India's COVID stimulus: Questions on source of finance apart, right move at the right time

Pratim Ranjan Bose

The expectation was for handouts, following precedence of rich economies like the US. The Indian government ensured that there was enough liquidity in the system to sustain short run needs and, used COVID as a plank to carry out long pending reforms to ensure all round future growth.

The primary aim of the initiative is to convert India into an attractive destination to global investor community, in the quickest possible time, with a special eye to attract a sizable share of the value chain now concentrated in China and looking for relocation opportunity.

India's Prime Minister Narendra Modi and his finance minister Nirmala Sitharaman.
Picture courtesy: The Financial Express 

Yes, the government did give handouts for the poor through a mixture of cash, MNREGA work and free foodgrains, cooking gas etc to help the rural and urban poor to mitigate the short-term crisis. Majority of it was announced under PM Garib Kalyan at the beginning of the lockdown.

Many of these benefits are further extended in the first three phases of the recent announcements by Finance Minister Nirmala Sitharaman under the Rs 20 lakh crore rescue package. In terms of value the total provisions on these heads will exceed two per cent of GDP.

The rest is all about tapping monetary policy space i.e creating finance windows for critical sectors of the economy. The larger benefits of the package lies in creating eco-system congenial to the growth of private sector enterprise and unlocking value from the inefficient or non-strategic government sectors.

Revenue source unclear

India have shown exemplary alacrity in responding to the COVID emergency; as was visible in the speed of disbursement under direct benefit transfer schemes under the Rs 1.7 lakh crore PM Garib Kalyan stimulus.  

Disbursing cash handouts is not easy. The US citizens were asked to register for COVID doles and almost each State suffered server collapse. In comparison, India operation was smooth, courtesy measures (like Jandhan, Aadhar seeding etc) undertaken in the first term of the Modi government.

With 70 per cent debt to GDP ratio and 6.5 per cent aggregate fiscal deficit (including States), Indian could barely afford cash handouts. Arindam Guha, Partner, government and services Leader, Deloitte India, is happy that the government didn’t try to emulate rich economies like the US or Japan.

However, it is not clear how the government will arrange the extra budgetary finances. Considering States are offered reform-linked-window to escalate borrowing by Rs 4.28 crore, the Centre barely has much space left for extra borrowing.

Will India go for printing money and invite its negative impacts? The finance minister didn’t clarify the revenue source in her marathon five-day presentation.

Most probably, the Centre is kept the window open as a last resort but would prefer to generate resources through disinvestments etc. It didn’t give any clarification. Because of the overall uncertainty in revenue collection.  

It may be due to these fiscal uncertainties, the government avoided making any new announcement on creation of highway infrastructure. The omission is surprising since highway construction is considered a major employment generator and GDP multiplier.

However, the government already rolled out a huge pipeline of projects under the Bharatmala scheme. Chances are it will now step up the implementation pace of such projects nefore clearing ground for fresh announcements.

A bold step indeed!

Going by the chain of events one may conclude that the Centre has taken a risk. Even if so, it’s a risk worth taken.

A surprising feature of the post-COVID world is the speed of decision making. Under normal circumstances a plant relocation decision is taken after numerous spot visits, studies, and discussions at the Central and State government levels and business level.

But nothing of this sort was noticed in recent South Korean investments in COVID test kits; or German footwear brand Von Wellx deciding to shift its production base from China to UP.

Clearly the post-COVID world has a high risk-appetite. This is also visible in Serum Institute of Pune’s decision to go ahead with production of COVID vaccine, even before the trials launched by at Oxford University are over.

Under the circumstances, India had limited options of acting fast and quickly putting its house in order or, missing the bus again. India did bite the bullet and didn’t wait for the next Parliament session to announce reform decisions.

Solid reforms

And, the reform initiatives are solid.

Take the case of marketing freedom to farmer coupled with investment in farmgate processing facility. If implemented it will pave way complete overhaul of the existing trade practices where at least 40 per cent of the horticulture production is wasted and intermediaries’ pocket 70 per cent of the value.

