OP-ED

Consolidated vol. 9
 Maggubhai Op-ed bulletin

Date – 01/07/2019

Wage growth: Even agriculture trumps the unorganised sector

Financial Express, July 04, 2019

The current discourse on economy from demand side largely revolves

around the analysis of gross domestic product (GDP) and its components,
namely consumption, government expenditure and investment. Similarly, from
supply side, it revolves around gross value added (GVA) and its components,
namely agriculture, industry and services.
An IMF working paper shows that the share of labour in the national
income in advanced economies is trending down since 1975. It reached its
lowest level (50%) before the global financial crisis of 2008 and has not
recovered significantly since then. Although reasons behind the decline in
share of labour in national income are still not well-understood, authors of this
paper state that, in advanced economies, it is attributed to the rapid advance
of technology, and the globalisation of trade and capital.
A study of the data spanning FY12-FY17 shows that of the total income
generated in the economy, nearly one-third accrues to labour and two-thirds
to capital Also, while agriculture contributed 18.2% to the total income
generated in the economy, wages in agriculture accounted only 8.4% of the
total wages in the economy and only 2.78% of the GVA during this period. This
translates into annual average wages of Rs 21,060 per agricultural labourer per
annum (assuming the number of agricultural wage earners remains the same)
which is even lower than the official poverty line.
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They’re accountable for mis-ratings
Economic Times, July 2, 2019

Moody’s India unit Icra has done right by sending managing director
Naresh Takkar on leave after Sebi forwarded an anonymous complaint on the
ratings of Infrastructure Leasing and Financial Services (IL&FS). Icra’s action
sends a strong message to other rating agencies.
Similarly, Sebi should also swiftly complete its judicial inquiry into
charges that the top management allegedly influenced ratings. But some rating
agencies alone aren’t the bad guys here. A Sebi probe on the role of auditors
and independent directors who may have been in a position to raise a red flag
to the impending default but didn’t, is in order. But to prevent a similar crisis,
the focus must be to fix the systemic problems in infrastructure financing by
strengthening the bond markets and boost corporate governance.
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Can Blockchain adoption be a silver bullet in fraud detection?

Financial Express, July 03, 2019

Blockchain involves layering transaction information in the form of a hash

block which is added to a distributed ledger that records all such transactions.
Blockchain offers features of scalability, decentralisation, transparency and
security to multiple parties. Corporate India has been fairly quick to capitalise
on this disruptive trend and the acceptance rate continues to soar.

One of the more interesting applications has been in the development of

identify management and information sharing networks that use Blockchain
based ledger to identify who has access and control on your online information,
transactions and preferences.

While the response to Blockchain has been positive, there are many
challenges. The technology itself might be secure, but the inputs remain
vulnerable. Devices that feed transaction information can be compromised by
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cyber criminals, or passwords to access and add transactions may be
inadvertently leaked or stolen by social engineering. While Blockchain adoption
may still be at a very nascent stage in India, the future remains robust and
bullish.

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Why govt is considering enhancing RBI powers

Indian Express, July 2, 2019

Recent defaults and delays in loan repayments by a section of NBFCs have

shaken the confidence in the financial markets, leading to fears that potential
solvency risks at certain companies can be contagious. Liquidity for NBFCs with
default ratings has completely dried up, creating broader challenges for
policymakers. In this backdrop, the government’s plan to consider a proposal
from the RBI seeking more powers to improve its regulatory and supervisory
mechanism for NBFCs is significant.
The RBI has conventionally adopted light-touch regulatory approach
towards NBFCs to enable them reach masses through innovative financial
products and service delivery mechanisms. More powers will enable RBI to
close regulatory gaps between banks (which are tightly regulated) and NBFCs.
The RBI has already reduced the periodicity of the NBFC supervision to 12
months from 18 months earlier.
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Credible policy options for the revival of economic growth

The Mint, July 02, 2019

In theory, a demand stimulus amid a production shortfall would only be

inflationary. However, there is excess capacity and demand can be stimulated.
The Reserve Bank of India (RBI) did the right thing by signalling a shift to an

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easing bias in its monetary policy stance as both economic growth and inflation
have undershot expectations. In these times, calls for stimulus are growing
louder. The room for a fiscal stimulus is limited. The general government deficit
is close to 9% of gross domestic product.
They can relax their fiscal deficit constraint, provided such relaxation is
deemed credible. Further, the government should agree to a similar
arrangement with RBI as it seeks a portion of the central bank’s excess capital
to be transferred to its coffers. That is, the government should agree to
earmark the excess capital returned by RBI for replenishing bank capital. Before
doing so, the government should set performance criteria for banks to be
eligible for additional capital.
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Is the world economy spiralling towards another debt crisis?

