What, when ,why and how of the Stimulus?

 "Negotiations over a shrinking pie are especially difficult, because they require an allocation of losses"

The above is from Daniel Kahnemann's magnum opus "Thinking, Fast and Slow". India is facing a shrinking pie situation with steep GDP contraction. Fiscal stimulus is imperative and it is expected on a yesterday war footing. Early birds and head-starts enhance hope and confidence which feed favourably into demand and investment.They also act as countercyclical to shrinking pie despondency. Credit boost is a temporary remedy to manufacturing machinery to kick start and keep up the production capacity. But it can work only up to a point, where the productivity and earnings should become sufficient to keep up with the plan of repayment of loans and borrowings. If the people in general do not foresee sufficient future income and employment, they may not turn out to buy things and assets.They cannot evergreen their loans like some corporates feeding only on liquidity. People should have sufficient disposable discretionary income to buy durables and assets. Or atleast have the confidence of generating future income through gainful employment or business opportunities. Otherwise it becomes a shrinking pie syndrome which feeds into further shrinkage,  leading to a vicious cycle.

For quick results, Govt should look at products that have price elasticity. One of the products which is highly price sensitive is Automobile. Irrespective of the clamour of the opposition that cars are bought by the rick, Govt should look at the huge multiplier effect this will have on the rest of the economy. UPA Govt used this carrot when the economy plunged into an economic abyss following the financial crisis in 2008-09 and the growth revival was tough. UPA Govt responded by temporarily reducing Excise duty on Cars etc. in order to boost their demand.This action had a huge beneficial ripple and multiplier effects running across the economy.

However much you tweek monetary policy to boost credit offtake, unless it is followed up by fiscal measures to give a fillip to the demand generation, the credit growth will not be sustained. Fiscal measures must also be credible in the eyes of the public and for that products which have demonstrated price elasticity must be chosen. Only this can start rotating the wheels of the economy bringing about a virtuous cycle of employment,income and surplus.

Of course ,Govt has also taken measures under Atmanirbhar Bharat to promote Make in India to crank up the economy and the demand. But quick result areas and the low hanging fruits must be tried immediately.Govt must always remember:

 "For want of a nail the shoe was lost.

For want of a shoe, the horse was lost.

For want of a horse , the rider was lost.
For want of a rider, the message was lost.
For want of a message ,the battle was lost.
For want of a battle, the kingdom was lost.
And all for the want of a horseshoe nail."

A stitch in time saves nine . The falling tax revenues and the 15th Finance Commission's Chairman Mr.N.K.Singh's exhortation to pep up the GDP growth is a clarion call that can be ignored by Govt only at its own peril.

Atmanirbhar India, the PLI schemes and import bans

 

Central Govt has brought three PLI (Production Linked Incentives)schemes so far- for Electronics Manufacturing, Pharma APIs and Medical devices- in order to give a big push for Make in India as part of PM Modi's aspirational theme "Atmanirbhar India".

Under PLI scheme for Electronics mfg. 4% to 6% is the incentive on incremental sales over the base year and the scheme has three sub-categories-Mobile phone (International Cos), Mobile Phones(Domestic cos) and Specified Electronic Components Mfg. The govt recently announced 16 companies under these categories which included the likes of Samsung, Apple's Contract manufacturers Foxconn Hon Hai, Wistron, Pegatron and also Rising Star. Under the Domestic companies, Lava, Micromax etc. and under Specified Electronics components, 6 companies have been approved.Over the next 5 years, this policy initiative is expected to lead to the production of over Rs.10.5 lac cr with a likely export of over Rs.6.5 lac cr out of this, as per the Ministry of Electronics & IT. 

Minister Mr.Ravishankar Prasad, exuded optimism that the Large Scale Electronics manufacturing would become successful under this PLI scheme providing huge employment opportunities and will set the right tone for all similar Atmanirbhar India schemes.The Cos. with an investment potential of Rs.11k Cr will be the torchbearers of this ambitious scheme which will put Make in India on a high pedestal in about 5 years' time.

Govt has also come out with PLI schemes for Pharma API and medical devices, which will entail a budgetary outgo of more than Rs.12K cr over the years.Since India is overdependent on China for Drug intermediates and APIs, this incentive scheme is expected to drive investments into these sectors making India self-sufficient in the years to come.This will give a fillip to manufacture of key starting materials(KSMs), DIs, and APIs and the scheme has been prepared to deliver Rs 7K cr as incentives for greenfield projects.Since India's pharma industry is the 3rd largest in the world and 14th largest in terms of value, this scheme has been designed to enhance the industry capabilities in terms of strengthening its value chain within the country with both backward and forward linkages.