While progressive States like Tamil Nadu already amended the relevant legal provisions; many States would have opposed the move in the interest of the existing vested interests. Financially weak States like West Bengal were always at the forefront to block such reforms.

However, now that the initiative is tagged with the borrowing limit, States have limited choice. One good side of such forced measures is it will help remove lot of regional disparity and promote the attractiveness of India both as a market as well as investment destination. 

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(This post was published in ETVBharat in both English and Hindi)  

Pandemic package: Big day for MSMEs. But, implementation will be key

Pratim Ranjan Bose

In his speech on May 12, Prime Minister Narendra Modi made it amply clear that the government is ready to take “bold measures” to safeguard interests of local business and particularly in the MSME (Micro, small and medium enterprise) sector.

True to the promise, the finance minister Nirmala Sitharaman on Wednesday announced some big bang measures which not only aimed addressing the immediate liquidity concerns, but laid foundations for giving the sector much needed impetus for long term growth.

Source: Presentation by Finance Minister

Structural reform

It is a pity that the sector had to wait for decades for as simple a measure as changing definitions so that growth does not come as a disincentive. It was a pity that policies in the past created different classifications within the same small or micro industry for manufacturing and service sector.

The worst part was classification benchmarks were set on investment limits, while the global practice is to follow turnover limit.

All these are history now. Same benchmarks are set for all types of industries. Along with investment, turnover is introduced as additional benchmark.

And all limits are revised upwards by a few times, so much so that a Rs 99 crore turnover company can now be recognized as medium and Rs 4.9 crore turnover enterprise be referred as micro.

The importance will be felt in the years to come. A business will try to achieve higher growth. There is less need to camouflage growth by dividing total revenues under multiple companies of small balance sheets. With a bigger balance-sheet they can bid for bigger contracts and get due loan facilities from banks.

It is a structural reform and will help improve compliance.

Source: presentation by Finance Minister

Credit guarantee

The finance minister announced a multi-billion dollar credit guarantee scheme to remove all hurdles before the MSME sector - which is a major employment generator – to get bank loans to overcome the current crisis.

The Rs 3,00,000 crore worth collateral-free automatic loan by banks and NBFCs to the MSME sector is definitely one big step to address the liquidity issues and give the enterprises a fair chance to survive.

The window also has provision for emergency credit line and will be operative till October 31. Nearly 45 lakh MSMEs are eligible to get four-year loans with one year moratorium on principal repayment and capped interest, meaning there is no risk of interest rate volatility.

There is an additional Rs 20,000 crore subordinate debt-window for two lakh stressed MSMEs, which were not considered bankable under normal conditions.

This coupled with fresh three-month extension of the EPF contribution scheme should help protect many jobs in the sector.

Hand-holding the promising

The best part of this liquidity infusion announcement was Rs 50,000 Fund of Fund provision, created to ensure equity contribution in promising MSMEs, which suffered during the COVID pandemic.

The idea behind the initiative is somewhat similar to venture capital finance, except that here the aim is to ensure that such enterprises survive are able to sail through the crisis period safely and get bigger.

The provision will help create Fund or Funds, which will invest in equity – to avoid immediate repayment obligations – in promising MSME and handhold them to grow into big companies. The finance minister specifically mentioned that the fund will encourage the MSMEs, selected for support under the scheme to get listed.

No global tender

On Tuesday the Prime Minister raised the slogan of “Be vocal about local”. True to the spirit of the call, the finance minister announced that “global tenders will be disallowed in government procurement contracts, upto Rs 200 crore.”

The initiative – which is a rerun of the pre-liberalisation practices - will help create local industries and suppliers who were subjected to unfair competition from deep pocket companies, resorting to undercutting to corner all the contracts.

The intent behind the initiative is definitely good. However, the implementation will remain a question. The main worry is how the government will ensure that best quality goods are offered at competitive prices.

In the past when global tenders were not there, India witnessed growth of an inefficient set of ancillaries who survived on contracts from the State-owned enterprises without much competition. It ensures self-reliance but quality suffered.

