Vijay Kumar Gaba: Covid

Showing posts with label Covid. Show all posts

Thursday, October 19, 2023

Winds of change

In the past 6 years, several significant events have occurred that would shape the new global order in the next decade or two. I would particularly like to mention the following ten events that in my view could potentially prove to be transformative for the global order:

1. Incorporation of the Belt and Road Initiative (BRI) into the Constitution of the Chinese Communist Party. (2017)

2. Abolition of time limits, allowing Xi Jinping to remain General Secretary of the Chinese Communist Party and chairman of the Central Military Commission for life. (2018) (After winning an overwhelming majority in the 2020 elections, Russian President Vladimir Putin is also eligible to stay in office until 2036.)

3. The Exit of the UK from the common European market (the EU) (2017-2020); and the elevation of the first non-white person (Rishi Sunak) to the office of Prime Minister of the UK in 2022.

4. The beginning of the latest round of trade war between the US and China. (2018)

5. The tariff war between the EU and US. (2018)

6. The outbreak of the COVID-19 pandemic, allegedly from a laboratory in Wuhan province of China, and consequent breakdown of global supply chains. (2020)

7. Exit of the US forces from Afghanistan, handing over the regime to the Taliban (2021)

8. Invasion of Ukraine by Russia and subsequent economic sanctions on Russia. (2022)

9. Signing of a strategic partnership agreement between China and Saudi Arabia (2022)

10. Massive attack on Israeli civilians by Hamas and subsequent retaliation by Israeli defense forces killing thousands in Palestinian territory in the Gaza Strip. The attack divided the world with Western allies extending support to Israel and Russia, China, and Arab League nations uniting in support of Palestine. (2023)

I feel that each of the above-stated events, along with many other events occurring simultaneously, has added to the momentum of change in the global order that had been in existence since the early 1970s.

It may still be early days to project how the new world order would look like. Nonetheless, it seems reasonable to assume that the global economy may get a significant impetus from the rebalancing. The realignment of trade balances; localization of manufacturing; redistribution of population; and renewed focus on finding/developing new materials, technologies, and methods to promote sustainability may usher in a new industrial revolution.

Notwithstanding the labor pain that the transition would inevitably entail, the new world order would be much better, as has always been the case.

I think young investors need to evaluate the recent events and their likely impact on their investment strategies. I would be happy to share my thoughts on these events in the coming weeks.

Wednesday, April 19, 2023

In crisis – strong leadership is what would matter the most

The global financial crisis in 2008 and the unprecedented quantitative easing that followed it triggered a debate over sustainability of the USD as global reserve currency. The simultaneous fiscal crisis in peripheral Europe, especially in Greece, also created doubts over the sustainability of the European Union with a common currency. The debate subsided materially over the next one decade, as the US Federal Reserve (Fed) and Government initiated a corrective action to taper the monetary stimulus and balance the fiscal account. The situation in Europe also improved as the troubled economies of Greece, Italy, Portugal, Iceland, Spain etc. stabilized due to the combined efforts of the European central Bank (ECB), IMF and respective national governments. The European economy even endured the BREXIT rather calmly.

The onset of Pandemic in early 2020 however undid most of the corrective actions undertaken by the central banks, multilateral agencies and governments. The US Government and Fed unleashed a much larger stimulus, substantially expanding the Fed balance sheet and fiscal deficit; while many major economies, especially the emerging economies, managed the situation in a much more calibrated manner.

Notwithstanding the fiscal and monetary profligacy of the Fed and US government, the USD has endured its strength relative to most emerging market currencies. The broken supply chains across the world due to the pandemic led to severe shortages of everything leading to very high inflation worldwide. The suffering in most emerging economies due to inflation created a sentiment against US dominance on the global economy.

