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Presents
April 2022 Vol 5 Issue 8
Our Best Read : ‘FinTech - Disrupting finance with Technology’ Special Mention – ‘SPACS and the Fault in the Indian Stars’
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INDEX
S. No.
Article
Page No.
1
FinTech – Disrupting finance with Technology
3
2
SPACS and the Fault in the Indian Stars
8
3
Credit Rating Process and Methodology
11
4
Metanomics: The Metaverse Economy
16
5
War in the World’s Breadbasket: Prospects Facing the Indian Farmer
19
6
Impact of AI on the Global Economy
23
7
Use of Blockchain Technology for better price discovery in OTC Markets
25
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FinTech – Disrupting finance with Technology By: Harshit Agarwal (Xavier Institute of Management Bhubaneswar)
Financial technology is the application of technology and innovation in the delivery of financial services to compete with traditional financial methods. It is a new industry that makes utilization of technology to enhance financial transactions. Smartphones used for mobile banking, investing, and borrowing is examples of technologies that increase standards of technologies to increase means of technologies aimed at increasing public access to financial services. Financial institutions, Startups, and technology firms are attempting to replace or enhance the use of financial services provided by existing financial institutions. Investment, insurance, trading, banking services, and risk management have been automated using financial technology.
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Globally, the number of unbanked people has decreased in recent years. There were 2.5 billion unbanked people on the planet in 2010. By 2014, the figure had fallen to 2 billion. According to the World Bank, 1.7 billion adults worldwide do not have access to a bank account or a mobile money provider. As the world abandons cash in favor of an e-commerce-first mentality, these groups risk becoming financially marginalized. The vast majorities are from low-income families and work in low-wage, informal jobs or are unemployed. Retail, manufacturing, finance, hospitality, and other sectors were able to adapt to the increasing speed of technology with the commencement of the Digital India campaign in 2015. Traditional small businesses and micro, small, and medium-sized enterprises (MSMEs) have slowly transitioned to digital infrastructure, resulting in enhanced efficiency and simplicity of doing business. Digital payments grew at a compound annual growth rate (CAGR) of 61 percent in volume and 19 percent in value between 2014 and 2019, according to India's Reserve Bank of India (RBI). This number has increased dramatically since the Covid 19 period. The benefits of fintech were more materialized during the Pandemic through the "Pradhan Mantri Gareeb Kalyan Anna Yojana," under which 800 million people were fed through Direct Benefit Transfer, as announced by our honorable Finance Minister on the Budget Day. Furthermore, during the launch of the e-Rupi voucher, the prime minister remarked that it would play a vital part in making DBT more effective in digital transactions in the country and give a new dimension to digital governance. More targeted, transparent, and leak-free delivery will benefit everyone. e-RUPI, he said, is a symbol of India's success in adopting technology into people's lives. Indian banks have distributed 230 million debit cards to facilitate electronic payments in addition to JDY deposits. A new cadre of village-level bank agents who previously assisted with account opening can now receive deposits, transfer remittances, and make payments in remote locations where bank branches are unreachable. Fintech can increase economic growth while boosting business and innovation through financial inclusion. Digital finance would add $3.7 trillion to emerging economies' GDP in the years running up to 2025, according to a recent McKinsey Global Institute analysis. The most significant impediment to weaning rural customers away from traditional banking services, for example, has been a lack of documents. However, AePS (Aadhaar-enabled Payment System) has aided in resolving this issue. Rural citizens can now use their biometric ID and Aadhaar card to conduct basic transactions such as deposits and withdrawals at AePS Kendras. Rural citizens can now use their biometric ID and Aadhaar to complete basic transactions such as deposits and withdrawals at AePS Kendras. Covid-19 and the subsequent lockdown have raised awareness of the need for digital financial services in rural households – daily wage workers, low-
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income farmers, and small businesses – and encouraged them to use digital payments daily.
Source: www.google.com
Fintech-driven innovation influences critical parts of the capital markets value chain, from capital sourcing to data and analytics services. The first is capital access, followed by crowdfunding platforms and bond issuances. Another aspect is trade execution. Fintech has resulted in cost savings and improved trading security, benefiting end-users. The third category is post-trade services. Investment in distributed ledger technologies is growing in India and the global markets. Thanks to evolving regulatory and know-your-customer (KYC) services, participants can now access KYC information in real-time. More automation has also resulted in increased security. Data and analytics investments are assisting in developing new techniques for mining and interpreting data to its full potential. Life cycle management, data and analytics, and value-added services are the top four areas where Fintech must focus on adding value. First, it must oversee the process of tracking and analyzing how customers and prospects interact with an organization through various available channels. Second, it must choose network platforms where connectivity is monetized through direct links between parties that banks mediate. As a result, the capital market's value chain dynamics have shifted. The third technology is robotic process automation (RPA). Software robots are being used to replicate human-like tasks without disrupting existing processes. RPA reduces costs, increases productivity and quality, and optimizes analytics. The fourth technology is blockchain. By creating richer data sets, universal data sources, and distributed records, distributed ledgers have the potential to alter the critical activities of financial markets. Clearing and settlement is an essential back-office operation that can be cut from three days to just a few minutes.