EOM.

(This blog is reproduced in ETV Bharat) . 

How India and its neighbours are doing in fight against COVID?

Pratim Ranjan Bose 

If you are following daily updates of Prof Shamika Ravi (Twitter: @ShamikaRavi) of Brookings Institute, you must be knowing that after a successful run for several weeks, India's curve flattening effort suffered bit of a set back over last one week as the cycle of doubling confirmed cases came down from 14 day to 11 day.

Such small hiccups are expected in a long and tedious fight put up by a democracy of 137 crore that has three times the population density of China and 15 times of the US. That we restricted infection count to 53000 and death toll near 1800 tell the success vis-à-vis Europe, America and even large parts of Asia. Singapore is already facing a second and deadlier wave.

Window snip from www.covid19india.org on May 7

Having said that there is scope to question the Indian story so far. The biggest question is if we have enough testing, which is key to identification and isolation. The India set the alarm bell ringing in January and it went into lockdown in end March. The intermittent period was used in laying out the testing protocol and facilities. The process continued post lockdown period.

The Indian strategy was to step up the testing coverage as the disease spreads. This is a well laid out strategy which was followed by countries like Taiwan. On the opposite spectrum stands Vietnam who went on mass testing even before the disease had spread. For one COVID case Vietnam conducted 967 tests. The second highest, Taiwan did 150 tests for every confirmed case. As is well known only six persons died in COVID in Taiwan that took restrictive actions like closure of flights by January. Vietnam didn’t see any death so far. But it is to be seen if they can withstand the second wave, because they have gone whole hogged a bit too early.

The testing and identification data is actually not comparable as countries like Senegal went for low cost rapid tests which have low specificity when compared to the most effective RT-PCR test. Rapid tests offer ‘false-negative’ results and are used by India to understand degree of social transmission in select clusters

Source: https://ourworldindata.org/what-can-data-on-testing-tell-us-about-the-pandemic

The question is: if Indian is keeping up with the strategy? The answer is yes. We are now testing over one lakh samples a day, up by 50 times since March. The capacity is under further enhancement. But already it has pushed our testing averages by five-times in last one month. As on May 7, we are testing at the rate of 0.93 people/1000. The average was 0.71 a few days ago. In the coming weeks it will move up the ladder sharply, as we now have developed critical testing capacity. You can see details here.  

Stepping up testing average is not enough. It must beat the spread of the disease so as to contain. Are we successful on this front? The answer is visible in tests per confirmed case data also available in Ourworldindata.  As on date India is conducting 26 tests to find one COVID case. The ratio was way lower two weeks ago. It means India is successful in containing the spread of infection. The India ratio is among the best in the world. Let’s not blame it on lockdown. Because the entire world was under lockdown. After 75000 deaths, USA is still getting one COVID case in every 6 tests. Scary NO?

Source: https://ourworldindata.org/what-can-data-on-testing-tell-us-about-the-pandemic

So how did, India’s neighbours did compared to India? Pakistan (21 crore) and Bangladesh (16 crore) have 12-16% of India’s population (137 crore). But, when it comes to infections: Pakistan has almost half of India’s numbers and Bangladesh has a little less than 25%. This is indeed alarming. However, when it comes to mortality (death/total infection), both are way lower than India’s 3.4%. Bangladesh is 1.6% and Pakistan 2.4%. This is intriguing. Ideally, our death rates should be identical.  There can be three factors to it. First, could be better healthcare infrastructure, which is doubtful at least in the case of Bangladesh. Second, heard immunity. The third one is “Bengal-factor” where numbers are inconsequential. If you do not know what I mean read it 

Leaving behind death rate. The spread of infection is really alarming in these two neighbouring countries, particularly in Bangladesh which is lagging both in terms of tests/population and tests/covid case ratio. It might mean, there are too many unidentified COVID cases in Bangladesh and one doesn’t know what’s happening to them. Bengal-factor once again. Pakistan is marginally better off than Bangladesh. Their test/population is slightly better than India. But tests/COVID case (10) is less than half of India (26) and a shade better than Bangladesh (9).

