Arbitrage Magazine - June 2020 - Finance & Investment Club | IIM Rohtak

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JUNE 2020 Vol 4 Issue 4

Our best read- India’s burgeoning forex reserves: Is it a matter of rejoice or concern?

Special Mention: The Dragon around the Tiger

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INDEX

S.No.

Article

Page No.

1

India’s burgeoning forex reserves: Is it a matter of rejoice or concern?

3

2

The Dragon around the Tiger

7

3

The Economic Impact of Corona Outbreak

13

4

Kangmei Pharmaceutical Company: A $12.6 Billion Accounting Fraud Story

17

5

E-Commerce and its role in Lockdown

20

6

The Impact of Economic crises on Female Workforce Participation and Economic Contribution

22

7

Why do Derivative options play an important role in a Volatile Market?

24

8

Revisiting VIX Futures in Light of Recent Volatility

27

9

India’s trade strategy in these trying times

31

10

Covid-19 and The Future of The Global Economic System

34

11

The sectors and components that can uplift the Indian economy after the COVID-19 crisis.

39

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India’s burgeoning forex reserves: Is it a matter of rejoice or concern?

By: Debmalya Banik Chowdhury & Anisha Saha (XLRI Jamshedpur) The beginning of June 2020 saw India's foreign exchange reserves swell to more than $500 Billion, hitting an all-time high since the change in the policy of 1991. The most significant chunk of this reserve is in the form of foreign currency assets, followed by gold and Special Drawing Rights (SDR) of the IMF. This huge influx (it increased by $8 Billion alone in a week, the highest jump for the nation in over a decade) was on account of the Reliance Jio and Airtel arrangements.

With this considerable forex, India looks set for about the next year of imports and significantly strengthens its position in the international market. The recent inflow of foreign capital has been perceived as a boost to the morale of international investors. The sense of stability and confidence will help attract a fresh pour of foreign investments into the country.

Taking a quick look into the current scenario of the Indian economy, it paints a gloomy picture with the GDP set to contract for the first time in years and manufacturing and trade activities on a snail-paced recovery from the blow of Covid-19. Amidst such negatives, is the swelling forex reserves a point that India can cheer about?

The recent dip in international oil prices also means that outflow will reduce. However, this inflow of foreign capital will not be let into the economy, the apprehension being that it will significantly appreciate the Rupee, therefore hurting exports. So, is there reason to rejoice at this latest development or there is to more to this than meets the eye?

Why increase it in the first place?

The practice of keeping forex reserve as buffers against external market volatility started in India in the 2000s when the then RBI governor, Bimal Jalan [2], felt that reserves should also be adequate to cover likely variations in capital flows. Since then, India’s low Current Account Deficit (CAD) has been facilitating the accumulation of reserves. However, as the events following the global financial crisis showed, India’s external sectors were still stressed and the nation was indeed vulnerable to international turbulence. RBI had to resort to heavy selling of Dollars to maintain market sanity.

The RBI maintains that it does so to smoothen the process of international debt financing. However, when the situation gets dire, creditors would also be opportunistic and delegate the work of financial risk management on to the RBI, thereby introducing a fair amount of sovereign risk. This would hurt the FDI opportunities in the future, especially on a ground where India’s biggest Asian competition has done so well.

Exhibit 1 shows the increase in Forex reserves over the years.

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How do high forex reserves help?

Figure 1 shows the effect on foreign exchange reserves due to an increase in wealth. According to the Economic Survey, 2020, revenues earned in foreign exchange enable macroeconomic stability by enabling the country to pay for its imports and keeping CAD at manageable levels.

Figure 1

For an open emerging economy like India, maintaining a good Balance of Payments is critical. An increase in the CAD as part of the GDP worsens that BOP by increasing the external debt burden. Consequently, the government has been trying to reduce it over the years.

Figure 2

Moreover, with practically all business with India’s trade partners being conducted in US Dollars, it facilitates easy business despite future disturbances in the dollar value.

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How does a high foreign exchange reserve not help?

Most of India’s foreign exchange comprises US T-bills, that do not have a very high rate of return. With losing faith in the US system, sovereign risk also creeps into the same assets that the RBI now holds.

Another aspect to note is that the other Asian countries to hold a more massive forex reserve all include trade surpluses in addition to the capital inflows, but for India, they are entirely capital inflows with no surplus in trade. [4] The government's reluctance in seeking out other ways of debt financing means that it is still very much vulnerable – with depreciation of the Rupee a likely outcome.

Often there is a tendency for the forex reserves to maintain at a value of six months of imports. India is faring way too above the popular yardstick. While the rise in forex is a sign of international appreciation for India’s growth potential, it also points out the real economy’s incapability of absorbing the capital flows into a realized investment due to RBI’s strict opposition to the use of such forex for development purposes – example, infrastructure – to increase return on such investment.

Way forward Other than channeling some part of the excess reserve into real economy, there is yet another safeguard available. An inexpensive credit line can be bought from the International Monetary Fund (or elsewhere). Such a credit line is an option that provides India with the right (but not obligation) to borrow in case of a crisis situation. This instrument, as Anton Korinek at Johns Hopkins University has shown in a series of his papers, reduces the need for large foreign exchange reserves. India already has a credit line to the tune of $50 billion.

Additional credit lines if bought can lower the reserves.

To compete with the Asian neighbors, India must look to the diversification of its trade portfolio. With technological services still being the most exported, there should be focus on greater employment and upskilling to increase the value of work in the international market. Promotion of domestic manufacturing should be more than just rhetoric and be implemented in all states, especially areas where such facilities have been traditionally lacking.

While it is important for RBI to prepare a war chest to tide over any future uncertainties arising out of the pandemic situation in the international market, it is equally important to make prudent use of the rising inflow in the long run.

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Exhibits: Exhibit 1.

Resources: 1. https://www.business-standard.com/article/finance/india-s-foreign-exchange-reservescross-500-bn-for-the-first-time-120061201146_1.html 2. https://www.bloombergquint.com/opinion/from-5-to-500-indias-forex-reserves-journeysince-1991 3. https://www.indiabudget.gov.in/economicsurvey/doc/vol2chapter/echap03_vol2.pdf 4. https://www.thehindubusinessline.com/opinion/no-merit-in-holding-huge-forexreserves/article30793784.ece# 5. https://www.livemint.com/Opinion/Should-India-hold-400-billion-of-reserves.html

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The Dragon Around The Tiger By: Pratheebha & Srivarshini S (IIM Ahmedabad) China’s journey to its current position as a global economic powerhouse began 40 years ago when Deng Xiaoping launched the country’s SEZ program as part of its efforts to open up its economy to the outside world.

Though fear of capital flight and the relative shortage of capital initially limited its foreign investment, China’s strategy shifted significantly in 2016 when deeper participation in the global economy was made a key priority by its 13th Five Year Plan. It has since invested heavily across the globe in regions ranging from Asia and Latin America to Europe and the US.

Diamond Necklace vs String of Pearls: Chinese capital has been flowing into the Indian market in a big way in recent years through heavy investments in both our start-up ecosystem and conglomerates. 18 of India’s 30 unicorns are now Chinese-funded and China’s economic clout in the country has resulted in some experts saying that the diamond necklace it is weaving around India might actually be more threatening than its political String-of-Pearls strategy that gets more press.

Source: Deccan Herald

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Chinese Investments Deep-rooted in India: Over the last decade, Chinese investment has penetrated most sectors of the Indian economy from e-commerce and technology to energy and metals. This crafty sectoral diversification of investment has led to Chinese money being deep-rooted in India’s economy.

