TJEF VOL 5 ISSUE 1

The pandemic has wreaked havoc on the Indian economy with the gross domestic product contracting by 23.9 per cent in the April-June quarter of 2020. The country had already been burdened by the declining consumer demand and investment. Currently, amidst the global recession and pandemic, there is a dire need for economic reforms in our country.
The banking sector is the backbone of Indian economy as it facilitates capital formation and it has been impacted in various ways by the pandemic. The sector faced business continuity as well as operational issues. But they have taken steps to minimise the impact so that their short-term profitability is unaffected. In its recent report on the trends and progress of banking in India for FY 20, RBI states that the improvement in the health of the banking sector hinges around the pace and shape of economic recovery.
As per the RBI report, The GNPA ratio of banks declined from 9.1 percent at the end of March 2019 to 8.2 percent by the end of March 2020 and further to 7.5 percent at the end-September of 2020. Scheduled commercial Banks (SCB) have earned a net profit in FY20 after incurring losses in the previous 2 years. This is a positive sign which can be attributed to the various steps taken by RBI to boost the pandemic-stricken economy. It acted swiftly with aggressive policy rate cuts, moratorium and time-bound resolution for specified sectors, massive system-level and targeted liquidity infusion.
The MSME sector which is the largest employment provider in the country has been the worst hit by the pandemic. The sector suffered from liquidity crisis, labour-shortages, supply shocks, high default risks and non-payment of dues. Since the sector employs nearly 40% of the country’s population, the persisting problem is more than an economic problem. Government has come up with schemes such as Emergency Credit Line Guarantee (ECLG) scheme to improve credit absorption by the sector. Since MSME sector is inherently a dynamic sector, the recovery of the sector depends upon how efficiently they scale and diversify upon getting credit access. Their dynamism can rise manifold if provided with the necessary infrastructure in terms of electricity, transportation etc…
Since India is currently focussing on economic recovery, TJEF has decided to focus on the 2 sectors that contribute most to the Indian economy, i.e. banking and MSME sector. This edition of the journal covers the factors affecting the profitability of banks and how the MSME sector can recover from the current economic crisis.
On behalf of the TJEF editorial board, I would like to appreciate the sincere efforts put in by all the authors who wrote for us. I hope the readers find these research papers insightful.
Happy Reading! – Taniya John (Editor, TJEF)

Please find the link to the full journal : https://tapmiedu-my.sharepoint.com/:b:/g/personal/tjef_tapmi_edu_in/EX4CrwXgeJ1LkqS9klTEe7sBvTvxooAFgWA7CvNKQkEQhA?e=CgG8DY

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
2,700,000*190,000*590,000*1,700,000*
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.

CONCLUSION:

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.