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Because their businesses are primarily based on digital processes, fintech companies typically have a carbon footprint advantage over incumbents. Digital transformation is critical for financial institutions. Firstly, you get rid of paper, and then you get rid of branches. Processes become less cost-intensive, margins increase, and it becomes more sustainable. However, regardless of your company's size, you can still work on decarbonizing your operations and lowering your environmental footprint. To compensate for any remaining carbon emissions, carbon offsets can be acquired. There could be efforts to install wind turbines to replace fossil fuels, give developing countries cleaner-burning cooking stoves to minimize deforestation or encourage the development of trees. Apart from lowering your carbon footprint, one can help companies in their supply chain track that impacts sustainability where data is a key driver. Finally, fintech firms have long been at the forefront of financial services innovation, and climate fintech is no exception. As a fintech company, you have a unique opportunity to create long-term financial solutions that address climate issues at both the consumer and national levels. Fintech has helped create a new space for the financial sector worldwide. It has proposed several solutions to the challenges and problems people frequently encounter during financial transactions. Businesses utilize predictive intelligence and big data technologies to provide more personalized services to their customers. Big Data aids in analyzing data and making critical decisions. It is also used in bond and security trading. Big Data aids in analyzing data and making crucial decisions. Innovative technology guides customers in selecting the appropriate products/services. It also protects clients' personal information and the financial assets of Fintech companies. Thus, Fintech has rapidly penetrated the financial market by filling the gaps left by traditional financial institutions and significantly improving the customer experience.
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Source: Statista
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SPACS and the Fault in the Indian Stars By: Vanshika Sharma (Grant Thornton) Raising money through an IPO has many benefits; however, slower execution, red-tapism and high costs, can make this process cumbersome for companies. Is there a way to raise funds and reduce the complications of IPO? Yes, the solution is SPACS (Special Purpose Acquisition Companies) A SPAC has no commercial operation. Wait, what? If a company does not have any commercial operations, how can it ask public to invest in it? Well, a SPAC can because it is a shell corporation which is formed strictly for the purpose of acquiring or merging with existing companies. For a SPAC, the IPO is already done. It is already listed on the exchange. The target company (the firm which it will acquire) is unknown at the time of IPO. SPACs IPO investors do not have any idea about the company in which they will be investing. SPACs have only 2 years to complete the acquisition or they have to return the funds back to the investors. Though this may sound riskier from an investor’s point of view, it reduces risk for target firms as they can go public within 3-4 months (The traditional IPO process can take 6-12 months to complete). Target companies also benefit from experienced management and enhanced market visibility as SPACs are sponsored by prominent financiers and business executives. SPACS have witnessed a dramatic growth since the advent of the pandemic, especially in the US. (Refer to the following table by SPAC Analytics highlighting the change in total number of SPAC IPOs and Total Value of SPAC IPOs in the last 9 years in the US).
SPAC deals in India are at a nascent stage. SPACs are increasingly looking to India for acquisition targets. StoneBridge Acquisition Corp, a SPAC which is focused on acquiring Indian companies, has raised INR 1,400 crore through IPO. Renew power, Yatra Online Inc., Videocon d2h are a few Indian companies that went public on NASDAQ through SPACs.