It is not that Bangladesh hasn’t done anything. Except Pakistan, all countries in the neighbourhood followed Indian strategy, which is expected. In fact, Bangladesh’s performances are way better than richer SE Asian countries like Indonesia as is evident in both test/population ratio and case/test frequency. Bangladesh’s ratio’s improved over the last two weeks, indicating they are on the job. However, the gap between India and Bangladesh got wider in case/test ratio, indicating higher prevalence of the disease. This is either due to mismanagement of the lockdown or due to high population density (1115 people/sq km) compared to India’s 464/sq km and Pakistan’s 287/sq-km.

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April 2020: The month of corona controversy in Bengal

Pratim Ranjan Bose

So how did the COVID story go in West Bengal over the last month? The following screenshots collected from “COVID Tracker” (which goes by central and State official disclosures) on April 3 and May 3 give some – but not all - idea about it.

Let us start with what is not represented in COVID Tracker data. 

West Bengal was going all good in March. We all rallied round the flag in the time of crisis. Those were early days of lockdown1. The threats from the disease were more perceived than visible.

Globally, this disease affected the most thriving and hence connected societies harder. From that perspective Kolkata was safest of all metros as it is the least thriving among all #Indian metros.

The beginning of controversy

On March 31 night, the super-spreader incident pertaining to Tablighi Jamat at Nizamuddin Markaz in Delhi came to light, creating flutters across the country. One-third of Indian muslims are followers of Tabligh. Most States jumped into arresting the damage, neighbouring Assam completed the mammoth task of tracking down some 250 people and getting them tested within 24-48 hours.

West Bengal having the third largest Muslim population after J&K and Assam, there were natural fears.

Coincidentally, something strange happened in Bengal on April 2. First, a seven-member Expert Committee appointed by government announced seven[i] deaths (including four deaths during the preceding 24 hours). Till that time this committee used to issue daily bulletins.

But, April 2 had been the last time the seven-member committee met. Because, within an hour of declaring the toll as seven, the State Chief Secretary met the press and attributed only three deaths to COVID. Soon the expert committee was dismantled and replaced by five-member Death Audit committee that had listed out a detailed and lengthy set of conditions which needs to be fulfilled to attribute deaths to COVID.

Death audit controversy

Death audit is common in hospitals to ascertain the exact cause of death as a matter of medical-academic interest so as to improve the standard of treatment. It is also necessary from medical-legal perspective.

It is a very technical job and takes time. During an epidemic the medical system remains stressfully focused on treating patients. A standard death certificate mentions the immediate cause of death – which is mostly septicemia or cardiac failure etc – followed by the epidemic disease infection and other ailments that the patient was suffering from even if they do not have direct relation to the death.

During epidemic or pandemic, when people are dying in large numbers; there is barely time for going into all these. Audits do happen but with a time lag, and with an aim to identify trends. This helps create a deep-dive data pool which comes to use in realigning resource mobilization or treatment procedures. All the debates we hear from global medical fraternity on symptoms, spread of infection etc are coming from death audits.

In Bengal, however, the appointment of death audit committee was evidently associated with number game. Innocent medical terms like ‘co-morbidity’ became a matter of public interest. Official toll was rising but by ones and twos. Social media was abuzz with rumors of cremation of bodies (following COVID procedures) in larger number than the official toll.

This newspaper report[ii] captured the mood of the early days of the controversy.

Testing controversy

It is a common knowledge that India took time to step up testing which is key to fight COVID. As in March – when lockdown1 was announced – India was testing barely 2000 samples a day. The daily ICMR bulletins confirmed testing rate started rising in geometric progression sharply in beginning April 1 (4000/day). As on May 2, this daily rate increased to over 97,000. Considering India’s population, this is not enough but, definitely a distinct improvement from the past.

India’s testing rate followed a consistent upcurve since April 1. As a natural consequence the number of COVID infected started rise dramatically. In West Bengal, however, things followed a different pattern. From April 2 to April 12, official statistics had hit a slow track.

