Daily Financial News Analysis – 24th Apr’20

Table of Contents

MNCs on Lockdown

Chief executives of leading global consumer goods companies such as Unilever, Procter & Gamble, Coca-Cola and Kimberly-Clark said India’s Covid-19 lockdown protocols had led to severe supply chain disruptions and labour shortages, hurting business in a key market.
Unilever: “In northern Italy, there was a shutdown and within four hours, we got a relaxation order for the essential goods that we make. In India, it is taking us about four or five days to get that relaxation.”

Out of 157 units owned by listed fast-moving consumer goods (FMCG) companies, 68 facilities, or 43%, are in Covid-19 red zone districts, which means no activities barring essential services are allowed as they seek to curb the outbreak.
This, in turn, has hurt smaller suppliers of products such as packaging materials and chemicals.
Once we establish our ability to operate, we then have to source materials and we have to ensure that employees can get to work.

Lockdown Exit Plan

India’s top leadership is working on a careful strategy to lift the lockdown.
Without losing the gains that have been achieved through the stringent nationwide shutdown.
Imposing a lockdown is very easy — you stop everything. Opening a lockdown is difficult.
The Centre is monitoring various challenges related to resumption of economic activities on a day-to-day and case-to-case basis.
India is in a much better position than what was predicted by our health authorities.

Jio-Facebook

How data is collected, stored and shared in India?
Two technology giants differ markedly in their stance on these issues.
Facebook has opposed the Centre’s demand that data of Indians be stored locally.
Reliance as been unequivocal that data of citizens must be controlled and owned by Indians, and not foreign corporations.
Facebook and Jio’s views also diverge sharply on the matter of providing access to private social media data to law enforcement authorities.

The Facebook-Reliance Jio deal will go to the Competition Commission of India (CCI) for approval amid concerns over control of data, privacy and net neutrality.
Experts believe that while there are areas of contradiction, mutual benefits will outweigh those.
Facebook is unlikely to change its stance on issues such as end-to-end encryption just for India and Jio, because it is a global company and its policies are standard across the globe.

Dearness Allowance (DA)

Dearness allowance is usually received by government employees and pensioners to compensate for the rising inflation.
The DA is revised twice during the year in the month of January and July.
The government, via an office memorandum dated April 23, 2020, announced its decision to put on hold the hike in dearness allowance (DA) for the year.
Central government employees and pensioners will now continue to receive DA at current rates, i.e., 17 per cent as part of their salary/pension, according to the memorandum.
The memorandum further states that no arrears will be paid from January 1, 2020 to June 30, 2021.

Saving Jobs

The government is looking at ways for companies to prevent job cuts through a range of money-saving measures such as a freeze on bonus payments, deferred increase in minimum wages, reduction in overtime payments and longer shift hours.
These changes can be implemented through notifications or amendments and could be in place for a one-year period to tide over the economic crisis arising of the Covid-19 pandemic.
The Payment of Bonus Act, 1965, provides for bonuses to be paid at 33% per annum to employees in certain establishments on the basis of profit, production or productivity.
Minimum wages for workers are revised by 8-12% every year, based on the Consumer Price Index.
The government is of the view that deferring the increments can save the extra money that employers would have shelled out.
The changes, if brought in, would apply to organised sector firms, which constitute barely 10% of the country’s 500 million workforce, although they would amount to substantial savings for employers, especially MSMEs.
Minimum tweaking of laws can send a positive signal on the government being seized of the needs of employers. It may help to keep lot of jobs alive.

TRIPS

A senior World Trade Organisation official has cautioned against countries pursuing policies of import substitution, which will be harmful to global trade.
He said there is no proposal at present to amend the global agreement on intellectual property but patents and rights over clinical trial data could be significant factors in creation and dissemination of new technologies to combat Covid-19.
Fracturing supply chains will worsen the situation because sources of supply would be reduced and more exposed to localised risks.
This assumes significance as the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) allows countries to issue compulsory license only to pharmaceuticals but does not cover reagents and medical devices.
TRIPs is considered as a major achievement of the Uruguay Round as an international trade agreement.
With TRIPs, the WTO also emerged as the institution for the protection and promotion of intellectual property globally.
Protection for rights in regard to intellectual property.
Use of this tool is limited to those circumstances where a special compulsory licence is granted not for the supply of the domestic market in country of the generic producer but exclusively for the purpose of manufacturing and exporting to developing countries with insufficient manufacturing capacities and least developed countries.
This would mean that the entire production of the Covid-19 technology would have to be exported.
The focus at present is not so much on developing new rules to respond to Covid-19 but in ensuring that the existing rules are being respected, and that supply lines remain open for essential medical products and food.