A strong US economic response to the Russian aggression in Ukraine since early 2022, including freezing USD assets of many Russian businesses, further exacerbated this sentiment. Russia and its allies like China and Iran; and major trade partners like India have shown interest in development of a non-USD trading mechanism. The traditional US allies like Saudi Arabia, Mexico, Brazil and even France have raised questions on continuing US dominance over global economic order, besides showing interest in non-USD trading mechanism.

Though the details of a non-USD global trade mechanism are still sketchy, the debate is intense. Maybe like many previous occasions, this debate would also subside as inflation peaks out; US Fed and government embark on a credible course correction; Russia withdraws its forces from Ukraine and a sense of normalcy returns to the Sino-US trade relations.

Or maybe over the course of next decade, we shall see the emergence of a neutral currency that may act as the medium of exchange for international trade not involving the US or its close allies, while the trade with the US continues to be done in using USD.

Or maybe we shall see multiple trade blocks using non-USD currencies to settle trades within their respective blocks; while using USD or some other acceptable currency for trades outside their block.

All these conjectures are presently predicated on the premise that the US as a global power is declining in terms of its technological edge; financial strength and geopolitical supremacy. There is evidence of economies like China and India gaining technological edge; and the US losing its geopolitical supremacy. In the past one decade, both India and China have shown remarkable progress in digitization of their economies and space program to back faster and superior digitization. The complete failure of the US led alliance in resolving Russia-Ukraine conflict; China bringing Saudi Arabia and Iran closer; and Afghan Taliban pursuing a foreign policy independent from the US and its ally Pakistan influence are some signs of declining US geopolitical supremacy. It however remains to be seen if this decline is structural or is just a reflection of poor confidence of the global community in the present US leadership.

I posses no competence to comment on sustainability of the USD as global reserve currency for long. Therefore, it would be preposterous on my part to speak about impact on the global economy, should USD lose its only “global currency” status. Nonetheless, I must say that this will be a major global event, no less than a world war. And in a war like situation strong leadership is what matters the most.

Thursday, September 15, 2022

Goldilocks India

In a recent research report, Goldman Sachs estimated that “energy bills will peak early next year at c.€500/month for a typical European family, implying a c.200% increase vs. 2021. For Europe as a whole, this implies a c.€2 tn surge in bills, or c.15% of GDP.” The bank believes that repercussions of this “will be even deeper than the 1970s oil crisis.” Obviously, a problem of the magnitude would require an impactful policy intervention that could have wider and deeper implications for decades to come.

The policy interventions could involve partial suspension of free market mechanism; rationing of energy consumption; fiscal subsidies; deferment of climate goals and increased use of coal and/or accelerated shift to renewable sources of energy etc. Besides, there could be serious geopolitical implications also.

In another interesting paper, McKinsey & Co, outlines how inflation may be flipping the global economic script. In the paper McKinsey’s experts have examined many of the strategic implications of inflation. The key points highlighted in the paper could be summarized as follows:

· In the past six months, inflation has far exceeded December 2021 expectations. In many countries, actual rates have doubled projections. European countries are particularly affected. Asia is seeing a less severe change: Indian inflation is about 7 percent, only a bit above projections; and South Korea is at 5 percent. In China and Japan, inflation remains muted.

· In response to inflation’s alarming rise, central banks worldwide are raising their core bank lending rates. So far, however, rate raises in most countries have not matched the pace of inflation. The rising rates are expected to ease demand and lower prices for two critical components of headline inflation: housing and commodities such as energy and metals.

· The lift-off in fertilizer prices, supply chain snags, drought, along with other fallout from the war in Ukraine, has pushed prices for basic foods much higher. Since 2021, food prices have risen to their highest level since the United Nations’ Food & Agriculture Office began its index. Prices today are considerably higher than in past surges in 2008 and 2011.

· As economies stabilized and reflated post Covid, real wages began to creep higher again. But rampant inflation checked that growth, rising so fast that it has diminished the purchasing power of people’s take-home pay. For example, workers in the United Kingdom today have seen their real compensation fall by roughly 8 percent year-on-year.