According to data from China Global Investment Tracker (CGIT), which monitors investments worth $100 million or more, China invested a whopping $14.5 billion in India between March 2007 to December 2019.

Source: The China Global Investment Tracker, a project of the American Enterprise Institute and the Heritage Foundation.

China’s Foreign Direct Investment largely consists of Greenfield Investments - the ultimate market entry strategy - the benefits of which include increased investor control, ability to form marketing partnerships and limited intermediary costs. During the period in the table given above, India witnessed investments distributed across 43 deals and over 50% of these were greenfield.

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Source: The China Global Investment Tracker, a project of the American Enterprise Institute and the Heritage Foundation.

A 2020 report by the Gateway House think tank estimates that at least 92 Indian start-ups have been funded

by Chinese giants like Alibaba, Tencent and Xiaomi. This list includes household names like Paytm, Flipkart, Swiggy and BigBasket.

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Though significant, the level of influence China exerts over India’s economic landscape has not received much press till recently. This is because a lot of its investments are invisible assets - under $100 million in size - that are often considered insignificant. But the accumulation of these smaller investments has led to China dominating most major sectors in India.

Till recently, the BJP government has been quite open to Chinese investment, with the influx of Chinese capital in India growing from $1.6 billion to $8 billion within just three years of PM Modi assuming office. The Indian public has also traditionally been quick to adopt Chinese products, propelling companies like Xiaomi, TikTok and Oneplus to the top of their respective industries and segments.

Recent Highlights - India’s response to the rising tensions: However, the Covid-19 pandemic and the recent border clash that killed 20 Indian soldiers have changed things significantly.

The near halt in economic activity the pandemic led to has resulted in many firms struggling to stay afloat, thereby leaving them vulnerable to takeovers and acquisitions. The Government of India has responded to this threat by revising its FDI policy in such a way that prior approval from it is now needed for FDI by any entity based in any country sharing a border with India, or if the beneficial interest lies with any such entity. This will impact both direct investment from China and investments by Chinese companies routed through other countries like Singapore and Mauritius for their beneficial tax regimes.

India’s recent military clash with China - the most serious one between the two countries in over 50 years has now spurred a debate across the nation on whether we should disengage from the country economically.

While some have resorted to uploading videos of themselves breaking Chinese products and calling for a ban on Chinese food, most agree that reducing India’s reliance on China will not be easy.

While China is India’s second-largest trading partner and its biggest source of imports, India, by contrast, does not even figure among China’s top 15 trading partners and is even lower on its list of import sources.

However, there is one thing that India has that is incredibly valuable to China - Its 800 Million smartphone users. India is one of the biggest digital markets in the world and any change in its app economy will have a widespread impact on the valuation of the Chinese companies that dominate the global digital landscape.

The Indian IT Ministry’s recent ban of 59 Chinese apps including TikTok and Shareit is a move in the direction many experts have advocated for over boycotting physical goods. Their rationale behind this is that while the latter will be harmful to the Indian economy, the former will cause little to no change in the lives of most Indians while adversely affecting Chinese companies.

The IT Ministry issued a statement saying that these apps are “prejudicial to sovereignty and integrity of India, defence of India, security of state and public order”. The Indian government is not alone in its concerns as

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even Europe and the USA have raised issues regarding information security and privacy concerns in relation to Chinese companies on multiple occasions.

Impact on the Indian Economy: This recent amendment of the FDI policy by the Government of India, aims to avert hostile takeover of Indian companies. This gives India some sort of leeway to reduce its import dependency, and heed growing demands for self-reliance. Also, India’s gaping trade deficit with China of nearly $50 billion has been a long-standing impasse between the two nations and India’s current standoff provides an impetus to gradually narrow this gap.

But is it viable for India to become self-reliant? Considering the magnitude of Chinese investment in our country, it is easier said than done to turn the boycott rhetoric into reality.

Indian consumers want to use domestic products now and this sentiment when coupled with an increase in the competitiveness of Indian products could in the long run create self-sufficiency in line with the ‘Make in India’ movement. Findings from Acuite, a ratings agency, say that India's domestic manufacturing sector can substitute up to 25% of China's total imports which would in turn lead to a reduced annual import bill of $8 billion.

But this is not likely to pan out without adversely affecting the Indian economy. Our supply chains are deeply entwined with China. A majority of the products manufactured in India use Chinese components and finding cost effective alternatives to this might be challenging. A report by Indian Express pointed out that if the two neighbours stop trading, China would lose only 3% of its exports and less than 1% of its imports, while India would lose 5% of its exports and 14% of its imports.

Overall, it is much easier for China to replace India than for India to replace China.

The Government’s plan for India to emerge as a key player in the global manufacturing and supply chain network is a vision that requires large scale capital investment. Adequate measures must be taken to diversify our import basket to lessen heavy dependence on China.

Is this anti-China sentiment is here to stay? Only time will tell.

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References: https://www.aa.com.tr/en/asia-pacific/military-standoffs-apart-chinese-investments-roar-inindia/1885568 https://www.indiatoday.in/news-analysis/story/china-investment-india-economy-1690310-202006-18 https://theprint.in/economy/govt-revises-fdi-policy-overs-fears-of-chinese-takeover-of-indianfirms-amid-covid-19-crisis/404438/ https://thediplomat.com/2020/05/indias-china-fdi-gamble/ https://www.bbc.com/news/world-asia-india-53150898 https://thewire.in/trade/china-goods-boycott-atmanirbhar-bharat https://www.sundayguardianlive.com/news/chinese-investments-deep-rootedindia#:~:text=Such%20investments%20have%20mostly%20taken,smartphones%20and%20appli cations%20(apps) https://www.barandbench.com/columns/curbs-on-foreign-investment-by-china-press-note-3 https://www.washingtonpost.com/world/asia_pacific/india-china-border-clash-tradeimports/2020/06/26/4eca1f76-b4e2-11ea-9a1d-d3db1cbe07ce_story.html https://www.washingtonpost.com/world/asia_pacific/india-china-border-clash-tradeimports/2020/06/26/4eca1f76-b4e2-11ea-9a1d-d3db1cbe07ce_story.html https://www.thehindu.com/business/Economy/government-nod-mandatory-for-fdi-fromneighbouring-countries/article31379229.ece

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The Economic Impact of Corona Outbreak By: Alistair S.H. Toppo (IIM Indore) An abysmal economic emergency has been floated across nations ever since WWII and independence of 3rd world countries. The corona pandemic has slayed the world economy within fraction of days. The top developed and developing countries are undergoing unfaltering commitments to keep their respective countries net GDP in a positive value. Talking about the global financial crisis of the last decade, the situation was more fluid as compared to the incumbent one because unlike this time people used to go to work and all the sectors were contributing in the country’s GDP. The financial system was sound and government finances were healthy. But after analyzing and overviewing the precautionary steps taken by the government, the conditions are improving significantly and so as the economy.

Taking the worst-case scenario, we should start thinking about the economy even if the lockdown continues or it allows only those states where the percentage of infection is low. Scraping the lockdown in one go can be beneficial as well as obnoxious. It could be profitable as all the manufacturing sector would be back on pace and the overall GDP will start to rise again whereas it can an absurd decision if proper precautions aren’t supervised across the nation resulting in hike of number of cases. It is advisable to release only those areas where the virus count is less and even after opening up, proper safety gears and precautions should be taken.