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SPAC is comparatively easy option to get listed on the stock exchange for startups as compared to the traditional IPO. India has more than 62,000+ DPIIT recognized startups as of 2021. So why aren’t they taking advantage of SPACS? Well, the fault lies in the Indian Regulation. It is difficult to form an Indian SPAC. Why? It takes a SPAC maximum of 2 years to identify a target and perform due-diligence; however, the Companies Act 2013 authorizes the Registrar of Companies to strike-off the name of companies that do not begin operation within one year of the firm's incorporation. The absence of operational profits and net tangible assets further prevent SPACs from issuing an IPO in India. According to SEBI, a public listed company requires net tangible assets of at least INR 3 crore in the preceding three years, minimum average consolidated pre-tax operating profits of INR 15 crore during any three of last five years and net worth of at least INR 1 crore in each of the last three years. Well, if SPACs cannot be formed in India, Indian companies can get listed on foreign stock exchanges like Renew Power and Yatra. So why aren’t they? Well, the problem here lies for the target company acquired by SPAC. The target or the acquired company loses its legal identity and becomes a branch of the SPAC, which is a foreign entity. This is problem because the foreign branch is subjected to a 40% corporate tax rate as against the normal rate of 30% (or lower, depending upon the domestic company). The company then has to pay higher tax in the same region in which it was operating earlier, which makes raising money through foreign SPACs difficult for MSME and startups. Even if some corporations can afford the 40% tax rate. The Problem then lies for SPAC Investors: Investors in the US can redeem their shares and claim a refund of the amount they have invested until the acquisition of a target by the SPAC. However, in India, redemption of shares of a listed company may or may not be allowed due to the absence of specific legal provisions for SPACS. Therefore, the shares of the SPAC shall then have to be exchange traded. The value of which may fall or rise substantially, exposing retail investors to risk. Fortunately, SEBI has formed a committee of experts to examine the suitability and feasibility of introducing SPAC regulations in India. This might augment the prospects of domestic listing of start-ups in the country. India’s IPO market is sizable and mature; hence SPACs have the potential to succeed in the Indian landscape. Let us hope that the review committee takes a step in the direction of growth and prosperity of the country.
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Sources: 1. https://www.thehindubusinessline.com/business-laws/regulatory-challenges-for-spacs-inindia/article34124252.ece 2. https://www.grantthornton.in/globalassets/1.-memberfirms/india/assets/pdfs/grantthornton_spac_services_india.pdf 3. https://cbcl.nliu.ac.in/taxation/tax-implications-on-spac-to-spac-or-not-to-spac/ 4. https://www.ey.com/en_in/ipo/going-the-spac-route-keyconsiderations#:~:text=From%20a%20shareholders'%20perspective%2C%20on,tax%20e xemption%20under%20the%20treaty). 5. https://www.business-standard.com/article/markets/spacs-look-to-india-for-next-wave-ofacquisition-targets-says-nomura-121030400295_1.html 6. https://economictimes.indiatimes.com/markets/ipos/fpos/india-focused-spac-raises-200million-lists-on-nasdaq/articleshow/84553468.cms?from=mdr
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Credit Rating Process and Methodology By: Dimple Agrawal (Institute of Management Studies, Indore) What is a credit rating? Credit rating is an alphanumeric symbol that provides the opinion about the safety and creditworthiness of an entity or an instrument. It gives a comprehensive picture of the risk associated with the financial instrument or the issuer, taking into consideration the past performances, present projects and future prospects. Credit rating agencies use both qualitative and quantitative data in analysing and evaluating the creditworthiness of borrowers.
Credit Evaluation Processes
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Credit Rating Methodology The rating methodology is categorized under four sections viz., Industry Risk Assessment, Business Risk Assessment, Financial Risk Assessment and Management Risk Assessment.
A.
Industry Risk,
Industry Risk Assessment: the industry in which a firm is operating is assessed. The riskiness of an industry is governed by following factors: Growth Prospects: Here the growth of an industry is assessed considering the aspects of sustainability of long-term growth and sources of volatility. Cyclicality: Cyclical industries fortune are depended on shift in economy and commodity prices, because of difficulty in predicting timing and severity of downturn. Thus, the stable demand and realization patterns industries are preferred over firms in cyclic industries. Intensity: The more the intense competition the less the revenues and profits. Thus, the industry competitiveness is assessed which is generally by factors like nature of product or service, production capacity, low entry and high exit barriers.
A.
Business Risk,
The entity’s own business position remains one of the primary drivers of credit risk. Following are the factors of such risk: Relative Scale: The rating agency evaluate scale of an industry with relation to competitors in market which can be on the basis of revenues, asset base, net worth or capital. Competitive Position: Here the competitive position is analyzed on the basis of brand, distribution network, location, customer relations & technology. Diversification: It is an effective way to deal with cash flow volatility & possible disruptions. Here the diversification of customer, geographic, product and supplier concentration are considered. Operating Efficiency: The rating agency assess this by elements of variable cost and fixed cost of a firm. Project Risks: Here the risk of project is ascertained by understanding entity’s rationale for undertaking new investments.
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A.