· As prices soar, and show few signs of abating, the risk is that inflation becomes entrenched and central banks will have to raise rates more assertively to slow demand. The growth may slow down much more than previously estimated.

The global economy is therefore entering a prolonged phase of correction and realignment. For many these corrections may be extremely painful, while for some it could provide an opportunity to enhance their position in the global order. India, being one of the least impacted countries in this global turmoil, hopefully would fall in the latter group. Amen!

Wednesday, June 8, 2022

ASHA – A ray of hope

A recent media report highlighted remarkable reduction in the infant mortality rate (IMR) of India. India’s IMR improved from 47 in2010 to just 28 in 2022, bringing it closer to the global average of 27. (see here)

Much contrary to the popular perception, India achieved one of the best Covid vaccination rates in the world. As per the latest available data close to two billion doses of Covid vaccines have been administered, defying all the logistic challenges.

These are just two success stories from India’s public health sector. Recognizing these remarkable achievements, the World Health Organization (WHO) recently honored more than a million Asha Workers of India for their commendable public service, especially during the pandemic.

It is rather unfortunate that not much of the urban population is even aware of the existence of Asha (the frontline health workers). Many mistake Asha workers for Aanganwadi workers. Even though millions have “liked” the pictures of Asha workers administering Covid vaccines to people in remote places, sometimes walking for many kilometers, not many seem to have bothered to learn more about them.

ASHA stands for “Accredited Social Health Activists” – “community volunteers” engaged under the National Rural Health Mission (NRHM). The designated Asha worker is the first port of call for any health related demands of deprived sections of the rural population, especially women and children, who find it difficult to access health services. These workers create awareness on health and its social determinants; mobilize the community towards local health planning; promote good health practices; and provide a minimum package of curative care. (learn more)

‘Stories of Change”, a report published by the NITI Aayog, in collaboration with Center for Social Behaviour Change (Ashoka University), highlighted some of the brilliant stories of changes that are happening in the hinterlands, away from media headlines and social media gossips.

These are the real stories that reinforce faith in the bright future of India; much more than a startup with virtually no business model (or even any real revenue) raising a few million dollars at a billion dollar valuation to get “unicorn” status. These stories explain what a small but brilliant innovation could bring meaningful change to many lives.

In my numerous travels across the length and breadth of the country, I can certainly vouch that these true stories are not only inspirational, but also deeply insightful. These stories highlight an original Indian model of frugal innovation and entrepreneurship – the Gandhian model of Swaraj (self-reliance with dignity).

The following is a gist of three simple stories from hinterlands, reproduced from the cited report “Story of Change”, highlighting how small simple solutions can handle complex problems.

PARI – (A pilot program for Diarrhea management in Bihar

Pari (fairy), a plastic inflatable doll with two openings, one at the top and the other at the bottom, is used to educate villagers about diarrhea that kills many children every year. A frontline health worker (FLW) pours water into the top inlet to inflate the doll to show what a healthy baby looks like. Then she releases the water by opening the outlet at the bottom, which deflates the doll to demonstrate what diarrhea does to the body: causes dehydration. When the FLW plugs the second opening and pours ORS into the doll, the water does not leak out. She explains that in order to solve the problem, it needs to be ensured that the outlet at the bottom has been plugged. When the child is administered ORS and zinc supplements, it acts as a plug to the bottom outlet thereby retaining vital fluids that can be absorbed by the body.

Pari has been used in Bihar for over two years across eight districts. In 2018, the Government of Bihar committed funds to scale up Pari to all 38 districts of Bihar. Results showed that among women exposed to Pari, appropriate knowledge of diarrhea management was three times higher and the use of ORS and zinc was almost two times higher than women not exposed.

