Life after Covid in India: Challenges and opportunities

Pratim Ranjan Bose

Corona virus outbreak and the resulting lock down may have a telling impact on labor-intensive tea plantation sector. They will miss first flush (March) crop and the second flush (May) may be delayed.

Disruption in crop-cycle is a risky affair and may have wider ramifications. However, COVID-19 proved beyond doubt that the world should be ready for more such disruptions, unless it takes safeguards.  

A septuagenarian tea planter from Tamil Nadu feels largescale use of artificial Intelligence-led technology can insulate the industry from such shocks in the future. The idea is to reduce dependence on labour. At stake is 11 lakh tea plantation jobs and labour-cost arbitrage-oriented business model.

Ideas like this may get a tail-wind in the post-COVID world which would look at ways to safeguard economic activities from human intervention and the risk of infection.

Lock-down taught India that ensuring movement of cargo trains is not enough to reach supplies to the user.

Rake loads of fertilizer remained stranded as the authorities either suffered from labour shortage or were afraid to of community spread of infection. It takes 500 labours to unload a rake. Such operations may henceforth be mechanized to keep the nation going during crisis.

Sectoral interests will be overblown by larger national or international interests. If the Indian planter is reluctant, his overseas buyers – consuming one-fifth of the country’s tea production of over 1300 million kgs – may force it; the way they imposed many food safety restrictions, in the past.

Nature to be priority

Leaving behind the immediate concerns of recession, economic packages, moratorium on loan payment etc; COVID may have long term impact on life and economy across the world and in India.

The repeated virus outbreaks like Ebola, SARS or COVID are not imported from some other planet.

After the cold-war era, the world focused its attention in maximizing growth opportunities created by China. The growth came at the cost of nature. Fast destruction of natural habitats, where the viruses were safely coexisting with wildlife, triggered the problem.

The post-COVID world may take a very hard look at its growth strategies.  Environmental concerns should rise. That is good news for renewable energy but; bad for mining, mineral and coal-based power sectors.

Ensuring public health will be a global priority to prevent any more pandemics. But till such concerns are removed; service trade like travel and tourism, hospitality, transport, aviation etc may face new hurdles, with added cost and revenue implications.

Impact on service trade should also impact goods trade. For example, power gears imported from China come with service obligations. In case of restrictions on travel, demand for such equipment may suffer.

Population Control

The complications are significantly high in India where service trade contributes nearly half of the GDP and, as in 2011, nearly 45 crore people migrated within India for jobs.  The living and working condition of such labour will surely attract attention post-COVID. Construction sector may face stringent restrictions.

The focus on public health and sanitation may increase the cost of labour adding economic logic to automation. The video footage of humanoid robots delivering medicines to patients at COVID-19 isolation ward in a Tiruchirappalli hospital; may be a common feature in hospitals. 

The debate over possible rise in unemployment and more pressure on agriculture; may help the government to take up the taboo subject of population control with right earnest. The disturbing images of migrant workers walking down home, hundreds of kilometres away, may act as a wake-up call.

A private member bill in this regard is now pending in Rajya Sabha.

Boost to Digital India

Parallel to the prospect of job loss and economic turbulence; COVID-19 outbreak has also opened many new opportunities.

It was fascinating to watch that an apparently simple caller-tune campaign can sensitize masses, so effectively, about the impending danger; and send a country of 130 crore indoors, with minimal use of force.

What is more fascinating is, the lockdown failed to bring the country to a complete halt. People conducted banking operations. Groceries reached home (with some disruptions). Bar on physical movement didn’t bring business operations to a halt; as people worked from home.

After a week of lock down many private schools resumed operations but on e-mode. Teachers and students attending classes in full uniform. The opportunity was created by digital technology.

A Kolkata-based enterprise which was in the business of taking out professionals for overseas conferences; is now holding similar seminars on digital platform. For now, it’s a survival strategy. But, who knows, that it wouldn’t be the trend tomorrow?

COVID helped India explore the full benefits of ‘Digital India’ campaign launched by the Prime Minister in 2015. There is high possibility that India will gear up to make best use of the facilities in the days to come.

Corporates may consider allowing a section of employees to work from home, so as to reduce both cost and social contact risks. Schools and colleges will make greater use of e-learning platforms.  More people may prefer doorstep delivery of groceries and vegetables, giving a boost to e-commerce.

A major behavioral change is underway and that will open new opportunities. 

Domestic manufacturing

Change will also rock the manufacturing sector.

