of the trends you must have come across in 2020. The trend list got its latest addition in the form of US Presidential election. The democratic nation was all prepared to turn around the tables as they split between democrats and republicans. On one hand, where Donald Trump represented Republicans, the Democrats had Joe Biden as its face for the president’s position in the fierce battle. Leading up to an intense turn out of political events the United States had its new president elected in a close battle of states with Joe Biden crossing the magical figure of 270 electoral votes. The entire election was as closely watched by the rest of the world as America did. India, being an important international participant in transactions with the USA was also impacted by the entire election. The effects were visible evidently on the share market and stock indices as well with fluctuations on the basis of future expectations and market conditions in the coming times. To gain a more magnified and micro-level view, this article would take you through the special aspects that can be associated with the change in occupants in the white house.
US Elections and the Indian economy: The investments
There has been an influx of investments in the market which is clearly illustrated through the surprising performance of stock market indices and their closing figures on every passing day. This was an expected trend replicated from the US markets itself. The Sensex and Nifty touched record high numbers in the last few days as well. The investment attitude reflects the expectations of change in trade impacting economic activity in the country with higher FII. A sense of optimism prevails within analysts as emerging markets including India would continue to attract capital flows as long as global central banks regulate the smooth monetary policy to support growth amid COVID run blockages. In terms of yield spread, India stands as one of the top countries for yield spread and hence could experience a higher level of capital flow.
US Elections and the Indian Economy: Immigrant Policies
Immigrants contribute to a major share in the entire build-up to achieving a specified level of economic performance. With Joe Biden coming into the picture of the USA administration, there is a sentiment prevailing on ease out of immigrant policies reflected from the patterns and ideologies of Democrats as a whole. The immigrant policy alterations can be a propelling factor in shaping the prospects of Indian youth as well. There is an expectation for changes in the resident permit policies and relief among the H1B and F-1 visa holders with the favourable policies of Biden.
US Elections and the Indian Economy: US-China trade relations
The COVID virus has brought into the picture an intense relationship between the US and China for trade activities. These may contribute to the opportunity that India as a nation can seize by acting as a credible alternative to China and also providing uninterrupted supplies. The relationship of trade is further expected to substantiate in the form of benefits that pharma firms may gain with a higher level of government spending. The elections are expected to have a positive impact on the market with positive inflows in Asia Pacific markets. With an emerging consensus on having a China+1 model in order to mitigate risk and avoid massive supply chain disruptions as experienced in the early months of the pandemic, this can be helpful for the Indian economy to grow.
US Elections and the Indian Economy: The Iran aspect of trade
During the campaign for the 2020 presidential elections, Biden commented on how he would like to renegotiate the terms in reviving the US Iran nuclear deal. This can lead us to assumptions that the new administration may be in the direction of lifting some sanctions imposed on Iran. India can look towards a positive direction for benefitting from this situation. Iran being one of the biggest oil exporters to India in the past, faced a hard stop post the sanctions imposed by the US. This was followed by China stepping into the picture and taking advantage of the vacuum by investing heavily in Iran. China has also decided to build a new port in Iran. Hence a new deal can be beneficial for the US as well as India followed up with resumption of infrastructural activities if sanctions are lifted.
US Elections and the Indian Economy: The Paris accord
One of the main aspects of Joe Biden’s campaign was the highlight of his stand to join back the climate change agreements in the Paris accord. India has actively supported the agreements at the Paris on climate change but a bigger challenge Biden may face can be in the form of resuming the funding of the World Health Organization (WHO) which was halted by the Trump administration. This is a challenge since it requires the approval of the Senate which is controlled by the Republican legislators.
US Elections and the Indian Economy: The Kamala Harris effect
A prime highlight of this year’s elections was the victory of Kamala Harris as an Indian origin vice president. This is the first time an American with a backdrop of India holds a leadership position at this level. As a symbol of the representation of diversity and the progressive attitude of America, the leadership can help in gaining trust and making it easier to gain positive negotiations. The ties of both countries are guided by the convergence of their strategic interests in security, trade, and technology but the election of Kamala Harris has enthused people in Indian especially women paving a path of positive expectations in the future from both sides.
The presidential elections did have a lot of stake for India and its international ties but a
convergent trajectory of common interests is what would guide the two countries and its bilateral decisions that can be reflected from the stance of the two countries on various topics.