Financial Risk,
The various financial metrics assessed by a rating agency could be divided into four categories viz., Profitability, Leverage, Coverage and Liquidity. Profitability: Measure of earnings generated by an entity by analyzing an entity’s ratios of operating profit margin, net profit margin and return on capital employed. Leverage: It is a measure of entity’s dependence on borrowed funds. It is analyzed by the ratios of gearing, total indebtedness ratio, debt to profit ratio and accruals to debt ratio. Coverage: It is a measure of an entity’s debt servicing ability. It is measured by interest coverage ratio and debt service coverage ratio. Liquidity and Cash flows: It is a measure of entity’s ability to meet short term cash obligations from internal and external resources. It is measured by current ratio, gross cash conversion cycle, working capital cycle and working capital intensity.
A.
Management Risk,
Rating Agency incorporate an assessment of the quality of the rated entity’s management, the financial policies and the governance practices. Quality of Management; and Financial Policies: Rating company undertakes discussions with the rated entity’s management to understand its views on past performance as well as its future plans and strategies. The points assessed here are promoter’s experience, commitment, risk appetite, policies on leveraging, and also management’s plan on new projects. Governance practices: A sound corporate governance structure attempts to make clear the distinction of power and responsibilities between the Board of Directors and the management. The rating agency assess qualitative understanding of entity to follow transparent and credible practices.
Credit Rating Example Care Rating Limited: Credit Rating of Mahindra & Mahindra Limited as on August 3, 2021 About: incorporated in 1945, Mahindra & Mahindra Limited (M&M) is the flagship company of the Mahindra group. M&M enjoys a dominant position in its leading business segments. It is the largest tractor company in India with a market share of 38.2% in tractor segment in India in FY20. Instrument Type Rating Complexity Indicator Fund-based - LT-Cash Credit Long-term CARE AAA; Stable Simple Fund-based - LT-Term Loan Long-term CARE AAA; Stable Simple
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Key Rating Indicators: Financial Indicators
FY20
Total operating income
44,865.52 44,574.44
PBILDT
6,350.56
6,976.57
PAT
739.71
922.94
Overall gearing (times)
0.12
0.26
Interest coverage (times) 51.00
FY21
17.33
Credit Strengths:
Strong Market Position: M&M has held leadership position in tractor segment over the past 38 years; with a market share of 38.2% in FY21. Its market share in the UV segment declined in FY21 to 14.7% due to new launches being made in the UV segment over the past couple of years. Experienced management: M&M have strong competent management team of a long track record in the industry, has ensured strong corporate governance practices and a prudent approach to management. Stability in the operating performance: Diversification in the revenue across auto and farm has helped the company to maintain stability in its operating performance despite challenges. The company reported 17.4% growth in exports due to good monsoons, and the farm machinery segment reported 45% revenue growth. Financial risk profile: M&M had robust debt coverage indicators marked by overall gearing, although deterioration in the debt coverage indicators was due to higher debt availed to shore up liquidity. Strong Liquidity: M&M had cash and cash equivalents and current investments of Rs.10,691.31 crore as on March 31, 2021 and its fund based working capital limits are largely unutilized. Also, cash profit of Rs.6,900 crore expected to be earned in FY22. The liquidity profile is expected to remain strong despite the planned capex and investments.
Credit Challenges:
Auto business prone to macro-economic factors: The variation in revenues is seen in CV business of M&M, i.e., highly correlated with economic cycles; although passenger vehicles are more stable in comparison. M&M has been adversely impacted by the significant increase in competition especially in the UV segment. CARE Ratings believes new models launch will help company boost, over long term. Exposure to group companies: The company follow approach towards investment in companies yielding at-least 18% Return on Equity. Also, it has guided for investment of Rs.1,500 crore in auto and farm companies and Rs.3,500 crore in other group companies over FY22-FY24, which will require monitoring.
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Outlook: The ratings assigned to the bank facilities of M&M reflect its dominant market position in the Indian Tractor industry and Light Commercial Vehicles segment. The ratings also favorably factor its strong financial risk profile driven by low leverage, strong debt coverage indicators and high financial flexibility supported by superior liquidity position, with cost control measures being undertaken. The Company is also exposed to risks on account of investments in subsidiaries.