All put together the Central Govt. has identified 10 sectors including the above. The other sectors like Battery storage, Solar PV modules, Automobile and auto components, textiles, food processing, white goods, telecom, and networking components.

The main aim of the scheme is to expand the manufacturing base of India in all these high potential niche products. However there are few criticisms by industry experts in smartphone manufacturing highlighting that this PLI scheme will only lead to an increase in domestic manufacturing value and not in increasing domestic value addition. This is explained by them saying that huge component imports from countries like South Korea and Taiwan and even China will continue. Since the focus is on phones which are priced Rs.15K and above ,which are mostly exported as against domestic mass consumption phones which fall under lower price category, they fear that this may be the picture on the ground. Some have also mentioned that even with this PLI, the Smartphone mfg. will still not be cost-competitive compared to China or even Vietnam. But the Govt strategy seems to be for incentivising the manufacturing within India and also for generating employment opportunities, so that value addition increase will happen over a period of time when the scale grows bigger and reaches the critical mass.

Now in order to support the Make in India under the overarching Atmanirbhar programme, Govt has chosen to ban the import of Pneumatic tyres, Airconditoners etc. This has been done not due to protectionist policies but in order to enable the nascent manufacturing to stand on its own legs and survive the vagaries of trade. The Govt. will have to be suitably cautioned not to persist with this policy of import restrictions for long beyond 3 years, since the flip side of it is poor quality and high price to the consumers.

With the above well laid out paths for manufacturing to take firm roots in this country, and with its contribution to GDP increasing from 14% at present,India is poised to compete with countries like China in the years to come.But the journey is forecast to be uphill and strenuous. An unshackled India can emerge victorious when pushed to a corner in a crisis like the prevailing one.

New Labour codes

 

Three New Labour codes have been passed by the Indian parliament last week. Central Govt without wasting the crisis has pushed through these Industrial labour reforms. Industrial Relations Code Bill,2020; Code on Social Security Bill,2020 and Occupational Safety, Health and Working conditions Code Bill,2020. These three codes will have to be taken together with the Wages code passed in 2019 making together a grand four labour codes merging 29 Central Labour Acts. Some of these Acts like Payment of Wages Act ,Workers Compensation Act etc. belong to British times and finally, these vestiges of colonial legacy have been buried in the 21st century. This leads us to the question "Are we fully liberated from British rule?!!"

In the first bill Industrial Relations Code Bill, the Central Govt. has proposed to introduce more conditions restricting the rights of the workers to strike work, and also to increase the threshold relating to layoffs and retrenchment in any industrial establishment to 350 nos. from 100 workers at present. These are measures aimed at providing flexibility to employers in hiring and firing depending upon the business conditions without govt poking its nose into the employer's domain. It has also raised the threshold for making Industrial standing orders mandatory to 300 workers which according to detractors may result in arbitrary service conditions to employees. The most important reform is with reference to the incorporation of the number of workers in the Act itself, instead of through an executive order which has been the norm so far. This has been done after a Parliamentary Standing Committee on labour reforms scoffed at the bureaucracy wielding the power when the earlier Act used to mention that such numbers will be decided by "Appropriate Authority".

Employers are definitely the gainers in this grand bargain but this has been done without trampling on the rights of workers. The process of negotiation and reconciliation have been given prime of place in the place of intimidations and threats. Enabling fixed-term employment, reducing the influence of trade unions and the extension of social security net to gig, informal sector and platform employees also are all big positives for the employment scenario on the whole.

The labour ministry will have to come out with the set of rules for the Acts to become functional on the ground. Even though some labour rights activists are saying that the rights of workers are slowly and surely being seized from them , fair-minded employers of the 21st century will get the ease of doing business with these forward-looking and long-pending reforms.

All these amendments have been recommended by many parliament committees over the years. Now many well-meaning labor economists say that these Acts have brought the right balance between the rights and duties of employees and the employers.

IPL amidst Pandemic or is it Padnemic!!

IPL has had so far 13 editions of experience- in India, South Africa, UAE once each and UAE again now.IPL  finals have been a brutally fought match till now. Mumbai Indians have emerged winners 4 times and Chennai Super kings thrice victorious. Dhoni led Chennai Super Kings have entered finals so far 9 times in 12 finals and that is phenomenal domination. Elections drove IPL out of India once in 2009 to South Africa and now the COVID pandemic has both delayed and moved the tournament to UAE in the current year. Wikipedia says that this is the most-watched Twenty 20 tournament in the world and the second-best paying sporting league globally.(link)

What are the specialties of the IPL tournament. It has had its share of scandals, scams, match-fixing cases, betting cases (betting in a game banned in India) and even Dhoni's Chennai Super Kings had to be suspended from the tournament for 2 consecutive years. One of the IPL heads who led IPL in its formative years is an alleged economic offender and is still at large having sought asylum in UK.