The disconnect between the stock markets and the Indian economy

Let’s say a friend of yours, has INR 50,000 and wants to own a business, hoping to make a lot of money over a period. He observed that with COVID 19, many companies offered work from home to their employees and therefore the need for laptops has increased. Now here, for someone to start a new company in this industry, they need government permissions, plant, property and equipment, raw materials, and hundreds of other resources. Not to mention, their investment of INR 50,000 is not enough to fetch them anything. So, they choose to invest the same in some other company which has already secured all the expertise and resources to manufacture the same. Now, this is where the stock market comes into the picture where one can choose to buy partial ownership of any company from the ones listed there. Due to the rising cases of COVID 19 cases, the whole world shifted to online platform to carry on with their work and thus, the demand of better computers and laptops increased. Manufacturing companies boosted their productions to meet the demand and earn profits from this opportunity. They employed more laborers, bought more raw materials, and invested in their research facilities to improve their process and increase their supply. In very simple terms, this is how the economy grows, as with increasing demand, the supply also started increasing. Businesses start making more profits and as a result, they invest more and hire more employees to expand. As employment increases, the buying capacity also improves. With more money in hand, consumers spend more to buy different comodities which creates more demand and this cycle goes on. This demand is capitalized by businesses and now their stock prices also rise.

So, here we might start thinking that, there is some relationship between the economy and the stock market. But whatever we understood till now, is just a partial truth or only the half picture. The rise and fall of stock markets is not just dependent on the economic position of the country. There are hundreds of other factors as well which play a very important role in it. Government policies, political scenarios, market sentiments, which unlike other factors, are purely emotional, etc are few major contributors to fluctuations of stock markets. Markets in the short term, are irrational and only in long term they are efficient and reflect true economic progress as measured by GDP growth over long periods. Try holding this thought for a while, as by the time we conclude this, everything will automatically start making more sense.

To understand the previous idea in a better way, let’s observe the performance of the Indian stock market from the beginning of 2020. Here we have a graph showing the NIFTY50 market index figures from January 2020.

Exhibit published on TradingView.com, October 31, 2020.

With the first case of COVID-19 in India, reported on 30th January 2020, the stock markets began to fall. As the country went into lockdown, the economic activities also reduced to a bare minimum. The GDP growth of the country contracted by 23.9% by the end of the first quarter. Around 41 lakh job losses were marked which increased the unemployment level to 27.1% by the end of April 2020. Both the stock market and the country’s economy took a hit and witnessed a steep fall.

But the stock market started to recover soon, as few companies emerged as Corona warriors for them. Starting with Reliance Industries Limited, the Adani Groups, Sun Pharma, Bharti Airtel, Vedanta Ltd., the Shiv Nadar Group, the Aditya Birla Groups, and the Radhakishan Damani Groups, clocked substantial market gains. Each company had a different reason for the sharp rise in their share prices. A few of the contributing factors were aggressive and successful fund-raising programs, the rally in pharmaceutical sectors amid the COVID pandemic, increase in data usage with the work from home policies of the companies, increase in the demand for health care products, increase in the usage of logistic services, etc.

At this point, the markets showed positive signs of recovery and started rising but the economic growth was still suffering. The GDP growth reported in the first quarter was 5% and in the second quarter it further slowed down to 4.5%. The MSME sector which contributed to more than 30% of the total GDP was still under great stress. Moreover, the India-China standoff situations at the borders added to its loss. The government banned imports from China and motivated the citizens to boycott all Chinese products. Mr. Nitin Gadkari Minister of Shipping and the Minister of Micro, Small and Medium Enterprises raised his concerns regarding the losses that the local businessmen who had already paid for the goods and raw materials, will have to bear. Not to mention the increase in the cost of production as we imported cheaper machinery, electrical, chemicals, and other raw materials from China, also impacted the supply and demand of many products thus impacting the economy.

Since all the international trade declined, therefore it became very difficult for the industries to maintain a low cost of goods sold. Also, all the capital-intensive sectors such as construction sectors and manufacturing sectors were still unable to recover, due to the huge shortage of laborers to carry out the operations. An increase in the job losses decreased the spending capacity of the majority populations which led to a decline in the demand. The sudden change in the spending behaviour of the masses also led to a huge liquidity crisis for the industries making it more challenging for them to continue their daily operations. Our banking sector is still trying to recover from the huge NPAs accumulated over the period.

So with all things said, it is very clear that contrary to popular belief, the economy and the stock market are two different things. Markets, many times, ignore the economic reality and works in their ways, which are not in sync with the economic principles, we know. Since the Great depression of 1929, stock markets have repeatedly shown that it has no link with economies or with business fundamentals. In one of the most famous books, ’The General Theory of Employment, Interest, and Money’, by economist John Maynard Keynes, the author talks about markets being governed by wild forces, whereas the economic growth being derived from the real productivity of the country. Probably this is the only way we can understand, how Nifty50 closed the calendar year 2019 with gains of about 12.0% whereas our GDP only grew by 5.024%.

– Shobhit Jain, Editor, TAPMI Journal of Economics and Finance