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Metanomics: The Metaverse Economy By: Kalpesh Khandare & Namita Bhatt (Symbiosis Institute of Management Studies, Pune) How Non-Fungible Tokens Aid Societal Development in an exquisite Virtual World A typical metaverse day could soon mirror the world we know and adore with a shared immersive virtual reality experience. We will visit shopping malls, drive across town, meet friends in cafés, and share contacts in ways that feel frighteningly authentic, thanks to considerable advances in virtual reality and 5G connectivity. For decades, metaverses have existed in the form of multiplayer internet games. Nevertheless, we may soon reach an era of immersive experiences that are almost indistinguishable from reality, spawning new kinds of engagement for both gamers and non-gamers. Individuals settling the land, socializing socially, transferring products, and asserting ownership rights are already seen in prototype next-generation metaverses like Decentraland and Somnium Space. A functioning economy is required in any civilization (physical or virtual). The economy is based on digital possessions such as one's metaverse home, automobile, farm, books, clothing, and furniture being authenticated in the metaverse. To prosper also requires the ability to freely travel and trade between realms with different laws and norms. The backbone of the metaverse economy will be non-fungible tokens, which are blockchain-based records of digital ownership that allow for the authentication of possessions, property, and even identity because each NFT is protected by a cryptographic key that cannot be erased, duplicated, or destroyed. It enables metaverse communities to succeed and interact by allowing for decentralized and robust authentication of one's virtual identity and digital commodities. The value of NFTs may lie in allowing the metaverse to grow the seeds of an actual human civilization based on open marketplaces (for products, services, and ideas), autonomous ownership, and social contracts rather than the glamour of multimillion-dollar digital art auctions. "Initially, NFTs focused on the digital art side of things. But it'll be a lot more powerful," adds Crypto.com's COO, Eric Anziani. "In the future, it will be the tool that depicts any digital asset in virtual environments." As a result, the possibilities are endless." Development of real estate in a brave new world Decentraland is home to people speaking by fountains, shoppers in fashion boutiques, joggers on seaside promenades, and casino croupiers attracting customers to high-stakes poker. These encounters occur as a result of virtual real estate development by individuals who have purchased land and constructed ecosystems that have attracted the curiosity of other Decentraland inhabitants.
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The experience is far from hyper-realistic (the designers of Decentraland claim that the planet is still in the "Iron Age"). Even in these early incarnations, though, the promise is evident. People flock to intriguing areas in the metaverse, just as they do in actual societies. And, much as in Paris or Beverly Hills, fame automatically raises the value of the virtual estate. An adjacency of land is a fundamental economic notion in Decentraland and other metaverses. Within limited geography, all metaverse parcels are contiguous at a fixed point. Scarcity is caused by the limited supply of property. Scarcity also permits property prices to rise and fall in accordance with universal supply and demand norms. According to the Decentraland manifesto, a foundation is constructed for "a social experience with an economy powered by the existing layers of land ownership and content distribution." The property transactions that power the metaverse are made possible by NFTs. These tokens give irrefutable ownership proof that is more secure than any land deed. "You simply cannot spoof metaverse property rights because of the way smart contracts are written and NFTs are programmed," Anziani explains. "You are aware that you possess an asset and can establish complete ownership." You can then assert ownership rights based on the rules and circumstances of that virtual environment." Property for sale in London, New York, or Tokyo The ramifications of this real estate revolution are already being felt strongly. Republic Realm, a digital property investment fund, paid almost $900,000 for a plot of land in Decentraland in June. The site is being turned into a virtual mall named Metajuku, modelled after Tokyo's Harajuku area, by Republic Realm, controlled by the investment fund Republic. It won't be long until real estate investment trusts (REITs) start sniffing out possibilities in the metaverse based on these behaviours. Property values rise and fall in tandem with the economy, expanding in Decentraland. When its developers launched their virtual world in 2017, this is precisely what they had in mind. According to the metaverse's manifesto, "Decentraland's value proposition to application developers is that they may fully capitalize on the economic interactions between their programs and users." "The platform must facilitate the trading of three things: cash, products, and services" to enable those economic connections. One of the first sectors to see the commercial potential of NFTs and the metaverse was fashion. Burberry designed NFT items for the Blankos Block Party video game, while Louis Vuitton released LOUIS THE GAME, its own NFT-studded video game. Meanwhile, RTFKT – the metaverse's bespoke shoemaker – creates limited-edition NFT sneakers that can be worn in virtual worlds and have already sold for millions of dollars.
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With so much momentum in the metaverse's Iron Age, the virtual world's economic model - based on NFT technology – promises enormous economies of scale. "Only five months ago, there were 100 million crypto users worldwide." "We now have over 200 million users," adds Anziani. "We strongly believe that metaverses – the combination of virtual worlds with blockchain technology – particularly NFTs – will be the next wave to go to a billion or two billion."
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War in the World’s Breadbasket: Prospects Facing the Indian Farmer By: Ashish Ranjan (The Aryan International School, Varanasi) When Vladimir Putin launched his ruinous invasion of the border state of Ukraine on February 24th, food markets were already at their least stable in 32 years. The Food and Agriculture Organization’s Food-Price Index (FFPI) had hit an all-time high of 140.7 by then, while the global food inflation maintained a double-digit streak at over 20%. While Covid and the subsequent severe supply crunch claim credit for much, two other factors, namely climate, and conflict, also play a role. On the one hand, increasingly common climate-driven famines have, for instance, pushed over 1.3mn Malagasy people to the cusp of crisis. On the other, 500,000 poor residents of northern Ethiopia suffer critical food insecurity as a direct consequence of a roller-coaster civil war. Under such dire circumstances, by-product opportunities have also emerged, particularly for the farmers of India.