Mobile Kunji (Guide) – Aid for awareness on family planning, pregnancy and child care

Mobile Kunji is a multi-media job aid (Kunji means key or guide in Hindi) designed for use by FLWs when they counsel families. It has two components: a deck of colour-coded cards with illustrations and related key messages for each stage of pregnancy or post natal care, and an audio component accessed via mobile phone. Each card carries a unique, seven-digit number or mobile short code that the FLW dials from her mobile phone, playing a piece of pre-recorded audio content for the family she is visiting. The audio content is delivered in the voice of a fictional doctor character, Dr. Anita, who brings credibility along with her great and very localised bedside manner. Moblle Kunji helps standardise the FLWs' dellvery or the key messages, reducing inconsistency and significantly improving interpersonal communication.

Evidence shows that conversations between FLWs and families last twice as long when Mobile Kunji is used,and families trust FLWs who use Mobile Kunji more than those who do not.

Kilkari – Mobile health update for mother and the child

Kilkari (Hindi for a baby's gurgle) delivers weekly, time-sensitive audio information about reproductive, maternal, newborn and child health (RMNCH) directly to families’ mobile phones, from the fourth month of pregnancy until a child is a year old.It aims to improve families' knowledge and uptake of life-saving preventative health practices. Kilkari supplements the counselling visits that FLWs make, by providing a regular and more consistent source of timely, relevant information for families, reaching families that are otherwise left out, and addressing issues that FLWs hesitate to discuss. As of March 2019, Kilkari had reached almost 10 million users across 13 states in the country. Subscribers cited Kilkari as a private, comprehensive, credible source of information on family planning and the service contributed to building health equity by conveying information to women in marginalised communities, whom ASHAs may not visit.

Wednesday, May 11, 2022

Now or never

If we have to list the reasons for the loss of growth momentum in our economy in the past decade or so, the following three would be amongst the top reasons:

1. Credit euphoria preceding the global financial crisis and the subsequent meltdown

The credit euphoria preceding the global financial crisis and the subsequent meltdown severely damaged India’s financial system. The banking system was crippled with enormous amount of bad assets; many key infrastructure projects were either abandoned or suffered inordinate delays; employment generation capabilities were impaired; private savings began to decline structurally; and overall investments also slowed down.

It has taken almost a decade for the Indian banking system to clean its books and return to the path of growth, stability and profitability. Private savings and investments though still have a lot to catch up.

2. Disruption through policy changes without adequate mitigation strategy

At least two major policy decisions were taken in the past decade that disrupted the status quo materially, viz., demonetization of high denomination currency notes constituting over 80% of the currency in circulation; and implementation of nationwide Goods and Services Tax that subsumed a number of indirect taxes. These two changes had a significant impact on the unorganized segment of the economy. Numerous cottage, marginal and small enterprises that were outside the main industrial value chain of the economy lost out to their larger organized peers. It was almost a repeat of the 1991 liberalization that made many protected and patronized businesses unviable. Incidentally, no lessons were drawn from the painful transition during the 1990s.

The structure of the Indian economy has changed significantly since the early 1990s when the first round of transformative economic reforms was implemented. The share of agriculture & allied services has reduced from over 33% in 1990-91 to less than 17% now; whereas the share of industry has grown from 24% in 1990-91 to over 28% and the share of services has grown from 43% to 55%. However, unlike the economic transitions in the now developed economies, our planners have failed to ensure a proper transition of agriculture labor to the industry and services.

The public sector that was a major employment provider to urban labor started to downsize post economic crisis in 1998-99. The share of industry in the economy did not improve much in the past two decades. With technological advancement the employment elasticity of industrial growth also diminished materially. The task of employment generation for unskilled and semi-skilled labor was thus left mostly to the construction sector. As this sector suffered the most in the post GFC meltdown, it was for the unorganized cottage and marginal enterprises to support the lower middle class and poor households. The decision to implement demonetization and GST had no explicit provision to support this sector.

Consequently, the reliance of the poor and lower middle class on fiscal support (food, health, education, travel etc.) has increased materially impacting private consumption and overall growth.