The Cricket tournament has had a tumultuous journey over the years, but still attracts addicted followers and ardent cricket lovers. Of course people from the old school still dismiss it as a big tamasha and not worth watching. Die-hard traditional cricket lovers continue to blame this auctioning of cricketers as nothing but cattle sale in our village backyards and cannot digest it as an offshoot of the modern evolution of the game as a business.

But all this has not diminished the viewership of the tournament over the TV. It is one big entertainment India enjoys as a cricket frenzy nation. TVs that have seen their ad revenues dwindling due to the pandemic have been resurrected by this tournament. Even though the public is not allowed to view these matches in the stadium. the telecast has added spice by inserting the artificial crowd roar, noise, trumpeting, jingles, etc. to make TV viewing lively and energetic. Perhaps the players on the field miss these mesmerising crowd roars in Indian stadiums egging them to perform better on the field. Some of the first week games which ended in a tie spilling over to Super overs have been a great exhibition for the game of Cricket.

Pandemic has bowled a googly at the economy, but IPL has partially offset its impact on the businesses by reviving the enthusiasm and the fun-filled colorful spirit of this cricket-loving country.With festive time just around the corner, hope this mood of optimism and enthusiasm catch up with the rest of the economy also.

I hear somebody murmuring COVID evolved from bats but IPL is played with bats wielding batsmen only.Pandemic is now Padnemic!!

Agri bills and Rajya sabha commotion

 Indian Central Govt. successfully pushed  3 Farm bills through both the Houses of Parliament last week. Since the ruling NDA led by BJP has a majority in the lower house i.e Lok Sabha the passage of these bills happened without any hiccup there. But when the same bills had to be passed by the higher house i.e Rajya Sabha, where NDA has a thin majority, pandemonium reigned and all hell broke loose. But the Chairman of the house went by voice vote amidst allegations that he chose to ignore the call for division of the house.

Now the opposition is upset not by the farm bills per see but the way it was carried by the Chairman by the Upper house by not allowing them to stall this reform in the garb of discussions et al. Several Agricultural Commissions and Committees incl the Sen Committee and Dr.Swaminathan Comittee over the last 30 years, have strongly suggested on this unshackling of Agri markets across the country. This reform is long overdue. Even Congress Govt. wanted to implement this and it is in their election manifesto. But due to the reversal of roles, now Congress does not want this to be passed by Modi in order to deny him the credit for this. It is nothing but opportunism and blinded by the hatred for Modi ,UPA wants  Indian farmers to suffer.

The three reform bills passed and approved by the President are :

1)Farmers' Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020.:-This bill aims to promote barrier-free interstate and intra-state trade in agricultural produce;

2)Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Bill, 2020:- This is for allowing farmers to engage with processors, aggregators, wholesalers, large retailers and exporters directly;

3)Essential Commodities (Amendment) Bill, 2020:-to generally liberalise the regulatory environment for the farmers and to free them from the clutches of middlemen.

The twist in the tale which adds spice to the whole drama has been clearly brought out in this article by Sanjay Jha(link) when he says Dr.Man Mohan Singh went on television when UPA was ruling, to assure the farmers that by a similar action of passing the farm bills their lives would be made better and he tried to assuage their hurt feelings. When the agri reforms ordinance was promulgated in May 2020, pl. note the tone and tenor of agri economists like Prof Ashok Gulati who backed these ordinances hailing this as "the 1991 moment "for agri reforms.(link)

People who are now opposing the momentous changes to be ushered through these far-reaching farm bills are those who have vested interests in the continuation of status quo. There are many middlemen who make money and lend/give easy money to politicians try to block these bills. Many of them do not pay income tax by showing that their income is agricultural income. Now this lot is in dire straits and does not want to let go off the golden goose from their hands. By supporting these elements the opposition is revealing their colours to the public scrutiny.

With many assemble elections around the corner, politicians are trying to portray themselves as the saviour of the farmers by misleading the gullible farmers against these reforms.  By repeating a lie, that Govt will abolish MSP, they are stoking the farmers' fears and are trying to create panic and chaos among the farmers. This is despite PM Modi assuring on the floor of the Parliament that the MSP mechanism will not be revoked at any point in time in the future.

The farmers must see through these games played by the opposition parties, and understand that more choices for them to market their produce will not set them back both financially as well as socially. They should look at the stories of ITC eChoupal, Mahindra's, Amul's agri ventures, and emulate them by evolving their cooperative community farming to further their dreams in those lines.

When fruits, vegetables and milk are sold liberally without the MSP crutches, farmers must introspect and understand that MSPs help only 6% of the total agricultural output in the country.

Multiple avenues to market their farm output will only lead them to a better future!!