The United Nation’s World Food Programme estimates that an unprecedented 283mn people across 80 countries are now acutely food-insecure. The figure, which counts those surviving on so little nutrition that their lives or livelihoods are in jeopardy, has roughly doubled in the last two years. Many of these live in regions such as sub-Saharan Africa, where 40% of the consumer-price basket comprises food. Already, they face surviving on grain stocks a third below the five-year average.
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How exposed to the war is the food market? Russia and Ukraine account for 29% of wheat sales internationally, standing as the largest and fifth-largest exporters of the widely-consumed grain. Prices of wheat have surged 35% since Russia attacked Ukraine in February, over and above the prior increase of 49% in the 2017-21 average. Economists demonstrate the massive impact of this dominance in the fact that the two warring nations supply 86% of Egypt’s wheat imports or over half of the 21mn tonnes its population needs every year. Russia and Ukraine also export 12% of all global calorie trade through a considerable supply of oilseeds, barley, corn, and especially sunflower oil. Further, Russia, along with Belarus, produces 38% of the world’s potash. With such essential components required to make fertilizers set to become scarce and costly, an alarming situation looms over agriculture worldwide with respect to local production.
Many primary avenues now stand either debilitatingly sanctioned or bombed, therefore inaccessible to a starving world. Since March 9th, Russia and Ukraine have banned a range of exports, and nearly all available alternatives remain too dear for countries like Egypt, which canceled two tenders for wheat supply in a row over scanty offers. As well as imports, the implications of the disruptions mentioned above include reduced agricultural production or less nutritious sustenance in many regions. On the backdrop of an increasingly precarious economic structure, global wheat futures spiked over 55% to $14 a bushel, a record, before mildly cooling down. A similar spike has been seen in India, though horrifyingly volatile to a lesser extent. Traders are willing to pay a shocking ₹2,700
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for a quintal of wheat (inclusive of freight cost) at the Kandla port, up from ₹2,200 within a matter of days and as opposed to the Minimum Support Price of ₹2,015 per quintal. However, this occurrence does not correspond to the choking of global supplies as is the case elsewhere, at least not directly. Instead, it represents an opening. India’s position today: Small, but Growing India ranks as the second-largest wheat producer with a 14.14% share of the total global production in 2020, only surpassed by China (Russia is third), as per the FAO. The government expects to touch a new record of 111.32mn tonnes in 2021-22, up from 109.59mn tonnes in 2021-22. Wheat produced on Indian soil is valued as highly competitive in international markets, inducing ever more agents to switch over as flow from Russia and Ukraine halts. Strikingly, the country’s share in world wheat export stands at just 0.54%, up from an even more meager 0.14% in 2016. The value of wheat exported by India during the April-October period surged 546% year-on-year to $872mn.
To achieve the desire of maximizing the potential that Indian agricultural exports hold, careful coherency in long-term policy must prevail to facilitate smooth overseas sales of the commodity. That, says Madan Sabnavis, chief economist at Bank of Baroda, is lacking among Indian policymakers. “It is a political issue about whether we should be exporting wheat or not ... One can say that we always had the option of exporting wheat into the market, especially beyond what buffer stock norms mandated,” Sabnavis points out. India produces significantly surplus wheat and rice. Against the buffer norm of 13.8mn tonnes of wheat and 7.61mn tonnes of rice for January 1st, a much larger pool of wheat up to 33mn tonnes and rice roughly 22.4mn tonnes reached FCI godowns. However, India will not export the central pool stocks of wheat because of a series of commitments agreed to under the Peace Clause at the WTO Bali conference in December 2013. A number of other restrictions further limit the export infrastructure in place. Consequently, the possibility of unmediated direct business between private players and farmer organizations is conceivable. Deals made on private accounts will likely prefer to source wheat from Uttar Pradesh and Madhya Pradesh, as in the past, and Punjab and Haryana. This would lead to lower central procurement figures as well.
