Daily Financial News Analysis – 4th May’20

Table of Contents

Great Indian Lockdown and demand for roti, kapda aur makaan

When lockdown finally does lift, how do you think people will change their behaviour?
The rich will want to protect their lives.
The poor will make every effort to renew their livelihoods.
The ongoing pandemic will also impact people’s demands for goods and services.
Demand of health goods to fight the virus — from face-masks and test-kits to hospital beds and ventilators – will go up.
Many will temporarily stop buying all kinds of inessential durable goods — from small-ticket items like clothes, shoes and beauty products, to big-ticket items like white goods, cars and apartments.
And then there will be necessities — foodstuff, hygiene products, medicines, cellphone talk-times — whose demands will not change much.
While policymakers have recognised that Covid-19 will cause a general demand reduction in the country, the change in demand composition has not been adequately emphasised.
There are 450 million informal sector workers in India, with more than 30 million workers in the garments industry, 11 million street vendors, 10 million construction workers, seven million artisans and six million domestic workers.
It may be safe to say that due to Covid-19, at least 100 million informal workers will confront vanishing demand.
The act of ‘un-lockdowning’ the nation by itself will not make much economic difference to these people.
To help them — and other unskilled labourers — survive the pandemic, we will need to give them direct transfers in cash or kind, and/or include them in food-for-work programmes.
Regarding the latter, we will be smart to leverage the fact that the pandemic is generating new demands for health goods — personal protective equipment (PPE) and face-masks — and for new public works programmes, such as expansion of quarantine and treatment centres.
The government must look to recruit unemployed labourers — especially garment and construction workers — for these jobs.
Daily truck movements have reportedly gone down by 90%, while 700 freight trains have been stuck holding in essential goods loaded on to them before March 25.
The agricultural sector will suffer greatly if farmers, having harvested their rabi crops, find it hard to market them.
The obverse problem will befall many manufacturers who have willing buyers — like producers of Covid-19 test-kits — but are unable to maintain input supply chains needed to expand production.
In the ‘life vs livelihood trade-off’ in India, judicious relaxation of the lockdown will be a proactive step towards renewing the livelihoods of many.

Locust are coming soon

As the world battles the Covid-19 pandemic, another threat swarms over Kenya, Somalia, Ethiopia, Iran, Pakistan and India — a second wave of desert locusts.
It could seriously maim agricultural production and food insecurity in the affected countries.
Together with the Covid-19 pandemic, the locust outbreak has the potential to present untold economic and human hardship.
India is one of the few countries in the world with the capacity, in terms of producing the relevant pesticides and the skill to apply those chemicals in the disciplined manner needed to kill the locust hordes.
India must deploy that capability, starting with east Africa.
88% of the 168,548 hectares of affected farmland in Rajasthan and Gujarat witnessed a severe crop loss of more than 33%.
However, the impact was contained due to effective use of pesticides and prompt action led by the Crop Care Federation of India.
This second wave is projected to be 20 times stronger than the first one in January-February — the United Nations estimates that size of the second wave would be around 1.9 trillion locusts.

Lockdown impact

A significant majority — 65% of firms expected a substantial hit to revenues of about 40% in the April-June quarter, found the survey of 300 CEOs, conducted by the Confederation of Indian Industry (CII).
As many as 45% of the 300 firms surveyed expected a protracted economic recovery of over a year before things go back to normal.
Among the many reasons for the declining trend, a majority of firms at 74.8% cited the complete shutdown of operations and just over half or 53.1% cited a lack of demand.
Other major reasons included disruptions in supply and distribution chains and lack of credit, manpower and raw materials.
At this hour, the industry awaits a stimulus package for economic revival and livelihood sustenance besides calibrated exit from lockdown.
According to the survey, a large proportion of firms felt domestic demand would recover quicker than export demand.
While 36.9% of firms saw domestic demand touching normal levels within a year, 41% of firms expected demand for export order to resume normalcy after a year.

COVID-19 impact

Only 222 mw of solar capacity and 25 mw of wind capacity was installed in March as activities came to a halt following the Covid-19 outbreak, and installation would remain slow for another two months, said industry.
Construction work began to slow down around the first week of February.
Immediately after the extension of the Chinese New Year holiday, problems cropped up.
In February, only 62 mw of wind projects and 370 mw of solar projects were installed, said Ministry of New and Renewable Energy (MNRE) officials.
An MNRE official said the trend of low installation is expected to continue for another two months.
The biggest challenge going ahead for the next two or three months will be movement of trucks and labour across states because of different zone classifications within the country.
Chinese manufacturing hubs have commenced operations.
Wind and solar installation is expected to gain momentum by June.

FDI

As India normalises economic activity after the world’s strictest lockdown, there is much potential to boost foreign direct investment (FDI) and shore up investments across the board.
Multinational companies are looking to diversify their supply chains away from China; and our corporate tax rate of 17.01%, inclusive of all cess and surcharges, for new companies is globally competitive.
The Centre and states must act to quickly coagulate funds on the ground.
Right now, India is not in a position to bear any part of the relocation costs, nor are other countries that would compete to host relocated plants.
It makes more sense to invest in infrastructure that would both boost domestic growth and make India attractive for locating industry, including reliable quality power.
Speedy, single-window clearances and transparency are key to stepping up FDI.
In tandem, what’s crucial is modern arm’s length finance for long-gestation infrastructural projects and an active corporate bond market to efficiently raise resources.
India must work with the US and others to adhere to the Blue Dot Network norms for infrastructure.
The Delhi Mumbai Industrial Corridor (DMIC) mega-region can well lead India’s economic integration with global supply chains.
There’s also the pressing need to improve India’s place in the global Ease of Doing Business rankings; and best practices for boosting investments need to be bench-marked nationally.
Note that although India’s Doing Business 2020 ranking has improved to 63, it remains a lowly 136 for ‘starting a business’; it is far lower for ‘registering property’.

Employer-friendly apprenticeship

India is planning to strengthen its apprenticeship framework via measures including introduction of new courses to cater to the needs of multinational companies looking at relocating part of their manufacturing to the country.
The skill development and entrepreneurship ministry has received multiple queries from firms abroad on apprenticeship norms in India as they scout for new destinations under their ‘one plus one strategy’ of having at least one manufacturing facility outside China.
Many of these queries are from companies in the US and EU for sectors such as textiles, homeware, ceramic tiles, engineering goods and furniture.
The government wants to make its apprenticeship system on a par with the best in the world.
This will help India create more job opportunities for millions of its youths, besides ensuring that a more trained workforce is available for ramping up domestic production for key sectors like electronics where India has huge dependence on China.