Daily Financial News Analysis – 12th May’20

Table of Contents

Bold Reforms

India has so far had the most inflexible labour market regulations.
This has hindered
1. Large scale investments
2. Productivity and enhancement
3. Technology absorption
4. High employment growth
This has been the main reason why our enterprises have remained small in size and scale, leading to high informal employment.
Our migrant crisis is a consequence of laws that protected workers and not jobs, adversely impacting economies of scale and ensuring rampant informalisation.
These inflexible laws hampered the ability of an enterprise to respond to changing business dynamics.
The good thing about the new initiative is that all clauses related to minimum wages, the number of hours, safety and security measures have been kept fully functional.
Those related to child and bonded labour will also remain applicable.
Another important feature that states must ensure is that terminated employees must get 45 days’ worth of salary for every year of work, as has been done in the case of Gujarat for SEZs.
It has to be kept in mind that large companies investing in India prefer a predictable and consistent policy regime for a long period and would not like to be surprised by the labour laws getting operational after a period of three years.
In order to bring size and scale to manufacturing, there is a need to remove the permission clause for retrenchment, layoff and closure for all new units and increase the threshold for seeking permission for existing units from 100 to 1,000 workers.
We should work towards a progressive, forward looking, new labour regime that will provide impetus to investment and job creation.
The other key area where states have accelerated the reform process is in agriculture, a sector that was crying out for transformation.
Punjab broke the state monopoly by reframing the Agriculture Produce Marketing Committee Act and Rules to allow private-owned markets and permit out-of-mandi transactions between farmers and consumers.
This has been followed by MP’s ordinance to totally free farm-produce markets.
Next, UP – a state highly dependent on agriculture – amended the five-decade-old Krishi Utpadan Mandi Adhiniyam by giving farmers total freedom to sell directly from their homes.
Warehouses and cold storages have been designated as mandis and fruits and vegetables have been taken out of their purview.
Similar provisions of granting deemed mandi status to warehouses and cold storages have been undertaken in Telangana, Andhra Pradesh, and Uttarakhand.
Farmer Producer Organisations have been allowed in most of the states to deal directly in the electronic National Agriculture Market (e-NAM).
All these reforms break the monopoly of middlemen who are rampant in agriculture and have been highly exploitative of farmers.
In the agriculture sector they need to support small land holders through contract farming.
India’s land holdings are extremely small (86% of land holdings are less than 2 hectares).
Indian farmers, therefore, suffer due to lack of size and scale, technology, seeds, and fertiliser inputs and are unable to take market risks.
States, therefore, need to implement the Model Contract Farming Act, 2018.
As recommended by the 15th Finance Commission, states also need to implement the Agriculture Land Leasing Act for agricultural and allied activities, as has recently been done by UP, MP and Karnataka.
Covid-19 has created a severe dilemma of lives and livelihoods for governments and citizens.
A nationwide One Nation One Ration Card must become a reality enabling a migrant worker to get his ration from any fair price shop in India.
States need to introduce a series of reforms in the electricity sector – 100% smart metering; granting of subsidies only through direct benefit transfer; privatisation of discoms by way of sub-licensing and franchise models; and reduction in cross subsidy to ensure cost reflective tariff.

PM-CMs

PM Narendra Modi on Monday impressed upon chief ministers the need to resume economic activities.
PM asked them to submit individual blueprints by May 15.
He also told them that resumption of train services on select routes was necessary to “rev up” economic activity even as he took note of the reservations expressed by some CMs on this count.
PM told the chief ministers that this time they will have to take the call on whether they want only containment areas or entire red zone districts shut for economic activity.
Two-fold challenge: to reduce the transmission rate of the disease, and to increase public activities gradually while adhering to all the guidelines.
Modi earlier told the CMs that the country had been largely successful in curbing the spread of the coronavirus, but cautioned that extra care had to be taken now to prevent its spread to villages with millions of migrant labourers returning home.
“We also have to ensure that rural India remains free from this crisis,” he said.
CM Jaganmohan Reddy said there was a need to restore normalcy and create awareness among people that 95% of Covid-19 patients are being cured.

Getting Back to Office

Slowly but surely, India Inc is getting back to its offices.
Some companies have already started calling back one third of their staff – the maximum strength allowed in red zones.
Several others are taking a more calibrated approach, five per cent or fewer employees in offices to begin with.
State-owned Power Finance Corp has resumed office work with 20% employees.
Tata Consultancy Services, which had created a 95% WFH environment for its global workforce, has less than 1% of its employees currently at the offices opened in India so far.
Tech Mahindra: transforming our workplace to a ‘touch-free’ environment.

WFH

India’s information technology sector is seeking revisions in the country’s taxation and labour laws.
India: 4.3 million IT work force.
India’s IT industry contributes 8% to the country’s gross domestic product and has a 46% share in the country’s services exports.
Over half the workforce in the industry could begin to deliver services remotely as part of the changes being wrought by the ongoing pandemic.
Nasscom is currently reviewing labour laws from the WFH perspective and will be sending a report to the government by next week.

TReDS

Trade Receivables Discounting System (TReDS)
TReDS is a platform on which large buyers, small companies and banks enrol, small companies list their invoices, large companies on which the invoices are raised authenticate them and banks take over the receivables from the small companies, paying them the invoice amount less a discount that reflects the creditworthiness of the large buyer.