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The path ahead Among the many advantages gracing Indian farmers’ position, one is that the rabi crop reached mandis weeks ago, while agricultural schedules of other global producers must wait till June-July for their harvest. Most players will also be reluctant to export much on account of domestic shortages, but India maintains significant stockpiles. At its latest meeting on March 17th, the Agricultural and Processed Food Products Export Development Authority (APEDA) directed concerned organizations to take measures aimed at boosting exports to markets with significant shipment potential. Experts say the government is truly scrambling to ensure adequate infrastructure for competitive exports. According to statistics from the Directorate General of Commercial Intelligence and Statistics (DGCIS), the countries that received India’s exports of wheat in 2020-21 were Bangladesh, Nepal, the UAE, Sri Lanka, Yemen, Oman, and Malaysia. Both by volume and value, these top 10 importers took up nearly 99% of the wheat exported by India.
Now, a much broader market of nations looking to compensate for the hole left by the Ukraine war will turn to India. The government claims it is in final talks to start wheat export to Egypt, while discussions are ongoing with Turkey, China, Bosnia, Sudan, Nigeria, Iran, and several others. The Philippines is another potentially large importer of Indian wheat. In 2021-22, wheat export to Afghanistan, Qatar, and Indonesia was also initiated or boosted. Concluding thoughts Amid the cataclysm brought upon by the war ravaging the world’s breadbasket, India is uniquely positioned to leverage agriculture. Though even India’s vast strategic stockpiles would hardly substitute imminent shortfalls, the supply chains and trade partnerships established in the coming weeks and months will allow India to assume the commanding heights over food markets in the long term. Some decisions made by Indian policymakers today may very well prove central to what the world eats tomorrow.
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Impact of AI on the Global Economy By: Liza (Daulat Ram College, D.U.)
Equipped with technology everywhere, there’s no way for us, humans, to escape from Artificial Intelligence (AI) anymore. From algorithms to an end-user product, AI has been innovating our lives in quite a subtle manner. The patents of AI products have rapidly increased in recent years.
According to a report by Accenture covering 12 developed countries proclaims that by 2035, AI could double up the annual global economic growth rates. AI will steer this growth up in three major ways. Firstly, it will improve productivity of labour through launching innovative technologies in the market enabling a more efficient workforce. Secondly, it will create a new virtual environment capable of solving problems and self-learning. Thirdly, it will trigger the effect into different sectors by automating just one sector. Overall, it will trickle down the effect to each sector in the economy. Though AI would be making life easier around the world, the impact would be different across different corners. China has vast manufacturing units that will take a huge chunk of time for full automation of technology but the economic gains are going to be unparalleled. The impact of AI would be divergent for different areas of an economy.
Competitiveness in Manufacturing From technologies like data analytics to cloud computing, AI is going to revolutionise the manufacturing units in upcoming years. A huge chunk of data will be collected from the customer
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side and will be processed through AI appliances to give an ultra level user experience in return. Penetrating into the market would be more accessible to probe the problems in a particular sector. It would undoubtedly boost automation, durability of products, seamless detection of problems, timely maintenance and so on. It might also eventuate breakthroughs leading to the creation of new unknown industries in the future. Effect on Companies Due to the different level of adoption of various AI tools, there might be a huge gap between the top performers (adopted all the tools) and the non-adopters in the market. There’ll be discrepancies in the cash flows of the both. The front runners would have their cash flow increased by 6 percent while the non-adopters might have a 20 percent decline in their cash flow. Top performers will be relatively ahead of others in possessing the stronger IT base and automation of technological processes. Impact on labour markets Talking about the structure of labour, AI would stimulate job creation and job destruction, both. Adopting automation in this area will certainly cut down the lower-paid jobs based on manual work and cognitive skills which can be replaced by AI tools anytime. On the contrary, the automation process would lead to higher-paying jobs which will require minimum to zero manual work automatically leading to job polarisation. Theoretically, more automation would certainly lead to more income growth of an economy but will increase the disparities in the society. Society would end up being richer overall but for multiple communities and individuals, this transition would turn into a nightmare full of inequalities. Impact on International Trade The impact of automation and other AI tools will be huge in international trade. Managing the complex and dispersed production units will surely lead to an increase of efficiency of Global Value Chains (GVCs). From increasing the warehouse management to improve the just in-time manufacturing and delivering services, AI will improve the efficiency of this whole system ultimately leading to more economic gains. The German led conception of industry 4.0 which is completely based on sensors, Internet of Things (IoT), cyber physical-systems that connects machines, materials, supplies and consumer will surely pave the path for smart manufacturing. It will enhance the communications for the companies across the supply chain and enable them to evolve the product more according to customer specifications. These are the developments which will further strengthen and extend GVCs. Smart manufacturing emphasising on the connectivity would ultimately open up the GVSs in the specific areas like design, robotics and data analytics adapted to fulfil discrete tasks in the supply chain. However, the same automation may reduce the need of certain extended supply chains that rely on massive low-cost labour. Nevertheless, of all these impacts whether negative or positive, AI automation may lead to an increase in global economic activity by almost $13 trillion by 2030 creating more jobs in this domain. It will stimulate the increase of about 16% higher cumulative GDP compared to what it is at this date. If successfully delivered, the impact will be huge on the whole global economy exhibiting the pros and cons all over the world.