The challenging section would be to repatriate the factory workers back to the workshops after a lockdown of 60+ days. It would be a difficult task because as headlined by apex news channels about the controversial stances witnessed w.r.t daily wage workers and how they’d paved/struggled way back home, they would need a concrete and convincing reason to rejoin those factories. Direct transfers of financial aid might be a scope but not for all. The frequency of transfer seems inadequate to see a household through a month. The governing authority should come with some public and NGO provision along with private participation and allow direct

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benefit transfers to the needy in order to facilitate in the coming days. We’ve already witnessed the penultimate shebang of not doing so and if still not continued, something worse awaits us.

Access to limited fiscal resources can be a boon and utilizing it in an optimal methodology is the apt solution a nation can procced with. At the same time budget constraints should be tallied across as it could hamper any individual’s salary this very year. Unlike other developed countries which can spend 10 to 20 percentage more of their GDP and reach till negative, we’re already in a negative fiscal point and measuring the scenario, this value is going to sink down soon. A down scaled GDP can lower the chances of investors investing money in any sector or to withhold the newly assigned packages of undergrad or post graduate pass outs.

We’ve to prioritize accordingly keeping in mind the necessary deliverables and budget constraint. The government should ensure the investors and its commitment to fiscal rectitude and holding up the independent fiscal council and assign a minimum term debt target. Not only the MNCs but the small firms have also faced a severe drawback after the pandemic and the situation is so abysmal that it may not be possible for them to stand again. Optimal alternatives should be considered especially the ones which dominates over the labor and production sector. The government wants to support all the firms at a common rate but due to the crisis, the credit isn’t sufficient to revive anyone completely.

Firms which are well established till date and have the capability to fund these start-ups can also be an optimal way to revive the country’s GDP. Insurance companies, banks and mutual funds should be encouraged to invest on newer grade bond insurances and their grade ease by the RBI lending to these high-quality bond portfolios through repo transactions. However, the RBI act has to be changed in order to enable these solutions to functionable. The government will be requiring myriads of agencies and PSUs to pay their bills so that all the private players gets a valuable equity.

The difficulty faced in household and rural sectors will be reflected upon the economic downfall. The banks had flooded the liquidity and it needs to go beyond it. Mathematically, a greater number of liquidities won’t help in absorb loan losses. The concept of brining back people who’ve already served the nation is an

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outreached idea and would benefit in the coming days. In this situation, driving help from the opposition party would also be helpful who’d experienced same crisis before.

A major sector which has been neglected at a greater extent is the agricultural sector. Usually the crops are slashed and collected in the month of march-April. However, due to the lockdown it isn’t possible to send out laborers for the work. If this act fails, a new factor will be added in the pandemic chapter. The economic status was falling before the pandemic and the socio-political environment is slouching down.

Although after imposing heavy taxation in liquor and alcohol which has been an infamous cumbersome procedure to revive the country’s GDP, the overall growth rate is likely to be declined by 5% in the FY 202021 according to Goldman Sachs. Even after certain relaxation, some sectors are witnessing dismays because of rent seeking by the major stake holders. For example- the malls were sent to open from 8th June,2020.

Some reopened while some not. The major issue being the financial argument for the unit’s holders as some builders are ravenous for the monthly rents while some are compensating by giving 75% relaxation for paying the mall rent.

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References 1) https://economictimes.indiatimes.com/topic/DLF-Mall 2) https://economictimes.indiatimes.com/news/economy/policy/another - round-of-lockdown-will-be-devastating-says-raghuramrajan/articleshow/75463615.cms 3) https://economictimes.indiatimes.com/news/economy/policy/vieweight-steps-to-revive-the-indian-economy/articleshow/76276650.cms

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Kangmei Pharmaceutical Company: A $12.6 Billion Accounting Fraud Story By: Sidhant Satapathy (TAPMI)

Accounting scandals have not been something out of the ordinary. Many companies across the world have tried to delve into fraudulent financial reporting practices to maintain growth and their position in the stock markets but have ultimately failed due to exposure of their business practices sooner or later. Today a financial accounting professor cannot end the class without ever mentioning Enron once and its associated malpractices in accounting. Such is the impact that accounting frauds have not only on the target company’s performance but also in the global outlook about companies trading in the securities market. Every investor today is more aware about accounting frauds but still falls prey to these frauds. This article aims to understand such frauds with the story of Kangmei Pharmaceutical and then tie that up with investing lessons from both the famous Luckin Coffee scandal and Kangmei Pharmaceuticals.

The Kangmei Pharmaceutical Story: The Chinese traditional medicine maker Kangmei Pharmaceutical is one of the big-ticket stories of accounting frauds that is responsible for overstatements in its financial statements to the tune of $12.6 billion over the years 2016-2018. It was found that the company was using fake bank deposit slips to inflate its cash reserves, forged documents for business activities that weren’t taking place in reality and transferring company funds to related parties to trade in its own stock.

The company has been under investigation since December 2019 when it first declared to its investors that it has overstated its revenues by $4.1billion and operating profits by $575 million. Ever since this reveal, the company’s shares have fallen over 70% and the company has been de-listed from the MSCI China Index and the list of China Connect Securities.

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China Securities Regulatory Commission (CSMR) has ever since August 2019 blacklisted 6 executives from the company who were found to be in direct connection to this accounting fraud. This action comes post the body charging fines to 16 of the company’s employees for a total of 5.95 million yuan or $834,455.

The blacklist includes Kangmei’s chairman and 5 other executives who will no longer be able to take up any executive positions at boards of companies for the next 10 years and cannot participate in the securities market as well. The CSMR also asked the company to pay a $84,600 fine in addition to the fines charged earlier.

The company has now become the first listed entity to default on a puttable bond issue worth $343.14 million that had taken place on March 6, 2015 with a coupon rate of 5.33% and maturity of 7 years ending in 2022. It declared on 3rd February 2020 that it will be unable to make both the principal and interest payment for the bonds on schedule and has been directed by the Shanghai stock exchange to raise funds to pay the bondholders on schedule.

Investing Lessons to Be Learnt from The Luckin Coffee Scandal and Kangmei Pharmaceuticals: •

It is absolutely important to stay diversified in your portfolio holdings no matter how positively you or your fund manager estimate the growth of a certain stock. The ground reality is always the company’s fundamentals. If a company like Kangmei has to have related parties trade in its own stocks to keep the company afloat in the stock market, then that highlights the clear inefficiency in management of the company to keep the business operations stable.

•

Be careful with emerging market stocks in your portfolio. Most companies in growing economies even ones like China (the second largest growing economy) have numerous fraud stories that one can use an anchor. This is not to say that one must avoid emerging market stocks altogether but understanding the company’s business potential and earnings history is essential before making an investment decision.

•

Unreal growth is something one must understand and be curious about when flushed with success stories of numerous start-ups with extremely high valuations in their initial years of growth. In the case of Kangmei Pharmaceuticals which was an established company was reported a 10% and more growth rate which was tremendous when compared with the Chinese pharmaceutical industry growth rate.

Kangmei Pharmaceutical

10%

Chinese Pharmaceutical Industry

4.50% 0.00%

2.00%

4.00%

6.00%

8.00%

10.00% 12.00%

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•

Another common point of caution which is generally given to investors is to be wary of unprofitable firms raising money to fund their business strategies. In the case of Luckin Coffee it was raising funds from the public to expand its presence across China and investors were actively trading in the stock under the garb of growth rate in revenue and financial potential of the company. However, the fact is that Luckin Coffee was not making profits during this time.