Restrictions on trade were already rising. COVID might escalate it to the level, where countries like India may willy-nilly go back to the earlier formula of self-reliance, with some modifications.

In a notification, issued on March 17 – days before the lock down - the Department for Promotion of Industry and Internal Trade (DPIIT), escalated the local content requirement, on a range of electrical equipment used in electricity distribution sector.  The targets are to be met in a phase-wise manner, over the next three years.

Anand Mahindra has rightly forecasted Corona virus as a “reset button” for the world.

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(This blogpost is reproduced in ETVBharat

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Life in the time of COVID and impact on rural economy

Pratim Ranjan Bose

The day demonitisation was announced on November 8, 2016; I neglected my professional duty. The moment it was announced by Prime Minister, Narendra Modi, I jumped out and changed the Rs 500 notes in my wallet into 100s from the local cigarette-shop. I didn’t wait for the PM to complete the speech.

I did something similar on March 24, 2020, evening. As soon as the PM announced a 21-day lock-down, to check the community spread of the deadly Corona virus, I was out to raid the local cigarette shop.

I had my bottles. There were enough essentials to survive a month. Only, there were not enough cigarettes. Now that I have it (and I have a good assortment of all brands), I am content. I do not need to venture out of my house, except in emergency, till April 14 – when the lock-down is scheduled to end.

To add, I had to walk out barely 300 metres from my gated society for cigarettes. I carried hand sanitizer. Maintained distance at the shop. Back home, I sanitized the door knob and each cigarette packet. Sent my clothes to washing and took a shower. I am not here to take a chance.

The disease came calling

Call me paranoid, I don’t mind. But, we as a family, were practicing social distancing for nearly three weeks now. Those who follow me on facebook may know, I have been tracking the Corona news - then restricted to China- intensely, since January. Call it a journalist’s hunch; but I felt, its coming.

I had a different calculation in mind though. I expected the virus to make an unnoticed entry in India through either Nepal, Bangladesh or Myanmar as these countries have high level of exchanges with China.

I was most afraid of Myanmar which is closest to Wuhan, the origin of the outbreak, and has most intense relation with China. Yangon has little grip on things beyond the central region. And any outbreak there may soon reach the bordering Indian States of Manipur, Nagaland and Mizoram.

I was buying stories of containment of the disease, pedaled by China. I was a fool. I forgot that China has far more intense relationship with Europe, Middle-East, USA etc from where the disease can travel the rest of the world, much faster.

While, I was expecting the disease to make an entry in India through the backdoor, it came calling through the front door. Over 500 people are infected, majority has travel history to Europe. One person is detected positive in Manipur yesterday. The patient returned from London.

Goods trade is not culprit

 The world will take a long to asses the full impact of COVID-19 outbreak, and how such disasters can be prevented in the future. But, going by what we saw two things are clear: Geographical closeness and trade are not prime factors behind spread of the disease. Political closeness and people-to-people connect are bigger risk factors in case of an epidemic.

India and China share nearly 3500 km border and huge trade but, the disease had hit Italy faster from where it was spread in the entire Europe.

A virtually borderless existence, might have done many goods to EU but this time it helped spread COVID-19. The combined death toll of three contiguous economies - Italy, Spain and France -touched 11,000.

On the other hand, the low trust factor between densely populated South Asian countries helped limit the damage. Among South Asian countries Pakistan is most affected, followed by India and Bangladesh. But there is not incidence of cross-infection as yet.

It doesn’t mean that the future world has to be fragmented. But COVID might convince countries, to put up extra barriers on movement of people. The other alternative is creating seamless health infra and monitoring system. Whether such a system will work is a million-dollar question.

 India on war mode

But what will happen to India? Right now, it is focused in preventing a Europe like disaster. And, given the challenges, it did well so far.  The government had been on its toes for nearly two months now. During the period it did well to ramp up testing facilities manifold and preparing protocols to pool resources.

Isolation words were created right upto district levels. Plans are ready to convert government hospitals into dedicated facilities to tackle COVID outbreak. Private sector is alerted that they might have to chip in, if necessary. Issues like testing kits etc are being addressed. Top corporates like Mahindra took up the challenge of enhancing availability of ventilators etc.

But treatment is not the primary aim of the government. Firstly, because there is no treatment. And, secondly, as is evident in Europe, no amount of facility is enough to meet such emergencies. Community spread of the disease creates a situation similar to bank run. And, a Bank run can only be prevented by bringing operations to a halt.

In this case the government focused its energy in putting a check on community spread, which may have disastrous consequences in as densely populated a country as India.

