Economic pandemic disruptions and Commodities Price Risk Mechanism

 Price Risk Management fund is an important economic concept especially in emerging economies like India.

Commodity Price fluctuations especially in Oil, Rubber etc. impact the allocation of resources in countries like India. The volatility in the prices of such commodities in the international markets affect the prices in India.When the gyrations of price of movements are carried into the economy there will be steep fall and rise in the local prices, which affect the consumers  by distorting their incomes.This in turn affect the allocation of resources over the medium term and long term as depressed prices drive out further investments in Oil etc and inflated prices bring in increased investments which may become unviable after some time.

Inorder to buffer the violent fluctuations in the prices when the international prices are high govt collects Price Risk Management levy from local producers and keep it in a separate kitty and then when international prices are low give the money out of it to local producers inorder to compensate them for low prices in the market.But the tricky question is when to start this levy . For this many theories abound and my simple take is to take a medium term view of 6 months to 3 years  of the prices. When prices are below or above the median line, we should start this.

So now the levy of additional excise on petrol and diesel should be collected and used as Price risk management fund and not for immediate use for fighting Covid 19 despite huge temptations to do that.

We already have such a fund for all other commodities also -Rubber ,Cotton etc.

COVID 19- an enigma and finding a solution

Many researches around the world are frantically searching for the elusive vaccine to COVID 19. There are rumours at every corner either saying vaccine is there or never.In the morning news some scientist says there is probably no vaccine as it is like common flu or cold and 'herd immunity' is a better solution than lockdown.In the evening some scientist claims that there has been a breakthrough in finding a vaccine and till it is available everybody should be under lockdown.Next day morning another renowned medical expert asks how can you have a vaccine for 10 different mutated versions of Covid 19.Another nobel laureate says there cannot be a vaccine for lab made designer virus.Third day another pharma company claims antibody breakthrough and then fourth day another one debunks yesterday's claim and says their new medicine is a miracle cure. Finally another scientist says this pandemic is exaggerated and the mathematical models should not be considered by Govts for formulating their policy responses.The common man is dumbfounded and thoroughly confused and Govts are at their wits' end. The confused folk are now saying either let us work and earn or allow us to die in peace at our choice. To die or not to die is Govt's choice or individual's choice. But somebody is turning the old proverb on its head "Live and let others live" and saying "pl. dont die and let others die".

Few points on COVID 19 tracking  and for augmenting govt. finances that may be useful.

1)The asymptomatic out of those tested positive is around 80% based on the current statistics in India. So India should also separately track Symptomatic patients every day. This trend should be seen along with SARI, ILI(influenza like Illness) as testing is not enough in many states.

2)With ref. to economy , the Govts are in dire straits.They want money. One way to get money is to sell the Assets or pledge them and get money. Another is to hike taxes on petroleum goods,liquor and other sin goods and on people with surplus money. So, Securities Transaction Tax is an easy target. People with money are in Stock market and so even doubling STT at this point in time should not hurt anybody.Temporarily the market sentiments may be hit but once the fundamentals are back, doubling STT will yield good money for the Govt. Long term capital gain on securities which involves cumbersome calculations may be removed to compensate for this.STT is simpler to understand and easy to comply with

Administrative instructions for managing COVID 19 pandemic

How to tie down 138 cr Indians. That requires great skill and our bureaucracy has that unenviable skill in abundance. Try reading what is permitted in Red, Orange, Green zones now and try to explain it to yourself or to your wife. You will ultimately end up in knots, which made somebody to remark in Twitter to start a Ministry for Issuing clarifications to these orders.

Govt has taken a tough decision to extend the lockdown by another 2 weeks. Many now are saying incl. Infosys Narayanamurthy that now people will start dying due to hunger more than those who die due to COBID 19. It is a catch 22 situation for Govt. "Damn you do, damn you dont do". Perhaps Govt is planning a staggered exit with the relaxations announced in Orange and Green zone districts.

Some are impractical like 2 passengers in a private car with one driver in the front etc. So if you have to undertake an emergency travel what will you do with your children. Simple is dont travel.

Red zones do s and dont s are inscrutable.Better for Govts. to define Red zones in terms of Wards/streets in cities and taluks/villages instead of districts. Our districts are far and wide and even if there is one corona case some 40 kms aways, I will be penalised because the entire district is flashing red. Govt should move in that direction in couple of days time.Earlier the better.

It is barber shops, salons , gyms that have become contentious. Physical disfigurement due to COVID 19!!

COVID 19 pandemic .-some thoughts for all

some snippets about COVID 19 pandemic.

1) When bayes theorem is applied to the probability of somebody in India being infected with coronavirus then Bloomberg Quint says that it is 0.77%link as on 20th April 2020.

2) R 0 is the value which for this COVID 19 in India was anywhere between 3 to 4.5 when it started. Now according to some scientists this value has dropped to 1.36 by 20th April 2020 and is dropping.  That means that one infected person is infecting on an average about 1.36 persons only which was as high as 4/4.5 at some point of time when the pandemic reached the Indian shores in March 2020.link

3)There are several strains of COVID 19 virus and some of the strains are not as virulent as others.

4)The Wire.in carried an article which says that Scientists are saying that the probability of one not infected by disease even when the test shows positive is as high as 33.3.%link

5)Even if infected,  more than 80% are not showing any signs of discomfort due to their immunity level and out of balance 20% only 5% enter ICUs with extreme breathing distress and out of this few die to age factor and other comorbidities.