The case of Kangmei is a little different though, after deducting the inflated net profit margin from the company’s reported net profit, the actual profit of the company was still satisfactory but its performance declined significantly over the years since the scandal as people’s confidence in the company decreased which in the case of medicine purchases is directly proportional to sales of the product. People will buy medicines only if they trust the company selling them.

•

Lastly, it is impossible to see it all. No investor can foresee every movement of the stock market simply because the stock market is unpredictable and that is where the beauty lies. One can however make informed fundamental investing decisions based on sound financial metrics and investment principles which do generally assure a favourable result if not guaranteed success.

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E-Commerce and its role in Lockdown By: Aditya Kapse (Goa Institute of Management) “Close scrutiny will show that most 'crisis situations' are opportunities to either advance or stay where you are.” Maxwell Maltz The current coronavirus crises has been treating different industries in a different manner and is perfectly justifying the abovementioned quote by famous American cosmetic surgeon Maxwell Maltz. From a business point of view, we can easily correlate the above quote by comparing the second quarter fiscal performance of various industries across the globe. On one hand, the revenue streams of aviation, travel, and tourism, Medium and small scale enterprises, automobile and real estate sectors are taking a major hit due to the pandemic while there are few sectors that are prospering as well. Healthcare and E-commerce (A part of it to be specific) being a few of those. This pandemic has proved to be a growth opportunity for E-commerce giants such as Bigbasket and Grofers who have taken this as an opportunity to serve humanity along with strengthening their revenue streams. These two e-commerce websites are being presently poised as the key door to door delivery options people are adopting for purchase of their essential need products. This has resulted in an unexpected increase in the orders which such platforms are witnessing. Mr. Hari Menon, CEO, BigBasket, in April, wrote on Twitter that the platform has been catering nearly 2.8 lack orders a day and the demand is manifold as compared to this. He also claimed that the average customer per basket purchase has also gone up by15 to 20 percent. The way in which these companies are handling such an unparalleled surge in orders is setting trends in the online grocery industry across the globe.

Panic buying by the customers across the country due to sudden and unexpected lockdown by the government is the key reason for such upsurge. Initially, all these e-commerce companies were unsettled with something which they never expected but then they acted swiftly to meet the operational demands across the country.

One of the key steps taken by BigBasket was to multiply its supplies in order to balance the supply-demand equilibrium as much as possible. Secondly, all the door to door delivery service providers witnessed shortage of delivery workers and in order to reduce this gap, they are planning to hire thousands of workers who can be aid in such times. Supply chain optimization and analysis through high-end technology is being done through employees working from home so that they can design the best possible path ahead for the company with an aim of revenue optimization and efficient delivery. Following on similar lines Flipkart, Amazon and Zomato have also ventured into online grocery space and are delivering essential grocery products in multiple cities across the country. Moreover multiple startups such as Paytm Mall, Meesho, Snapdea and Shopclues have also diversified their product offerings by including grocery products in their portfolio.

It is more interesting to dwell on the strategies that these companies are adopting during such tough times.

Companies like BigBasket adopted the “community selling model” in which they requested the residents of a particular community to order in bulk keeping in mind the needs and requirements of everyone belonging to that community. Owing to this, in a single run the company was able to cater to multiple customers of the same community at a time, thereby requiring less workforce for delivery. Moreover, all such e-commerce companies are taking significant care of both the warehouse side of the business as well as the delivery side

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of the business so that the customers as well as the staff are assured that they are safe from infection and the products delivered are of good quality. Contactless delivery was one such initiative that was taken by almost all such e-commerce companies. Some new partnerships were also witnessed as Uber got along with BigBasket for a swift delivery process which is a win-win situation for both the companies.

Uber is reportedly in talks with other organizations also for such partnerships as it will solve them workforce problems of the later and will be a revenue booster option for Uber in such difficult times. Furthermore, to ensure contactless delivery, Swiggy, Zomato, and another emerging online one-stop solution Dunzo has got Directorate General of Civil Aviation (DGCA) approval to conduct tests for drone delivery of products. If the experiments succeed in its intention than it can act as a boon for the company as it will definitely ensure a reduction in operating costs and lead time.

Small scale startups that are active in ecommerce space have also been inventing multiple solutions to cope up with the crises.

Licious, a Bengaluru based online seafood company witnessed a shortage of workers owing to Covid-19, in order to mitigate this challenge, they outsourced logistics services from established players such as Shadowbox and Yulu. Adding to this few logistics startups are investing their time in data science so as to figure out optimal delivery routes.

Coronavirus has definitely proved itself to be a black swan which no one could predict.

The sudden increase in orders proved to be a testing ground for the business models for a lot of e-commerce companies, few sailed through it with heads up while few struggled. But everyone will unanimously agree to the fact that this phase taught a lot of lessons to be learnt for a better future. The agility of an organization proved to be a pivotal quality that differentiated companies from its competitors. If companies need to build their immunity in such circumstances, they need to inculcate an agile culture combining preparedness at all levels of the organization. Moreover, they need to realize that the key demands in such times are of essential grocery items, owing to which diversification into grocery space seems inevitable for all the e-commerce companies. Lastly and most importantly, they need to design policies which are both customers as well as employees centric as both act as the backbone of any organization.

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The Impact of Economic crises on Female Workforce Participation and Economic Contribution By: Sanishtha Bhatia (XLRI) As uncertainty looms in this time of a global crisis, trying to envisage the kind of impact the Coronavirus will have on the world seems like a futile effort. While the social and economic implications that the virus will have on the world are yet to unfold, past socio-economic crisis seem like crystal balls and fortune tellers offering intel into what may happen next. All global crises in the past; wars, pandemics as well as plain economic crises have impacted both lives and livelihoods, in numerous arenas, one such being the impact that such crises have on female participation in the work force.

Women's lives and livelihoods are influenced by crises in distinct ways stemming from the gender division of labour and the mindsets about women's role in the household. While recent trends show an increase in women participation in both the formal and informal workforce, they are concurrently also found to be more vulnerable to employment losses than men in formal sector employment. This double whammy of sorts, finds women being pushed towards informal sector employment, especially during crises situations. This is also indicated in the labour market statistics and time studies in developing countries. Various studies by organizations like the UNDP and UNIFEM reflect that during economic crises, and immediately afterwards, the amount of time that women spend doing both paid and unpaid work increases. In contrast, men's time doing paid work, and their contribution to household and community tasks, remain fairly constant.

Earlier global crises such as the first world war and the great depression saw an increase in female labour force participation ratesi. At household levels the fall in incomes and the purchasing power due to either unemployment of the male breadwinner or the absence there of in the war seems to trigger a response on the part of female household members to substitute for the lost income by entering the labour market, or by increasing the number of hours they are already active in the labour market. Women also tend to increase their labour market supply when male wages are reduced or when, because of inflation and currency devaluation, these wages become insufficient to maintain household living standards. As a consequence, there is an increase in the number of hours women spend in paid labour. Women tend to find employment in low-skilled jobs, irregular contracts, and 'flexible' work, including homeworkii, at the lower end of the wage ladder and mostly in the informal sector.