3. Disruptions due to the pandemic

The outbreak of global pandemic (Covid-19) in early 2020, disrupted the economic activity world over. Most of the countries were locked. The global supply chains were disrupted. The labor displacements and travel restrictions have been debilitating. The process of normalization is continuing, but it is far from complete.

Domestic economy witnessed huge displacement and reverse migration of labor; loss of livelihood for millions; loss of opportunity for millions as digital apartheid pushed them out from the education and skill building ecosystem; rise in wealth and income inequality; and lower productivity due to restrictions. Besides, the broken supply chains ensured higher inflation in almost everything.

Arguably, all these reasons are transient in nature and the economy should be able to revert to the path of stable growth in due course. However, the two key considerations here are – (i) How fast could we complete the transition to the new order; and (ii) how could we minimize the damage to the socio-economic structure of the country. The more we delay completing the transition, the deeper and wider the pain will spread. And if we fail to take mitigating steps to minimize the pain, the damage to the growth ecosystem could be structural, impeding the growth efforts for decades.

Also, this must be understood in the context of the fast maturing demographic profile (see Gorillas in the Room) and worsening inequalities (see Economy – Uneven recovery to pre-pandemic levels, accelerators missing).

Thursday, March 10, 2022

Is gold losing luster?

In the decade of 2000s (2001 to 2010), gold gave superlative returns. The prices of yellow metal increased 3.8x (in USD terms) for the decade. This return had however come on the back of the negative returns for two successive decades (1981-1990 and 1991-2000). In the last decade (2011-2020) the precious metal yielded a return of 39%.

Traditionally it was believed that during periods of high inflation, geopolitical uncertainties, war, money debasement (due to quantitative easing or hyperinflation) etc. gold is a preferred refuge. However, this safe haven status of gold appears to have diminished in the latest episode of high global inflation, unprecedented quantitative easing, and geopolitical uncertainties.

The shortages of goods and skilled workers are troubling the global economy. Unprecedented borrowing and printing of currencies by the US Federal Reserve, Bank of Japan, and European Central Bank has eroded peoples’ trust in official currencies to some extent. As per the conventional wisdom, the situation is quite ripe for a super bull market in Gold. However, so far gold has not witnessed any extraordinary interest. Rather, independent digital assets (popularly known as cryptocurrencies and NFTs) have mushroomed world over to fill the trust vacuum. The new age investors have even preferred equities to hedge against debt and inflation rather than gold.

So far, the movement in gold appears to be driven more by technical trade rather than any fear psychosis, refuge seeking or hedging against risk of large scale war, hyperinflation, or money debasement due to excessive and/or unsustainable debt.

Despite the massive volatility in the exchange rate of Russian Ruble, Shutdown of Russian markets, sanctions on many large Russian global energy corporations, and freezing of billions of dollars in Russian foreign assets, the gold is higher by -11% YTD 2022 in international markets. This is in sharp contrast to the crisis in peripheral Europe (Greece, Iceland, Portugal) in 2011. The prospective default of Greece was less than US$50bn, but gold had spiked more than 30% higher in 2011.

The opinion of market participants is vertically divided on the prospects of an imminent gold bull market similar to the 1970s and 2000s. But I would like to draw attention of the readers to following points:

· Gold traditionally been a refuge in the periods of crisis, but in recent years the preference for gold has been diminishing.

· During the decade of 1970s (1971-1980), significant turmoil was witnessed in the global economy. That was perhaps the best decade ever for gold prices. The gold prices recorded an increase of 9x in that decade. But most of that increase came in the last two years of the decade when global crude prices witnessed a sharp increase. In the following two years (1981-1982) the gold gave up 2/3^rd of these gains.

· During the decade of 2000s (2001-2010) the gold prices increased 3.8x as the world struggled with an unprecedented financial crisis. But most of the gains came in last two years of the decade (2009-2010); and almost the entire crisis time gains were given up in the next five years. Again the rise in gold prices coincided with the sharp spurt in oil prices.