6) It is advocated that Herd immunity is one  way that the country should aspire for to come out of this pandemic. However this argument may not be okay for India where the old, the invalid and the vulnerable live side by side with others. Large families under single roof is a common phenomena in India and there is no way to segregate the elderly from the younger population for quarantining.It also flies in the face of common wisdom "prevention is better than cure".Finally some doubt whether Herd immunity for one strain will be valid for other strains of COVID 19.

7)The second wave and the third wave as it happened at the time of Spanish flu can kill more people. But I hope that by that time either medicines or vaccine will be made available. many medicines like Remdesivir, Favipiravir along with HCQ have been recommended  by doctors throughout the world.

8)Indigenous Ayurveda, Siddha medicines like Kabasura neer are also available which are recommended by AYUSH ministry as precautionary

Economic pandemic -Helicopter money, pump priming and fiscal deficit

Helicopter money(link) is a concept first used by Milton Friedman to illustrate air dropping money to the people in need directly when interest rate is zero and the economy is in recession. In modern day it is like Govt. sending subsidy money to the beneficiaries through direct transfer to their bank accounts. But it is the quantum that determines whether it is "heli drop" or simply a lollipop. It is a method by which Govt or CEntral bank monetises the fiscal deficit.Some of my friends wanted to link it to Dhoni's helicopter shot which used to send the ball for a six.

When too much of money is sent thro Heli drop, the economy can go for a six through hyper inflation later on, and other attendant problems from fiscal deficit bulge, ratings downgrade, interest rate shooting up etc. can wreck a booming economy. Fiscal deficit denotes that we are borrowing money from our children and grandchildren to run our households today.

As the famous saying goes Nothing is free in Economics.So you borrow today and spend lavishly and your children curse you and pay for it through their nose. I am hearing murmurs that already we are paying for our grandfathers' profligacy and what is wrong in pushing this to our children and grandchildren. It is not simply pushing but adding to their burden by our spendthrift policies. One cannot spend through his misery without earnings to back it up. One can only borrow in multiples of yone's earnings which one can repay in his lifetime after including the time value of money i.e interest.

Same is the case of Pump priming the economy unless it is used for building infrastructure and assets.

So the primary principle in managing fiscal deficit  which one must always remember is "This country's resources have not been bequeathed to us by our forefathers ,but borrowed from our children and grandchildren".So it is incumbent upon us not to leave them in lurch by increasing their debt repayment burden.

Inorder to cater to the kisans of the country the govt has launched several initiatives like e-NAM( link)which is the biggest online marketing place for agri produce, under PM Kisan(link) programmes. The Govt should connect all farmers through PM Kisan app linking them with e-NAMs,Kisan crop insurance, banks or kisan credit cards and finally also linking them with a nearby Govt Agricultural Institute/University for knowledge upgradation and transfer.

Few State Govt/Private  initiatives that I came across are really laudable One is e-Thottam in Tamilnadu which supplies packed Veggies and Fruits linking the vendors and the customers through its App.(link)In Maharashtra this initiative is path breaking (link)

Few tips for reviving the Economy post COVID 19

India's population is growing at an annual rate of 0.9% now and so we can safely assume , our consumption to that extent will automatically grow. There is no dearth of consumption and all FMCG and industries dependant on primary consumption commodities need not worry. Only in consumption dependant on discretionary income or disposable income will suffer in the immediate short term.

The lifestyle goods' consumption will suffer in the medium term. But in the long term it will be back as economy bounces back as it will certainly.

But we cannot just rely on the inherent strength of the economy. The Govt is expected to do its part and that too in large measure. in terms of fiscal steps. What the govt has done so far is to keep the economy alive.The Govts both Central and State Govts should be willing to forego atleast one quarter of their earnings to revive the economy, leave alone kick starting it.

If they forego one quarter earnings ,they can convert it into 1/4th of GST rates which they need to reduce straightaway.So, if the GST rate on Auto sector is 28% make it 21% straightaway. Simple and easy for Govts and people to understand.

Similarly in IT, the personal IT to be slashed by 1/4 th of the rates.

Govts can restore the original rates from next FY 21-22.

All Govt Depts including Power Discoms, NHAI etc. should pay off their liabilities, if not 100% at least 90% and hold 10% or take BG.

Govts on their part should look at indexing their user charges to inflation from next year onwards.All EB Tariffs,Royalties etc to be similarly inflation indexed.   Zero rating is anathema to increasing Tax GDP ratio. Except primary produce from land all else should bear atleast 1% GST on anything that is packed and sold.

Few interesting points about this Pandemic

So far this COVID 19 has not killed babies who are less than 9years old or atleast on its own it has not killed babies if there are no co-morbidities.see Age of Coronavirus Deaths in this link. This information on worldometers.info/coronavirus is either eye-popping or eye opening.

Is there something unique resistance substance present in these babies that produces enough antibodies to ward off the threat of Covid 19?

Some doctors have also said that the pregnant mothers even if they are infected with COVID 19 , the amniotic fluid or the baby does not get infected. There are few facts for which we do not have any convincing answer as of now.

Doctors are puzzled that for some COVID 19 patients, there are blood clots appearing suddenly, for some their blood pressure sharply goes up, for few others heart attacks get triggered and there are patients having strokes etc.etc.

The speed, the spread and the severity of the disease have confounded the best of minds and scientists along with doctors are constantly grappling with solutions to this mysterious disease.

Inscrutable are the ways of Nature or China?