Females engaged in industry and in the formal sector have been observed to face problems due to the increased capital mobility. In a booming economy, developing nations receive massive foreign investments, due to the availability of cheap labour. This leads to increased employment generation in the economy giving women opportunities in the formal work force. However, during an economic crisis, especially one on a global scale these foreign investors tend to pull out investments leading large scale job losses. Studies have also shown, that vocationally trained women are involved in these export-oriented manufacturing companies and when investment starts to pull, they are the first ones to be let go. For example, during the Asian financial crisis in 1997, billions of portfolio investments moved out of countries like Indonesia, Thailand, and Malaysia, leading to the bankruptcy of banks and firms, to currency depreciations, and to enormous losses of central bank

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reserves and government resources. At the same time, multinational companies tended gradually to reduce their activity in Asia, away from the unstable financial environment. In Asia, this outflow of capital resulted in large-scale job losses in the private sector, in particular in the export industries that had previously attracted large amounts of foreign capital. The workforce of the export industries is about 75 per cent female.

Throughout the public and private sectors, millions of employees lost their jobs in the year after the crisis.

Women employees were disproportionately affected: in the banking and financial services sector of South Korea, 86 per cent of those who lost their jobs were women.iii Thus, from historical evidence we find that women employed in the formal sector, are more vulnerable to job loses than the men employed.

This makes for a concerning situation. If history were to repeat itself with the ongoing pandemic and the associated economic crisis it would mean that we would witness a rise of women in the informal economy and a drop in the formal sector. The women who will lose their jobs in the formal economy will also become a part of the informal workforce. This would be extremely disadvantageous. Women have been fighting for equal rights in the workplace for several decades now, the past few have seen various governments across the globe taking action and endeavoring to effect laws to create female accommodating workplaces. Though these laws and changes have a long road to being implemented and socially accepted, whatever little positive change that has reflected, has been in the formal economy and now the limited gains made in the past decades are at risk of being rolled back. If the number of women who form part of the formal economy goes down, it reduces the number of people being impacted by the affirmative action that is being taken. Also, with less women employed in the system, there will be lesser support to affect positive change. Thus, there is a risk of leaving more women, more vulnerable.

Everything we do during and after the COVID-19 crisis should necessarily be aimed at building inclusive and equal economies and societies. This can be achieved through gender-responsive social and economic policies and placing women’s economic lives at the heart of the pandemic response and recovery plans. It is imperative that all policy interventions, especially in developing economies incorporate sex disaggregated data, a gender lens and specific targeting of women.

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Why do Derivative options play an important role in a Volatile Market?

By: Shivang Shah (NIMIMS, Mumbai) The Indian Capital market has witnessed a period of high volatility during March and April, 2020 due to instability caused by the pandemic , Covid 19.The same is evident from the price movement of India VIX (Volatility Index traded in National Stock exchange) which measures the volatility/fluctuations that the traders expect in the market. It is also known as the fear Index. The Value of VIX on 2nd March was 25.20 which increased to 83.61 on 24th March. It is pertinent to note that the historical peak of VIX of 85.13 was attained during the 2008 financial crisis.

Date Nifty 50 Comments 02-Mar-20 11,132.75 30-Apr-20 9,859.90 23-Mar-20 7,610.25 Low 03-Mar-20 11,303.30 High The above table reflects the closing values of Nifty 50 on certain dates between March and April along with the High and low closing values respectively. It is evident that the Index has fluctuated with a degree during the period. If the opening and closing values of the selected period are considered, around 11.4 percent of the Index value has eroded in two months.

During such market scenarios, Derivative options can be utilized strategically to reduce the downside risk associated with the market. Option derivatives include Call and Put options. Call European (CE) gives an option to the call buyer to purchase the underlying asset at a particular strike price on expiry of the option.

Premium is required to be paid upfront to purchase options. Suppose a call option is purchased with a strike price of Rs.110/- with a premium of Rs.4/- and on expiry date if the price of Stock A is above Rs.110/- , the option will be exercised and Stock A will be purchased at strike rate and can be sold for a profit at a higher market price. However, if the Market price of Stock A is lower than Rs.110/-, the call option will expire and the buyer will bear the loss of Rs.4/- which is the option premium paid.

Similarly, put options can be understood from the following example; Current Date 02-03-2020 Underlying Asset Stock A Spot Rate 100

Option Put European Strike Price 90 Put premium 5 Option expiry 30-04-2020

An investor has purchased Stock A as on 02/03/20 for Rs. 100.However the investor is worried about a fall in the price of Stock A in the next two months. To hedge the risk, a put option can be purchased by paying

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Rs.5 as put premium. Following are the details of profit/loss considering different cases of market price of Stock A as on 30/04/2020 which is the expiry date of the Put option purchased – Market Price of Stock A Strike Price Option Exercised Sale Value (Strike price or Market price whichever is higher)

70 85 125 170 90 90 90 90 Yes Yes No No 90

90 125 170

Purchase Cost Put Premium(Cost)

100 100 100 100 5 5 5 5 105 105 105 105

Profit/Loss

-15

-15

20

65

From the above working it is evident that the Put option has limited the loss of the investor to Rs.15 when the price has fallen and retained the profits when the stock performs well.

The above strategy which was applied in the example is called “Protective Put“. The same could have been utilized by investors to reduce the downside risk on portfolios which were holding a long position in the market in early March when the market had started to give early signals of a fall.

The Way Forward; As on 10/06/20, NIFTY 50 Index closed at 10,116.50 and is hinting at a recovery. On the other hand, India VIX Index closed at 29.44 on the same date. India VIX has remained relatively stable in the previous two weeks which infers that the market is expecting volatility at a lower level as compared to the previous periods where the VIX had increased to above 80. Considering the signals and trends, Call options can purchase if an investor expects the market to grow further. Following is a snapshot of Bid/ask rates of Calls on NIFTY 50 .

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The above table reflects the calls available at a specific Strike rate. The expiry of the above calls is on 25th June, 20.Option with farther expiry dates can also be considered for developing a strategy .The Bid price column represents the call premium for which the traders are willing to buy calls. Similarly the ask price column represents the call premium for the traders are willing to sell the calls at the specified strike rate. It should be noted that as the strike price increases, the Call premium cost is decreasing because the probability of the buyer exercising the option on expiry reduces as the strike rate increases and moves away from the spot market rate.

Risks and Cost considerations: It is pertinent to note that when an option is purchased, the premium is required to be paid up front, which may affect the present cash flows of the investor. The options market includes traders who are trading to either hedge their current trades or speculators. The premium should be considered as loss if the options could not be exercised on the expiry date. However, the intent of a hedger is to limit the losses of the current portfolio but still retaining the upper side of profit. Thus in our “Protective Put� example the hedger would be better off when the Market price of Stock A increased to Rs.170 from the cost price of Rs.100.

Source: All the data regarding India VIX index, NIFTY 50 Index and Call option prices (image) has been used from https://www.nseindia.com/.

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Revisiting VIX Futures In Light Of Recent Volatility By: Gautam Goyal (IIM Lucknow)

NVIX or India VIX is the volatility index for India’s flagship equity index Nifty50. The index is calculated based on bid and ask price of Out of the Money(OTM) options for both the current month and the subsequent month.

Over the last three years, NVIX has traversed the entire spectrum of possibilities. It dipped below 9 in 2017 and stayed in the sub-15 range for a brief period. In 2018-19, there was an intermittent mean reversion closer to the average mark of the early 20s. The trajectory culminated with a COVID-19 triggered spike dangerously close to its all-time high levels in 2020 (86.64 in March 2020, v/s 92.53 in November 2008). This return of market volatility begets the question of the tradability of instruments based on the fear index.

India VIX Movement since 2017; Source: Investing.com / TradingView

Volatility indices around the world have negative correlations with their related stock index price movements.

Due to this, it is considered a hedging tool in times of choppy markets.