There is nothing wrong in it, except the fact that this was not matching with the anecdotal evidence shared by shared by friends/relatives/ acquaintances or on social media – all pointing at a curb on testing. Private hospitals were referring patients with cough and cold – for COVID test at designated government facilities but they were evidently reluctant to do the same.

 No one knew why it happened till an NDTV report carried version of regional ICMR virology lab that claimed sudden drop in flow of samples from roughly 80/day to 20/day for testing. Did the State put a curb on testing? There is no documentary evidence to suggest that.

But between April 1 and Aril 12, West Bengal conducted only 1864 tests at a daily average of 155/day. After the NDTV report on April 12 which was followed nationwide, West Bengal’s testing average increased.

Between April 12 and April 19, the total number of tests doubled from 2523 to 5045 at an average of 360 tests/day.  In Phase-II, from April 19 to April 25, testing increased from 5045 to 9880 at an average of 805/day. Check state-specific data in COVID Tracker and you will find the curve took sharper trend on each of these days.

Coincidentally enough, a Central Inter-ministerial team came to West Bengal on April 20, inviting huge criticism from West Bengal government.  

The data puzzle

The next big revelation came on April 24 when the State Chief Secretary announced that 57 patients with COVID died in West Bengal. The declaration came after the central team flagged concerns (see report[iii]). The official COVID death number was pegged at 18 and rest were attributed to comorbidity. Four days later on April 30, the Chief Secretary further clarified that a total of 105[iv] COVID positive patients died but only 33 died of COVID.  

Puzzling indeed but not enough. On the same day i.e April 30, the Principal Secretary - Health, Vivek Kumar, wrote a letter to the Centre in which he gave detailed break-up of the COVID positive patients in West Bengal. The numbers when added up were nearly 170 odd higher than was ever known to media. At a single stroke the total number of patients moved up from 750+ to 931[v].

Clean up drive?

What was this? Had so many deaths or infections happened overnight? No. During his press conference on April 30, (while declaring 105 deaths), Chief secretary, Rajiva Sinha, categorically mentioned that the jump must not be attributed to immediate deaths. These were cases pending for audit. There is no answer if the total number of patients also pending for audit?

The puzzle affected the count at COVID tracker. On May 3 the suddenly increased patient count without clarification. Death toll is shown at 48. This is wrong. Till April 30, 105 people died. West Bengal govt bulletin on May 1 and May 2 declared further 15 deaths. (The audit committee is dismantled so these deaths are current) The total COVID positive casualty stood at 120 till May 2.

What is happening in Bengal in last few days is probably a clean up drive and most probably it is initiated by Kumar. April had been a month of some great data puzzle. In all probability, the citizens have started getting updated information on COVID infection and death for last few days only. Lets hope the trend will continue.

With 120 dead against 931 infections, till May 2, West Bengal is national concern. The mortality rate in the State is one of the highest in the world and three times of Indian average. Despite increase in daily tests in last few weeks, the State ranks third from the end, in terms of test per million population.

It means West Bengal has a lot of catching up to do if it wants to save its people from the clutches of Corona. Lets hope that people of Bengal will not pay a huge price for all the misinformation. 

(This article is reproduced in Nationalist)  

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[i] https://www.deccanherald.com/national/east-and-northeast/four-die-of-covid-19-in-bengal-in-24-hours-total-death-toll-7-820540.html

[ii] https://www.thehindubusinessline.com/news/west-bengal-expert-panel-to-ascertain-cause-of-death-of-covid-19-positive-patients/article31273253.ece

[iii] https://www.thestatesman.com/india/bengal-revises-covid-19-death-toll-says-57-dead-39-due-co-morbidities-imct-flags-lapses-1502880497.html

[iv] https://www.indiatoday.in/india/story/bengal-registered-105-deaths-from-covid-19-not-33-new-data-reveals-1672939-2020-04-30

[v] https://www.sundayguardianlive.com/news/bengals-covid-underreporting-exposed-letter-centre