Lucky timing

Assuming India wins this battle to contain spread of COVID. There are concerns on the impact of this disruption on economy particularly on the marginalized. While many are looking forward to cash-transfers etc, I am not expecting people to die out of hunger.

I am drawing my inspiration from two separate facts. First, I traveled extensively from the northern tip of Assam to Eastern UP, during demonitisation. But I failed to notice any significant distress in the rural economy. I checked mostly with farmers, mom and pop stores, small traders etc. And, 90 per cent of my respondents were Muslim.

I spoke with many rural enterprises this time too. Everyone expects the rural economy to survive the shock, provided the lockdown is not extended beyond a month. One reason behind such expectations is the timing. Rural economy normally offers reasonable employment opportunity this time of the season. Things would have been worse, had the lockdown come in July-August.

What is important therefore is to restrict the spread of the disease to the rurals, else we are really doomed – both emotionally and financially.

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Economic scene to remain uncertain in the face of dual attack of COVID-19 and crude oil-price war

Pratim Ranjan Bose

Nymex crude is selling at $23 a barrel – very close to the dip in July 1973 ($20 a bbl) and near the historic low of $17 a bbl in 1946 and 1998. Yet global markets are crashing, courtesy corona or COVID-19 outbreak. BSE sensex is down by nearly one-third in a month.

The crucial question is: Will the markets stabilize soon? The optimists may take a cue from the slowing down of new infections in China and, peg it on possible success of India in preventing community transmission of the virus, to predict better times. 

Era of uncertainty

However, such predictions are unlikely to come true, as there are definite uncertainties building up on multiple fronts – with or without COVID – which will keep global and Indian economy occupied for at least next one year, if not more.

 First and foremost, the ongoing stress on social distancing to restrict community spread of the disease may slowdown the impact of COVID for the time being, but the solution will come only with the vaccine – which is nearly two years away.

Considering that the world and Indian economy will try to get back into action mode as soon as the current spate of pandemic subsides; the virus may start spreading again and may pick another soft target, sending shockwaves to the world.

The fear factor is equal or more than the days after 9/11. And the threat of unseen enemy will force the world to take unprecedented precautions, which might trigger a set of readjustments and cost push, in trade and commerce.

Italy was almost entirely dependent on China and Wuhan in particular for its fashion industry. Will they remain as dependent on a single source? Bangladesh was importing raw materials from China and exporting to Western Europe and America. Will the model continue?

Fiscal challenges for India

  In the short run, however, there are more pressing issues to handle. Despite low fuel cost, global aviation sector is staring at collapse due to restrictions in movement. Moreover, it is not known if the post-Corona world would put fresh restrictions on movement of tourists and immigrants.

Corona will force India to step up investment in the health sector. Meanwhile decline in business will affect revenue targets both at the corporate as well as government levels. Decline in stock indices and overall gloom will impact the disinvestment targets.

It means the Centre has to prepare a war chest, as developed countries are doing. For a revenue deficit economy, it means fiscal slippage. Budget projections for 2020-21 may go haywire.

Government is (and should) try to cover that by imposing taxes on oil. But high oil price will also rob the economy some growth opportunity.

A bigger trouble may break out in the corporate and banking front. Insolvency and bankruptcy code (IBC) helped banks recover cash and trigger a change in the corporate financing model, over the last years.

Can banks pursue with the recovery activities as aggressively? Will asset sale offers find as many interested parties and as high a price? Will foreign investors keep acquiring Indian assets at the same pace? If they don’t, either corporates or banks or both, have to take hit on their balance sheets.

Add to this the recent trend of populist politics to distribute electricity at lower than cost price and you know banks are in real trouble, unless India turns it into an opportunity to unleash a set of reforms to break the stranglehold of socialist policies forever.

Geopolitical uncertainty

Meanwhile, fresh uncertainty may be brewing in the middle east. By bringing down the oil price, Saudi Arabia might have unleashed a serious economic offensive on Shia majority Iran. The equation, if true, is in the interest of the US.

Meanwhile, neither US nor Russia are on the same page with Erdogan’s Sunni-majority Turkey.  A weaker Turkey might work in the interest of both the major powers. It will help Saudi to remove any competition from the Islamic world. 

 The brighter side of this conjecture is, oil prices may remain low in the immediate run. On the flip side, low oil price will impact a host of oil economies in mid-East and Africa inviting may have wider ramifications.

There are many implications of this emerging scenario but, what is of immediate concern to India and other South Asian economies is mass retrenchment of labours. Any such fall out will impact Indian economy.