As mentioned in the product page on the NSE website, “These products have become quite popular among the participants as it expands the opportunities available to participants and provide efficient means to hedge against volatility. Volatility indices enable market participants to trade expected changes in market volatility in a single transaction.”

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NSE did offer futures based on India VIX. From the website, it seems like the contract was quietly discontinued from November 2018. In reality, due to a general lack of public interest, the product last traded in February 2016, with a volume of just two contracts.

At the time of launch, it was anticipated to benefit both traders and investors by providing an opportunity to hedge equity portfolios & option positions and help market participants take directional views on volatility.

These products are popularly used by hedgers and speculators in developed markets.

In the April 2020 CFA Institute brief by Matthew T. Moran and Berlinda Liu, they say, "Certain VIX-related tradable products may provide benefits when used as tools for tail-risk hedging, diversification, risk management, or alpha generation. Gauges of expected stock market volatility for various regions include the VIX Index (United States), AXVI Index (Australia), VHSI Index (Hong Kong), NVIX Index (India), and VSTOXX Index (Europe). All five of these volatility indexes had negative correlations with their related stock indexes price movements, and all five volatility indexes rose more than 50% in 2008."

Figure 1: India VIX (Blue) and Nifty (Purple) since 2009. A significant negative correlation between the indices is evident due to heightened volatility during market crises. Source: Investing.com / TradingView

So why does a product representing multi-billion dollar opportunities in developed markets, with investible instruments based on VIX futures including VIX ETFs, short VIX ETFs, and various leveraged versions of the same, fail to generate interest in the Indian markets?

1. No Institutional Presence: The use of equity derivatives in India is limited to funds, FIIs, and retail participants. With long-only investors such as banks, insurance companies, pension funds unable to participate the playing field was limited, to begin with. Mutual funds are limited by SEBI norms in the use of equity derivatives, with rules being tweaked in response to various market events. In the absence of participants, volumes remained anemic.

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2. Framework for VIX futures based products: In the United States, Long and Short VIX ETFs serve two important purposes – Firstly it offers an avenue for retail participants to access such instruments cheaply and take directional positions. Secondly, with the ETF mandated to go long or short on the contract, volumes are ensured on both sides of the aisle. In India, there is no regulatory framework for such products.

On the other hand, there is an argument to be made that such products encourage risk-seeking behavior, especially among those who can afford it the least. For example, in February 2018, the XIV (short VIX) ETF went bust since the VIX index more than doubled in a single day.

The XIV ETF based on shorting VIX futures bust in February 2018 due to an overnight spike in volatility.

Cases like this raise significant concerns about introducing such products in less developed markets.

Source: Investing.com

3. Lack of customization: While having more alternatives may seem counterintuitive in a market where volumes are already non-existent, it does help identify contracts participants would be most interested in. The contracts introduced by the NSE were weekly futures. MFs and FIIs generally have long holding periods, and the use of a hedge that needs to be rebalanced weekly would lead to slippage since VIX can stay in a narrow range for prolonged periods. Longer-term contracts could have resulted in additional interest in these instruments.

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4. Product complexity: VIX derivatives reflect the market’s estimate of the value of the VIX on various expiration dates in the future. This pricing of future volatility expectations can get complex, especially for retail participants. Quoting the brief by Moran and Liu, “During the big VIX upward moves… near-term VIX futures saw upward moves that were not quite as large as those of the VIX Index, and the longer-dated VIX futures had smaller upward moves. This is because the futures were pricing volatility expectations for the 30 days after their expiration date rather than volatility over the next 30 days."

With no flexibility in terms of long-dated instruments and limited participation from institutions, VIX futures was destined to doom. Prospects of introducing a framework for wider dissemination via ETFs would be challenging, given the possibility of speculative retail participation and mishaps witnessed in more developed and resilient markets.

The best chance for VIX based instruments survival in India was by introducing longer expiry contracts, for the target participants (MFs and FIIs), and reducing regulatory hurdles to promote their involvement in this market. With little action to overcome the aforementioned hurdles, these securities are not poised to make a comeback in the Indian markets anytime soon.

References: • •

•

NSE Website: http://www.nseindia.com The VIX Index and Volatility-Based Global Indexes and Trading Instruments, April 2020, Matthew T. Moran and Berlinda Liu, CFA Institute (https://www.cfainstitute.org/en/research/foundation/2020/vix-index-and-volatilitybased-global-indexes) Was India VIX futures destined to fail? – KS Badri Narayan, BusinessLine (https://www.thehindubusinessline.com/markets/was-india-vix-futures-destined-tofail/article22838485.ece)

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India’s trade strategy in these trying times Using trade as a strategic tool in post-COVID world and with hostile neighbours By: Pankaj Yadav (IIT Madras) Sino-India border dispute has reached its record heights since the 1967 face-off in Nathu La and the last casualty on this border was seen in 1975 until the recent incident on 15th June 2020 at Galwan where 20 of our soldiers were martyred. This unfortunate incident and the PM’s call for ‘Aatmnirbhar Bharat’ as a postCOVID strategy has again raised the question of reducing our reliance on imports especially banning Chinese products and developing our indigenous industries.

In this article we will evaluate the economic strategy of self-reliance from economic and strategic perspective instead of being carried away by our emotions. In particular, we will delve whether banning Chinese products is the right way forward and what should be the best strategy for India in these trying times?

When India attained Independence, we got liberation from British rule which started with a company called ‘East India Company’ which came for trade in India but later became our rulers. This being one of the key reasons among many others that India chose to close its economy to foreign companies and promoted indigenous industries. However, this strategy largely failed and India gradually started opening its economy since late 1970s and did major reforms in 1990s post-Balance of Payments (BoP) crisis where we had just 14 days of foreign reserves to pay for imports. Today we have a much stronger economy with large foreign reserves that cover over 9-months of our imports and a large domestic market with better buying power which can fuel growth internally. However going blanket push for local is not the best way forward as we are also much more intertwined in the global economy and trade has proved to be beneficial for countries in postWorld War II era including India. By closing our economy we will loose out on many fronts including not realising the dream of ‘Make in India’, e.g., the recent decision to not join RCEP by Indian government is aimed at protecting local industries but we lost on a big opportunity to be part of global supply chain as companies will prefer to be located in RCEP countries to avoid zero duty on trade in this bloc as against India.

On similar lines, ‘Aatmnirbhar Bharat’ or self-reliant India looks like a good idea on paper and even China’s success could be to some extent be attributed to this concept, where it made companies who want to sell in China to produce locally. However, this strategy might not work in present situation where all countries are going protectionist which will be exacerbated after the economic shock of COVID-19, e.g., US allowed China and many developing countries preferential treatment in trade and provided easy access to its market without asking for reciprocating benefits but this has significantly changed in recent times and US is asserting on China, India and other countries to open their markets for US companies.

Further as global supply chains have become efficient, we should be using our competitive advantage to standout and make the most out of the global markets, instead of pushing for everything local which will include creating low value products at higher costs. An excellent example of the same is Indian pharmaceutical industry which have effectively tapped into the generic medicines and vaccines market making India the largest manufacturer and exporter of the same. However, it should be noted that we import 70% of our Active

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Pharmaceutical Ingredients (APIs) from China as they have advantage in manufacturing the same at much cheaper cost than anywhere else.

It should be noted that trade deficit is not always bad, e.g., we import a lot of electronics from China but it also enables our IT industries which bring a lot of foreign exchange for our country via trade with US and European countries. It should not be seen that India is at loss with China due to trade deficit or India is at gain against US because of trade surplus. It only means that we are better than US in certain products and services whereas China is better than us on some other. For e.g., you might have a trade deficit with your vegetable vendor or your doctor but that is not always a bad thing. Hence we should deal such things on case by case basis, differentiating between strategic and non-strategic industries as well as where India can gain competitive edge and its long-term vision, we should not try to do everything in-house as it might lead to failure in all of them.