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Use of Blockchain Technology for better price discovery in OTC Markets By: Soumodeep Das (Praxis Business School) The securities market is one of the most important and technology sensitive markets. There exist such securities which are not eligible in terms of exchange listing requirements of formal exchange and are traded via OTC (Over the counter). OTC or off-exchange trading refer to the process through which securities are directly traded between two parties. It is facilitated through a brokerdealer network without any interruption or supervisory of a formal exchange. There are several of financial instruments (securities) - equity and derivatives that are traded through OTC. OTC has its own benefits and as well as challenges. Some key challenges in OTC stocks are high volatility, less trade liquidity, and counterparty risk. Low trade liquidity is characterized by wide bid-ask spread. Also there is a chance of fraud or outdated information due to less regulation leads to less available public information. blockchain is one of the modern technologies that has the ability to solve the asymmetric information problem in OTC. Price discovery is a process of finding any asset or security price. There are several trading platforms like maintained by brokers like Zerodha, Groww, HDFC securities, etc. which empowers to place any buy or sell order. These brokers are in turn members of exchanges. In India two most popular exchanges are NSE and BSE. They supervise and regulate formal trading and clearing process. Typically, there are two types of orders, market order and limit order. Through limit orders market makers quote the price and quantity they intend to buy or sell and such quotes are called bid and ask respectively. When traders place any limit order that quote including price and quantity goes to exchange via broker and exchange in turn places and records the limit orders in order book maintained by the exchange. Market order on the other hand are placed by people who need their trades to be executed immediately. Buy or Sell market orders are directly matched with the best ask or bid price available in order book (created by limit orders) and are immediately executed. Thus, a trade happens when someone want to sell securities at bid price or buy at the ask price. The difference between the bid and the ask price is known as spread. Higher spread is a indicator of lower liquidity of securities. Basically, bid ask spread is the profit for market makers who provides the liquidity. OTC has the same process in terms of trading or placing buy or sell order but the only difference is absence of the formal exchange. Although there are technologies that enable participants to place orders in OTC, the availability of quote information is a problem. Shortage of information well known as aschemetric information is one of the major risk presences in OTC trading as there is lack of regulation. Block chain is the technology which be solution to this problem. Blockchain is a digital distributed ledger shared among the nodes of computer network. Blockchain technology has some special features like immutability, decentralized ledger, distributed, consensus network. Block chain contains of block which stores data or relevant information. These blocks together create a chain which is called block chain (chain of block or data). Each and every block is connected with their previous block so every block is connected with each other. Blockchain database is irreversible and immutable. Each transaction can be viewed by personal nodes or allowed nodes which brings transparency. There are different types of block chain- Public Block chain, Private Block chain, Permissioned Block chain and Consortium Block chain. Each blockchain has its own unique features according to the participation regulations within the network or administration policy. With the help of public block
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chain OTC securities price-quote data can be stored as digital order book or ledger and that can be distributed freely to OTC traders. As a public ledger there will be available information for the traders who want to place any buy or sell order based on such information. Application which will be built on blockchain technology will be a better solution for the OTC traders as there is no new app or technology for OTC stocks trading. SEBI (Security and Exchange Board of India) has already started their research on implementing or applying blockchain or other technology in Indian securities market. Many more global exchanges or market regulators like NASDAQ or NYSE have already shown interest to evaluate the feasibility or benefits of blockchain technology. NASDAQ was the first incumbent to build a platform based on block chain technology named as NASDAQ Linq. However, there are also some challenges present in terms of adopting block chain. There are some risks like low scalability, lack of privacy, no regulation, and slow process time. As there are large number of traders in the market, real time handling of huge quote data may be difficult with block chain due to inherent low speed of the distributed ledger system. As a public ledger block chain can’t have full privacy. So a serious question arises! Without large scalability or proper privacy how far this technology will can go? Further, there is no specific regulation for block chain so far. Thus, no one is bound to follow any specific rules. Block chain is also complex and takes time to response real time transaction in terms of buy or sell OTC stocks. Encryption system of block chain makes it slower so it’s difficult to use this technology in case of bid ask or order place on stocks. If block chain can manage those challenges, then it will be a better solution for OTC market trading.
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