· Gold has gained about 39% in the decade of 2010s (2011-2020). But ~75% of the gains have come in just 9 months of 2020 when the world was shut down due to the pandemic.

· The Gold has lost ~11% in the current decade.

· The gold has shown strong correlation with the oil prices; though correlation with USD and Copper has weakened in recent years. Given the global trend towards clean energy, it is possible that the relevance of gold as a safe haven also diminishes with the use of fossil fuels.

Thus, it could be reasonably assumed that gold continues to be one of the safe havens but much less volatility. The risk reward profile of gold is definitely worsening with the time.

I continue to maintain my stance on Gold. In my view, a new global order will definitely emerge out of the pandemic and subsequent geopolitical events. The new order will address sustainability and equity issues. Gold will not be a key component of the new order. USD may retain its dominance but it shall face serious challenges from other currencies, including the digital currencies.

You may read in detail here:

Gold is not the end game

Bretton Wood is not about Gold

Friday, April 30, 2021

Join or fly out!

Once upon a time a sparrow couple made their nest in a wheat farm. In few days, lady sparrow laid four eggs. In two weeks eggs were fully hatched and four chicks were born. In the meantime, the wheat stems had started growing tall. In another two weeks, the chicks started to fledge and the wheat kernels began to turn golden. This was the day when parent sparrows first discussed about leaving their nest and move somewhere else.

“The crop will be soon ready for the harvest. Our nest shall be exposed and trampled by the harvesters”, the lady sparrow feared. Her companion however was not worried as yet. “Nothing to worry as yet”, he assured her.

In another three weeks, the farm turned completely golden with wheat completely ripe to harvest. The lady sparrow was terribly worried now. “We must fly out now. The chicks have also grown up now and can easily fly to the woods behind the hill”, she argued with her companion. “Nothing to worry as yet. We have plenty of food here. Let chicks eat god and become strong”, the companion remained nonchalant.

In couple of days, the farmer came to the farm with his wife. He looked at the ripe crop with pride and said, “we shall now call my brothers and begin harvesting the crop from tomorrow”. They soon left the farm. The lady sparrow was terribly frightened now. ‘We must fly out right now”, she coaxed his companion and chicks. “Nothing to worry for now”, the companion quipped playing with the chicks.

After couple of days, the farmer again came to the farm with his wife. “My brothers are all thankless and selfish”, he said annoyingly. I would help them whenever they need, but they have refused to help me in harvesting. I shall now call all my neighbors and begin harvesting from tomorrow. “I beg you please let’s fly out now”, the lady sparrow pleaded with the family. The children had become strong and comfortable in the farm by now. “Not yet”. The companion reiterated. The children agreed.

One week passed, nothing happened. One day the farmer and his wife again came to the farm. He saw that the wheat kernels were beginning to wither now. The golden crop had developed many black spots. “We live in a world full of selfish and thankless people. We cannot count on anyone for help”, he said furiously to his wife. “Let’s buy our own tools and begin harvesting ourselves from tomorrow”, the farmer said resolutely. “Hey guys let’s get ready, it’s time to fly out”, the sparrow told his companion and children, with a sense of urgency. “What happened now” the lady asked. “Farmer has realized that no one helps those who do not help themselves”. He will definitely come tomorrow and begin harvesting, the companion bird explained.

From my exposure to ground realities, I can confidently say, “common people have now realized that government and administration can help them only if they are willing to help themselves”. I believe that the anguish and annoyance of people is fast turning into self-help enterprise. Numerous community enterprise have sprung up everywhere to help those suffering from pandemic. Help has started to pour from every corner of the world. Indubitably, there is cynicism towards apathy of the politicians and administration. However, one can see signs of this cynicism abating slowly or transforming into resolve to fight it out.

For politicians and administrators it may the time to join the fighting enterprise of common people or fly out as soon as possible.