India is a consumption-led economy which accounts for 60% of our GDP. Thus a ban on imports can negatively impact the consumption pattern as many of the products we import from other countries have competitive advantage over local products i.e. they provide higher value to the customer for the same amount of money. For eg., cheaper mobile phones primarily from Chinese manufacturers have made smart phones affordable for a large section of our society. Though it contributes to trade deficits of our country with China but it also opens up avenues for many other businesses and new opportunities for local people. As data is new fuel of modern economy and with India having the cheapest data rates in the world, smartphone revolution is contributing in significant awareness and empowerment of citizens, e.g., in this post-COVID world when opening of schools is not feasible, online classrooms have made education a possibility due to these multiple things working together.

At the same time, we should also keep in mind our strategic goals and protect our systems and institutions from foreign threat. For example, I was in support of India going for trials with Huawei in 5G as it is not only the best technology available in the market but is available at much lower cost than its competitors. But as it is a strategic infrastructure and our national interest could be compromised especially with increasing SinoIndia conflict. In telecom infrastructure which is large and complex, it is difficult to identify any spyware and it could also be implanted with future updates as well. Hence we should remove Huawei from our 5G trials, as the Chinese government has significant control on working of Chinese companies not just locally but globally as well, alongside there have been multiple reports from different countries on spying by Huawei.

However, strategic goals will not always served by closing down our economy and we should also open it up in certain other sectors, e.g., the government has rightly opened up the defence and aerospace industries for investment by private players and foreign companies. This will create local industries which can meet our requirements on time and at cheaper rates. In the meanwhile, we should keep our defence purchases timely and keep our forces equipped with latest technologies. It is good to see that government is incentivise the MSME sector however blanket protection will do more harm than good, e.g., the government has disallowed global tender for government procurements up to Rs 200 crore, which might lead us to go for sub-standard products for many critical areas. These policies should be more diligently crafted and exempt strategic areas like defence and space technologies.

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Now bringing our focus to Sino-India trade, it should be noted that today Indian economy is much more dependent on trade with China which accounts for about 11% of India’s trade and is India’s second largest trading partner as against India accounting only 2% of China’s global trade and is China’s 11th largest trading partner. In particular this trade is largely imports by India which is $77Bn, 14% of India’s overall imports as against only $19Bn worth of exports which is 5% of India’s exports. Hence Indian economy will be much more hurt with immediate sanctions on China. However, it does not mean that we cannot survive without China, we should diversify our imports from other countries as China is not the sole producer of these goods.

This could be done in medium to long term alongside building our domestic capabilities.

Thus we can come to a conclusion that self-reliant India should be limited to our present and potential strengths. We should work on our competitive advantage with respect to firms across the world and instead of limiting ourselves to local markets, we should be looking at global markets. We should not look at trade deficit and trade surpluses with myopic lens of bad and good respectively but as opportunities to value add in the global supply chain. At the same time, we should keep our strategic interests in mind especially with respect to hostile neighbours like China. We need to reduce our over-reliance on one country in trade and diversify our trade basket while developing local capabilities. Hopefully, India will emerge better and stronger out of these trying times and trade will be a key enabler in this process.

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Covid-19 and The Future of The Global Economic System By: Mallar Chakraborty (Symbiosis College of Arts and Commerce)

Introduction As an undergraduate student on the onset of moving into the real-world, I have spent most of the quarantine trying to understand what effects a global pandemic of the magnitude we haven't witnessed before in the modern century, might have on the future of the planet and whether we might be heading towards a more conservative and cautious human mindset in the near future. We all see and understand the disruptions that COVID-19 has brought on our individual lives but what we fail to understand is how this can change the social and economic landscape for years to come, that can have sustaining effects on our jobs and economic opportunities. This article aims to facilitate the understanding of just that. I realised that to understand the broader sense of the pandemic and its effects, it is imperative that we follow how the global economy performs.

All the concepts put together in this article is a simplified consolidation of what prominent economists, financial leaders and policymakers around the world are saying.

Transformation in the Capital Markets As we see this crisis unfold, central banks and governments around the world continue to churn out massive fiscal and monetary stimulus packages to counter the stress on their respective economies. As of June 2020, the figure representing the totality of stimulus measures around the world has already surpassed that of the global financial crisis of 2007-09 exceeding 7 trillion dollars. This figure is expected to rise even further as the crisis extends.

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With such massive stimulus measures and bailouts of systemically important companies, the concept of moral hazard, that had been prevalent during the crisis of 2007, has surfaced once again questioning whether central banks and the governments should continue to bail out companies. Some experts believe, like that of Mohammed El Erian, the chief economic advisor to Allianz and the president-elect of Queen's College, Cambridge, that this would lead to the creation of so-called Zombie Companies and subsequently Zombie Markets.

We might be looking into a future where there would be tremendous public-private entanglements in some of the largest publicly traded companies.That would eventually result into poor allocation of resources in the capital markets and by extension, the economy. Investors would no longer look into company fundamentals to base their investment decisions but on the level of government support that a company might have to ensure security in crisis situations. This would create a sort of 'win-win' situation for any investor who might invest in large and systemically important companies. It would also allow firms to continue risky investments as government support and rescue would be guaranteed. This eventually can have negative effects on economic productivity in the longer-term.

Supply Chain Shifts We also might be looking at a complete transition in the supply chain structure of most companies as they restructure and shore-up some of the segments of the chain to help manage sudden blow backs in times of crisis. We can already witness some of the biggest multinational corporations looking to shift their supply chains and production units from China to other Asian countries like India, Thailand, Taiwan etc.

This can have consequential effects on the global economy in terms of potentially affecting millions of jobs as well as trade balances of countries around the world, as a result. Hence we might be looking at altered trade and economic relationships between countries. Altered trade partnerships are usually followed by geo-political inconsistencies. The tensions between the United States and China are at an all time high as both countries attempt to de-risk their industrial portfolios and minimise their inter-dependence on each other. The reemergence of a 'Trade War' like scenario, can have sustaining outcomes in the long-term in terms of severe economic contractions.

Trends in the Energy Sector One of the greatest effects of this crisis would be on the world's energy sector. The global energy demand is expected to drop by a record 6% this year, equal to the world losing energy value of a country like India, and with the crude oil sector hit the most with an astonishing 9% plunge in demand, according to the International Energy Agency (IEA) in its recent report. Therefore with the crude oil industry virtually disintegrated, falling energy demand and an uncertain future, we might be looking at a time of increased investments into building renewable alternatives.

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In fact the IEA estimates an increase in demand of renewables by almost 1% this year. Amidst the disruptions of some major energy complexes and massive liquidity crisis among the energy companies, governments might be left with the choice to rescue selected and limited firms that currently operate in the industry. Many believe this might be a time to help accelerate the transition process into more renewable sources. All in all, as we begin to notice the positive effects on the environment amidst this crisis because of a lack of fossil fuel related activities, we might emerge from the crisis with the climate change rhetoric stronger than ever.

The Looming Debt Crisis One definite result would be that all segments of the economy would come out of the crisis with more debt.

The Institute of International Finance estimated that the global debt has ballooned to more than 237 trillion dollars worldwide as of the end of 2019 which includes consumer, corporate and sovereign debt of countries.