The impact will be heavier on remittance dependent economies like Bangladesh, Nepal etc. 

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This article is published in ETVBharat 

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The neglected half: Level playing field is a distant dream to India’s private coal power producers, owning 47% of generation capacity

Pratim Ranjan Bose

Over the last decade, India’s coal-based power generation capacity increased by nearly 2.5 times to 198 gigawatt (GW), courtesy an investment rush by the private sector, that now controls 47 per cent of the total coal-power capacity. The share was less than nine per cent in 2009.

Higher stakes should ensure more favourable terms for the private sector. But the reverse happened.

According to Association of Power Producers (APP), Independent power producers (IPPs) are facing the double whammy of competitive bidding both for fuel purchase and long-term electricity sales to distribution utilities (DISCOM).

In contrast, the State sector, led by NTPC, gets fuel at notified price of Coal India (CIL) and sell electricity on “cost-plus” basis to DISCOMs.

In a petition before the Delhi High Court, on February 4, APP pointed out that such discrimination is not merely against the original policy promises; but is also against the November 2018 recommendations of High-Level Empowered Committee, headed by the cabinet secretary.

 The petition was filed challenging the constitutional validity of recently held linkage auction under the Scheme for harnessing and Allocating Koyla (coal) transparently in India (SHAKTI) for utilities that didn’t have PPA. Failure to secure PPA within a stipulated time, will cost IPP the bank guarantee.

The auction witnessed lukewarm response. Of roughly 12 million tonne fuel offered by Coal India Ltd (CIL), approximately half was unsold. The rest fetched an average premium of 8.5 per cent.  But, the questions raised by APP remain valid.

Mess created by UPA

SHAKTI auction is not new and is part of the Modi government’s effort to rescue power plants which were stranded without PPAs or fuel supply agreement (FSA).

The mess was created by the UPA government that went hyper-active in attracting private investment in coal power during Between 2005 and 2007, the UPA went. The National Electricity Policy came in 2005. In 2006, Tariff Policy mandated that beginning 2011 all PPAs must be entered through tariff bidding.

In 2007, the National Coal Distribution Policy (NCDP) promised that as a monopoly CIL would meet the entire fuel requirement of power sector, on priority, at notified price. CIL was even mandated to import coal, if necessary, and blend with the domestic production.

The policy was correct in principle as it visualized level playing field in accessing fuel and competition on electricity tariff. Private investments showered based on Letter of Allotment, a preliminary promise to offer fuel. But, CIL was never ready to meet this huge expectation.

The government was aware of the mess by 2008. But instead of alerting investors and banks, they stopped holding meetings for granting LoAs. And, by 2013, they tried a face saver by bringing Presidential decree on CIL to give coal.

CIL drafted the FSA in a manner so that that the company can get away by offering barely half of the total requirement. This created different classes within gencos depending on fuel availability and the resulting impact on cost of generation.

But that’s just half of the problem. The mad rush for setting up power stations coincided with an era of scams. Some power plants came up without any assurance for coal but armed with PPAs at questionable rates.

Private sector suffers

Between 2009 and 2014, when Narendra Modi government came to power, India added 66GW (gigawatt) coal-power. Nearly half of the added capacity was stranded for want of fuel or PPA. 

With another 50GW capacity under implementation, supply was far outstripping demand, DISCOMs saw opportunity. Instead of entering long term PPAs, they focused attention on extracting better value through short term purchases.

The trend remaining same since. Over the last five years, India added a little over 50GW coal-power capacity. But only 4.5GW electricity was sold through long term PPAs entered through tariff bidding. Rest are living on short term sales.

Capacity utilisation (PLF) declined from 84 per cent in 2009-10 to 55 per cent. Ideally generators should expect higher tariff for operating at lower PLF. But over supply of coal-power and increasing supply of renewables added to their misery. Tariffs remain low across platforms. 

The crisis didn’t touch State sector as they are passing on higher operational costs on account of low utilization to the DISCOM.

Centre renegotiating PPAs?

APP alleges that while SHAKTI auctions are intended to ease pressure on IPPs, it is exploitative in nature.

The exploitation is evident in auction of linkage for IPPs who have PPA but no FSA. Here, the bidders are asked to offer discounts on tariff to get fuel. Two such auctions are already held with discounts ranging upto seven paise per kilowatt-hour (kwh) for the entire 25-year span of the plant.

In other words, the Centre forced renegotiation of legally valid contracts (PPA). In a bad precedence, some IPPs even agreed to this. APP didn’t raise the issue either in their petition.

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