The Hindu Business Line, July 01, 2019

The spectre of unsustainable debt has returned to haunt governments

across the world. The reliance on unconventional monetary policies involved
the infusion of large volumes of cheap money into the system, to engineer
recovery. This has led to the return of private debt to levels reminiscent of the
years before the global financial crisis.
Initially, as governments borrowed to recapitalise banks and rescue
financial firms, as well as to finance a stimulus in the form of increased
spending or large tax cuts, the expectation was that the resolution of the
private debt crisis would result in a mountain of public debt.
In sum, the specific way in which the global financial crisis was sought to
be addressed keeping in mind the interests of finance, has delivered a debt
spiral, without imparting much dynamism to the world economy. There is a real
possibility of another debt meltdown.
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Making rating agencies accountable — Sebi has taken the first step, but it is
not enough

Cnbctv18, July 01, 2019

The recent spate of defaults, delayed payments and missed payments by

several large bond market borrowers has heightened the focus on the role of
credit rating agencies. To fix this, the Securities and Exchange Board of India
(Sebi) recently issued a fresh set of guidelines that among other things
increased the disclosure requirements for rating agencies. More importantly,
Sebi has introduced a concept of probability of default (PD). This is a welcome
regulation, but only the first step.
Sebi needs to take two further steps – which is a uniform interpretation
of rating categories and clawback of fees to ensure that rating agencies have
ex-post accountability for their actions to better align the interests of rating
agencies with those of investors.
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When it comes to Digital Transformation, India is building a powerful edge

The Hindu Business Line, July 01, 2019

While developed nations invest to compete at the top end of innovation,

India is choosing to do things a little differently and in the process creating the
playbook for digital at scale and real time on ground impact. As the nation
celebrates Digital India, we are well poised for the next level. As per a study by
Assocham and PWC India, in less than four years from now, digital payments
will more than double itself.
The India Digital Transformation narrative must find a special mention of
the 43 billion dollar e-commerce industry. While leveraging social media, AI-
driven tools, chatbots, immersive media and the digital payments ecosystem,
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this segment has changed buyer behavior beyond recognition. Even remote
locations have not been left untouched. Online retail may well rival electricity
in market penetration in New India.
If India has to become the processing hub for the world, we have to focus
on growing capabilities, R&D like never before and create the right
transformational policy framework that allows us to build competitive
advantage across the entire data value chain — from creation to processing to
impact. But above all, we have to ensure we grow the new way of thinking,
that’s fuelled with aspiration, hope, confidence, courage and urgency
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Oil prices ease as demand worries counter supply cuts

Business Standard, July 2, 2019

Oil prices drifted lower on Tuesday, as weak global data raised concerns
about future demand for the commodity despite a positive boost from OPEC's
decision to extend supply cuts until next March. The Organization of the
Petroleum Exporting Countries (OPEC) agreed on Monday to extend oil supply
cuts until March 2020 as the group's members overcame their differences in
order to try to prop up the price of crude.
The weaker PMI prints killed sentiment overnight, and the market
started to factor in the realm of the unknown around shale (oil), so (investors)
were worried about the fear of oversupply in the face of weaker demand.
However, the decision to extend production curbs would continue to support
oil prices, as OPEC looked to maintain market equilibrium.
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Measuring GDP: Confusion worse confounded

The Hindu Business Line, July 01, 2019

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 A recent paper by Arvind Subramanian has once again racked up the
issue of India’s GDP estimation methodology as well as the databases used. In
his paper, first Arvind computes the correlations between GDP growth and 17
‘real’ indicators for the two periods 2001-2011 and 2012-18 and shows how
these correlations have changed from one period to another giving rise to a
prima facie ground for doubting the estimates of growth.
First of all, the impact of the revision in the GDP methodology was on
levels and in nominal terms and the growth rates are by-product of these
levels. There were also definitional changes that resulted in rise in the share of
manufacturing by about 4 percentage points while the share of Trade, hotels &
restaurant declined.
Further, with the change of databases used as well as due to change in
the rates and ratios (especially with the use of results of NSSO’s
Unincorporated Enterprise Survey) used for estimation of unorganised sector’s
contribution, there are difficulties in comparing the estimates of 2011-12
series with that of old series
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YV Reddy’s broader message: India is too big to be governed directly by the

Centre

Economic Times, Jul 01, 2019

YV Reddy is an Indian institution in his own right, a man who has served
with integrity and wisdom in almost every area of the state and central
government. Sometimes the message is conveyed through a pithy statement,
though sugar-coated with humour. Sometimes the message is conveyed in long
form.
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Defaults aplenty: What is ailing India's NBFC sector?

Economic Times, Jul 01, 2019

India's shadow banks are in the midst of a crippling liquidity squeeze that
threatens to balloon into a full-blown crisis. These lenders have been under
pressure since last year, when a series of defaults by IL&FS forced the
government to intervene and exposed weaknesses in the sector. Other lenders
like Dewan Housing Finance and Reliance Capital are struggling. Here is a close
look at what is troubling the NBFCs.

One, NBFCs play a critical role in ensuring availability of loans.

Two, Short-term repayments of NBFCs have spiked of late.

Three, Some NBFCs have been running a large asset-liability mismatch.

Four, Debt paper of these NBFCs were downgraded in the past one year.

Five, Asset quality of NBFCs has deteriorated in recent years.

Six, Loan book growth for few NBFCs has moderated.

Seven, Several NBFC shares have taken a severe beating.

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Disinvestment: Massive mop-up via ETF planned

Financial Express, July 1, 2019

With tax receipts likely to face a shortfall, the Centre is likely to scale up
disinvestment programme for the current financial year to all-time high level of
over Rs 1 lakh crore from the Interim Budget level of Rs 90,000 crore. A spate of
ETF (exchange-traded fund) issues and a couple of PSU-to-PSU deals is likely to
be the mainstay of the disinvestment programme in FY20. Other routes such as

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buybacks by PSUs, strategic sales of a clutch of relatively smaller companies
and listing of several firms could also be explored. According to sources, after
the failed attempt last year, the government will shortly invite expressions of
interest (EoIs) from prospective buyers for debt-laden Air India with an
objective to conclude the transaction by October-November.
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