That's almost 3 times the combined GDP of all the countries in the world. This crisis has done nothing but add to that. With companies facing serious financial stress and ordinary people losing their jobs and emerging economies with not enough economic capital to sustain the crisis, we could be looking at the highest debt build-up in history. On May 2020, The International Monetary Fund (IMF) had announced that around 106 countries had already approached them for bailouts and lending requests and that number might rise. This has instigated a lot of experts to think that a global debt crisis is around the corner.

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Changes to the Social Landscape There would be fundamental changes to the society as a whole when we emerge from the crisis and that can have serious implications to the future of economic development. There is growing support to the concept of de-globalisation around the world as a large segment of the population continue to believe that globalisation has contributed to the persistent income and economic inequality around the world and the existence of negative chain effects around the globe in times of crisis as countries are more interdependent on each other than ever before. We can see this rhetoric taking shape with countries like India restructuring their economic outlook and emphasising the importance of independence in economy and society in PM Narendra Modi's recent push towards an 'Atma Nirbhar Bharat' - Independent India.

We can also expect a complete evolution in the 'way we work'. Companies like Twitter have announced that, they would allow a substantial percentage of their employees to 'work from home' indefinitely. Office spaces will now have to adhere to social distancing norms and this might completely change workspace experience like we know it with focus on essential services and a systematic reduction in unnecessary social interactions.

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Conclusion The global economic system would undergo some tectonic shifts through this period and we could be looking at a changed economic outlook as we begin to recover from the pandemic. Green Energy, lower consumer demand, changed public perception and the push for better health systems and infrastructure would be the concerns of the policy makers and central bankers around the world for the next decade. However, we will be living differently than we did before the pandemic for quite some time and hence it is essential that we adapt to survive.

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The sectors and components that can uplift the Indian economy after the COVID-19 crisis.

By: Rahul Sinha (St. Xaviers University, Kolkata) To achieve great things, two things are needed; a plan and not quite enough time. – Leonard Bernstein

Figure 2: Image source - The Economic Times

Abstract: The article deals with a vivid analysis of the areas that have been highlighted under the various tranches of the 20-lakh crore economic package which was formulated and presented during the month of May. These sectors have the potential to help the Indian economy to rebound fast after the COVID-19 crisis. The study presents an in-depth analysis of the policies intended towards the multi-sectorial boost and a inspection of outcomes that are expected by the stake-holders and the policy makers of our nation.

Keywords: Economic package, Sectorial boost, MSME’s, Agricultural sector, Infrastructure and Health-care, Development.

Introduction: Undoubtedly, India needs strong leadership and efficient accomplishment of plans to fortify its economy. The pandemic and its outcomes turned a lot of tables. Some nations emerged as the new global powers with respect to technology and resources where as some nations lost it hold and global authority. The pandemic taught us the importance of developed and well-maintained infrastructure and health-care facilities. Most of the aspects

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of progress are in favor of our nation. India has a massive labor force consisting of 500 million people and a well-established consumer market. Our homeland has a pretty decent network of roadways and railways to execute effective domestic transportation. These roads and railway tracks associate various industrial corridors and special economic zones. The reverse migration due to the pandemic also provided an opportunity to engage the laborers in gainful employment. These factors are enough to recuperate after any economic distress but the recovery of our economy primary dwells upon the productiveness and the health of our population. Our honorable Prime Minister, Shri. Narendra Modi showed us the path towards “Atmanirbharta” or Deglobalization. The term was introduced by former Prime Minister, Shri. Jawahar Lal Nehru as a protectionism mantra when India was deprived and struggling to grow. As past occurrences demonstrate, India can re-emerge as a trailblazer amid the global crisis as it is unquestionably a known land for opportunities.

The various components of the stimulus provided by the “Atmanirbhar Bharat” Package are as follows:

Figure 3: Image Source- Times of India

The agricultural stimulus (Part 3) is of Rs.1,50,000 crores according to the distribution of the economic package. The MSME’s has been the key focus of the government and the economic advisors it constitutes around 30% of the nation’s GDP, other sectors like metal and mining industries, the generic pharmaceutical industry are a part of our economic lifeline. The lockdown has undoubtedly disrupted the supply chains and agricultural activities. There will be a 40,000-crore boost in spending for the “Mahatma Gandhi National Rural Employment Guarantee Act” which will help to generate work for the affected laborers.

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The sectors and components recognized under the 20-lakh crore economic package focuses on both monetary and fiscal policies.

1) Monetary policies regulated by The Reserve Bank of India a) The reduction of the Cash Reserve Ratio has ensured liquidity enhancement of Rs.1,37,000 crores. b) A Special liquidity facility of Rs.50,000 crores have been launched for mutual funds to alleviate intensified liquidity burden. c) The Bank limit for borrowing overnight has been increased under Marginal Standing Facilities allowing banks to avail Rs.1,37,000 crore of liquidity at the reduced MSF rate.

2) The key player: MSME’s – The low threshold in MSME’s definition created a fear of graduating out of the benefits provided by the government which was gradually killing the urge to grow. The definition of MSME’s have been revised and various schemes have been implemented for its growth.

The diagram portrays the existing and revised definition of MSME’s:

Figure 4: Image Source - The Economic Times

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Relaxation and sectorial-boost policies taken for MSME’s: a) Due to hard hit on the industries, the government has introduced Emergency Credit Line to businesses/ MSME’s from banks and NBFC’s up to 20% of the entire outstanding credit as on 29/02/2020 b) Rs.20,000 crores subordinate debt for stressed MSME’s have been announced under which 2 lakh MSME’s are likely to benefit. c) Rs.50,000 crores equity infusion for MSME’s through “Fund of Funds” as most of the MSME’s face severe shortage on equity. This will provide equity funding for MSME’s with growth potential and will finally help to expand the size as well as the capacity of the MSME’s.

Other supports like marketing and liquidity management will be taken care of, with the help of creation of an “E-Marketplace”.

3) The Messiah: Agricultural sector – The agricultural sector accounts 14% of our nations GDP and as an agrarian economy our country focuses on the development of this sector. Various support packages and schemes have been introduced for the interest and relief of the farmers and workers involved in this sector. Along with agricultural policies various measures have been taken to strengthen infrastructure logistics and capacity building. a) Rs.30,000 crore “Additional Emergency” working capital for farmers through NABARD, which will benefit 3 crore farmers. b) Rs.2,00,000 crore credit boost to 2.5 crore farmers, fishermen and animal husbandry farmers under Kisan Credit Card Scheme at concessional rates. c) The registration for various hatcheries expiring on 31/03/2020 were extended for 3 months. d) Financing facilities of Rs.1,00,000 crore will be provided to primary agricultural cooperative societies, agricultural entrepreneurs and start-ups for funding various agricultural projects at farm gate and aggregation points. e) Rs.10,000 crore scheme for formalization of Micro Food Enterprises (MFE’s) fulfilling the vision of “Vocal for local with global outreach”.

Certain reforms like barrier free inter-state trade, strengthening of integral part of the framework and facilitating e-trading of agricultural produce where also key issues which were addressed by our Finance Minister.

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Conclusion: To conclude we must say the government have correctly recognized the two sectors (Agriculture and MSME’s) that have immense potential to change the game and help India not only to fight back but win over COVID-19 and set an example for the rest of the world. There must be proper and unbiased allocation of funds. The primary and the only concern must be the welfare of the public, our farmers and entrepreneurs. This is an opportunity for our nation to rectify its previous policy measures, whether it be fiscal or monetary.

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